The modern CFO is touted as the right hand man of the CEO, providing strategic and operational decision support. No longer is the CFO only responsible for preparing and interpreting financial statements based on historical accounting data, but also for taking a holistic view of business performance and helping the organization move forward.
Thanks to new technologies and improved business operating models, CFOs across industries have been able to transform finance into a value creation function. Further, finance leaders are overwhelmed with finance best practices advice from professional services firms, research analysts and consultants.
Finance leaders are advised to standardize ERP systems, adopt financial planning and analysis technologies and ditch spreadsheets, streamline budgeting processes and implement driver-based rolling forecasts, automate and accelerate financial close and reporting etc.
The list is endless, but does a complete reliance on best practices advice improve finance’s performance and value creation?
Best practices and benchmarks are meant to help business leaders assess the progress of their companies against “leading performers” as opposed to being aspirational ideals to be attained.
The challenge with viewing best practices as standards of excellence is that, their attainment might mistakenly be interpreted by business leaders that no further effort, experimentation or thought is required.
By their nature and application, best practices are transitory. Given today’s business world which is constantly changing – practices, processes, systems and operating models that have enabled us to drive business performance are no guarantee of future success.
CFOs therefore have to realign their functions if they are to keep pace with the demands of an increasingly dynamic marketplace. Always keep in mind that best practices are only beneficial as long as the circumstances in which they are established remain stable.
Unfortunately, volatility and uncertainty are the norm today.
As a finance leader, you should be weary of copying best practices from other businesses with little adaptation otherwise you risk stagnating creativity and commoditizing innovation across the organization.
Rather than continue to depend on the widely accepted best practices, CFOs need to adopt a new mindset, break old habits and promote a continuous improvement culture.
Many at items promising ideas never experience the light of the day because the culture management has created rewards success and punishes failure. Leave some slack for experimentation and encourge constructive failure.
Simply following a complete set of rules or principles will not, on its own, drive finance function effectiveness. Before jumping at the so called best practices, at least ask yourselves:
- How are we doing what we are doing now?
- Why are we doing what we are doing this way?
- What would it look like if we didn’t do things this way?
- Who expressed this is the best practice?
- Why is it considered best practice?
- Does the best practice work for our business?
- Is the best practice still valid or outdated?
- Under what circumstances was the best practice established?
Answering the above questions will help you validate the best practice and its potential to boost organizational performance.
Adopt ideas, processes, technologies, and skills that drive change and create value. There is no hard-and-fast playbook. In a culture of innovation, new ideas spring forth from all directions, especially from the unexpected sources.
Just because the organization’s existing structures, systems, skills and processes are driving performance today does not mean they will continue to do so in the future. The past is prologue but not necessarily precedent.
Finance leaders who continue to find comfort in implementing widely accepted best practices to secure competitive advantage or embrace “this is how we have always done it” approach in today’s increasingly uncertain world are not only squandering resources but also destroying value.