Research has shown a close correlation between high performing Finance functions and high performing companies:
- 70% of high performance businesses have high performing Finance functions (1)
- 80% of high-performing businesses actively involve Finance in strategic decisions in their company. This compares with only 30% of companies who are not high-performing (2).
We’ve identified through our client work that 70% of CFOs want to transform their Finance organisation to deliver more value to their business.
But the telling fact is that 75% of CFOs are struggling with how to make business partnering a success. How to deliver bottom-line benefits?
Finance business partnering is not a new idea. It’s an easy concept to understand.
But it turns out to be a very hard concept to implement at any sort of scale across your organisation, if you want to deliver business benefits.
Perhaps the biggest challenge is that many Finance Directors under-estimate the breadth and scope of change needed to excel at business partnering.
Too often I see traditional Finance Managers being re-branded as Finance Business Partners, given some communication skills training, and told to ‘go out and add value to their business’!
While this may get you started on the road to business partnering, it won’t have a big impact on the bottom-line performance of your business. Just re-branding accountants as business partners is not a strategy.
As specialists in finance business partnering we’ve worked hard over the years to develop and hone a practical approach to help you and your finance teams to excel at adding value to the business. And that’s what I’ll be sharing with you in this series of articles on ‘How to Transform Finance to Add More Value to Your Business’.
If you’d like a copy of our Best Practice guide to Finance Business Partnering click here to download a copy.
‘There’s a reason the windscreen is bigger than the rear view mirror’!
Most CFOs I talk with want their finance teams to have more influence on business decisions. Yet many of them get frustrated because their teams spend most of their time ‘looking backwards’, reporting costs and variances to budgets, instead of ‘looking forwards’ – challenging and influencing investment decisions or resource allocation decisions to improve business performance.
I feel strongly that an experienced finance leader has a privileged position – a ‘birds-eye view’ of a business. They often know better than the general manager how to make money in a business!
What’s the best way to measure the benefits of finance partnering?
A high performing finance partner, or a team of business partners, should deliver business value of at least 20-30 times their costs.
Clearly this metric will vary by company and across sectors, but it’s nevertheless the level of ambition we should all be striving for.
Most companies have been steadily reducing their back-office accounting costs by as much as 25 - 35% through shared services, efficiencies or off-shoring.
In the ‘business-facing’ part of Finance there is usually a further 10 - 15% of cost reductions to be gained from efficiencies in management reporting and other core finance processes like budgeting and forecasting.
Really successful companies then use the freed-up time and some of the freed-up expense to fundmore investment in finance business partnering to drive business value. Always aiming for 20 - 30 times their value.
What are the Top 5 benefits from Finance Business Partnering?
Many people think Finance Business Partnering is only about improving the soft skills of finance teams. Improving their communication and presentation skills.
Likewise many people think the benefits of Finance Partnering are also ‘soft and fuzzy’. This is simply not true.
Take a look at the top 5 benefits that CFOs are currently getting from finance business partnering:
- Improving the Gross Margin of Commercial Pricing - getting more actively involved in pricing decisions and evaluations of options, not just controlling pricing approvals at the end of a commercial process.
- Increasing the Profitability of Existing Products and Services - product ‘health-checks’ for example, or extending service life cycles to increase margin.
- Improving the ROI of Capital Investments - being involved in strategic options, influencing the business case from the outset, instead of just checking the numbers at the end.
- Extending Growth into New Business Areas - this is one of the best opportunities to influence business strategy, and demonstrate a powerful relationship with your business leaders.
- Reducing Operating Costs, especially in the Supply Chain - focussing your business partnering effort into the areas with the biggest ‘business value opportunities’, like supply chain.
The financial benefits to some of these companies amount to tens of millions of euros or dollars.
Adding Value from Business-Facing Finance
Good finance functions have efficient back-office accounting centres, and efficient planning and reporting processes.
Great finance functions use their freed-up time to challenge their business colleagues and influence business strategy, business decisions and business performance.
If you’re an ambitious Finance Director, or aspiring to be one, I would encourage you to put moreeffort into leading the business-facing part of Finance, rather than the back-office.
After all there are plenty of Finance people out there who can sort out back-office processes, controls and systems. But not many who can lead Finance teams to deliver extraordinary business value. And they’re in high demand.
So ask yourself these questions:
- Are you clear about your ‘business value goals’ for finance business partnering? Are they 20-30 times their costs?
- Are you able to measure the benefits and share these with your business colleagues?
In my future articles in this business partnering series I’ll be covering how to transform your finance organisation to deliver more value to your business – The 5 Levers to Pull.
I’ll also share with you the biggest hurdles getting in the way, with tips and advice to overcome these hurdles.
In the meantime if you’d like to read our Best Practice Report on Finance Business Partnering please go to our website www.arcusc.com to download a copy.
By Adrian Willmott, from: www.arcusc.com