Today’s CFO is more than a numbers person. In addition to fulfilling the traditional oversight function, the finance executive is also now a key business performance manager mandated to achieve operational excellence.
He or she has to make sure that the business is getting the operations right the first time and meeting operating targets – optimized processes, reduced error rates, lower costs, higher quality products and services etc. In today’s constantly changing business environment, this might look easier said than done, but they key to operational success is ensuring that the business operating model is aligned with the new economic realities.
This is how we have always done business no longer cuts it through in our current industrialized and digitized economy. New technologies and innovation are disrupting business models. Customer behaviours and spending habits are constantly shifting. Geopolitical risk across the globe is at its peak. Growth in developed economies is stagnating while in emerging economies it is fraught with severe challenges. Competition is intensifying.
In short, the world is now extremely volatile, uncertain, complex and ambiguous (VUCA).
Such changes are exerting immense pressure on the operational performance of the business. Thus, to survive and improve performance in this dynamic environment, businesses must learn to adapt, become agile and innovative.
Finance can play an important role in improving the company’s operating performance by helping the business navigate around these challenges.
Develop and strengthen relationships with operating managers
The ability to forge positive long lasting relationships with business unit managers is now a critical skill necessary to achieve finance effectiveness. Finance can longer sit comfortably in the back office, and expect to add value to the business.
Instead, finance needs to obtain front-line and hands-on operational experience. For instance, join operational teams on site visits or other external stakeholder meetings. It is through these interactions that finance can develop and demonstrate own understanding of the business and how it works.
The function will be able to acquire knowledge on the operating unit’s markets, competition, customers, supply chain and risks. This information is necessary for developing and implementing reliable and meaningful performance measurement metrics and ensure that everyone is on the same page. It will also help determine whether or not any business-related changes being made will have a positive or negative impact on the company.
Gaining knowledge of operations and the business is not an overnight process. Thus, finance needs to work with operations more closely and more frequently. Regularly maintaining contact and discussing business performance with operating managers is key to developing trust and strengthening the relationship between finance and operations.
On the other hand, infrequent contact with business unit managers will unfortunately hinder finance’s progress of becoming the business’s trusted advisor.
Finance effectiveness goes beyond simply publishing the numbers
In addition to reporting the numbers, finance must also be able to tell the story behind the numbers. What is driving the numbers? Can the numbers be maintained? Are they trustworthy?
Decision makers are always looking for information that is objective, insightful, relevant and usable so that they can understand the financial implications of their decisions and actions. In other words, one version of the truth.
Unfortunately, for many finance organizations, they are failing to provide information and insights operating managers need. Rather, they are providing what finance thinks they need. This in itself is a recipe for disastrous decision-making processes.
To avoid falling into this trap, finance must regularly meet with business managers and discuss their information needs. This will ensure the function is providing relevant information and insights on performance drivers as well as factors that will have the most impact on the business.
How often does your organization’s finance team discuss performance issues with business unit managers? Daily, weekly, monthly, quarterly or there is no regular discussion about metrics and performance? How influential is finance in defining improvement goals? What role does finance play in measuring, managing and monitoring performance?
By leveraging data analytics technologies, finance can help optimize operations and provide business managers with reliable information on what happened, why it happened, what will happen in the future and how it will happen. Instead of relying on hindsight and insight to optimize operations, business managers will develop foresight about the future and improve their decision-making processes.
Recognize the need to do more
Finance must show a continued interest in helping the business achieve operational excellence.
It is important to note that finance business partnering is not an occasional process whereby finance shows an interest in improving operations, fades away for a while, comes back into the picture, disappears again and the cycle continues like this. Rather, the focus should be on continuous improvement.
Although some organizations have already started transforming their finance organizations, the gap between finance’s actual and desired involvement in operations is still enormous. Closing this gap requires finance to recognize the need to do more.There must be a hunger to add value to the business and become a critical player.
Finance must continuously evolve and become a learning organization. It must adapt its operating model and embrace the important role it plays in helping the business advance its operational performance. It is common to encounter significant hurdles during the transformation process but this must not act as a trigger to give up.
The focus should be on becoming better and making performance improvement an everyday mandate. Identify a few operational targets, processes and critical reporting and analysis that are in dire need of improving and focus on these. Once you have worked on these and are happy with the progress made, you then move to the next areas of improvement. Sometimes it is better to start small and celebrate small wins than not start at all.
Finance can only do more if the corporate culture and senior executives support the collaboration of finance with the rest of the business. Thus, the type of an organization the CFO works for can influence the role that finance plays.
If the organization is traditional, slow to change and lacks executive support, finance will forever play the oversight and reporting role. On the other hand, if the organization is adaptive, innovative and executives rely on information to drive decisions, then finance will play the key strategic advisory role.
I welcome your thoughts and comments