Posts tagged: Finance Business Partnering

Finance Transformation: From Efficiency to Effectiveness

Transforming finance into an effective function capable of helping business teams execute strategy more effectively, make informed risk decisions and drive business performance isn’t just about new technology, shared services centres and centres of excellence.

As much as anything else, it is about changing old habits and behaviours. Redefining the role of finance in the business and transforming not only what the function does on a daily basis but also how it does it.

This also involves finance professionals developing an appetite for improvement, constantly self-assessing their modus operandi and establishing how they can perform their work better.

When embarking on a finance transformation journey, it is very important for the CFO to clearly define the core vision, communicate the purpose and goals of the transformation, and articulate the road map for the journey.

Following this approach helps keep the team and key stakeholders focused on the benefits the transformation will deliver.

Identify the Problem First Before Technology

In today’s fast-evolving environment where CFOs are inundated with new technologies to drive their company’s ambitions, it easier to follow the herd without first building a solid investment case.

The thinking is that if we implement a new ERP platform we have successfully transformed our finance function. This not always the case.

Although technology empowers the finance function to evolve to a modern global finance function your focus should extend beyond standardizing and streamlining workflow. New technology should enable you do what hasn’t been done before.

For example, your transactional processes (AP, AR, Journal Entries, Bank Reconciliations, Reporting and General Accounting) are all heavily manual which is causing you to close your books at least 20 days into the new month leaving little room for FP&A and business partnering.

In this instance, you would want to take advantage of a new cloud-based ERP solution that provides you with a standardized IT infrastructure and help you streamline existing decentralized and highly fragmented reporting processes.

Instead of investing in the new ERP platform just for the sake of investing, you first focus on the end-to-end processes, identify the problem(s) that need solving and look at the expected benefits beyond cost reduction.

As a result, you are now able to close your books earlier and free up finance to focus more closely on business partnering and deliver performance insights and decision support to assist in achieving the company’s growth objectives.

Headcount Reduction versus Productivity Increase

Reducing headcount, achieving transactional efficiency or improving control and governance processes should not act as the sole focus of your transformation journey. Many companies make the mistake of believing that finance transformation is all about reducing FTE costs.

Subsequently, after reducing finance headcount and making the function leaner, the workload remains the same, at worst increases, making it difficult for the remaining teams to manage the heavy workload. Ultimately, productivity deteriorates.

As much as it is important to benchmark the size and cost of your finance function, what is also key is that you clearly define finance staff roles and requirements as per your function’s vision and how it fits into the broader vision of the company.

This will help you eliminate or combine specific roles where there is duplication of effort. It also helps develop the right talent mix and capabilities.

Think Broad and Analytically

Today, companies are privy to large amounts of data (economic, customer, social media, production, market, competitor etc.) and cannot look at business performance from purely a transactional view anymore.

Rather, they must use such data to interpret strategic performance, benchmark against competitors and craft a more holistic experience for stakeholders. Instead of spending ample time discussing small variances, the focus should be on the big picture. Identifying and discussing key business drivers and big trends.

This requires investing in the finance function’s operational and commercial acumen as this is key to supporting the business across the entire value chain, from product design and development to manufacturing and from brand management to distribution, sales and after-sales.

Thus, one of the goals of your finance transformation should be to develop well-rounded professionals who are able to connect the dots, contribute alternative perspective to strategic conversations and help the business break into new markets and diversify revenue streams.

One of the challenges in many organizations is that business unit managers are self-serving and focus only on their own markets, ignoring the impact of their decisions on other business units. Finance business partners are better positioned to unite these teams.

They are analytical, broad thinkers and understand the cause-and-effect relationship of disparate business unit decisions, including the role of finance in cross-functional collaboration to improve the performance of these operating units.

Leveraging their extensive functional knowledge, business acumen, experience and relationships built from partnering with various stakeholders, FBPs are able to engage business unit leaders into more value-adding conversations.

Rather than act as a barrier and tell them what they can and cannot do, FBPs first seek to understand what is it business unit leaders want to achieve, how and why it is important and then provide informed decision support taking into account the impact on the broader strategic performance.

Change Management

Stakeholder engagement, or lack of it, can signal the difference between success and failure of any finance transformation agenda. Challenges will abound. Targets will be missed. Teams will resist change and prefer to continuously focus on what they know best.

You therefore need to keep all invested stakeholders engaged, aligned and informed of progress. Offering coaching and insight, rotating employees through a wide range of operations, exposing them to challenging projects and allowing them to experiment with new ideas and learn from mistakes all help in this front.

As long as the mistakes are within acceptable limits you want your team to feel empowered to make key performance decisions and at the same time become trusted business advisors.

Although habits and behaviours are not something that can be changed overnight, they are still key ingredients for an effective transformation. A cultural shift and buy-in is therefore imperative.

 

CFOs and Strategic Decision Making

These days there is an increasing number of articles, reports, podcasts, vblogs, eBooks etc. being churned out on the evolving role of the CFO. Though these publications and postings are worded differently, they all share one common message – Today’s and future CFO should be less of a number cruncher and more of a strategic advisor. In other words, spend more time partnering the with business helping create, preserve and sustain value.

One of the forces behind this call for change in the CFOs role is the onslaught of new technologies on the market. These new tools are helping finance chiefs to automate and streamline certain areas of their work, in turn improving the amount of time spent partnering with the business versus closing the books.

