What Finance should be, but rarely is…

Jun 22, 2016

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If Finance still wants its place at the boardroom table, it should reinvent itself and give substance to the promise of becoming a true business partner. Although a growing number of CFOs are well aware of the challenges that the finance function is facing, in reality, nothing much changes.
Meanwhile, the clock is ticking. In this era of digital transformation, companies, across industries, are being forced to shift faster and grow smarter in many different ways. New business models arise, new market entrants – often with a more low-weight cost structure – move quickly and disrupt businesses faster than ever before. To survive in this highly volatile and uncertain environment, businesses have to reinvent themselves to deliver customer value that really matters. And Finance is no exception to this rule.

Beyond budgeting

Traditional finance thinking no longer does the trick. If Finance wants to make the shift from delivering insight to providing foresight – based on big data analytics –, it must recruit new professional hybrids that combine finance skills with strong capabilities in technology and information management. That way, Finance can deliver all the insights needed to support the company on its digital transformation journey. However in most companies, Finance still has a long way to go.

In 2006 Kaplan & Norton introduced their strategy map for finance, outlining 4 key functions that Finance had to take on board: External Compliance and Communication, Transaction Processing and Controls, Develop Business Unit Partnerships and Planning and Decision Support. Now, 10 years later, only few finance departments have successfully positioned themselves as a business partner that provides useful insights for planning and decision support. On top of that, an equally disappointing number of companies are in the process of recruiting or investing in new skills such as data analysis and modeling.

So the key question is how to make Finance future-proof in a digital world. How do you avoid that Finance is considered as a shared service that has to be dealt with in a cost efficiency modus? CFOs who don’t take action now risk being replaced at the boardroom table by, for example, the Chief Data Officer, supply chain strategists and/or digital transformation strategists. Not only hollowing out the finance function, but also adding risk to the organization as a whole. Data should be managed as a valuable asset with clearly defined roles and responsibilities.

5 key transformation challenges for the CFO

The way I see it, the CFO office has to address 5 major transformation challenges.

First, Finance needs to determine a new set of metrics representing the value of the company, like customer profitability, customer equity, intangibles valuation, brand equity, etc. To define these metrics, Finance has to gain a deep understanding of the business.

Secondly, data should be made trusted and accessible to internal consumers. A strategic debate is needed to determine who is responsible for a unified data organization that delivers the right data, at the right time to the right people in the right context.

Building on that, Finance needs to breed analytical skills and creativity in order to enable foresight.

Fourthly, finance departments need to attract empathic people and organize business collaboration. Agility is a key prerequisite in the highly volatile world we are living in today. To play its role in it, Finance should invest in empathic and creative people who are able to guide an organization from point a to b, based on the insights it delivers.

Finally, a rule-based exception handling center should be installed enabling Finance to spend more time on its new role.

In short, to become a strategic partner to the business, Finance needs to look at the decisions it takes through a different lens. CFOs who are eager to take up this prominent and more strategic role as a business partner, are in the driving seat to help their company do the right things in the right way.

This article is the first of a series of 6. Having set the scene of why CFOs need to transform the finance role, I will dive deeper into the 5 challenges CFOs are facing today. I also shared some of my findings in the report `Fast Forward Transformation or Back to Basics?’

Author: Thierry Bruyneel. You can connect with Thierry on LinkedIn.