Surveys Find Key Changes in the Role of the Pharmaceutical CFO
Views from senior finance executives globally with an in-depth look at perspectives in India
ISELIN, N.J., March 26 -- Two separate Ernst & Young surveys underscore important changes in the role of the chief financial officer (CFO) and finance function in driving the success of pharmaceutical companies. With many multinational pharmaceutical companies welcoming a new CFO to their organization over the past two years, the survey results emphasize the key role the CFO will play as companies move away from a focus on driving top-line revenue growth to one on managing for return.
To achieve this change, 74% of respondents in an Ernst & Young global survey of senior pharmaceutical industry executives agreed that CFOs will need to shift their time from low value functions such as defensive monitoring and reporting to a focus on partnering to help shape growth strategies that enhance business performance.
"CFOs and the finance function are driving the business transformation that is now at the forefront of the industry," said Carolyn Buck Luce, Global Pharmaceutical Sector Leader, Ernst & Young. "In an era when pipelines are erratic, patents are expiring, and pricing is under pressure, the role of the CFO and finance function will become pivotal in driving improved returns, enhancing reputation and creating value."
Pharmaceutical CFOs managing for return
Ernst & Young's global survey showed that a large majority (92%) of respondents rated global cost reduction as a key issue for their business, with 25% saying cost reduction has been a focus for more than two years and 35% saying it has been a focus "for as long as I can recall." Over half (56%) felt it was the CFOs role to lead cost reduction initiatives and that competitive pressures (58%), profitability (58%), and the need for better returns for investors (33%) were the key drivers for cost reduction.
Along with managing for return, the CFO and the finance function are also critical to a company's ability to achieve the right balance of risk and opportunity, and optimize risk as a key driver of value. In fact, the survey reported that the top three drivers that are transforming the role of CFO are increased regulatory and compliance requirements (46%), increased corporate governance obligations (36%) and increasing risk management responsibilities (32%).
"The risk profile is critical because the external environment is growing more risk averse while the changing nature of the business requires the industry to, in fact, take on a lot more strategic and operating risk to drive value," added Buck Luce.
Other key findings include:
-- Understanding wider issues: 32% of respondents feel that the CFO of
Â Â Â Â Â Â their organization does not have enough understanding of the wider
Â Â Â Â Â Â issues their business faces.
-- Cost reduction: More pharmaceutical respondents are considering
Â Â Â Â Â Â outsourcing and shared service models for certain internal functions
Â Â Â Â Â Â than those in other industries; 64% of respondents are currently
Â Â Â Â Â Â considering outsourcing certain internal functions as part of a
Â Â Â Â Â Â cost-reduction measure versus 46% of respondents from a cross-industry
Â Â Â Â Â Â population.
Â Â Â Â Â Â Â - Respondents were least comfortable in outsourcing clinical trials
Â Â Â Â Â Â Â Â Â (36%), followed by sales and marketing (33%).
India's perspective on pharmaceutical finance
Similar to the changes on a global level, a survey of pharmaceutical CFOs in India, conducted by Ernst & Young, found that they foresee a change in their roles.
Within the survey, however, there were distinct differences in the responses from CFOs of India-based subsidiaries of major multinational pharmaceutical companies (MNC) compared to those from CFOs of India-headquartered pharmaceutical companies (IPC). Most notably, human resource challenges are more acute for MNC CFOs, with 67% ranking employee attrition as a key concern versus only 25% of IPC respondents. Moreover, three-quarters of MNC respondents say they are unable to attract the best talent compared to one-third of IPC respondents.
"The differences in the concerns of CFOs in Indian-headquartered companies versus India-based subsidiaries of multinationals are significant. As the market matures, we expect these differences will start to disappear," said Murali Nair, Ernst & Young Healthsciences Practice, India.
Consistent with the global survey, respondents in both groups cited bottom-line pressure as a key concern (76% overall), however the focus of their cost-cutting efforts varied. CFOs of India-headquartered pharmaceutical companies are more concerned about cutting costs in the supply chain (67%) compared to 44% of MNC CFOs.
Other findings include:
-- Risk management: 58% of IPC respondents report being unsatisfied with
Â Â Â Â Â Â current risk mitigation measures compared to only 11% of MNCs.
-- Drivers of change: CFOs from Indian pharmaceutical companies agree on
Â Â Â Â Â Â the following top four drivers of change: improving shareholder value,
Â Â Â Â Â Â responsiveness to business needs, globalization, and cost pressures.
Â Â Â Â Â Â This is in contrast with the global survey results for MNCs where
Â Â Â Â Â Â compliance & risk are major change drivers.
-- Paucity of information that matters: Although 81% of respondents have
Â Â Â Â Â Â implemented Enterprise Resource Planning systems, 50% of MNCs and 67%
Â Â Â Â Â Â of IPCs either do not or only partially extract performance measures
Â Â Â Â Â Â from their ERP systems.
-- Key challenges: 42% of Indian pharmaceutical company CFOs feel that the
Â Â Â Â Â Â "ability to maintain and drive growth" is a key challenge over the next
Â Â Â Â Â Â three years.
Â Â Â Â Â Â Â - To address this challenge, 70% MNC CFOs and one-third of IPC CFOs
Â Â Â Â Â Â Â Â Â would like to increase time spent on partnering.
About the surveys and Progressions
Ernst & Young conducted two surveys to focus on the challenges and expectations facing pharmaceutical CFOs and their organizations. For the global survey, the Economist Intelligence Unit, on behalf of Ernst & Young, conducted a survey of 95 C-suite (i.e., Chief Executive Officer, Chief Financial Officer, Chief Information Officer) and board level executives, including a significant number of CFOs. Respondents represented Western Europe (46%), Asia Pacific (22%), North America (19%), and other areas (15%). All respondents represented companies with at least US$1 billion in revenue; 49% represented companies with over US$10 billion in revenue. The interviews were carried out during September and October 2007.
The India survey, conducted by Ernst & Young, focused only on polling CFOs representing two groups: CFOs of India-headquartered pharmaceutical companies, and CFOs of India-based subsidiaries of multinational pharmaceutical companies. The CFO interviews were carried out in November and December 2007 and were evenly split between the two groups.
Findings are published in Progressions, the Ernst & Young bi-annual global pharmaceutical report presenting a collection of articles and viewpoints from pharmaceutical industry and Ernst & Young executives on key industry trends. To read more on the evolving role of the CFO and the transformation of the finance function in the latest issue of Progressions "Transforming Finance for Peak Performance: Part I," please contact [email protected] to order a copy or visit www.ey.com/pharma for excerpts of articles.
Ernst & Young Global Pharmaceutical Center
The Global Pharmaceutical Center is the focal point of Ernst & Young's pharmaceutical practice. It serves as the central hub of a network of senior professionals providing quality assurance, tax, transaction, risk management and business advisory services to pharmaceutical companies and others in the pharmaceutical value chain worldwide. The Ernst & Young Global Pharmaceutical Center fosters a collaborative environment where our seasoned professionals work together to provide clients with tailored services, thought leadership, forums and education to address the complex issues facing the pharmaceutical industry.
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