Finance Friday - Unlocking the power of business partnering
Transforming your Finance Team into strategic advisors.
Photo: Matthew Needham
Understanding the role of finance in strategic decision making.
Most CFOs will say they feel pressure from their CEOs to play a larger role in strategy. But for many CFOs the challenge is understanding where they will add the most value.
For most CFOs they fall back on what they know.
Financial planning.
Unfortunately, more time is spent by CFOs trying to make existing strategies work rather than contributing as they should to the development of the strategy in the first place.
Yet, if CFOs could spend time on explaining investor perspectives, providing business model expertise and focus on building competitive advantage.
Then their impact on organisational performance would be magnitudes greater than by focusing on financial planning alone.
And do you know the reason for that?
Yep, Finance leaders and CFOs are too busy working on the traditional areas of finance to have conversations about performance, let alone strategy.
So what can we do about that?
5 ideas to change how you think about strategy
Here’s 5 ideas as to what you as the CFO or Finance leader can do to change how you and your organisation think about strategy:
1. Escape from traditional finance activities - and have more informal growth conversations with business leaders.
If you’re stuck in traditional areas of finance, then you aren’t going to have the time or the capacity to be able to have the conversations with the business leaders. You really have to prioritise reducing the time you’re spending on activities.
Start by doing a simple time audit if you don’t already know what your biggest time sucks are, and then the usual approaches around your workload apply here:
Improve it (get quicker or better at it)
Delegate it (give it someone else)
Eliminate it (stop doing it/ get rid of it all together).
2. Change the conversation
Change the conversation, by having a point of view that combines your perception of the market with your unique perspectives on the needs of investors or key stakeholders.
When I was Head of Finance in a technology organisation, I spent time reading what the trade press was saying about the technology and where it was headed.
Marrying this knowledge and what the business groups wanted to do, with charging the business for computing time. Meant that we were able to defer the investment of a new mainframe for over a year.
Saving the capital cost and associated carrying costs, and allowing a more powerful, cheaper computer to be purchased a year later.
3. Develop frameworks that force choices
Develop frameworks that force choices around the big strategic issues that deliver the most long term value.
One of my most memorable capital investment discussions was in a telecoms company. We had seemingly endless capital projects vying for limited budget.
To manage this, every interested party was gathered in a room.
Each project was listed in a spreadsheet with the capital value cascading down the spreadsheet with both the capital cost and cumulative capital cost.
Around half way down the list there was a a big red line drawn across the spreadsheet where the capital budget sat.
Each project was evaluated against strict criteria, such as legislative, health and safety and rate of return etc.
Over the course of the afternoon, essentially a forced ranking of the projects took place - leading to the most essential and valuable projects being delivered.
4. Embrace risk!
All too often, risk is seen as something that should be avoided. (Sure some risk should be avoided) but risk is also a key part of return - Risk isn’t a stand alone activity that exists for its own sake. but an essential element of organisational performance.
CFOs have a tendency to shy away from risk as it’s often seen as something that’s really bad.
But the truth is, where there’s risk, there’s return. Treating all risks the same is just not right!!!
5. Manage the strategy, not the business
Too often finance leaders are engaged on reporting against how many widgets have been produced, not how many widgets need to be sold to achieve the strategy. So the real challenge here is explicitly link performance measurement to strategic outcomes and using these measures in your management reporting.
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Are you clear on your priorities?
Start of a new year - are the priorities clear for the next 3 months?
Are they widely understood?
If you’d like help setting/agreeing priorities for your team this year, and getting everyone on the same page, please get in touch.
📢 This newsletter is brought to you by Matthew Needham Consulting - Helping CFOs and Finance Teams create more impact in their work. To find out how I can help, or enquire about working with me, click here. 📢