The evolution of the finance function

Posted on February 1, 2011 by jonhillblog

Finance departments are experiencing a period of significant change at the momen
t. Demands are shifting and finance teams increasingly have to adjust and learn
new skills.
I’ll focus on the traditional functions first. Throughout my career working and c
onsulting with finance departments I’ve observed that finance functions can be spl
it (generally speaking) into four different areas providing value to the departm
ent and indeed the organisation as a whole. These are:
The scorekeeper
• They make sure the numbers add up, the invoices are processed and the journals a
re posted.
• They identify when the numbers aren’t what they should be and alert the business t
hat the budget, forecast, expectation is not going to be met.
• They manage the budget process and make sure that everyone knows what they have
got to do to hit the numbers.
Police
• They put in controls to manage financial risk.
• They audit operational processes looking for commercial risk.
• They detect fraud and deal with “out of policy” transactions.
Risk Manager
• They monitor hedge exposures that the company is experiencing.
• They occasionally manage the risk management process.
Adviser
• They provide commercial advice on the profitability of certain decisions.
• They provide tax planning advice.
• They provide business support for strategy development and planning.
• They present numbers in a way that can be easily understood by the rest of the b
usiness.
How are demands on finance changing?
I’d like to exposit on four key trends in finance happening right now:
Shared Services
Shared services are becoming much more prevalent, not just in finance but in eve
ry support department – this is the convergence and streamlining of an organisatio
n’s functions to ensure that they deliver the services required of them as effecti
vely and efficiently as possible. Shared services can have the effect of deskill
ing transaction roles; introducing technology to process large numbers using ERP
systems.
Finance technology
Leading on from the idea of shared services is the current trend of finance tech
nology. We have had Enterprise Resource Planning in its current form for a good
20 years now. People know what is needed and, generally, how to implement it. In
my opinion SaaS ERP hasn’t got its wind yet (although I think Netsuite and others
are getting traction) but it won’t be long before the software – and the consulting
services supporting it – are commoditised like the hardware. The promise of e-inv
oicing services, like OB10, and the integrated reporting capabilities, like IBM
Cognos, means that the finance team could become more like bank back-offices; ma
king sure that transactions get through. Finance function skills will become mor
e IT and database related.
Business analytics
There is an increasing demand in organisations to find out not only “what happened
?” but “why did it happen?” and “what should we do?”. The tools to answer these questions
are becoming more specialised and more sophisticated (for example IBM SPSS) to e
nable skilled workers to identify hidden trends not only in their own data but a
lso in the market. Commercial finance functions could start to look more like st
atisticians and marketers.
Value integrators
A significant, as well as valuable, trend is the increasing demand for deal savv
y finance people. I’ve talked about organisations as value integrators in a previo
us blog, but the value integrator can also be a function within the finance depa
rtment, and is the co-pilot to the CEO, Operations and Sales team. The person wh
o assumes this mantle not only understands the numbers but provides the business
with insight and understanding, using meaningful business insights when facing
new challenges and opportunities to really beat the competition.
How to evolve in line with these key trends?
I would summarise these four key trends mainly as the introduction and stabilisa
tion of new technology and new demands from the business.
At the same time they may reduce the need for traditional finance skills and s
hift the requirements towards more experiential and commercial skill sets. Howev
er, I wouldn’t say it’s a simple matter of retraining staff members to fit this crit
eria; also, it would be a rare thing to find all these skill sets in one person –
as I said at the beginning of this piece, some function as good police, some as
good scorekeepers, some as good risk managers and others as good advisors.
Faced with this challenge I’d like to close by proposing a few small steps towards
change:
• Talk to the people who interact with finance and gain an understanding of what t
hey need – it’s also always a good idea to start with your paying customers when you
are considering making a change.
• Review your processes and systems to observe how they are delivered. See if ther
e are obvious issues that could be resolved.
• Score your finance department against the four aspects I set out earlier and ide
ntify if you have gaps. Relate this to your clients’ needs – Finance is a service fu
nction after all.
• Assess your team for their skills and how they are performing against a grid of
skills that you would expect to see in them – if you have a £70K per year Chartered
Accountant spending all day correcting spreadsheets you may want to put their sk
ill set to better use.
• Finally, create a well thought-out communication plan that guides the team towar
ds a more effective business service function.