RISKY BUSINESS
Risk and the Asian CFO.
By Cesar Bacani

If a major financial crisis were to hit Asia today, the chances are that globalizing companies in China and Japan will find themselves woefully unprepared. That’s the finding of a new study by IBM, which recently polled 1,230 CFOs worldwide, 25 percent of them from Asia-Pacific. “Chinese enterprises (along with the Japanese) lag behind in the adoption of global process ownership and implementation of a standard chart of accounts,” the authors report. “Moreover, these enterprises are less likely to adopt delivery models such as shared services and centers-of-excellence for decision support.”

Enterprises elsewhere in Asia may be in slightly better shape. “Asian companies often lack legacy systems and best practices and have an opportunity to leapfrog into integration,” explains Colin Powell, IBM’s Asia-Pacific financial management leader in Australia. “Because most operate in high growth markets, they will see higher benefits such as profitability at a quicker pace than companies in slower growth markets [such as Japan and the West].”

IBM regards Chinese firms as exceptions among companies in fast-growing markets—they are more likely to be organized as a holding company, a structure that makes it harder to transform the finance function into an IFO (integrated finance organization). IBM defines an IFO as a finance department that has a standard chart of accounts enterprise-wide, common data definitions, standard common processes, and globally mandated standards.

According to the study, companies with these attributes reported greater effectiveness in every area of finance execution compared with non-IFOs. Still, many IFOs—and even more non-IFOs—believe the finance function is not very effective in managing and mitigating enterprise risk (see chart above). Indeed, only 42 percent of the respondents perform historic comparisons to avoid risk, while just 32 percent set specific risk thresholds, and 29 percent create risk-adjusted forecasts and plans. These are scary findings in a world reeling from the fallout of the U.S. subprime crisis.