Businesses today are operating in an increasingly complex, volatile, uncertain and competitive environment. To cope with these challenges, organizations are increasingly calling on their finance teams to move beyond their traditional role of historical performance reporting and start providing more forward-looking decision support.
In the past, businesses have focused more on lean accounting practices to achieve profitability growth. However, there is a tipping point for these measures. Organizations are realizing that they can cut costs only up to a certain level and for a certain period. In the long-term, cost cutting alone is not sustainable. Because of this, there is increased pressure on the organization to find other ways of stimulating growth, for example, expand into new and unfamiliar markets.
Unfortunately, organizations cannot nosedive into a new market without first understanding its strategic and operational dynamics. A deeper understanding of the markets and the competitive landscape is necessary. Finance can play that important role of providing enriched, reliable and objective information to senior management to enable them make successful strategic investment decisions.
To successfully play this strategic business partnering role, finance personnel must start working towards raising their profile within the organization. The perception that finance is a back office function is still large, and for this to change, finance must increasingly support business managers and contribute to company performance.
Finance is a lot more than measuring income and costs
Finance teams are under pressure to improve business performance and help the company grow in the midst of the current economic conditions and challenges. To be able achieve this, finance personnel need to recognize that their responsibility goes beyond the realms of number crunching. There is a difference, for example, between reporting the revenues made by the business and understanding the key performance drivers of those revenues.
Revenue is more than a number. For instance, do you have an understanding of the level of risk that is being taken by the business against this revenue? Also, how much capital is being allocated for this revenue? It is therefore critical that finance develops a detailed understanding of the revenue drivers, and move beyond evaluating past financial performance and help the business grow by providing high quality analysis and actionable recommendations that are fact-based and real-time.
The starting point for finance executives is to perform a thorough and objective analysis of their finance talent mix. Whereas in the past it was ideal for the finance function to only be filled by accountants and auditors who are naturally transaction-oriented, the modern finance function requires a different skills composition. There is need of personnel with more capabilities in strategy setting and execution, operational experience, advanced analytics and a broad business perspective.
How can finance expect to provide good advice and decision support to the business if it lacks enough knowledge about its business, industry and the competitive landscape?
Finance must take a supportive approach to the business
It is no secret that in many organizations the image of the finance function is tainted. There is a large perception that finance stifles business growth by constantly looking for problems and saying “no” to strategic investment decisions. By taking a supportive approach to the business, finance can create a positive image for itself.
Instead of being viewed as the policemen of the organization, finance personnel must strive to improve their identity and become the trusted strategic advisors of the business. Business leaders are constantly looking for information capable of helping them get a better understanding of the profitability of each customer, segment, market or geography they operate in and how they can improve that performance. Finance can act as a source of this information. It is therefore important for these leaders to find the analysis, information and recommendations produced by finance useful.
To avoid being labelled “bearers of bad news”, finance must learn to bring objectivity to the discussion table. In other words, finance must bring a different perspective and help business managers view the future differently. For example, leveraging on the function’s analytical rigour, finance can help forecast trends and conduct business reviews aimed at anticipating market movements, future disruption and opportunities. This in turn helps the organization allocate resources more effectively and effectively, and drive value creation.
Create Centres of Excellence
Many finance functions across the globe are not adding strategic value to the business as much as they would love to. This is mainly because of their current focus. Findings from numerous studies have revealed that finance executives are spending the majority of their time on non-value add transaction recording and reporting processes.
However, some finance organizations have managed to get it right. In order to free up time on value-add activities, they have created and implemented shared-service centres that bring together certain functions (e.g. procurement, customer services, audit, payroll, tax, treasury etc.) under one roof and also created Centres of Excellence aimed at improving future performance, for example, Financial Planning and Analysis (FP&A).
This integration of different functions enables finance not only to reduce costs but also to collaborate more with the business and supply high quality and more timely information. By spending more time with the business, finance can move beyond simply observing the impact of decisions made by business managers and be directly involved in the creation of that value.
Routine transactions and processes are being automated via Robotic Process Automation (RPA) technologies. At the same time, our current data-driven economy is leading companies to invest in advanced analytics. This is also freeing up time for finance to focus more on data analysis and insight generation. However, business leaders must understand that investing in technology alone is not enough. The organization still needs trained and experienced analytically finance personnel to bring the best out of the system.
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