Thursday, 10 December 2020 12:03

Global Economics Intelligence Executive Summary

INTELLIGENCE

After experiencing a withering first half of 2020, the world economy partly revived in the third quarter, as COVID-19 restrictions were eased. Manufacturing and trade regenerated first; the consumer sector followed.

Prepandemic levels of industrial activity were approached if not breached—US industrial production recovered to within six percentage points of December 2019 levels, while in the eurozone, GDP expanded 12.6% in Q3, within 4.4% of the December 2019 mark.

The pace of industrial growth generally quickened in October and November. The purchasing managers’ indexes (PMIs) for manufacturing, at both the global level and for individual surveyed economies, rose higher into expansion territory. The manufacturing outlook was especially strong in Brazil and India; only in Russia did the indicator point to contraction.

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The trade-off between cost reduction and increased effectiveness of the finance function is a false choice. Leading finance departments are guardians of enterprise value creation, demonstrating stewardship of their own spend by lowering absolute costs and shifting work towards more value-added activities.

We have analyzed the finance functions of hundreds of companies to understand how cost and effectiveness have evolved over the past ten years. After controlling for differences in sector, scale, and geographic footprint, several findings emerged:

  • Finance organizations have, on average, decreased their cost by 29 percent.
  • The most efficient cohort of finance departments (“finance leaders”) achieved similar cost improvement to the level shown by average performers—an impressive feat given that the finance leaders started from a lower cost base.
  • Finance leaders spent 19 percent more time on value-added (versus transaction-processing) activities than a typical finance department did.

What can companies do differently to join the finance leaders? The research points toward four imperatives. The first is to cast a wider net for new efficiency opportunities, reaching beyond the transactional activities that have long been the primary focus of attention. Second, boost finance’s role in managing data, whether consolidating, simplifying, or controlling the flood of information flowing across the organization. Third, strengthen decision-making through widespread adoption of data-visualization, advanced-analytics, and debiasing techniques. Finally, reimagine the finance operating model so that it fosters new skills and capabilities.

These steps are already enabling companies to join the finance-function elite—while cutting audit costs by double-digit percentages, improving data quality (and reducing wasteful data-cleaning efforts), upskilling finance teams, and enabling the function to guide better decisions throughout the enterprise.

 

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