Putting your business on the front foot is based on detailed data from benchmark assignments in more than 200 client organisations, including leading global groups.
The backdrop to the report is financial teams’ increasingly crucial role in strategic decision making as well as managing risk and uncertainty. Having become used to operating in a volatile environment, what businesses most need from finance is the forward-looking insights needed to help them compete in local, regional and global markets.
Our analysis raises questions about whether key management information is sufficiently relevant or timely to be of real use and whether financial risks are being managed effectively. The underlying concern is the extent to which some finance teams have found themselves caught in the headlights of uncertainty and change, reacting to events in a defensive manner, rather than dealing with them in a proactive or decisive way.
The report highlights what top performers are doing differently in response to these challenges.
From our benchmarking experience, we often see that top performers achieve results across three core areas, these are:
Leading finance teams employ nearly 40% more people in ‘business partnering’ roles and pay around 25% more than typical functions to help attract quality professionals
Finance teams’ more prominent role in business management is leading to a move away from basic processing and control, towards greater involvement in the development of corporate strategy. The skills they need to perform their frontline role are evolving rapidly.
In turn, finance’s role in risk management is going beyond financial risk to include enterprise risk management. Compliance and risk management knowledge are increasingly rated as key competencies across all finance roles as they’re required to provide greater challenge and create awareness across the business.
Everyone, rather than just people working in business partnering roles, now requires a close understanding of the commercial drivers facing the business and the interpersonal skills needed to engage with frontline teams. The challenge for many finance teams is how to recruit and retain the right combination of competencies for the different roles. Top performing finance teams are taking a more forward-looking approach to talent management. This includes marking out people with special potential, using clear and consistent criteria to help nurture the right skills, competencies and behaviour for key future roles.
The leaders are also developing clearly defined career paths to senior positions, which are helping to strengthen the talent pipeline and encourage greater retention. Succession plans are in place for more than 90% of key finance roles in the top tier finance teams, compared to only around 40% among the average performers.
A combination of market instability and tighter regulation has heightened the need for CFOs to maintain rigorous oversight over operational risk and develop a strategic view of market exposures. Effective risk evaluation is also crucial in identifying opportunities that other less informed businesses may miss or be reluctant to pursue.
A particular challenge is how to generate a combined view of risk and finance. The outputs need to be sufficiently quick, transparent and well-controlled to meet ever more demanding board, regulator and investor expectations. They also need to look ahead to provide a useful basis for regular forecasting, sensitivity analysis and scenario planning.
Finance teams are increasingly becoming the guardians of firm-wide controls rather than just financial controls, although ultimate responsibility still resides within the wider business.
Many participants have established governance structures and policies to manage controls, but few are confident that these are operating properly. It’s interesting to note how few of the key controls have been automated, despite the fact that this would make compliance easier and less costly to maintain.
Many finance teams are making changes, but cultural and operational hurdles remain. The front runners are concentrating on what the business actually needs rather than what they’ve traditionally produced. In these companies, the roles and expectations of business partners are clearly defined and they have the tools and training to bring them up to speed.
The gap between leading and average finance teams shows what's possible with the right data, people and approach and is likely to be a telling difference in those companies’ ability to improve the bottom line.
Around 60% of participants still rely on manual spreadsheet manipulation for reporting. Others have made significant investment in technology, but have often seen little improvement in the speed and quality of MI and regulatory reporting. The fact is that technology won’t make a difference unless the data is right.
The front-runners are also developing the people and analytical capabilities needed to provide genuinely useful analysis and applying the controls needed to instil confidence in the underlying data.
More than 90% of participating companies have a dedicated risk management function in place. But only around half (mainly FTSE 100 groups) believe they have the necessary framework in place to monitor, manage and communicate enterprise-wide risks effectively.
Although flaws in reporting tools are frequently blamed for the problems with MI, the overriding issue tends to be the gaps and inconsistencies in the underlying data – technology can’t deliver without the data to support it. A telling instance of this is that while around 50% of participants have a data warehouse in place, only 11% have applied the standard taxonomy required for true comparability across the business.
Top performing finance teams take just 7 days to produce their forecasts. The typical function needs 19 days.
Technology is not an answer in itself and should only be used once other elements are in place. Successful changes to financial planning demands close collaboration between the corporate office, finance, functional areas and business units. It also requires a cultural shift.
The underlying difference between the front runners and the rest is their ability to change their mindset and approach.
Farsighted finance teams have taken the cultural leap. They’re making sure that forecasts are timely enough, accurate enough and sufficiently sensitive to business drivers to provide a clear and genuinely actionable basis for strategic decision making and performance management. This is underpinned by close engagement with the business, a clear understanding of its commercial objectives and a willingness to challenge strategy where necessary.
These demands are going to take finance in new and potentially unfamiliar directions. The ability to quickly combine and analyse performance data from multiple territories will be crucial to the effective management of today’s global organisations. At a time when the way both boards and shareholders evaluate and judge performance is changing, this includes non-financial as well as financial information in areas such as risk, talent and sustainability. In turn, finance’s traditional focus on financial risks is being widened as the function increasingly comes to the forefront of enterprise risk management.
While many of the traditional roles and career paths in finance may be closing, these developments give finance professionals an opportunity to carve out a more influential and strategic role in the evolving world of modern business.
The profile of the typical finance professional is also changing, with a growing expectation for well-developed business understanding and engagement skills, as well as sharp technical and analytical insights.