McKinsey has published an interesting piece that merits the attention of finance leaders and professionals.
Finance 2030: Four Imperatives for the Next Decade makes some good points:
- Leading finance departments are guardians of enterprise value creation, demonstrating stewardship of their own spend by lowering absolute costs and shifting work towards more value-added activities.
- Finance leaders further differentiate themselves by spending a greater portion of their time on value-added activities, such as financial planning and analysis (FP&A), strategic planning, treasury, operational-risk management, and policy setting.
- Achieving the next frontier in finance efficiency and effectiveness will likely require finance executives to shift their thinking from the priorities of the past.
- Finance staff’s time is valuable, and best devoted to analyses that drive actual business performance.
- Equip staff in critical roles with the necessary level of experience, leadership mind-sets, and authority to influence the business.
- Finance departments need a clearly defined master data-management strategy to guide the collection, storage, and interrogation of the rising volume of data needed to perform the types of analytics the business requires.
- Owing to its central role, the finance function is uniquely positioned to help define the master data strategy for the enterprise.
- Beyond providing analytical insights, the finance department is also responsible for framing discussions on company performance and the actions needed to improve it.
- Reimagine the finance operating model with new capabilities. This requires not only a different way of organizing how work gets done, but also a different type of finance professional.
- Embed digital skills across the finance organization. These capabilities may include programing bot algorithms, using analytics software, or learning how to translate business data into actionable insights
- Develop a core of business-savvy finance leaders with the stature to engage company leaders as peers.
These are all good points. My thoughts:
- Over the last decade, finance has progressed significantly in terms of delivering value-added activities. Much of this progress can be attributed to advancements in automation and analytical technologies which are reducing time spent on performing routine, transactional activities. There is still a lot of progress to be made to improve the time spent on FP&A and business partnering in laggard organizations.
- Achieving the next frontier in finance efficiency is very important. However, when we talk of efficiency it’s imperative to clarify at what. Many organizations have succumbed to the seduction of efficiency resulting in efficiency becoming an end in itself. Efficiency, when it is understood correctly as the best possible use of scarce resources to achieve a valued end, is undoubtedly important.
- I agree entirely with the need to make sure finance devotes more time to analyses that impacts actual business performance. More often, finance teams are wasting time and resources producing reports that serve little to no purpose at all. Decision makers want to understand the key drivers of business performance and how these can be influenced to achieve enterprise objectives, but, they are bombarded with more analyses on what happened, and less on what could happen, how, when and why. Reporting is about communicating. Rather than communicate what you want to say, tell decision makers what they need to know.
- Data types, data sources and the speed at which data is generated are all continuously increasing at alarming levels, therefore a more effective and efficient enterprise data management strategy is critical. Build a central data repository (to make sure there is one version of the truth) where data is securely stored and can be updated, accessed or shared in real-time to perform the types of analytics the business requires. Erroneous data is practically useless and even possibly harmful to the business because if management teams are making critical decisions based on inaccurate data, the outcomes could be costly.
- The idea of framing discussions on company performance and the actions needed to improve it is challenging for many finance professionals. Our training has taught us to solve problems using a logical approach or deductive thinking. The problem with this process is that there is just one possible solution or a limited set of correct solutions, and does not take full advantage of the creativity within us. We need to embrace both deductive and inductive reasoning, start asking questions on company performance that have never been asked before, challenge rigid rules and tired frameworks, and consider risks worth taking that we would otherwise not take when thinking deductively.
- I agree entirely with the need to reimagine the finance operating model with new capabilities. To achieve this, finance leaders need to cultivate a culture of continuous improvement. A culture that is always questioning the status quo, and promotes testing of new processes, tools and operating models, including learning from mistakes. Further, traditional accounting and finance skill sets alone are no longer sufficient today to build an effective value-adding finance organization. Instead, cross pollination of individuals with varying backgrounds is necessary.
- The ideas of embedding digital skills across the finance organization, and building business-savvy finance leaders are both positive ones. Nevertheless, development of other soft skills such as collaboration, communication, problem-solving, critical-thinking, adaptability, emotional intelligence and persuasion should not be neglected.