However, Are CFOs contributing enough around the strategy discussion table to merit the strategic advisor badge? Are they helping their companies execute effectively? Execution is the key factor of success yet statistics reveal that between 70%-90% of companies are failing to execute their strategy. How then is this possible if the CEO and the Board have smart, intelligent CFOs in their corner to advise them on strategic issues of the business? Have CFOs just become glorified accountants (since the majority of them are CPA, CMA, CA, ACCA, or CIMA designated) who lack a deeper understanding of the business and its value drivers?

I believe no matter how much we scream and shout about this new evolving, expansive and collaborative role of the CFO, if the results continue unconvincing then we should get off our high horses. We cannot afford to remain on this path of sameness, repeatedly claim that finance teams have a bird’s eye view of the organization and are better placed to influence results yet strategic failures continue to soar.

In today’s information age, it is much easier for finance executives to succumb to the misguided belief that the keys to strategic success is investing in more data and new technology. On the contrary, people drive strategic success. I am not against data and analytics. However, how you apply both to your business will determine whether you will succeed or not.

Unfortunately, many finance teams are still suffering from information overload and struggling to make sense of the data they are presented with. Rather than spend a greater proportion of their time increasing business acumen and providing meaningful analysis for their businesses, more time is being spent on gathering, cleansing and aggregating data from multiple sources. As a result, effective finance business partnering is faltering.

If the CFO is to meaningfully contribute around the strategy discussion table (s)he needs to improve finance’s approach to performance analysis. A bottom-up approach to data analytics will not help you reap the fruits you want. This is where most CFOs are getting it wrong. They embark on a data collection agenda without first identifying and defining the problem to be solved. Data management and analytics efforts should be tied back to strategy and the key drivers of the business.

Start by asking the right key performance questions. For example; Which components of our strategic decision making are currently not being supported by digital technologies? What is the worst that can happen to us should we fail to embrace data analytics? What is the best way to align internal and external data sources to strengthen analytics and insights? Which business functions or areas would benefit from digital technologies and newer analytical capabilities to support strategic decision making?

Asking more of these questions will help you recognize areas of the business that are problematic which in turn helps you to focus your analysis in these areas, identify critical drivers of value and provide fresh insights that support strategic decision making. The organization is then able to develop new capabilities and competences needed in relation to changing circumstances, environmental factors and trends and ultimately execute its strategy effectively.

What decision makers want from finance are real-time, reliable and actionable insights that help them make better decisions. In fact, valuable strategic decision support goes beyond calculating the profit and loss and then presenting the financial statements to C-Suite members and the board. The CFO has to be able to tell the full story behind the numbers, know how the organization arrived at those results and provide actionable recommendations from the analysis of the results.

The expectation now is for the CFO to wear many hats. IT, Procurement, Investor Relations, Risk Management, HR, Sustainability are now under the purview of the CFO in many organizations. However, I don’t think a CFO can be an expert in all of these areas at once. This therefore requires her/him to be surrounded by a great team since s(he) is only as good as the team that is behind him.

If the team performs well, the CFO performs well too. But for the team to perform well, training and development is important. Although the CFO remains accountable for overall performance of the function, when the finance team is talented and skilled (s)he will be confident enough to delegate certain tasks, free up enough time to partner with the business and contribute positively towards the achievement of strategic objectives.

Going forward, understanding the business across all lines, not just the financial aspects, and getting a holistic view of organizational performance will help CFOs play a crucial role in strategic decision support, close the gap between strategy formulation and execution and influence strategic performance.

3 Common Pitfalls of Performance Reporting and How to Avoid Them

Recently I met up with a close friend of mine whom I hadn’t seen in a couple of years for a chat and catching up. He is a qualified accountant and finance professional working in the financial services industry in Zimbabwe.

On top of the social chatter, we started discussing the evolving role of finance, in particular finance business partnering and the impact of Industry 4.0 on the profession.

As our discussion continued, we shared experiences, what has worked and what hasn’t worked so far in our respective organizations, as well as the way forward.

One thing that intrigued me was that my friend didn’t by any chance try hard to hide his frustrations emanating from his every day job. Chief among the frustrations was the fact that finance wasn’t highly regarded within his organization as he would have loved it to be.

I probed further trying to understand why he had reached to that conclusion.

Although my friend mentioned that his organization has made reasonable progress in ensuring that finance transforms from the commonly perceived scorekeeper function to a trusted business partner, many business leaders still perceive finance’s role as that of balancing books and providing rudimentary analysis.

As a result, finance is not invited to the decision making table and asked for its contribution.

Keen to find out why business leaders didn’t see any value in engaging finance in the operational affairs, I asked deeper questions until we both agreed that his team was clogging business partners with too many performance reports, his organization lacked a clearly defined data management model, and finance personnel need to be empowered to collaborate with the business effectively.

Far Too Many Reports and Far Too Little Insights

As it turns out, it’s not only business leaders in my friend’s place of work who are constantly being weighed down by a mass of performance reports. There are plenty.

With the volume of both internal and external data increasing exponentially, the demand on finance teams to provide insightful, relevant and timely management information to support fact-based decision making isn’t going down either.

Because of this unrelenting demand for more information it is easy to succumb to the thinking that more is better, resulting in finance teams working round-the-clock to produce reports that neither meet the requests of stakeholders nor offer the business an informed, value-adding view of its performance.

