There is an ongoing discussion about the evolving role of finance and the function’s contribution towards enterprise performance improvement. Thanks to new operating models and emerging technologies, finance has been presented with an opportunity to step up and shine.
That is, focus more effort on providing effective decision support that drives organizational success and less on rote tasks that can easily be automated, outsourced or performed separately in a shared services center.
Providing effective decision support requires a deep understanding of the business in its completeness, the cause-and-effect relationships between business units, big growth drivers and performance drivers. It’s more than producing a complete set of financials on a monthly basis.
By virtue of their training, many finance professionals possess strong technical accounting backgrounds and limited business experience. For instance, preparing external reporting financials that are IFRS-aligned comes natural to them. At any point in time, they are able to interpret a particular standard, paragraph by paragraph, without even making reference to the standard handbook itself.
There is nothing wrong with becoming an accounting standard expert. The problem arises when the entire finance team is made up of financial reporting experts who spend the majority of their time churning out reports just to meet regulatory and compliance requirements and less on driving business performance.
Month-end, quarter-end and year-end reporting are still an important part of running a successful finance organization. It’s important that the financial statements are free from material misstatements and faithfully represent the financial performance and position of the business.
However, the process should not end there. Finance should also be able to interpret the reported numbers, create meaning and simplicity from them as well as communicate a point of view about how the numbers will inform strategic decisions.
It’s therefore imperative for finance leaders to continuously assess the tasks their teams are focused on. Begin with why. For instance, why does your team produce the reports it produces on a weekly, monthly and quarterly basis? What purpose do they serve in informing business decisions?
After you have answered the why question, you should be able to determine whether the activity, report or process is a value add or not.
Any activity, report or process that is not value enhancing should be discontinued completely or streamlined. This will in turn help you free up more time and channel resources towards issues and or initiatives that really matter to business partners and senior decision makers.
Given that individuals are creatures of habit, it can be difficult to let go of traditional practices or old habits.
Unfortunately, sticking with the familiar in a constantly changing environment will not do you any justice. Just because this is how you have always done things in the past and are used to does not mean you should continue on the same path of the tried-and-tested.
In addition to getting rid of old habits that are no longer able to withstand the test of time, it’s also important to ask if the company’s business model is still fit for purpose to address today’s demands and challenges, and more important, is it fit for purpose for the future? With the world changing so fast around us, a business never reaches a point where it has the ideal model.
The operating model needs to continue to evolve. Finance can help shape this model through spending time with business partners and engaging in a two-way conversation about the business and offering its perspective. Communication between finance and the business should not be limited to month-end reports only.
Leveraging our financial expertise, we can help drive change by helping the company identify sources of growth and operational improvements, allocate resources effectively and efficiently, and accelerate its performance over time.
Finance is often regarded as the purse-holder of the company, holding the power to greenlight some initiatives and redlight others.
However, in order to drive innovation and change, finance must learn to see the world not only through a finance lens but also through a business lens. Many finance professionals are conservative and risk averse in their approach. Taking risk is something perceived extraordinary. We need to transition from this kind of thinking.
There is of course balance between taking risk and mitigating risk, but if finance is inclined to opt for the later, value creation opportunities can be missed. It’s therefore critical that we do not succumb to analysis paralysis because it’s easier to lose the big picture of what is needed to drive the company’s success in a myriad of daily transactions or useless data.
In conclusion, if finance is to influence strategic decisions and add value, finance leaders should start asking if their teams are focusing on what really matters to the business or the function.