Finance Transformation: The Art of Getting More from Your Finance Team

More and more companies are asking Finance to play a bigger role in their strategy and development. Here are some of the ways you should (and shouldn’t) be leveraging finance transformation to increase your team’s impact.

CEB, a member-based leadership advisory company, has posted many articles in the past year regarding finance transformation and how it is becoming an increasingly debated topic. Research confirms that companies are expecting their Finance teams to provide more support while reducing costs.

This is an exceedingly difficult task considering that the role of Finance is evolving from traditional governance (accounting, auditing, and budgeting) into guidance-based support (advanced analytics, demand planning, pricing, etc.), and that many companies seeking this added support are facing increasing complexity due to rapid growth, new business ventures, and M&A activity.
So how can companies properly align their Finance teams to maximize the profitability of the business? Without the proper planning and execution, the short answer is they can’t. But with a clear vision and the right approach, finance transformation can make a significant impact. Below are several common themes identified in CEB’s analysis and research that offer insight into how to (and how not to) implement a successful transformation of your Finance organization.

What is Finance Transformation?

Loosely defined, the term “finance transformation” is used to describe strategic initiatives aimed at improving Finance within a company.  It can involve a variety of tasks, from shortening a budget cycle to implementing new Accounting software to reducing overhead costs. I argue, however, that the general goal of any transformation is the same: to align Finance with the overall company strategy in order to become more efficient and provide better service to their internal customers. Typically, this can be categorized into improving one or more of the following:

• Governance: These core responsibilities include accounting, auditing, and budgeting. The importance of this area is mostly related to compliance, control, and minimizing costs.
• Scale: This is usually in response to new business requirements (growth, acquisitions, new markets, etc.). The goal here is for Finance to be able to efficiently service and integrate growing businesses.
• Services: This type of change aims to provide better financial insight to internal customers, often through new and advanced analytics.

Biggest Hurdles to a Successful Finance Transformation

The biggest mistake a company can make is having too broad of a goal by simply saying it wants a “world-class” Finance team. Too often, this means the company will attempt to cut costs and increase services simultaneously. Specifically, benchmarking against “world-class” metrics can lead to the following problems:

• Only focusing on costs. Managing costs is indeed an important aspect of Finance transformation, but it must be realistic. Companies tend to use an industry standard benchmark, often cost as a percent of revenue, as a target for their own team, which usually means significant blanket budget cuts. This leaves teams ill-equipped to react to changing business needs.
• Underestimating business complexity and added services. Rapidly changing markets, technology, and business ventures make it increasingly difficult to anticipate the analytical needs of a company. Therefore, it is important for companies to allow for some churn as they go through and learn new integrations, analysis, and processes. CEB analysis indicates that company geographic and product scope is twice as impactful vs. revenue to Finance costs.
• Seeking universal customer satisfaction. By trying to do too many things, a company can be detracted from focusing on areas that are most profitable for the company.

Finance Transformation Best Practices

The most important aspect of Finance transformation is having a clear vision. What role do you want your Finance team to play? Below are some guidelines on how to come up with the best answer:

Map out your activities

Try to align the Finance strategy to the future state of the business by focusing on your unique corporate strategy and paying less attention to historical/industry benchmarks. Companies can start by mapping out what they currently do vs. what they aspire to do. Below is an example of CEB’s analysis of a high-performing FP&A team’s activity allocation.

What would the activity table look like for your team?  This will largely depend on the maturity of the business. If the company is in its infant stages, for example, perhaps the goal of Finance is to streamline the accounting close cycle or develop a budget. For more mature companies, the goal of Finance may be to invest in demand planning activities, as shown in the example.

Set goals to guide you to your future state

Focus on the return on investment for the company, rather than cost to serve. As you go about this, remember to:

• Be specific. For example, to be more efficient, you need to standardize Accounting close cycles between every global office. Or to provide more analytics, perhaps you have to integrate accounting/financial systems with marketing customer data systems.
• Decide what to stop doing. This is an often overlooked strategy in transforming Finance. In order to truly deliver value to a company and focus on the most profitable initiatives, you must eliminate low-value activities.
• Manage business partner expectations. Do not aim for universal business partner satisfaction, as that will prevent you from putting enough time into the most important tasks. Work with each of your constituents to scope out and prioritize work.
• Realize that transformation is an ongoing process and not a one-time exercise. Do not be afraid to revisit your transformation plan as the business continues to evolve.

For more insights on finance transformation by CEB, visit their website.
Photo by: Julia Folsom