The problem with having too many reports is that the business is forced to track and monitor far too many metrics which, in most cases, are in conflict with one another and offer far too little insight.

Additionally, the business lacks a clear line of sight to clearly analyse past and anticipated performance in order to make better decisions. In today’s exponentially growing data age, decision makers are looking for essential information to make more confident and effective decisions that focuses their attention on activities that truly matter, and provide a consistent view of performance across the business.

To avoid this common pitfall of repeatedly creating useless performance reports that no one dares to read, finance needs to regularly engage with business leaders and take time to clearly understand what information they actually need to achieve their strategic objectives and consequently drive value.

Delivering this information in an efficient and effective manner is key to finance generating business trust as well as empowering the business to proactively respond to emerging opportunities and threats.

Lack of a Robust Data Governance Framework

After seriously discussing the problem of too many performance reports, my friend further raised an important question. What if a business leader requests a specific report and we do not have all the necessary information to adequately support our findings? Before answering him, I fired a question back at him. How are you currently handling these requests?

To my complete surprise he responded, finance produces reports that we believe are correct and if we do not hear back from the business leader all is considered in order. At this point in time, I was quickly reminded of the expression Garbage In – Garbage Out. No matter how logical our thinking and analysis is, as long as the inputs are invalid the results will be incorrect.

The same applies to business performance reporting. In today’s data-driven and tech-enabled economy, optimized and appropriate use of data is central to helping the business make enhanced decisions, create competitive advantage and successfully execute its strategy.

Thus, data quality is imperative, requiring finance leaders to ensure that there is absolute trust in the information provided to the business.

From discussing with my friend, it became clear that a business requires the right data to support its integrated set of defined key performance indicators (KPIs) and to maintain the integrity of this data, it must be supported by a robust governance structure.

Today’s volatile and dynamic business environment means the organization’s strategic priorities are always changing, as well as its information needs. As a result, the reporting function also needs to keep pace with this constantly changing landscape.

Building a cohesive information and data governance framework ensures common KPIs linked to strategic and operational decision making are used consistently across the business.

KPIs, regardless of their focus are only as consistent as the underlying data, and poor data input will produce inconsistent measures, even if they are labelled as the same KPI. This is why getting the basic data structures and data feeds right is so fundamental in providing decision support that can be trusted.

Additionally, due to the fact that different functions of the business use data for multiple different information needs, a robust data governance framework leads to a single version of the truth via enforcement of consistent information standards, creates awareness of where the performance data is housed and how it can be accessed.

Since the main goal of performance reporting is to provide management with real-time information with proactive comparators, a constant review of the information requirements and data governance framework ensures that performance measures remain relevant.

What I also picked up from my friend is that despite significant growth in the potential use of external data to drive better decision making, many businesses remain predominantly reliant on internal data to drive key business performance decisions.

They are grappling to incorporate this type of data across different business processes, mainly because of the differences in the structure of internal and external data sets.

By incorporating external comparators in their decision making processes, management will be able to identify areas where the business needs to ramp up through investments, and often more prominently, where it is already ahead of the competition, but must continue to focus on to uphold or create a new advantage.

Without this crucial information at their disposal, it is impractical for finance teams to clearly understand the major drivers of their business performance, produce insightful analysis, partner with key decision makers and support strategic decision making.

Business Leaders Discounting Finance’s Capabilities

In order to become effective business partners and provide relevant decision support it is imperative for finance teams to get as much exposure as possible to business-wide decision making. Unfortunately, getting this exposure remains a distant dream for many capable finance teams.

Because business leaders see finance personnel only as gatekeepers and not strategic business advisors, there is little motivation on their part to empower finance to collaborate effectively with the business on a larger scale.

As we started discussing the promises and perils of Industry 4.0 with my friend, he was very much surprised with how far behind his organization is in terms of digital transformation and process automation.

My friend is not alone on this boat; many finance teams are still stuck with legacy financial systems, tools and processes; spending a significant portion of their time on low value-adding transactional activities such as arduous data extraction and manipulation or traditional month-end activities, and little time on positive analysis and decision support. This is detrimental to effective performance reporting.

Performance reporting will only succeed if finance teams are suitably equipped to deliver high-quality insights that support decision making empowered with deployment of reporting technologies.

Even if the business presents an opportunity to collaborate, time alone is not sufficient. There is also a need to create an environment that allows finance people to develop appropriate capabilities, some of which may not come innately to many technical finance people.

One way of fostering this environment involves running finance training programmes that focus heavily on softer skills such as leadership development, communication, change management and stakeholder management, as well as on-the-job training for traits such as commercial acumen, and less on the technical or transactional processes which are easy candidates for automation and do not constitute a large portion of finance’s everyday job.

As with any other form of investment, the organization must be able to reap rewards from the training programmes. It makes no economic sense to spend substantial amount of resources trying to boost finance function productivity and in turn get rewarded with mediocre results.

It is therefore critical that finance personnel sent out for training exhibit the right behaviours and have the confidence to work with the business to interpret reports and constructively challenge strategic decision making to drive more effective decision making.

This in turn will assist finance shed its image as a mere service provider, elude mundane tasks, enhance its reputation and become part of the decision making crème de la crème informing business decisions with deep insights and recommendations.

In addition to training programmes, the organization also needs to invest in appropriate enabling technology that help with data analysis and interpretation in real-time, providing the organization with the necessary speed and quality that it requires to stay ahead, as well as allowing finance to demonstrate their analytical skills and become more influential as business partners.

