Few corporate groups play as important a role as finance does in the pursuit of a transformed business. CFOs and financial leadership work every day in the place where company concerns like advancing technology, compliance, cost trends, automation and competitive strategy converge. As these meet practical implications around people and processes, some financial leaders respond defensively – afraid or unsure of how to be truly transformative. The business risks and uncertainty push them deeper into comfort zone of strictly transactional type work.
Others, however, are rethinking the finance function.
They are convinced that finance needs to initiate and lead forward thinking, strategic initiatives. These leaders have moved beyond the back office with its traditional focus on admin-led, transactional work. Instead they prioritize business partnership and generating value that delivers impact cross-organizationally. While classic finance and accounting functions are still healthily maintained, these leaders have shifted to a value oriented perspective.
Warwick Hunt, former CFO and current COO of PwC UK suggests simply:
The CFO, as we know it, is obsolete
While the statement is intended to shock, the point is important to understand: the CFOs and finance leaders at top companies participate in critical, strategic operations and regularly offer valuable insights to business units. These leaders capitalize on finance’s centrality inside the company and use the broad perspective they’ve gained from engaging with teams across the company to drive wider business benefit.
Encouraging finance to become a more progressive function isn’t just about keeping pace with evolving departmental trends. See, traditionalists are quick to defend finance’s historical place; suggesting that deliberate shifts into richer business partnership and more innovative work undermines the cost control and operational compliance role that finance must maintain. Interestingly, top finance leaders at the world’s most innovative companies have struck a balance. Through an unrelenting focus on efficiency and standardization they maintain leaner core operations more cost effectively becoming razor sharp in critical focus areas and prove effective in impacting the business in the ways that CEOs are expecting.
PwC’s industry benchmark report titled Stepping up: How finance functions are transforming to drive business resultsdiscusses this shift too, suggesting that the best leaders, “hold [business units] accountable for results while devoting minimal time to ‘cranking the handle’ – the mundane, rote work of tracking transactions.” This transition recognizes the ‘soft power of the CFO’ and is part of a necessary maturing of the finance role beyond simply score-keeping, governance and controls. Top tier companies that do this, according to PwC’s 2017 report, outperform the median cost of finance (which are the operating costs associated with running a finance department) by 30% to 40%. [See figure, right].
Additionally, as the figure below shows, a commitment to upskilling finance into a more agile, collaborative and innovative function creates cost reduction and capacity for higher-value analytical capacity to be shared within the organization.
Igniting growth – in addition to cost counting and the traditional transactional work effort – must increasingly define effective finance departments. In a recent CEO survey, 80% of respondents shared that driving organic growth was top priority, while 62% said cutting costs was. These responses are indicative of the new executive perspective to target growth while keeping costs inline. Finance functions must evolve because, simply, CEOs are demanding it.
Of course, moving toward this new value-enhancing reality is hard. There are ongoing reporting, remit and transactional chores that need addressing. For many finance folks, even behavioral and communicative changes need to be made. And teams often struggle under headcount constraints or structural issues that impact cross-cutting partnerships. While unconventional approaches like adding AI for certain rules-based and repetitive activities may create space for broader value work, there are simpler, more immediately available opportunities for ambitious finance leaders.
For many companies it starts with taking finance’s existing strengths – like analytical and interpretive capabilities or monitoring investment returns – and applying them on behalf of a business unit’s activities. This can look like monitoring costs and developing KPIs for technology or product investments to support ROI discussion or examining where budgets are pressured and offer alternative ideas to sharpen cost effectiveness.
As well, this could look like organizing a new approach to building efficiencies and optimizing technology and software investment. This is an often overlooked area that is becoming crucially important in the rising digital age and is ‘low hanging fruit’ in terms of transformative support that finance can offer. With Cleanshelf, finance can take the reins on achieving visibility into the organization’s software spend, usage and compliance. With companies spending hundreds of thousands or millions of dollars on software and averaging over thirty SaaS tools per employee, the transformational growth and cost savings benefit in addressing this issue is clear and fits within today’s CEO priorities as previously discussed. Additionally, because finance owns an enterprise-wide view (not simply a team, department or business-unit level one) this data can be immediately analyzed and findings applied to eliminate risks within the company.
In a digital-first world, technology will forever play a critical role in corporate operations. When properly applied it offers collaborative, intelligence and cost improvements up and down the company. But when it’s haphazardly utilized – or worse, unmanaged – risk and costs rise while productivity, compliance and security effectiveness drop. Fortunately, a new generation of tools have emerged that can be leveraged by finance leaders to optimize the application of technology inside a company. These tools offer finance the opportunity to move beyond the back office and define itself as true business partner.