Finance professionals are not providing the management information that chief executives want, but the changes needed to rectify this situation call for rigorous standardisation and simplification, and the rapid evolution of the finance function. Lesley Meall, FSN contributing editor, looks at a recent survey which suggests that many finance professionals have not evolved far enough.
Evolution is a complex and contentious issue, whether you are focussing on the biological, the cultural, or the professional. So, while cockroaches and sharks may have thrived despite being substantially the same as they were millions of years ago, many other organisms and species have survived only by adapting to changes in their environment: homo sapiens has morphed into the city-dwelling homo urbanis, and accountants have turned from bean counters into business partners – or have they?
When PricewaterhouseCoopers LLP recently published its finance effectiveness benchmark study for 2010, which posed the question: Is finance rising to the challenge? the answer seemed to be more ‘no’ than ‘yes’. Feedback from over 100 of the top 200 FTSE companies and international companies highlighted a gap between business leaders expectations of their finance functions and the roles they actually perform.
Although 63% of the benchmark participants regard their finance function as playing a leading role in the strategic planning process, by providing support to the CEO, 80% of CEOs are dissatisfied with the quality of management information (MI) they receive. They question whether the MI provided by finance is sufficiently meaningful and forward looking to drive business decisions, in an increasingly complex and uncertain business environment. But there are difficulties associated with broadening the focus of MI to provide sufficient breadth of non-financial performance data, and developing the timely, reliable and comparable metrics for this.
“Standardising and simplifying processes, data and supporting technology to minimise the costs associated with gathering financial and non-financial information is a big step towards rebalancing the role of the finance function,” says Nick Jarman, partner in the finance effectiveness consulting practice at PwC. But this does not necessarily close the expectation gap between finance and the executive. “There are some significant hurdles to overcome before the finance function truly becomes the effective strategic partner that the business requires,” he adds.
“Shared services has become the predominant structure for the finance function, in-house and out-house, and there is a widespread presumption that those in the retained finance function will be free to do more analytical work, and act as business partners,” observes Jarman. But most finance professionals still spend more time on data gathering than actual analysis, and where finance staff are assigned to “business partnering” activities, the PwC study found that they often lack the training, resources and business acumen to make their input of real value to the business.
Investment essential
As well as technical skills, finance professionals need people skills, and change management skills, and their development is not something that happens accidentally. “If CEOs want finance professionals to be more adept at providing more insightful information, they will need to invest,” says Jarman, “to ensure that their finance function has the right skills and capabilities to perform the role required”. The PwC study found that where the finance function is working most effectively, around 30% more resources are invested in analytical activities, and finance staff are paid 25% more.
Simply re-labelling inexperienced personnel as analysts is not enough, and many finance functions are short of people with the capabilities necessary to translate reams of data into meaningful insights, or add value. “This is a horrible phrase, and should be removed from the business lexicon,” says Jarman, because the meaning is anything but clear. “Is it any surprise that finance people say ‘well yes…so you want me to add value…but what does that mean?’” he says, adding: “If the right management information is to be made available, more clarification and definition is needed.
“I really believe that there is an opportunity for people in finance, particularly those in data-rich environments, to provide meaningful analysis, such as how to maximise profit,” says Jarman, but for this to inform decision-making, it has get at the drivers behind the metrics. So, for example, it is not enough to identify the least profitable and the most profitable customers. “Managers need to know what the business is getting right with the most profitable customers that it is not doing elsewhere,” he adds, which often comes down to activity based costing.
The PwC study seems to indicate that the more rigorously standardisation and simplification are applied, the bigger the benefits are, and some “progressive organisations” have supported this by creating finance academies. “The finance people who attend them not only learn how to ‘add value’, they are given the tools they need to do this,” says Jarman, through access to a central repository of reports. “This makes life much simpler, because people don’t have to keep reinventing the wheel,” he comments, “and by asking finance people to use common models for things, you can standardise across the organisation.”
Too many databases
But if the finance function is to close the expectation gap, attitudes towards the management of data also need to change. The PwC survey found that nearly half of all finance professionals had access to one database for financial information, but only 23% can access non-financial and management information from a central repository. The remainder need to access multiple databases and applications – with all of the unnecessary complexity, confusion this creates. “Clearly, there is a need for a more unified approach to data,” observes Jarman.
“PwC recommends the formation of data governance groups made up of representatives from different areas including finance, HR, sales and so on,” he says, so that they can work together to introduce standardisation and make sure that all data is handled in the same way. “I don’t think you should make finance responsible for all of the data in an organisation,” he explains, so marketing will keep ownership of marketing data and personnel will keep HR data, but Jarman sees a significant role for the finance function.
“Data governance is something that people have not generally been very good at in many organisations,” he says, but finance has proven to be very adept at this. “There is a clear discipline in finance when it comes to data assurance,” he asserts, “so there is an argument that finance people can use the skills they acquired while managing financial data to improve the management of non-financial data, and provide the necessary assurance that this is being done properly.”
Further justification for this approach may come from the increasing demands for the finance function to report on non-finance metrics, and PwC (quite sensibly) suggests that bringing control of data management under one roof would make it easier for finance to source, aggregate, assess and interpret an often unfamiliar array of information from across the enterprise. While acknowledging that accountability for data should continue to reside within the business, most of the study participants, apparently, see finance as being “well-placed to act as the clearing house for all information.”
It would make it easier for finance to apply controls, processes, and systems across diverse sources of information, and improve the chances that business gets the MI it requires. “According to the report: “It would also allow finance teams to combine the results into meaningful performance analysis that can be clearly linked to strategic objectives.” But unless finance professionals get the support they need to make the evolutionary jump from bean counter to business partner, the gap between the CEOs expectations and the MI the finance function provides, seems unlikely to get any smaller any time soon.