Addressing the above common pitfalls is key to streamlining an organization’s performance measurement and reporting processes, and ensuring that senior management regularly receive relevant, insightful and near real-time information necessary to improve strategic decision making and ultimately business performance.

What other common pitfalls have you experienced in delivering high-quality performance reporting?

Increasing Finance’s Relevance to the Business

To remain successful and relevant to the business in today’s VUCA environment, Finance must move beyond the control and compliance status quo, become a better business partner, and provide insights that enable decision makers to allocate resources effectively and grow the business.

Become a better business partner

Finance Business Partnering (FBP) reaches far beyond number crunching and closing the books. Instead, FBP involves Finance taking a holistic view of the business and helping managers understand not just the financial results, but also the underlying causes, trends and drivers of those results.

CFOs should be able to identify, assess and address current and future conditions with long-term impact on the organization. In other words, they should be objective, proactive, analytical, and thinking beyond Finance, to be able to see the bigger picture and challenge existing assumptions. How can Finance successfully support the business to execute strategy?

In addition to understanding the business and developing forward-looking capabilities (through the use of rolling forecasts, driver-based planning and scenario modelling techniques), in order to become better business partners, CFOs should also improve their communication skills. They must be able to communicate the numbers in easy to understand terms. At the same time, they also must develop effective change management, interpersonal and leadership skills.

The above soft skills are key to bringing the desired results.

Successful finance transformation is about improving business performance as a whole, and not only about increasing process efficiency within the Finance function.

Finance teams should therefore engage with all business leaders on a continuous basis and focus on value-adding analysis to support better business decisions.

Improve the current operating model

As the role of the CFO continues to evolve from a number cruncher to a more strategic advisory role, the Finance operating model must also evolve. Strategies that have previously worked to deliver efficiency and drive growth will not do it today.

For instance, in the past many companies outsourced and offshored certain finance processes in order to shrink costs and support decreasing margins. However, new technologies are reversing this trend. There is a decline in outsourcing and offshoring trends, and a rise in inshoring.

Companies are realizing that by investing in advanced management and analytics technologies, they can automate and streamline processes that were once preferred candidates for outsourcing, increase efficiency and reduce costs.

These companies have also built Centres of Excellence and Shared Services Centres in order to increase efficiency.

You therefore need to perform an assessment of all dimensions of the your organization’s existing operating model (Organization, Processes, Controls, Technology, Data, Resources etc.) and evaluate if they are still relevant.

What are the forces disrupting and reshaping your current Finance operating model?

You also need to note the potential inter-dependencies between the various finance processes and activities as well as how they shape the overall value creation.

This will help you identify weaknesses in any processes, evaluate the impact on performance, and select smart ways to strengthen these processes, for example, through implementing new systems or upskilling  and reskilling of current resources.

Thus, it is important to set out a clear vision and strategy for Finance and define key performance metrics that are aligned with business strategy.

Embrace new technologies

The gap between Finance and IT has significantly narrowed. Without IT, you cannot do Finance. New digital technologies are helping CFOs to shorten reporting cycles, improve forecast accuracy, better manage business risks, and speed up decision-making processes.

Innovation is no longer a nice to have, but an imperative. That’s why today’s CFOs are expected to be tech-savvy.

Digital technologies have the potential to transform Finance into a more agile, forward-looking and insight-driven function. Unfortunately, in many organizations, outdated legacy systems are limiting Finance’s ability to deliver value.

However, it is important to note that technology alone is not the answer. In order to achieve true digital transformation, you need to ensure that there are adequate support systems in place, from the right talent mix to the suitable operating model.

Although the number of digital tools out there is large, you need not invest in each tool on the market. Develop a clear digital strategy and choose the tool(s) that will help you positively change the way your business operates and deliver maximum results.

I welcome your thoughts and comments.

Finance Should No Longer Maintain the Status Quo

The world around us has significantly changed and the rate at which this change is happening is terrifying. Established business models are under attack and subject to rapid displacement.

Digitization, increased regulatory demands, advanced technologies, the emergence of new business models, rapidly changing risk landscape and new challenges from global competition are all disrupting businesses from left, right and center.

Instead of viewing disruption as a threat, executives must rather, view disruptive forces as catalyst for change and great opportunities. Unfortunately, many executives are slowly responding to disruption because of fear of failure. All they see are the negatives, and not an opportunity to exploit the unseen possibilities.

In this rapidly changing climate, maintaining the status quo is not a recommended option. If you snooze, you lose. The organization must constantly be attentive to what is happening, both within and outside its walls. Which forces are driving and hampering value creation? What are the risks of and to the strategy? What are the strong beliefs that are significantly held in your industry; can these be challenged and reframed?

Answering the above questions will help you identify new forms and mechanisms of value creation. Finance is uniquely placed within the organization to provide solutions to these questions.

Leveraging on its analytical capabilities, the function can help decision makers spot and monitor leading indicators, model alternative scenarios and implement modern planning techniques to ensure long term success.

Data is the new oil of the digital economy

Data and analytics technologies are altering business models and transforming the way finance creates and adds value to the business. Data is expanding in volumes and variety and the challenge for many organizations is to harness data power to drive business performance.

In the past, implementing cost cuts across the board was more than enough to improve the bottom line. Unfortunately, in today’s digital economy, this approach is no longer feasible. You can only lower costs to a certain point, after that point, the exercise becomes self-defeating.

