The Changing Role of Finance: Success Factors in the Transformation Journey
Any transformation is a marathon of sprints, therefore have a clear vision and be open to constant iterations.
Finance is said to be moving towards version 5.0 [1] and several of my previous posts discuss what finance role should be. At the same time, the concept of iatrogenics states that intervention often leads to worse outcomes [2]. Reading about this earlier this week motivated me to research and write this time on transformation success factors and challenges based on both academic and industry sources.
The Strategic CFO
A popular consensus is that from the conventional roles associated with transaction processing and statutory reporting, finance teams are now seeking to become central strategic partners. Overall, finance transformation is driven by an array of internal and external factors [3], but ultimately the CFO is at the forefront.
Although historically their main tasks revolved around accounting, reporting, and controls, modern CFOs are redefining their roles. They have progressed from being just stewards to crucial strategic partners actively involved in significant business initiatives[4]. As Hope describes, conventional methods that overly emphasize strict financial results management can inhibit innovation[5]. Addressing this, modern CFOs champion lean systems that encourage decentralized decision-making within well-defined guidelines.
However, this strategic shift poses challenges. Taking a more comprehensive role offers multiple benefits such as finding new business value and strategy alignment, it also brings up concerns about maintaining objectivity and independence[5]. Navigating this balance is imperative.
Evolving Skill Sets and Focus
Transitioning to strategic leadership calls for the redefinition of skills within finance teams. Beyond technical expertise:
Modern finance roles require effective communication
Building robust relationships, particularly with senior stakeholders, is essential[5]
Talent management's significance cannot be overstated, emphasizing strong ties between Financial Planning & Analysis, accounting, and other teams[6]
Streamlining tasks, employing shared services, and self-service reporting are pivotal to concentrating on strategic objectives[5].
To track this evolution, Hope proposes metrics that include:
the balance of time spent between decision support and operations
the internal vs. external focus of measures,
the quality and speed of predictions, and
stakeholder contentment with finance services[5].
Process Transformation
Revamping finance also requires a reexamination of core processes, especially the second pillar of finance: FPA, namely planning and budgeting[5]. Ajay Vashee, Former Dropbox CFO, cites in this journey the need for a cultural shift that emphasizes strategic disruption and continuous transformation[7]. Traditional yearly plans, which frequently become outdated swiftly, ought to be replaced with more adaptable quarterly rolling forecasts[5]. Furthermore, Vashee stresses the importance of using finance tools that boost usability across various departments to foster collaboration[7].
Partnering with the Business
The success of finance's transition to a strategic role relies on collaboration with business as a whole[3][5]. One of the mindset shifts is moving from Financial Planning & Analysis to "Financial Partnership and Advising." [6] Plans are only as good as the insights they bring and this change fosters a collaborative strategy, strengthening ties between FP&A and other organizational teams as well as accounting [7].
Rather than imposing decisions, finance needs to play a partnering role, guiding business choices without overshadowing them. However, finance shouldn’t “serve” business, finance needs to be the intelligent discussion partner that both challenges and enables business. On the efficiency side, reducing month-end closes to 2-3 days frees finance up for taking the role of strategic partner and providing guidance. Technological advancements will not take away finance jobs, they will enhance these.
A more active role through better understanding and a proactive approach may include as an example encouraging sales teams to have consistent contract payment terms help stabilize cash flow, further strengthening finance positioning as a strategic enabler, not as a compliance function [7].
Sustaining Change
Transformation in finance may be compared to running consecutive sprints within a marathon. Changes demand persistence as well as agility. Embracing change doesn't mean adopting a top down plan; instead, it involves continuous feedback, learning from past endeavors, and refining approaches[3][5]. An articulated vision, backed by clear communication and urgency, is vital as well.
It’s also essential to understand the users' needs and determine how finance can effectively support business achievements. Think of jobs to be done as opposed to trying to find a nail to hit with your finance hammer. Ajay Vashee underscores the value of incentivized transformation. By setting benchmarks around the hours saved via automation, and recognizing team members' ongoing efforts, finance departments can maintain momentum and instill a culture of consistent enhancement[^7].
In Conclusion
Every successful transformation journey has a set of critical success factors as well as roadblocks to overcome. One of the concepts that is both easy to remember and rings true, is thinking about FPA as "Financial Partnership and Advising”. [6] Continuous learning through an iterative approach will enable the transformation journey to remain relevant also in the ever-evolving landscape. Through strategic modifications in systems, skills, and mindsets, finance leaders can transform themselves and their teams into adaptable, business-focused strategic partners.
References:
[1]: A. Liu-Lindberg, "Welcome to Finance Function 5.0," LinkedIn Pulse, [Online] [Accessed: 25 August 2023].
[2]: "Iatrogenics: Why Intervention Often Leads to Worse Outcomes,” Farnam Street Blog, [Online] [Accessed: 20 August 2023].
[3]: A. de Waal et al., “Removing the barriers on the way to European high-performance finance functions,” Problems and Perspectives in Management, 2019.
[4]: H. L. Friedman, “The strategic CFO? Implications of the CFO's role and responsibilities,” 2014. [Online]. Accessed on: Aug. 20, 2023.
[5]: J. Hope, Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value. Boston: Harvard Business School Press, 2006.
[6]: C. Ortega, "Financial Transformation in Finance’s Golden Age with Chris Ortega of Fresh FP&A," The Role Forward: A Strategic Finance Podcast, 13 February 2023.
[7]: A. Vashee, "The Art of Finance Transformation with Former Dropbox CFO Ajay Vashee," The Role Forward: A Strategic Finance Podcast, 13 October 2021.