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Five Trends in Corporate Finance and What it Means to an Online MBA Student

Corporate executives are upbeat about the current economic conditions – both domestic and worldwide – as we move into the second quarter of 2017. They seem more willing to invest to ensure the financial stability of their companies, even with the uncertainty of the fast-moving market and rapid changes in technology.

Chief Financial Officers (CFOs) said expected shifts ahead – including corporate tax reforms and federal regulatory changes – will be even better for big business. They remain bullish about trends that influence economic prospects. For online MBA students, staying ahead of these trends and changes is vital to establish corporate leadership and management skills.

Here are some trends expected to impact corporate finance in the coming year:

Trends in Corporate Finance.

1. Rolling Forecasts

A growing number of companies find that abandoning static budgets for fluid financial plans allows for market fluctuations. Consulting and software firm Kaufman Hall found financial agility to be a top priority in 2017 for CFOs, the company said in a survey. Some 38 percent of survey respondents said their companies have achieved financial agility, up from 33 percent from the previous year and 25 percent in 2014. At the same time, fewer than 23 percent of the survey respondents whose companies do not use rolling forecasts are not confident they can achieve the goal.

The research firm Aberdeen Group, in 2013, found 71 percent of top-performing companies mitigate financial risks by continually updating forecasts. Since then, the financial-planning tool has been growing in popularity because it allows for course changes, focuses on real-world events over expectations and allows corporations to seize available market opportunities.

“Market volatility and a constantly changing economic environment means financial planners can no longer rely on historic run rates as the best predictor of future performance,” Kaufman Hall said. “Instead, financial professionals are turning to driver-based forecasting coupled with frequent updates resulting in rolling forecasts.

2. Zero-Based Budgeting (ZBB)

Some of the biggest corporations, including KraftHeinz and Boston Scientific, have moved to a ZBB financial system that requires all expenses be justified for every budget period with demonstrable evidence of the need. The idea was introduced in the 1970s and has been resurging in popularity as a step to corporate leanness.

Global management consulting firm McKinsey and Company found there are five factors for a successful ZBB approach:
• Determine what is driving costs by classifying them into two divisions – type of expense and the owner. “Without this visibility, it’s too easy to explain away the way things are and why they cannot change,” McKinsey and Company said.
• Divide ownership between at least two people – Spreading responsibility across business units removes autonomy to open dialogue about cost management.
• Plan for continued oversight – Starting the ZBB is just one piece of the plan. Set up supports that begin in the C-suites and move companywide to ensure continued monitoring of the budget. This can include monthly budget inspections.
• Define quantifiable ways to measure success – Set metrics that will compare performance to compensation and growth. These should be put into place based on what is under individual employee control to avoid managers getting blamed for something out of their control.
• Change the corporate financial attitude – Managers must be encouraged to look at the whole picture of spending and understand “no spending is too small to be reviewed. One hundred small changes that save $100,000 apiece still add up to $10 million,” McKinsey and Company said.

3. Artificial Intelligence (AI)

A growing number of leading CFOs are using AI as a way to handle tedious tasks that include audits, corporate compliance, and other data-driven reporting. The Chicago-based technology firm Narrative Science, polled 235 businesses and found 38 percent are using AI to automate manual, repetitive tasks. At the same time, 88 percent of those surveyed said their organizations “use solutions that rely on AI techniques including predictive analytics, automated written reporting and communications, and voice recognition and response.” Of those business owners who said AI is not used, 62 percent said their companies plan to use AI by 2018.

“While there is currently confusion about AI and how to best use it, its widespread adoption is inevitable,” Narrative Science said. “The most successful companies are combining a culture of open ideation with human talent and intelligent systems. While fostering an environment where ideas can be explored freely among teams is good, fostering an environment where people and intelligent systems can explore ideas together is ideal.”

4. Expanding CFO roles

There was once a time when a CFO’s role consisted of crafting an annual budget, keeping track of cash flow variances and reporting annual income statements. Today, CFOs are expected to know every aspect of a business, including its competitors, strengths and weaknesses and impact of new technologies. CFOs are expected to take the reigns to guide the company through changing terrain and keep all the stakeholders happy.

Professional services firm Deloitte said CFOs are expected to play four distinct roles in their jobs:
• Steward – Protect the financial assets of a company and ensure regulation compliance.
• Operator – Provide a variety of services including financial planning, tax operations, and financial analysis.
• Strategist – Influence the future of the company, including aligning financial growth with business development.
• Catalyst – Encourage business improvement based on proper planning and execution.

5. Cyber Security

The threat of hacking continues to be a threat in 2017 as technological advances make it easier to dismantle corporate financial structures. A growing number of corporations see cyber security as a job for the CFO. Steffan Tomlinson, CFO of Palo Alto Networks, told Forbes.com that CFOs don’t need to be technology experts but should have “working knowledge of cyber and data security.”

He said there are several techniques to ensure a CFO is appropriately skilled in the position:
• Foster a working relationship between the CFO, Chief Information Security Officer (CISO), and the Chief Information Officer (CIO).
• Tap into cyber security practices and tips from the Big 4 accounting firms – Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG.
• Utilize online and print resources that can provide important information.

“I believe 2017 will be marked as a year where security IQ will grow exponentially,” Tomlinson told Forbes in the article, “Why Cybersecurity Should Be The CFO’s Job,”

Forward Thinking For Success

In a global business environment, it is more important than ever for all financial experts, including students pursuing an MBA degree online and graduates, to observe shifts in the complex marketplace. The projections for 2017 trends may change as the year goes on, with possible fluctuations in regulatory demands and an escalation in technology. MBA students who observe and analyze these changes can be better prepared to meet the challenges in the corporate world.

About UAB’s Online MBA Degree Program

The University of Alabama at Birmingham offers an online MBA program that combines traditional university education with the convenience and flexibility of an online education. The program is designed for emerging leaders with a focus on skill building in areas that include web analytics, real estate decision analysis, operations and supply chain management, and organizational management. The program offers four concentrations that reflect growing sectors of the economy – Finance, Health Services, Management Information Systems, and Marketing – as well as a General Track. For more information, visit UAB’s online MBA webiste.

Sources:
Financial Trends of 2017 — https://channels.theinnovationenterprise.com/articles/top-trends-in-finance-2017
Financial planning — http://www.bmfms.com/PDF-FILES/Financial_Budgeting_Forecasting.pdf
Zero-Based Budgeting – http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-return-of-zero-base-budgeting
Artificial Intelligence — Outlook_On_AI_Enterprise2017.pdf
Expanding CFP role — https://www2.deloitte.com/us/en/pages/finance/articles/gx-cfo-role-responsibilities-organization-steward-operator-catalyst-strategist.html
Cybersecurity — https://www.forbes.com/sites/jeffthomson/2017/01/31/why-cybersecurity-should-be-the-cfos-job/#50a025a27c1f
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