Financial Transformation is Really About Fixing the Business

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Clean Data

According to Strategy and Business, the “CFO role is expanding to include being the company’s premier champion of strategic discipline.” It is no wonder that financial transformations are so much in vogue these days. According to The Conference Board, 81% of the companies that it surveyed are involved in a major financial transformation initiative. However, only 27% of these firms claim that they had achieved the benefits that were defined within their business case. Of the reasons for failure, the most interesting is thinking the transformation would be some kind of big bang. The problem is this type of thinking is unrealistic for today’s hyper competitive business environment. Financial strategy today needs be an enabler of business strategy. This means that it needs to be able to support the increasingly shorter duration of business strategy.

Financial Transformation needs to Enable Business Agility

Financial Transformation
Financial Transformation needs to Enable Business Agility

I have discovered the same thing in my discussions with IT organizations. In other words, enabling business strategies increasingly need to be built with a notion of agility. This means for financial strategies that they to need to first and foremost make organizations more agile and enable more continuous business change. Think about the impact of an organization that has as part of its strategy inorganic acquisition. This all means that thinking that a multi-year ERP implementations will on it’s own deliver financial transformation alone is unrealistic.

While it is absolutely fair to determine what at the manual tasks financial teams can eliminate, it does not make sense to think that they are done once an ERP implementation is completed. Recently, I was talking with a large accounting consulting and integration firm, they let me know that they really liked doing large ERP implementations and re-implementations, but they also knew that they would soon break under the weight of financial and business change unless flexibility was built in from the start. Financial transformation must start by creating business flexibility and agility to work in today’s business environment.

Does Your Close Process Get in the Way?

Financial Transformation
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But achieving better financial agility and profitability improvement capabilities is often limited by the timeliness, trustworthiness of data. This why CFOs say that they spend so much of their time on the close process. According to the MIT CFO Summit Survey, nearly half of the organizations surveyed are feeling pressure from senior leadership to become more data driven and analytical. Data clearly limits the finance function ability to guide corporate executives, business-unit managers, and sales and marketing functions in ways to ensures business profitable and growth.

Financial Transformations Need to Fit Business Strategy

Financial Transformations
Financial Transformations Need to Fit Business Strategy

At the same time, it cannot be stressed enough that successful financial transformations need to be designed to fit with the company’s larger business strategy. The Conference Board suggests financial organizations should put real emphasis upon transformations that grow the business. Jonathan Brynes at the MIT Sloan School has suggested “the most important issue facing most managers …is making more money from their existing businesses without costly new initiatives”. In Brynes’ cross industry research, he found that 30% or higher of each company’s businesses are unprofitable. Brynes claims these business losses are offset by what are “islands of high profitability”. The root cause of this issue he asserts is the inability of current financial and management control systems to surface profitability problems and opportunities for investment to accelerate growth. For this reason, financial transformations should as a business goal make it easier to evaluate business profitability.

In a survey from CFO magazine, they found that nearly all the survey respondents said their companies are striving to improve profitability over the next year. 87% said their companies needed to analyze financial and performance data much more quickly if they were to meet business targets. However, only 12% said their finance organizations can respond to requests for financial reports and analysis from business managers in real or near-real time. At the same time, business managers are expecting finance staff to be able to tell the story behind the numbers — to integrate financial and operational data in ways that get at the drivers of improvement.

We Are Talking About More than Financial Decision Making

This means not just worrying about financial decision making, but ensuring that the right questions and the right insights are being provided for the business. As Geoffrey Moore has indicated economies of scale and market clout are no longer the formidable barriers to entry that they once were. The allocation of resources must be focused on a company’s most distinctive business capabilities—those things that provide the enterprise its “right to win”. To be a strategic, CFOs need to become a critical champion of the capabilities system, making sure it gets the investment and consideration it needs. This accentuates your ongoing role as a voice of reason in M&A—favoring acquisitions that fit well with the company’s capabilities system, and recommending divestitures of products and services that don’t.

Parting Remarks

Today, the CFO role is being transformed to increasingly be a catalyst for change. This involves increasingly helping companies focus upon the business capabilities that drive value. CFOs are uniquely positioned to take on this challenge. They are the company leader that combines strategic insight with a line of sight into business execution. Moreover, unlike other change agents, CFOs have the power of the purse. However, to do this their financial transformations need to ensure business agility and improve their and the businesses ability to get and use data.

Related links:

CFOs Move to Chief Profitability Officer

CFOs Discuss Their Technology Priorities

The CFO Viewpoint upon Data

How CFOs can change the conversation with their CIO?

New type of CFO represents a potent CIO ally

Competing on Analytics

The Business Case for Better Data Connectivity

Twitter: @MylesSuer