Digital technologies have reduced the cost of doing business and barriers of entry.

Because of these changes, finance has to find alternative ways of driving value up the value chain. Executives can longer rely to base strategic decisions on financial statements information alone. Doing so is a sure recipe for failure. They need better information that support decision-making and propel the company forward.

Finance can successfully fulfill this role by embracing analytics and providing data-driven insights. Cloud and subscription-based technologies are making it inexpensive for companies to invest in analytics. These technologies have the advantage of helping companies analyse larger and complex data sets and extract accurate and trusted actionable insights.

Any company, big or small, is now a suitable candidate of becoming an analytics powerhouse. However, to get an edge from data, it is critical that the organization has the right data talent, data governance and management processes and systems in place.

By combining the right technology with the right analytics and expertise, businesses can use both structured and unstructured data better to identify trends, derive real-time insights, facilitate decisions, and define actions that improve performance and deliver a critical competitive advantage.

Finance transformation is more than automation

When it comes to finance transformation, there is a general perception that the whole process is about automation. It goes beyond process automation. Technology is just another piece of the complete puzzle.  Yes, it is true that technology enables you to standardize processes, eliminate redundancies, achieve operational agility and perform activities much faster and cheaper but it is not the only ingredient.

People and processes are also key ingredients. Traditional finance professionals are used to working in the back-office all day long. Gone are these days. Finance transformation calls for a different skill set. Front-line players. People with a brilliant understanding of business, great leadership, influential, collaborating and communication skills.

Fulfilling the catalyst and strategic advisory role requires a finance person with a great vision of the future, someone who has the ability to anticipate change, challenge widely held beliefs, innovate new business models and persuade peers to embrace change.

Now that you have automated your accounting and finance mundane processes, as a finance leader, has your contribution to the business increased? How more involved are you in the business now versus pre-automation? How much time do you spend on strategic issues and decision support versus financial reporting?

All three – people, processes and systems must be in sync in order to achieve the best outcomes.

Do not be afraid to take the first step

Done successfully, finance transformation is worth it and can yield positive results for the business. The opposite is true. Done badly, the business can end up incurring unnecessary costs and suffer badly.

The challenge for many companies is starting the transformation journey. Naturally, people are resistant to change and prefer the tried and tested methods of doing things. However, in today’s highly volatile environment, growth strategies that got you here will not get you to the next level. If your organization is to survive and grow, you need to adapt, develop and implement dynamic strategies.

Transitioning from the traditional finance status quo to finance business partnering is an ongoing process and not a once-off project with a defined start and end date. That won’t happen overnight. Finance transformation requires a joint effort, time and the adequate mix of talent and tools.

You therefore need to continuously re-evaluate transformation gains and flaws, and build lessons learned into the next stages of transformation. This is critical for large scale, long-term successes.

By making continuous improvement an everyday focus, you will certainly make great progress.

I welcome your thoughts and comments.

How Finance Can Help Improve the Company’s Operating Performance

Today’s CFO is more than a numbers person. In addition to fulfilling the traditional oversight function, the finance executive is also now a key business performance manager mandated to achieve operational excellence.

He or she has to make sure that the business is getting the operations right the first time and meeting operating targets – optimized processes, reduced error rates, lower costs, higher quality products and services etc.

In today’s constantly changing business environment, this might look easier said than done, but they key to operational success is ensuring that the business operating model is aligned with the new economic realities.

This is how we have always done business no longer cuts it through in our current industrialized and digitized economy. New technologies and innovation are disrupting business models. Customer behaviours and spending habits are constantly shifting. Geopolitical risk across the globe is at its peak. Growth in developed economies is stagnating while in emerging economies it is fraught with severe challenges. Competition is intensifying.

In short, the world is now extremely volatile, uncertain, complex and ambiguous (VUCA).

Such changes are exerting immense pressure on the operational performance of the business. Thus, to survive and improve performance in this dynamic environment, businesses must learn to adapt, become agile and innovative.

Finance can play an important role in improving the company’s operating performance by helping the business navigate around these challenges.

Develop and strengthen relationships with operating managers

The ability to forge positive long lasting relationships with business unit managers is now a critical skill necessary to achieve finance effectiveness. Finance can longer sit comfortably in the back office, and expect to add value to the business.

Instead, finance needs to obtain front-line and hands-on operational experience. For instance, join operational teams on site visits or other external stakeholder meetings. It is through these interactions that finance can develop and demonstrate own understanding of the business and how it works.

The function will be able to acquire knowledge on the operating unit’s markets, competition, customers, supply chain and risks. This information is necessary for developing and implementing reliable and meaningful performance measurement metrics and ensure that everyone is on the same page. It will also help determine whether or not any business-related changes being made will have a positive or negative impact on the company.

Gaining knowledge of operations and the business is not an overnight process. Thus, finance needs to work with operations more closely and more frequently. Regularly maintaining contact and discussing business performance with operating managers is key to developing trust and strengthening the relationship between finance and operations.

On the other hand, infrequent contact with business unit managers will unfortunately hinder finance’s progress of becoming the business’s trusted advisor.

Finance effectiveness goes beyond simply publishing the numbers

In addition to reporting the numbers, finance must also be able to tell the story behind the numbers. What is driving the numbers? Can the numbers be maintained? Are they trustworthy?

