Finance Transformation: From History Keepers to Future Story Tellers

The traditional role of the finance function is that of ensuring accurate processing, accounting and reporting of financial transactions. However, in today’s volatile, uncertain, complex and ambiguous economic environment, reporting on the past is no longer enough. New advanced technologies are disrupting business models at the speed of lightning. For example, digital innovations such as artificial intelligence, machine learning, collaborative technologies and advanced analytics are already transforming the traditional role of the finance professional. Routine accounting operations and transaction processes are getting automated freeing up time for finance professionals to focus more on value-adding activities.

In this second machine age, finance professionals have to adapt and embrace the opportunities brought by this new wave of technologies. Digital technologies have the potential of transforming the finance organization into an analytics powerhouse capable of deriving strategic insights from large data sets and improve decision-making processes. Gone are the days of producing reports that are backward-looking and performance variance reports that are lacking actionable insights and recommendations. In order to drive business performance and help inform decision-making, the finance function has to improve and increase its influence across the business. One way of doing this is initiating conversations with others in the business, ask the right questions, identify root causes of existing problems and provide solutions in a collaborative way.

In many organizations, the majority of senior finance professionals have an accounting background and because of the article-ship training they went through, most of them are inclined to a rules-based thinking. Everything has to add up and the level of risk taking is significantly low. Unfortunately, this mind-set is a hindrance to breakthrough performance.  In addition to their technical skills, today’s finance professionals must also develop a strategic mind-set. Successfully playing the business partnering role requires the finance professional to support the broader business strategy as opposed to focusing on narrow accounting objectives alone. in other words, finance has to drive business outcomes rather than simply report them.

To transition from history keepers to future story tellers, it is imperative that finance professionals have a clearer understanding of all the numbers they are reporting on. The value of analysis provided by finance is only as good as the business’ ability to interpret and act on it. If decision makers and other stakeholders lack trust and have no or minimal confidence relying on information supplied by finance to support decision-making, it means finance is failing to play its role. Finance needs to get deep into the numbers to really understand the various performance drivers of the business and ensure it manages the right things and sets the right goals.

Big Data and analytics are playing a critical role in helping organizations make sound decisions, improve performance and gain a competitive advantage. However, some organizations have been delusional to think that by collecting and storing huge data sets, they have found a killer recipe for success. Unfortunately, this is just wishful thinking. There is value in data when the right type and amount of data is collected, correctly stored, properly analyzed and insights gathered to inform strategic decision-making. By acquiring new analytical skills, finance professionals will be able to mine and analyze large data sets, bring out a story out of this analysis, provide an explanation of what has happened, what is driving the numbers, and how they affect the future.

If finance is to succeed in this storytelling role, the function has to definitely move from away from the practice of providing one view of the future. It is embarrassing, to say the least, that in today’s ambiguous and continually changing environment, some organizations are still relying on the annual budgeting process to manage and monitor performance.  The annual budget is static and cannot be relied upon. Using rolling forecasts and scenario planning can help the finance function overcome this problem. Finance ought to gain complete visibility into the performance of the business, be a problem solver and provide solutions to these questions:

1. What happened?
2. Why did it happen?
3. What is going to happen?
4. What should we do about it?

In other words, finance must be able to anticipate alternative performance scenarios by performing what-if-analysis, identify the triggers of each scenario, evaluate the business impact of each scenario and execute a contingency plan. Performing this exercise will help identify new business opportunities and the ways the business can profit from them, as well as weigh the potential risks and their financial,  operational and strategic implications.

There is nothing wrong in looking at history, since history also provides a platform for learning and a baseline for planning.  Although it is difficult to predict the future with certainty, decision makers cannot afford to run the business by ignoring future risks. Naturally, most finance professionals are risk averse and have a low appetite for risk. The problem with looking at only the downside of risk is that the business is bound to miss on strategic investment opportunities.

Finance professionals need to increase their appetite for risk, at the same time ensure this is not detrimental to the successful running of the business.  Instead of saying no most of the time, finance professionals have to embrace strategic risk taking and evaluate what opportunities are bound to be missed if the organization fails to align its risk and business strategies.

Having finance professionals who are storytellers requires a different talent acquisition and retention strategy. As most routine accounting operations continue to get automated, the organization needs to map out its current skills, document future finance skills need and identify the gap, design an effective talent strategy and execute on the plan. Also, the organization must strive to build a team around people with diverse backgrounds. For example, including people with social and behavioural skills can help the organization model changes in customer and competitor behaviour and describe the financial implications.

Is your finance organization doing enough to help you navigate through this VUCA environment?