Transforming finance – how CFOs can add real value

As finance departments face ever greater reporting demands, it is time to rethink the whole finance function and find ways to cut costs and improve the quality of management information.

Finance departments everywhere are feeling the strain. Not only are regulators, banks and other external bodies demanding more detailed sets of figures, but internal managers too are seeking deeper insights to help them improve competitiveness in a changing business environment.

Reporting is becoming a growing burden and finance teams are struggling to keep pace with demand, while still maintaining the usual month-end process. Yet despite their efforts, CEOs feel they could be doing more to add value to the business. A survey by Forbes Insights and KPMG found that 32% of CEOs feel that their CFOs do not understand and help them with the challenges they face.

According to Dr David Parker, a service operations expert from UQ Business School, the solution is not to hire extra staff but to rethink the finance function altogether. He believes there is potential for CFOs to reduce costs while enhancing business decision making by improving the quality of information.

“The finance response to the changing business environment has typically been reactive,” says Dr Parker. “Invariably it has been to implement bolt on ‘Band-Aid’ systems to meet changing demands, work around cumbersome processes, or apply manual data manipulation and flash reporting to cater for more bespoke and frequent updates.

“As a result the month-end process is increasing in time and complexity and has an increased risk of error. However finance functions and month-end processes are ripe for disruption. CFOs who can change the role of finance from back office record keeping to a business function delivering valuable insights will ultimately deliver a competitive advantage.”

Such fundamental change is not for the faint hearted, however. CFOs will need strong leadership skills and the ability to create a culture that is conducive to change while managing the risk of information accuracy.

“One of the reasons why there has been limited change in finance to date is the ‘let’s just get the job done’ culture within finance teams,” adds Dr Parker. “Finance staff have historically been rewarded for long hours of working, which can discourage change and process improvement.  A transformational CFO must have the courage to change the complacent mentality of finance.”

In a paper co-authored by Dr Parker and Kate Whittaker, a finance manager with Laing O’Rourke Australia Construction and a postgraduate student, they outline two complementary methods which CFOs can draw upon – the eight-step change management process devised by management thinker John Kotter, and the principles of lean thinking.

Creating urgency

In his 1996 book, Leading Change, Kotter argues that a prerequisite for change is to create a sense of urgency as without it, there is not the momentum to ensure transformation.

Dr Parker and Ms Whittaker suggest ways that CFOs embarking on change can create this urgency – by linking underperforming business units to poor financial information, using consultants to benchmark the department’s performance, carrying out a customer survey, or using an existing restructure or poor profitability to decrease the size of the team.

They suggest CFOs avoid rewarding long hours and instead encourage discussion about more effective ways to get the job done, ask team members what value their tasks are adding, and explain to them that current processes are preventing finance from capitalising on future possibilities.

Building support

Transformational change requires the support of top management and other departments. Kotter recommends creating a coalition bringing together representatives from all the different functions and all the key ‘power brokers’ to drive change. It is important though that members have the credibility and leadership skills to get the project off the ground.

At the outset, the CFO must set the vision to guide the direction of change, and communicate it effectively to achieve buy-in from employees. Whatever it is, the vision should always relate to the value that finance adds to the business. The next step is to define what that value is.

Defining value

According to Kate Whittaker, one of the challenges in defining value is the diverse range of customer needs that the finance function must cater for. “Monthly and annual accounting processes are set up primarily to meet the business’ statutory requirements and in many instances, this same data is manipulated to provide a ‘best fit’ for the secondary needs of internal business customers,” she explains.

“Accounting professionals are adept at responding to the needs of external stakeholders. Therefore, the first challenge is to clarify what internal managers require. To ensure success, CFOs must engage with them to ensure they have a true understanding of their needs. This step is important as it will drive the finance function’s vision.”

Dr Parker and Kate Whittaker suggest CFOs adopt the approach outlined by James Womack and Daniel Jones in their book, Lean thinking: Banish waste and create wealth in your corporation.

Using Womack and Jones’ value stream analysis, it is possible to map the entire finance process, from initial data entry to value output. Processes are then divided into three types - those which create value, those which create no value but can’t be removed in the short term because they are an integral part of the system, and those which do not create value and can be removed immediately.

Experience shows that using this exercise, many activities previously considered value adding can be reclassified as process waste. Once ‘type three’ waste has been eliminated, the focus can switch to ‘type two’ processes. Apart from removing waste, the aim should be to create flow – financial reporting that flows continuously from data entry to the valued report, eliminating waiting, downtime, manual intervention or the need to rework reports.

Motivating employees

Kate Whittaker says involving employees in this process can offer mutual benefits. “Employees who understand and buy into the vision are likely to feel empowered when they can solve their own problems,” she explains.

“However employees who do not understand the vision can become roadblocks, withholding information for fear of losing their job as efficiencies are identified. To get maximum benefit from value stream analysis, it is imperative that finance staff understand the opportunity of additional analysis and business intelligence roles.”

Short-term wins are also important in building momentum and should not be left to chance but carefully orchestrated. As each win is celebrated, the culture of finance is slowly being altered to one of change and continuous improvement.

Establishing pull

Another of Womack and Jones’ principles is to establish ‘pull’ – that ‘no-one upstream should produce a good or service until the customer downstream asks for it’. In the context of finance, Dr Parker suggests this could mean adopting business intelligence technology to allow users to access information themselves as and when they need it – thus eliminating waiting times and the demands on the finance team.

Once the transformation of finance is complete and value is the focus, CFOs should aim to make continuous improvement the norm. “The ultimate state of the finance function is one where process improvements which drive value to the customer are frequently identified and encouraged by others,” he adds.

The challenges ahead will require CFOs to have wider skills than finance alone; however the rewards for those who succeed will be high.

Dr Parker says: “Transforming finance will require CFOs who can balance risk whilst using a variety of change strategies and communication techniques to deliver change through multiple leadership styles. Successful CFOs will require all these skills, as each skill in isolation will not be enough to drive the change required.

“While the challenge is monumental, the time for change is now. Finance of the future has the opportunity to stand beside the CEO as a business partner of choice or forever be relegated to the back office.”

Last updated:
27 February 2019