Decision makers are always looking for information that is objective, insightful, relevant and usable so that they can understand the financial implications of their decisions and actions. In other words, one version of the truth.

Unfortunately, for many finance organizations, they are failing to provide information and insights operating managers need. Rather, they are providing what finance thinks they need. This in itself is a recipe for disastrous decision-making processes.

To avoid falling into this trap, finance must regularly meet with business managers and discuss their information needs. This will ensure the function is providing relevant information and insights on performance drivers as well as factors that will have the most impact on the business.

How often does your organization’s finance team discuss performance issues with business unit managers? Daily, weekly, monthly, quarterly or there is no regular discussion about metrics and performance? How influential is finance in defining improvement goals? What role does finance play in measuring, managing and monitoring performance?

By leveraging data analytics technologies, finance can help optimize operations and provide business managers with reliable information on what happened, why it happened, what will happen in the future and how it will happen.

Instead of relying on hindsight and insight to optimize operations, business managers will develop foresight about the future and improve their decision-making processes.

Recognize the need to do more

Finance must show a continued interest in helping the business achieve operational excellence.

It is important to note that finance business partnering is not an occasional process whereby finance shows an interest in improving operations, fades away for a while, comes back into the picture, disappears again and the cycle continues like this. Rather, the focus should be on continuous improvement.

Although some organizations have already started transforming their finance organizations, the gap between finance’s actual and desired involvement in operations is still enormous. Closing this gap requires finance to recognize the need to do more.There must be a hunger to add value to the business and become a critical player.

Finance must continuously evolve and become a learning organization. It must adapt its operating model and embrace the important role it plays in helping the business advance its operational performance. It is common to encounter significant hurdles during the transformation process but this must not act as a trigger to give up.

The focus should be on becoming better and making performance improvement an everyday mandate. Identify a few operational targets, processes and critical reporting and analysis that are in dire need of improving and focus on these.

Once you have worked on these and are happy with the progress made, you then move to the next areas of improvement. Sometimes it is better to start small and celebrate small wins than not start at all.

Finance can only do more if the corporate culture and senior executives support the collaboration of finance with the rest of the business. Thus, the type of an organization the CFO works for can influence the role that finance plays.

If the organization is traditional, slow to change and lacks executive support, finance will forever play the oversight and reporting role.

On the other hand, if the organization is adaptive, innovative and executives rely on information to drive decisions, then finance will play the key strategic advisory role.

I welcome your thoughts and comments

The Finance Function: A Business Growth Partner or Detractor?

Finance is increasingly taking an important role as the business partner. Thanks to digital and technology advancements, CFOs and their teams are now able to expand expectations beyond the traditional accounting and compliance functions. Routine finance and accounting activities are now automated thereby freeing up more time for finance executives to spend on strategic issues.

In high performing organizations, finance is collaborating more with the business and making a deeper impact on critical business decisions. Instead of taking the back seat, the function is playing a leading role supporting change initiatives and driving performance improvements.

Increased regulatory demands, competitive pressures, volatility, uncertainty and shifting customer behaviours are posing immense challenges on the day-to-day running of the business. In order to succeed and grow in this world, businesses must adapt to change and become forward-looking. Thus, managers and executives are calling on their finance executives to help shape the future of their companies.

With many expectations before them, it is no longer enough for finance to focus on scorekeeping and reporting the past. Finance must help business managers understand the current results, predict future performance based on different scenarios and provide insightful recommendations on how to run the business better and propel the business forward. Business managers are constantly looking for real-time information that will help them make informed decisions and finance can successfully act as the source of support.

Finance must embrace change.

Finance cannot continue to do things the same way repeatedly. To succeed in the current environment you need to change your processes, systems and periodically review your finance operating model and strategy. Many finance organizations are still reliant on legacy systems and outdated processes that are stifling the much needed innovation and growth.

Despite advanced developments in financial technologies, low performing organizations have not automated routine accounting and finance activities; these are still manual. These organizations are spending the majority of their time manually gathering, manipulating, consolidating and reporting historical performance. Budgeting and forecasting processes are also manual. Very little time is spend on performance analysis, risk analysis, strategy review and predicting the future. As a result, decision makers are lacking critical insights that drive robust decision-making processes.

Finance needs to embrace modern technologies, innovative and agile business models in order to improve the function’s effectiveness and efficiency. Strategies that have worked in the past will not automatically take you to the highest rank of success. Thus, as the business environment changes you also need to review and adjust your finance strategy. The finance strategy must be aligned with the business strategy of the organization. It doesn’t help for finance to do its own thing and the business to do theirs.

Finance must step up and prove its value

Although the expectations on finance to play a strategic role and improve business performance are high, the function must prove its value and that it deserves a seat around the table.

Making critical decisions such as which markets to play, improving the company’s product and service offerings, improving profitability and selecting mergers and acquisitions targets all require finance’s informational capabilities and analytical expertise. Finance must therefore understand the needs of the business and apply its expertise to those activities that are linked directly to the company’s success or failure in the marketplace.

The challenge for many finance leaders is that business managers are not completely trusting of the information provided by finance. When there is no trust in the source of information, it is difficult for the manager to act on that particular information. Finance must therefore collaborate more with business units to build and strengthen partnerships with their operational colleagues.

