TagFinance Business Partnering

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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