Four steps to mastering financial agility 

Published On : 01/12/2021

By Tim Wakeford, Vice President Product Strategy, EMEA Financials at Workday

Agility is fast-becoming priority number one for finance teams, as companies ride the storm of the ongoing pandemic. Almost a year in, businesses are adjusting processes and trying to align their people in order to react quickly enough to 2020, and soon 2021, uncertainty. Yet for the finance team and CFO, defining and embracing agility is easier said than done. Not only are financial leaders, and their teams, operating under extreme pressure they also have all eyes on them to steer the company to survival — leaving little room for errors. They know they must make changes to the way they work, and fast. The question for many is, where can they gain the most agility with minimal risk and disruption?

Outlined below, is a guide to four specific elements that I believe — through many conversations with clients —  finance teams must embrace to master business agility.

1. Perform Continuous ‘What If’ Scenario Modelling

In today’s climate, it’s no secret that annual plans are outdated before they are even approved. Financial scenario modelling, however, can help finance teams make fast and accurate decisions in response to rapidly changing market conditions. In fact, McKinsey states that finance leaders should focus on three or four independent scenarios that reflect short-term and long-term revenue and cost outlooks. In order to be successful, each scenario should have a perspective on the length of economic uncertainty, the depth of the potential decline, and the ramp-up to the next normal. Whilst also accounting for nuances across countries or regions and the impact of sector specific events. This practice provides finance teams with scenario clarity and the opportunity to compare the outcomes of certain decisions. This, in turn, will help them to take a more agile and flexible approach to operations.

Sitting at the heart of this approach, is real-time data. Finance teams must use real-time data to analyse key drivers in specific scenarios. From selling prices through to productivity, driver-based models that incorporate a range of financial and operational data points enable organisations to run the holistic ‘what if’ analyses necessary to support critical and timely decisions. By using data in this way, scenario modelling becomes a financially agile process that helps stakeholders gain insights and make informed decisions tied to strategic and operational goals.

2. Stress-Test Your Cash Position

One of the finance team’s top priorities during uncertain times is maintaining a stable cash position, after all ‘cash is king’. During times of crises, finance teams reluctantly depend on liquidity, raising additional capital, or cutting costs to offset reduced income. The challenge is that gaining a view of a company’s cash position can be difficult when cash controls are weak and visibility over cash is limited. For most organisations, achieving full insight into their liquidity would require a great deal of manual effort and reconciliation, which becomes a real barrier to financial agility. The finance team, therefore, must invest in tools that will help it gain full visibility across all disparate cash sources to get real-time insight into their cash position. It’s only when they have this, that a finance team can plan for multiple scenarios as they come up and manage the business’ liquidity in the near, medium, and longer-term. Embracing this cash flow strategy means finance teams can be more agile, setting aside funds for critical business needs and unexpected challenges.

3. Optimise Your Supply Base

Beyond cash flow and liquidity, finance teams must also take a closer look at the agility of their supply base. Procurement is unable to execute effective contingency plans and generate immediate business impact if there is a lack of insight into supplier relationships. Sourcing teams must first determine who their best strategic partners are and then increase alignment and collaboration to better manage the supplier community. With the partners identified, sourcing leaders can work with their suppliers to reach mutually beneficial solutions like renegotiated minimums or extended payment terms.

Using real-time collaboration technology, such as team chat, document-sharing, and video conferencing, enables sourcing teams to create a community, building strong relationships, as well as a more agile approach to the supply base.

4. Quickly Implement Policy and Program Changes

Business agility is determined by an organisation’s ability to move its two most valuable assets, people and money, to where they are most needed. To manage these assets successfully, organisations have to be ready to support their employees as circumstances change and switch business direction in real time. This requires agile IT infrastructure that can pivot at a moment’s notice. For businesses bound by legacy systems, many of these changes— such as amending workflows, changing reporting dimensions, organisational structures, and payroll — require the intervention of the IT department. These potentially time-consuming, complex IT projects are both resource-sapping and frustrating. Finance teams, therefore, must be able to make fast changes within their system, using real-time data to analyse and report actions in the business–without the need of IT support.

Even for forward thinking companies like Netflix, there are always improvements to be made to back office processes. While it is a leading digital platform for people across the world, its back office systems had usability challenges due to clunky workflows and limited visibility. Netflix invested in Workday to transform the back office into one unified system, and introduced an agile mindset across the business. This resulted in more efficiency, and fewer silos between the IT, finance and HR teams. For example, everytime Netflix has an original show or new original movie, it has to create a legal entity for that company and set up the banking for this. Now, this takes a matter of minutes for legal and finance to set up and add to its consolidated framework. In turn, finance teams can turn what can be a long and complex process into a fast and agile setup.

5. Agility is a necessity, not a luxury 

The uncertainty the pandemic has brought to 2020 has made finance leaders reconsider their strategic and organisational agility. For some, the need to become more agile has been an opportunity to enhance operations and processes. For many, this has been a forced change that is needed for survival in a climate of constant change. No matter how your business has survived up to this point the CFO, and the finance team, must now put financial agility and real-time insight at the top of the agenda if the business is to recover rapidly in 2021.

Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.