As the demand on CFOs to provide real-time analytical insights, support senior management decision-making and become valuable strategic business partners continue to increase, a strategic transformation of the finance function is necessary.

Depending on whom you converse with, some finance professionals prefer to use the term finance transformation whereas others do not. It’s not the term you use that matters most but rather creating a more effective finance function that delivers sustainable value. It is about creating a finance vision that is aligned with the business and supports the organization’s strategic direction.

A number of challenges are confronting CFOs and keeping them awake at night. Challenges such as; market fluctuations, increased innovation and disruption, new technologies radically changing business operating models, increased shareholder scrutiny and public demands for transparency, complex regulatory operating environment, increased risk landscape etc.

In the wake of these challenges, the finance function has to evolve from being a transaction processing function to a value-adding function. There is need for finance to have improved ability to respond to opportunities and risks as a result of better financial insight and forecasting.

At the same time, finance must be able to implement new improved processes that enhance value and leverage new technologies and business models capable of delivering more efficient and effective services.

Although the doctrine of finance transformation started years ago, the light at the end of the tunnel is still a distance away. Quite a number of organizations have started the journey of reinventing their finance functions and are failing to reap the benefits of their efforts.

Some of the common reasons why many finance transformations fail include:

  • Focusing too much on finance costs as a percentage of revenue. In many organizations, there is this widespread tendency of viewing the finance function more of a cost centre and less of a profit. Instead, finance should view itself less a cost centre and more of a profit centre because of the reports and expert advice the function provides. Playing a strategic role requires finance professionals to look beyond costs and focus more on providing analytical insights that drive strategic decision making. Gone are the days where finance professionals were expected to spend their entire day in their cubicles glued to their computer screens. Today’s partnering role demands finance to go out there, build solid relationships with business unit leaders and help them advance their business plans and goals by providing them the data and analysis needed to execute their individual responsibilities in achieving corporate strategy.
  • Viewing finance transformation as a once-off activity. Reinventing the finance function is not a once-off initiative with a stop date. This is a journey and a way of doing finance which must be ingrained in the organization’s culture. As mentioned earlier on, a number of factors and challenges are disrupting the business today and with disruption comes opportunity and risk, both inside and outside the organization. It is therefore critical that CFOs are adaptive to this disruption. They should be able to determine what the potential disruption and risk to the organization and to the finance function is should things do not go as planned. Does your organization’s finance function have the ability to detect changes in the business direction and help bring the organization’s vision into reality?
  • Lack of collaboration between the organization’s different functions. Collaboration is critical if finance is to keep up with the changing needs and strategies of the business, instigate change and create sustainable value. The challenge is on CFOs to initiate cross-functional dialogue, lead cross-functional teams and build consensus throughout the organization. The CFO should be able to communicate to the business unit leaders the cause-and-effect of their actions on each business units’ strategy as well as the overall corporate strategy.
  • Lack of C-suite buy-in and support. Creating a cost-efficient and more effective finance function should fit into the company’s larger strategy. The CFO should be able to translate the finance vision to other members of the C-suite and explain how finance can help boost growth and increase shareholder value. This necessary to secure C-suite buy-in and support which is critical for driving the transformation initiative throughout the organization. Senior management buy-in is also critical for reducing change resistance at the middle and lower level ranks.
  • Creation of shadow costs. In order to become cost-efficient and effective, the finance organization has to deliver new processes, improve old ones and standardize disparate finance practices. This has led to some organizations adopting Shared Service Centre (SSC) business operating model and centralizing certain processes with the idea of reducing waste, eliminate duplication and ultimately reduce costs. For example, in these organizations, there is a centralized procurement centre for all global business units. The challenge arises when certain business unit leaders still want to own their procurement processes and do not want to transition to the centralized unit. There is always this fear that the centralized procurement centre will compromise existing long-term supplier relationships. If anything goes wrong in the early days, there is a tendency by business unit leaders to appoint someone to focus on procurement at a local level. Instead of reducing procurement costs, more costs are being added which in turn is counterproductive to the centralized procurement objectives.

In the past, most finance transformation processes have focused more on delivering efficient services (reduce costs, automate processes and remove non-core functions)  as opposed to becoming more effective (delivering more insightful analytics, providing better business intelligence and enhancing financial flexibility).

However, if the finance function is to properly transform, both efficiency and effectiveness objectives must be balanced. Finance professionals must be able to define the objectives of their transformation efforts to include both value creation and efficiency outcomes. Start by asking the following questions:

  1. What opportunities are there for us to reinvest savings from efficiency initiatives and create an effective finance function?
  2. How can we shift the mindset of our people and enable them to spend more time on analytics and value creation vs. transaction processing and data gathering?
  3. Do we have the right resources and the right operating model for effective service delivery and processing?
  4. Is there any duplicated work within our global finance function and if there is how best can we address this?
  5. What are the expectations of our internal clients from the finance functions?

Successfully answering these questions will help you come up with objectives and targets based on what value the finance function can provide throughout the organization as opposed to having narrowly defined objectives and targets based on unit costs as a percentage of revenue.

It is therefore critical for finance professionals to increase their business acumen in order to transition from being scorekeepers to valuable business partners who are not reactive but rather providers of forward-looking and insightful analysis that assists the organization in planning, strategy and decision-making. It is also important that finance provides one version of the truth when it gives its detailed analysis and reports.

Although the finance function has to transition to a strategic business partner, this does not necessarily mean that the function abandons its stewardship role. Having the ability to create and enforce the rules and controls of the organization is still an important role for the CFO.

In order to successfully balance their stewardship and strategic partnership roles, CFOs must be able to measure and evaluate the efforts spent on controls, performance management and operations.Transformation of the finance function involves risks. It is therefore important to balance the long-term benefits of the transformation initiative against the short-term risks inherent in the change process. Thus, proper controls must be put in place to mitigate risks.

Finance transformations must be business-led and not technology-led. Remember the finance vision must be aligned with the overall strategic direction of the organization.

Many organizations make the mistake of driving their change initiatives from a technology point of view. Although technology is a key enabler of transformation, it is not a panacea. Before buying and implementing any software, CFOs must first build a business case for their initiatives and then look for the most suitable technology that supports and helps deliver the business outcomes.

Looking at the end-to-end process vs. immediate compatibility of the technology will better serve the organization in the long-term.

It is also important to note that people play an important role in transformation initiatives. Technology can only be as good as people who operate it and interpret the outputs.

CFOs will therefore need to conduct a detailed analysis and evaluation of their current resources and capabilities and realign these to deliver the services and competencies that are required as a resulting of the transformation.

In today’s VUCA world, finance transformation is critical if finance is to keep up with the changing needs of the business and play that critical business partnering role.

It is time that finance professionals move outside their comfort zones, get their hands dirty together with operations and become the expert advisors to senior management. They must start implementing structural changes that both reduce overall complexity and provide greater flexibility, insight and value throughout the organization.

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