Hanken & SSE Blog
Signs of Finance Function Excellence

Spend ten years benchmarking, training and developing in the field of finance and you get to see a lot of ways of doing finance. Many finance organizations are good, some more complicated in various and tedious ways, but a few stand out as being in a league of their own. It’s not just how, or how well, they do what they do – it’s that some finance organizations are so extremely competent that they end up doing somewhat different things.

 

 Finance function excellence has long been a pet research topic for big consulting firms. The IBM CFO studies (2010, 2013, 2016) are, among others, well worth looking into. After a decade of immersion into the finance function, and after 18 CFO interviews so far in Q2-Q3/2016, I feel that excellent finance operations stand out quite clearly from the rest.

 

The services provided by a modern finance function are complex and interdependent, but can roughly be separated into two main categories:

 

  1. Providing (finance) process infrastructure
  2. Providing (financial) decision support

 

Let’s consider them separately, because excellence shows up differently in them.

 

Providing (finance) process infrastructure

The first category, providing (finance) process infrastructure, includes running payroll, accounting, statutory and routine management reporting, payables, receivables, cash management and treasury operations, order processing and inventory management, and so on. Depending on the business, the border between traditional core finance processes (like accounts receivable) and operating processes (like order processing and production planning) can be quite fluid.

 

Baseline efficient finance functions run these processes well. They are standardized as far as practicable, centralized in service centers for efficiency, and are continuously monitored and kept under control in various ways.

 

Some finance functions – the excellent ones – go way beyond baseline efficiency. Core finance processes are automated so far that the demand for less skilled manual work drops to the point where the choice of location for the service center is more governed by availability of competent professionals, than by the cost of clerical labor. These finance functions have become so good at running processes that the scope of the service center and finance function expands way beyond the norm. Where other organizations would consider recurring reports as highly demanding analyses, the ones that run an exceptional finance operation handle them as routine process deliverables by their service centers.

 

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As the rest of the organization becomes aware of the competence and efficiency of the finance function in implementing and running efficient processes, the demand for this expertise expands. Other support or infrastructure-related services, such as facility and real estate, or indirect purchases, are taken over by the finance function simply because they know how to implement and run similar processes efficiently. In some cases, responsibility for core operating processes such as sourcing and purchasing, logistics, and supply chain operations is given to the finance function for the same reason - they know how to run them well. A signal of this happening is when senior controllers tend to end up in charge of process redesign projects outside the finance function proper, seconded or sometimes poached (or job-rotated) from the finance function. Deep competence attracts new challenges.

 

In effect, when a finance organization is excellent in this regard, the (finance) qualifier in this category fades away. The finance function tends to end up providing a larger and continuously increasing part of the process infrastructure that is needed to operate the business, simply because it has demonstrated the knowledge and track record to do it efficiently and well.

 

Providing (financial) decision support

Once the provision of process infrastructure as a part of the finance function is taken care of, what remains is essentially core business controlling, to support business management with as relevant (financial) information, models and frameworks as possible. Here, again, excellent finance organizations seem to do it in a different way. While baseline efficient finance functions emphasize the need for controllers to understand business in depth, in order to provide decision-relevant information, excellent business controlling organizations take this as given.

 

The differentiating factor between excellent and baseline business controlling setups seems to be how the interplay and integration between on the one hand strategic planning and business development, and on the other business controlling, is tackled and seen. Most of the business controlling organizations I encounter find this a challenging issue. How do you make sure that the scenarios and long range capex frames developed as part of the strategy process are communicated to, and understood and utilized by, the business controllers around the units? How do you educate and empower business controllers to explicitly communicate and work with strategic issues, as they provide financial decision support at various levels of the organization?

 

In certain rare cases these are no longer open questions. The role of the business controllers throughout the enterprise is, in excellent finance organizations, very clearly seen as primarily related to strategic planning, communication, implementation and execution. The financial skills and competences of business controllers are a core part of their toolkit, but not their core purpose. What they do is support and guide strategy processes, broadly defined, in a well coordinated manner. Indeed, the legitimacy of the business controllers as they participate in management teams on different levels no longer stems from their role as providers of reports and financial analyses, but rather from their ability to explain, drive, measure and guide strategy execution forward.

 

It is a mindset thing – a redefinition of the service provided by business controlling, from timely, relevant financial reports and analyses, towards assisting management with executing the strategy of the enterprise as comprehensibly as possible. I have yet to encounter a finance organization that would be all the way there in this respect, but I have observed a few that are clearly trying to transition to this mode of operating. It shows in the kind of individuals recruited and promoted in business controlling, in the type of job rotations and career paths built for senior finance people, and in the strategic goals and paths set out for the finance function as a whole. And again, it comes down to an enlarged scope. Excellent finance functions mean a slightly different thing when they talk about business controlling.

 

The enablers of excellence

So how do you get to be excellent? It is, in a word, a matter of competence. It’s a matter of finding the right people, obviously, and of building an environment where they can grow and develop to the maximum. On an organizational level, it seems to be primarily a matter of building sufficient depth of competence, on different levels, so that the necessary mass of knowledge can be accumulated and deployed. It is certainly not easy – and it is also a different, and longer, story.

 

The recent research findings have resulted in a redesign of the Controller Performance Program 2017. To learn more about the program and find out how your finance function can provide value to your business see the Controller Performance Program 2017 homepage through this link.

 

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15 August, 2016
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