Two strategic moves for finance leaders to reap the results they need.
Finance teams have reduced their costs by nearly 30% over the past 10 years. Now, many of these finance teams are working towards higher levels of efficiency. To help finance leaders achieve improved effectiveness, the Divisional and Group CFO Gary McGaghey explains that successful finance departments must know where to lower costs strategically and how to work towards value-added activities.
He emphasises that finance executives who want to achieve the next frontier in financial effectiveness can adopt two moves to deliver greater real-time insights, accelerate workflows and decision-making, and reduce human errors and biases.
- First, they can strengthen decision-making processes by adopting advanced analytics, debiasing, and data visualisation techniques.
- Second, they can reimagine the finance operating model to foster new capabilities and skillsets.
Strategy 1: Strengthen Decision-Making Processes
Many finance departments use advanced analytical techniques to overcome business challenges (such as improving the accuracy of cash flow forecasts) more frequently than ever before. For example, a North American consumer goods company is building a forecasting tool to gather and evaluate data on variables like macroeconomic conditions, demographics, and geographic factors. With this information, CFOs can quickly alter pricing decisions when required.
Savvy analytical techniques aside, the finance department is also responsible for framing discussions on how to improve company performance. Gary McGaghey explains that to manage these discussions effectively, finance teams need to provide:
- Clearer insights, which they can achieve by communicating transparently about performance, noting shortfalls against predicted outcomes, and paying attention to the factors and context that inform these gaps.
- Faster insights, which enable management to understand recent performance and make decisions to shift the trajectory quickly.
- Richer insights based on robust data sets from a multitude of sources. These sources should provide wider perspectives than those that only consider internal financial data. For example, CFOs can contextualise profit projections against overall market performance. When finance departments base insights on multifactor data sets that comprise both external and internal data sources, they can gain a more authentic view of likely performance outcomes. Then, they can minimise the risk of shocks that could render projections inaccurate. When finance teams simulate multiple scenarios, they put themselves in stronger positions to cope with unexpected events like the COVID-19 pandemic.
Improving Insight Generation Through Training
On top of this, finance leaders can improve insight generation by stepping up training initiatives that surround data visualisation, debiasing, and analytical techniques and technologies. In markets where these tools are new, the tools offer a high potential competitive advantage but also require a lot of commitment.
Finance leaders can draw inspiration from other sectors on how to upskill staff. For example, a telecom company identified that approximately half of its back-office staff lacked the technical skills they needed to reach their goals and that 42% were in roles that likely wouldn’t exist in 10 years. So, the company asked employees to assess their capability gaps and the skills they needed to learn. Within a year, the company was able to fill 40% of new jobs with internal candidates.
Meanwhile, companies can increase the quality and stature of their senior finance business partnering roles by matching the highest performers to these essential roles. These individuals need experience and a strong perspective so they can delve into the causes of underperformance and push back against financial suggestions that are overly optimistic or unnecessarily conservative.
Strategy 2: Reimagine the Finance Operating Model
Many finance departments are embracing operating models with new capabilities so staff can adjust to their work quickly and dynamically and prioritise their most pressing tasks. To cut down on the effort required in operational tasks, a strong operating model starts from a leaner core and offers new data management practices, integration with several related technologies, tighter data standards, and enhanced automation. Implementing such a model involves the following changes.
- Breaking traditional hierarchies into flat networks of teams. The network model makes it possible for finance business partners to access a shared pool of analysts, who work on specific items based on agreed-upon priorities.
- Mobilising temporary teams so they can deliver deeper insights into business challenges. Creating this capacity follows agile working principles like instituting sprints to identify, design, and implement analyses that examine business challenges.
- Enriching the finance department with digital skills. For example, staff may learn how to use analytics software, translate business data into actionable insights, or programme bot algorithms.
- Setting up a network of savvy finance experts who have the stature to engage company leaders as peers. When CFOs strengthen job rotations within the finance department and between this department and the wider company, they can develop a cadre of skilled professionals who can move seamlessly throughout the business. For example, one automotive company requires its executives to work in at least two divisions, two finance functions, and two countries before taking on a senior role.
- Boosting the finance team’s skills by developing a demanding but clear competency matrix. A detailed set of standards can help teams ground discussions about finance talent in objective criteria. This can make it easier for managers to choose from capability-building actions to support career progression. For example, advanced staff may spend at least 10% of their time training other staff.
- Developing informal and formal skill development incentives. For example, CFOs can offer incentives for knowledge and capability development, set targets for internal promotions to finance leader positions, and celebrate the accomplishments of managers who successfully coach their teams.
One example of a company that brought these steps together is a global consumer goods manufacturer that crafted a performance management system that involved a selection of key performance indicators (KPIs), each linked to the company’s overall value creation roadmap and cascaded to each layer of the management structure. After employing these measures in several business and geographic entities, the company launched a data lake to populate information. The data lake supported real-time dashboards and enabled drill-down capability. Overall, the initiative cut down the time that the FP&A team dedicated to data capture, presentation, and manipulation by 65%.
Delivering More Than Financial Skills
Gary McGaghey concludes by emphasising that the finance leaders who are redefining effectiveness offer much more than core financial skills. Instead, these CFOs guide the overall functioning of their companies every day.
You can implement the strategies covered here to capture more insights, improve your finance team’s performance, and plan the capabilities you need to support dynamic decision-making over the next decade.
As the Group CFO of the €1.3 billion end-to-end marketing production and business services group Williams Lea Tag, Gary McGaghey oversees the private equity company’s financial plans, expands the value of its holdings, and manages investment-related decision-making processes. He is also the non-executive director of Fitmedia UK, which develops children’s fitness analysis and testing solutions. Before taking on these roles, Gary McGaghey worked in a variety of non-executive and statutory executive director roles for privately owned and listed companies.
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