Rather than stand in the path of progress, finance must act as a navigator and help steer the business in the right direction. For instance, instead of blocking investment proposals and constantly saying NO to business managers, finance need to first understand competitive and environmental dynamics, model decisions under different scenarios, evaluate their financial impact and then explain to decision makers the revenue, cost and profit implications of their decisions.

If the decisions proposed by business unit managers and other executives have a negative financial impact, finance must be able to find and propose alternative opportunities to improve operational performance.

By continuously collaborating with the business and providing decision makers with actionable recommendations, finance will be offered a seat around the table.

Finance must become a trusted advisor and risk taker.

Good business decisions often depend on insights that emerge from good data analysis. Basing decisions on wrong assumptions and information often results in loses and devastating consequences for the business.

Thus, in order to become a trusted advisor finance must base its recommendations on facts and not gut feel. Finance must help the company get value from the data it currently owns. In today’s world of big data and analytics, organizations that are able to mine this data and find meaning will have an enormous advantage over those that do not.

Successfully executing a business growth strategy comes with both benefits and costs. Unfortunately, the majority of finance professionals are risk averse and fail to look at the bigger picture. Growing and succeeding in the current economic environment requires the business to develop a risk appetite and take calculated risks. Remember high risk, high returns.

However, this does not mean that all decisions should be taken lightly with no consideration of risk at all. Instead, finance should help articulate the company’s risk appetite to the business and ensure that all activities and investments undertaken are within the approved limit levels.

I welcome your thoughts and comments.

Raising the Internal Profile for Finance

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.

I welcome your thoughts and comments

Providing Effective Decision Support: What CFOs Need to Know

One of the challenges facing today’s finance executives in transforming the finance organization from a back office function into a successful front office strategic advisory role is a shortage of talented finance professionals and leaders.

Without the necessary finance talent and an operating model to support finance transformation initiatives, it is increasingly difficult for CFOs and their teams to effectively influence business decisions.

Have An Effective Finance Talent Strategy

The skills necessary to successfully influence strategic decisions are different from the skills required to fulfill finance’s stewardship and operator roles.

It is therefore critical for CFOs to take stock of the current talent and evaluate whether the available talent is capable of moving the business forward.

Although in most organizations the HR function is responsible for overseeing the overall talent strategy of the organization, it is critical for the CFO to collaborate with HR to determine Finance talent needs and allocation with the function.

The CFO is in a better position than the HR Manager to know and understand the skills required to drive Finance effectiveness.

In one of their CFO Insights publication, Deloitte identifies critical questions that Finance leaders must answer prior developing their organization’s finance talent strategy:

  1. What knowledge, skills, abilities, and experiences do we need now? Where do we need them? How many do we need? When do we need them?
  2. Which skills will be most critical to our business in the next three years? Five years? Longer term? How are these skills and skill mix changing?
  3. What are the specific competencies that we need to develop in our finance workforce, from both the technical and leadership perspective? Are there new competencies required in both finance and the business generally?
  4. What are the “people” or talent programs, policies, and practices necessary to realize both those technical and managerial competencies? Can we leverage or build upon what HR already provides, or do we need something new or unique?
  5. Why would somebody join our company’s finance department, given the high demand of finance professionals? Why would they stay? What makes our finance function a career destination rather than a career way station?
  6. What is my role and those of our finance leaders and C-suite colleagues in fostering a talent experience within finance that emphasizes the right combination of development, opportunity, and work-life balance?

Honestly answering the questions above will help you identify strengths and weaknesses in your current talent strategy and act as a starting point for a successful transformation journey.

It’s imperative to have an effective strategy that not only supports Finance, but also the broader strategy of the business.

Effective Decision Support Goes Beyond Reporting on the Past

Reporting on the past alone is not enough. Finance professionals must also be able to extract meaning from the numbers and influence business decisions.

This requires the function to increase its commercial acumen as well as improve its leadership and influencing behaviours.

The CFOs role is more than producing management accounts. It is not about putting data together but asking the right questions. The CFO must be able to interpret the numbers produced, have a good understanding of all the facets of the business and be solution-focused.

Thus, Finance needs to stop focusing on historical backward looking data (descriptive analytics), and leverage predictive and prescriptive analytics for better decision-making. Are you looking to the future through the use of leading key performance indicators?

You need to be a good story-teller and help executives understand the drivers of the numbers and map the future and its outcomes. Are you helping your CEO look at the future differently?

Finance Transformation is a Journey, Celebrate Small Wins

Transforming the finance organization into a successful strategic advisor is a journey and not a once-off initiative. There will always be room for improvement.

It is therefore imperative that CFOs take a strategic approach to adding value.

Instead of tackling all decision support opportunities at once, they need to collaborate with the business and identify requirements, challenges, priority areas and activities.

By focusing on these priority activities, Finance will be able to focus attention on what is critical, allocate resources accordingly, deliver real value and prove the function’s add-on value to the business.

As a Finance leader, care must be taken that you are engaging your team in many activities at once as this will probably cause your team to lose focus and produce sub-optimal results, which in turn will relegate Finance back to the back office.

Small wins will result in further collaboration opportunities in the future.

Get the Basics Right the First Time

If the numbers are not right the first time, then it becomes difficult for the CFO to build credibility and become a strategic advisor.

Although there is increased demand on the CFOs to be more strategic in their approach, stewardship and operator roles still remain critical and must never be regarded as non-critical.

These roles still play a critical role in delivering the broader Finance strategy of the business.

