PwC Ireland’s 2018 Chief Finance Officers’ Survey has revealed that finance leaders are less confident about the prospects for Ireland’s economy compared to two years ago. But in spite of many challenges on the horizon, including brexit, digitisation and automation, they are ready to help their businesses remain fit for the future. CFOs expect the finance function to have a greater influence on their organisation’s strategic decisions in the next five years.
The survey was carried out in Autumn 2018, with nearly 50 key Irish finance leaders from all key industry sectors participating.
Speaking at the launch of the report, PwC Ireland, Partner for Performance Improvement Amy Ball said: “Our survey Ireland’s finance leaders are more cautious about the future performance of Ireland’s economy, as well as about some of their key business metrics such as profits and costs. It is likely that Brexit is also adding to the uncertainty for many.
“With more restructuring on the cards, finance leaders are challenged to sustain growth with many actively looking at ways to build business models that are fit for the future. Going forward, technology and automation will be key to the survival of the fittest. And getting this investment right first time will be critical.
“Leading finance officers are planning to transform the finance function from its traditional role of cost control and reporting to evolving into a function where it can influence strategic decisions across the business. Leading this charge in the future will be critical.
“Finance functions of the future will need to seize digital opportunities and have the right people with the right skills in order to be a strategic business partner for their business.”
Over half (57%) of Ireland’s finance leaders are favourable about the overall prospects for the Irish economy in the year ahead, down from 81% in 2016 and compares to a low of 11% in 2012.
While the majority anticipate revenue increases in the year ahead, it is not translating into bottom line growth as cost pressures escalate. Nearly three-quarters (71%) anticipate growth in revenues in the year ahead, slightly down from 2016 (76%) but much improved on 2012 (59%). Nearly half (44%) anticipate growth in profits in the year ahead and is substantially down from prior years (2016: 67%; 2012: 55%); 43% anticipate growth in headcount in the year ahead (2016: 48%; 2012: 35%).
Remaining competitive is clearly a challenge for Ireland’s finance leaders with 72% anticipating cost increases in the year ahead (2016: 65%; 2012: 36%). 44% are of the view that US tax reform will result in reduced opportunity for investment in Ireland.
68% reported to either not being prepared or not having made extensive plans for the consequences of Brexit. Over a third (38%) said that their organisation’s level of trade with the UK would decline as a result of Brexit. Top Brexit concerns according to the finance leaders are uncertainty for business/investment decisions (24%); additional compliance (21%); tariffs/import VAT (16%) and additional costs/competitiveness (13%).
However, there is a silver lining and Brexit opportunities were noted to include stronger relationships with like minded member states (19%); diversification – new markets/products (19%); increased FDI and jobs into Ireland and a greater focus on improved cost competitiveness (13%). The end of March 2019 is fast approaching and there is a risk that the worst case scenario will happen leaving the UK trading under WTO rules. While the political uncertainty is likely to continue, business leaders need to focus on running their businesses in an ongoing disruptive environment. Having contingency plans while remaining flexible and agile are key at this time. Doing nothing is not an option.
Generating growth, doing a merger or acquisition (38%) and having business models that are fit for the future (33%) are the top two pressure points for Ireland’s finance leaders, followed by over-regulation, the ability to get a return on investment from IT and rising costs. Less than a quarter are concerned about geopolitical uncertainties including Brexit, the lack of skilled employees and cyber threats.
"Going forward, technology and automation will be key to the survival of the fittest. And getting this investment right first time will be critical."
With more restructuring on the horizon, the survey suggests greater appetite to streamline operations, possibly to build platforms for growth. Just 16% said they were not planning any restructuring or cost reduction activities compared to 35% in 2016. Strategic re-design and standardisation of operating models are the top restructuring and cost reduction initiatives. Investing in machine learning/automation and headcount reduction also featured.
The survey suggests room for improvement when it comes to the finance function adding value to the business. Currently, over one third (37%) rated their finance function as ‘moderate’ or ‘poor’ when it comes to adding value to the business. Less than one fifth (17%) rated it as ‘excellent’. But more time is expected to be spent on providing strategic insight to the business over the next five years.
“For example, survey respondents revealed that right now just one fifth (20%) of their finance function’s time is spent on providing ‘insight and action’ but is expected to rise to 71% in five years’ time. Currently, 80% of the time is spent on ‘reporting and compliance’ and ‘transaction processing’ and is anticipated to fall to 29% in five years’ time,” said Ball.
Accurate budgeting and cost control are the top challenges in the finance function. Other key challenges include: increasing regulatory reporting, poor management information/IT systems and the use of emerging technologies such as robotics, artificial intelligence etc.
Six out of ten (60%) Irish finance leaders believe that technology will either completely or significantly reshape competition in their industry over the next 3 years. Radical automation and use of artificial intelligence (21%) will be the top drivers for drastic change of traditional and accounting models beyond 2020.
But the survey highlights poor exposure to key technological innovations. Less than one in three (28%) survey respondents have significant exposure to cloud based technologies and data analytics. Less than one fifth have significant interaction with artificial intelligence and robotics. Other emerging technologies such as blockchain, augmented reality/virtual reality and chatbots scored very poor activity levels.
Given the current low exposure to emerging technologies, it is good news that nearly half (43%) of survey respondents said that they plan to invest more than €1m in emerging technologies in the next three years. 6% said this would be more than €5m. With nearly a third (31%) of survey respondents reporting their ability to get a return from IT a challenge, the importance of getting IT investment right first time is critical.
The focus on a reduced but upskilled workforce is on. 68% of finance leaders are of the view that digitisation and automation will reduce the people numbers in their finance function in the next three years, of which 37% said their people numbers would fall by in excess of 10%.
Amy Ball said: “Leading finance functions will take on increasing responsibility and oversight for business performance and enhanced influence over decision making. The increasing adoption of digital technologies will be critical as the volume and breadth of data increases. The survey shows that there is particularly low levels of knowledge of augmented reality/virtual reality, blockchain and chatbots. This contrasts with trends where chatbots are very quickly outstripping mobile app development.”
Over half (57%) said that automation/artificial intelligence will have a significant or very significant impact on their business in the next three years. But only 16% admit to being ready to seize the opportunities and is not surprising given few have reasonable exposure to these emerging technologies.
Even so, 75% and 53% respectively noted that their organisations were planning to use artificial intelligence in the next three years to create operational efficiencies and enhance customer experience. This shows the broad applicability of artificial intelligence from front office to back office and finance leaders should invest go gain competitive advantage.
Respondents reported that understanding digital and smart technologies (22%) and leadership skills (22%) are the most important personal skills they need in the current environment to manage the challenges. Other important skills include improving strategic risk management skills and improving communication skills.
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