The revolution brewing in finance departments due to digital disruption and mounting complexity set the stage for CFOs to step up their games as proactive internal challengers and identifiers of new opportunities.
These forces are causing companies to rely even more heavily on their finance teams, but too many CFOs know they’re not creating as much value for the company as they could, says Laura Miles and Henrik Poppe, partners at global consulting firm Bain & Company in Atlanta and Oslo, respectively.
“CFOs get high marks for using technology and top talent to satisfy business units with better-than-agreed-upon service-level metrics for key transaction and accounting processes. They produce thousands of reports faster as they gain access to real-time data.”
According to Miles and Poppe, many CFOs struggle as they attempt to evolve the role of finance with two often-conflicting objectives: saving money and making the department more efficient, vs. helping the business make more fact-based and effective decisions. “But CFOs can change course by adopting an owner mindset and then making clear choices to become more efficient in routine activities, generating savings that can be plowed into carefully selected, higher-value endeavors.”
They offer a three-step plan for facing the three major challenges to help CFOs become more proactive in challenging the business and identifying new opportunities.
Challenge #1: Knowing where (and where not) to excel. Some finance roles generate more strategic value than others and are more critical for helping a company outpace competitors. Knowing where to invest begins with understanding the industry, strategic priorities, and organisational needs — and then evaluating the finance function with fresh eyes, stepping back to rigorously assess the changes that need to be made.
The best companies start by evaluating the characteristics of their industry — the speed of change in the market, for example. Next, they consider the company’s competitive strategy. Does it differentiate on quality/innovation or on price? Does it view M&A as a priority? And then there are the company’s capabilities and culture to evaluate. How risk-oriented are the company’s executives?
Challenge #2: Understanding where you stand. After determining where and where not to excel, you need to assess how much potential for improvement exists and how much in the way of new capabilities you need to build. Are you a cost leader in account and transaction processing? Underperforming in cash and capital management?
Learning how well your finance capabilities stack up requires a detailed assessment of both quality and cost for each role, including benchmarks to compare your position with that of relevant peers. Increasingly, companies are using a simple diagnostic tool to help them see where they stand.
Challenge #3: Closing the gap. Once you have a clear picture of where you want to be best in class, what that looks like, and what you need to get there, the next stage involves building a solid case for the changes and designing a concrete roadmap of the initiatives to roll out in a multiyear process. Success requires unwavering support from top management. It also requires an early risk assessment to identify the barriers to change — and a plan for mitigating those risks.
The ultimate goal for the CFO is to tackle the three challenges that keep finance from reaching its full potential. “Only after you determine where to excel, understand your starting point and lay plans for closing the gap can the finance function become the strategic partner it needs to be.”