As business is dominated by cash flows, costs and profitability the finance function has traditionally been immune to any form of corporate criticism. Money is the driver for many organisations and as finance retains full control of this role and very few have dared to criticize its brand as the most central and critical of all support functions. In contrast the HR and IT functions have grown used to being subjected to constant reviews and the need to justify their existence and contribution. The widespread use of IT outsourcing is now a common practice and at its root is the belief that all too often IT and HR was either too expensive or just simply failed to consistently deliver value.
But times are a changing and today we are seeing the once revered finance function being subjected to review. Relentless cost pressures and global competition are forcing organisations to now look at how their finance functions operate. We have probably all heard the classic jibes of “the bean-counters or digit heads” but nowadays leading edge functions are instigating real change.
Not a cost issue but one of added value
At one level the issue is not so much one of cost but rather effectiveness. In the UK for example it is estimated that amongst large firms finance costs equate to less than 1% of revenues so the opportunity to achieve significant savings is limited. Rather the challenge is how the function adds value to performance and shareholder value. Improvements in systems and data management and the advances with the “Big Data” concept are resulting in significant changes for finance. It is now expected to deliver more value than ever before.
The reality however is that just like HR and IT, many finance functions faces real challenges with how they contribute to business and organizational success. In many ways the similarity with HR and IT is remarkable but only in recent years is the issue now being addressed. Typically many finance functions struggle with what I term “feeding the beast!” This relates to the enormous transactional day-to-day pressures any support function has to deal with. Consequently some of the classic challenges faced include:
1. Lots of legacy type financial systems that require lots of attention and maintenance
2. An obsession with controlling and reporting which results in too many measures and a heads down approach
3. Highly skilled and motivated finance people who are more comfortable with the technicalities of finance but not necessarily with the daily reality of the business
4. A focus on data capture, recording, controlling and writing reports at the expense of better analysis, forecasting and proactive strategic advice
5. Staff who prefer the comfort of their spreadsheets and offices rather than getting out and working alongside business directors and leaders as trusted advisers
6. A siloed and disjointed function
7. A brand that is best described as one of “score keeping and a counting factory”
8. A worst case scenario where even the validity and legitimacy of the numbers are not “trusted’ by line managers
So how are some finance functions responding?
Well many large businesses are now moving many of their transactional processing and analysis work to shared services models. The aim being to leave behind a smaller number of higher valued added financial roles that make a stronger impact when it comes to decision support and business influence. The goal is to produce trusted strategic business advisers who can, as one of my client CFO states help leaders “navigate” the business to greater success. Leading organisations are already racing ahead and outsourcing core financial activities to one shared service location – often in Eastern Europe where it is cheaper. At the same time they have instigated business partner structures and roles.
But just like HR the challenge is whether it will be case of “old wine in new bottles?” As we know that when many HR functions made this transition they simply rebranded roles and carried on doing the same old stuff. Will finance learn from this classic mistake and truly embrace what the role is meant to be?
The challenge for finance professionals
In the new Business Partner Role the finance professional is expected to provide real insights to help improve decision-making. To achieve this they need to have significant levels of impact and influence and not be content with just presenting the numbers and sitting back. Just like HR some finance professionals need to learn to challenge senior leaders and not just defer to them for the final decision – not always easy for some people and more so when you are on the payroll and not an external consultant. Telling your boss in a challenging way they might be wrong is never an easy task! We know only too well from the credit crunch that very powerful and aggressive alpha CEO types often intimidated their financial leaders into submission.
Equally the Finance Business Partner needs to develop greater influence and impact by thinking much more about how they present data. Saying goodbye to the complex Excel sheets that so dominate the agenda and using more visual ways to get their advice across. The answer is not more financial skills but better working relationships brought about by different approaches to influence and ways of working with line managers.
As someone who works on a lot of executive and MBA type development initiatives I have always reflected on the manner in which many smart and highly motivated managers profess relative ignorance of some of the fundamentals of finance. I have always reflected on why is it that finance seems content that the vast majority of employees know very little about the differences between cash and profit or the importance of debtor debts etc.? Is it not a key role of finance to empower and liberate staff to understand finance so we can all make better decisions and in the process make more profit? Moving away from the “leave it us in Finance to take care of” approach to a more informative and educating attitude is one of the key roles of a business partner. This will of course be very challenging to those finance professionals who regard information as power and will fear that any opening up of the finance box will result in them losing out in someway.
There are of course many other complex issues involved in this transition. Finance just like HR again has many roles. On one hand it is there to help maximize profitability and propel the business forward; but it also has significant regulatory and compliance roles and responsibilities that require very different obligations. Equally we know that some finance professionals will be very challenged by such a role; preferring the comfort and security of their expert role as opposed to getting out and working amongst business managers. The new role requires them to be bureaucracy busters and strategic business developers. But against of all this what is certain is that the finance function is now a target of real and deep organizational change.
The question for HR leaders is are you brave enough to have this conversation in your organization?
At PPI we have developed a high quality Finance Business Partnering offering that addresses many of the above issues and which delivers many of the qualitative skills required of the role. We have also worked closely with finance functions to help them develop this capability across their teams.
Should you wish to discuss this critical development issue further please feel free to contact us for an informal discussion.