According to a study released Wednesday by Andersen Consulting and the Economist Intelligence Unit (EIU), many chief financial officers (CFOs) believe their companies lack the necessary structure and culture to account for e-commerce effectively.
The report, “E-Commerce and the CFO: A framework for finance in the new economy,” focuses on the impact of e-business initiatives on corporate finance and reveals that many companies are battling to redesign their finance functions and accounting methods.
Andersen partner Daniel T. London said the survey indicates that many CFOs “doubt the ability of traditional metrics to evaluate key elements of operating in the new economy.”
The survey covered 276 major corporations in North America, Europe, and the Asia-Pacific region. The companies surveyed include General Motors, General Electric, Chevron and Southwest Airlines.
New Play Book
According to London, “E-commerce is changing the rules of the game and broadening the role of financial officers. New business models and innovative technologies are requiring greater levels of finance leadership to ensure long-term viability and success.”
Because of rapid changes in the digital age, many companies are scrambling to implement e-business strategies. A whopping 64 percent of companies surveyed said that their e-business strategy had been in place for two years or less.
E-commerce initiatives are also requiring companies to review their business plans more frequently. Some 58 percent of respondents said that their e-business strategy is reviewed on an ongoing basis, rather than annually. The report also found that more than half of e-business initiatives will have a planning cycle of less than one year by 2005.
Evolving at E-Speed
Not only are companies having to revise their business methods more often, they are also having to change their accounting methods. Only 17 percent of survey respondents said new revenue/cost streams could be accounted for “very effectively” by established processes.
Despite these concerns, 56 percent of respondents said they still apply traditional techniques when considering capital investments.
The survey confirmed that most companies are aligning their e-business strategies with their traditional business strategies. However, many CFOs surveyed said that if e-business and legacy-business strategies are aligned, it is because traditional-economy relationships and company performance standards are being viewed through the prism of e-business.
The goal, many CFOs believe, is to use e-business initiatives to elevate the total value proposition — not to tie down new initiatives to the existing processes.
London said, “Transforming brick-and-mortar companies to e-commerce players requires CFOs to reassess their approach to capital investment and rates of return. They are being asked to evolve at e-speed and, in several instances, reorder their priorities.”
The study closed with words of advice for CFOs hoping to succeed in the digital age. Of paramount importance is learning to rely on computerized “virtual” accounting, where transactions are processed without human intervention. There are signs that large corporations are moving in that direction, as 43 of the largest companies surveyed — all with revenues in excess of $10 billion (US$) — said they hope to implement a virtual close by 2005.
Another key to success in the e-commerce era is developing a discrete business plan in which a prioritized timeline is developed for introducing e-business initiatives. Those initiatives, according to the report, should be evaluated for their contribution to broad business goals over the short and long term.
The Andersen report also suggests that a “new approach to what-if analysis” is required, one that minimizes the role of historical data gathering and creates a new method for forecasting.
The survey was conducted by the New York-based Andersen Consulting, a management and technology consulting firm, in cooperation with the London-based Economist Intelligence Unit, a division of the Economist Group.