How CFOs Can Play a Greater Role in Strategy Setting & Execution

These days there is a lot of talk about the transformation of the finance organization from being a traditional back-office function to playing a more strategic advisory role. The CFO is being touted as the CEO’s wingman responsible for helping him/her execute the company’s strategy and improve performance. Once regarded as the bean-counter of the organization, finance is being demanded to partner with operations and sales and help grow the beans.

Despite the transformation of the finance organization’s role over the years, can we certainly say that CFOs and finance executives have successfully embraced their new strategic advisory role? Are they delivering reliable advice and information for the company CEO and the Board to act on? Can the CEO confidently vouch for the CFO and his abilities in helping shape and drive the company’s future direction?

Unfortunately, although progress has been made in reshaping the finance organization, there is still more room for improvement. Various research findings have revealed what many finance professionals do not like to hear – CFOs in the majority of organizations are not providing enough strategic counsel to the CEO. In these organizations, the focus is still on cost control and accurate financial reporting. There is minimal provision of forward-looking information to support decision making. The desire by the CFO to provide strategic input to board-level decision making is there, but constant unnecessary fires that need putting out are consuming much of the CFO’s energy, resources and time.

There is no doubt that the modern business environment requires the organization’s CFO to be strategic in nature. With disruptive changes taking place everywhere at unprecedented levels, it is the responsibility of the CFO and his team to protect the organization against the threats, harness the opportunities and strengthen the organization’s competitiveness. This means moving beyond cost management and wearing the new strategic hat of the business. Unless the CFO and the other finance executives transform, partner with the business and facilitate meaningful strategic conversations, finance business partnering will remain a far-fetched reality for many.

What then should CFOs do to command a seat around the strategy table?

Know Their Organizations Inside Out

Many finance professionals have a narrower view of the organization. All they know are the numbers and that is it. Ask them to articulate to you their company’s mission, vision and strategy, you will be fortunate enough to get a good answer. In order to play a strategic advisory role to the CEO and the Board, CFOs must have a clearer understanding and knowledge of what the organization stands for. They need to know where the organization is coming from, the direction it is heading, what the constraints as well as a deeper understanding of its differentiating capabilities.

In today’s technological and information age, CEOs are looking for real-time insights to help them make better decisions. In order to make these decisions, they need to have accurate information on the drivers of the business (both internal and external). Thus, it is imperative for finance to know what is driving the numbers to enable the finance team tell a better story of the organization’s strategic performance. Knowing the numbers alone is not good enough. You need to have a bigger picture, knowledge and an understanding of how the different functions of the organization collaborate together to ensure successful execution of the strategy.

Adapt to The Changing Environment & Provide Reliable Insights

Volatility, uncertainty, complexity and ambiguity are the norm these days. These factors alone are disrupting business models and causing company strategies to quickly become obsolete. Strategies that might have helped you to achieve higher performance in the past are no longer sufficient to sustain that performance. The risk landscape is rapidly evolving and the number of risks influencing enterprise performance are also sky-rocketing..

CFOs and management teams therefore need to be on the guard against the disruptive forces threatening the existence of their businesses. Achieving this success means a continuous scanning of the playing field to identify and evaluate possible threats and opportunities. In this environment, it is therefore critical for finance to improve its Financial Planning & Analysis (FP&A) capabilities and provide reliable actionable insights to improve strategic decision making. For example, the function must be able to model various scenarios and their outcomes and evaluate their respective impact on the overall strategy of the organization. In doing so, there is need to consider all sources of data, its reliability, relevance and accuracy.

Embrace Modern Technologies

Technology and digital transformations are also constantly evolving. With these new innovations comes both risks and opportunities. As a CFO you should be asking yourself – Which technologies can the organization embrace to optimize processes and drive performance? Is our organization’s performance management framework integrated enough to support decision making.

These days technology is acting as an enabler to drive strategic execution and performance. Yes you might have standardized your processes, data management systems and implemented a cloud-based solution, but think of Artificial Intelligence, Robotics, Advanced Analytics, Cognitive Computing, Machine Learning, E-Commerce, and Internet of Things (IoT). What impact do these technologies have now, and in the future on your business model? Do they threaten to force your business out of existence or sustain and enhance it?

The CFO needs to partner with the CIO/CTO and establish how the information strategy fits into the bigger picture. Which areas of the business should leverage technology to drive innovation and strategic success? Since CFOs in most organizations have taken over the responsibility of IT investments, the CFO must be conversant in IT language, and be able to clearly communicate the benefits accrued to the organization from investing in any one of these new technologies. He or she must also be able to lead the conversation around the table and secure buy-in from the CEO and other senior executives.

Turn Threats into Opportunities

CFOs and finance executives are known to say no to majority of company investments which in most cases causes them to be at loggerheads with their CEOs. Many finance professionals are trained to identify risks and everything capable of going wrong which often blinds them to the bigger picture. There is nothing wrong with identifying risks but what is important is for the CFO to avoid constantly saying no to strategic investments.

Instead of only seeing the threats and keeping the company purse closed, the CFO must also be able to identify the upside of the risks. They should help the CEO take a calculated risk that is within the risk tolerance and appetite levels of the organization. In order to advance in today’s business climate, successful execution of certain strategies requires the organization to develop a certain degree of risk appetite, otherwise the organization should not expect to make great leaps forward if it is always risk averse.

What else do you think CFOs should do to be successful strategic advisers to the CEO?

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