Finance's 5 Drivers Of Value Creation

By: Anders Liu-Lindberg & Tom Bloemers

As a finance organization, your goal is to contribute to the value creation of your company. However, most finance teams struggle to define what their role is for this critical objective, and how they can effectively exploit and explore their opportunities. The concept of value creation is not new, and value has been defined in many ways, including maximizing shareholder value, growing and earning a return on capital that exceeds the cost of capital or creating a willingness to pay in excess of price for profitable growth. Value Based Management theory and techniques are well known, like net present value, free cash flow, value driver trees or Economic Value Added. Given your definition of value, you as a finance business partner is well placed to partner with the business to optimize value creation. In this article, we will share our insights into the drivers through which the finance function can support value creation, and which elements deserve specific attention.

The five drivers of value creation for your finance function

As a finance organization, partnering with the business, based on a solid foundation (see here for our article on this topic), is a crucial pre-condition to effectively drive value. We have experienced that having the right culture, behaviors and competencies are as or even more important than having the right processes, tools or techniques in place. Below you will find our view on the drivers of value creation that your finance organization needs to influence or own for value creation.

1. Understand your customer - First and foremost, value is experienced only in the eye of the beholder as they will reward or get delighted about superior value created. The finance business partner needs to have a clear view on who his or her customer is and what (s)he values over the lifetime of your relationship. Your customer’s experience in dealing with you needs to be effortless, be based on your intimate understanding of the value drivers and root causes of business performance.
2. Deliver Operational Excellence – To avoid that you spend too much time on activities your customer does not value, you need to be excellent in the efficient execution of routine work and reduction of waste in processes. Setting up shared service centers or centers of excellence for transactional finance processes as well as BI/Analytics will help you in doing so. Within and beyond these organizations, operational excellence is built through continuous improvement across your entire value chain, to exploit your internal opportunities, assets or positions, leading to reduced cost, higher quality and more predictable results. Using Lean techniques can help you in accomplishing this, and improving process quality has a large impact on decision outcomes, by embedding winning behaviors and cultures in the organization.
3. Explore and innovate – Finance business partners can help the business to explore new technologies and new markets, or to (re)configure organizational resources to capture new opportunities, by driving sound decision-making and showing the financial impact of critical decisions, based on the right facts and analysis. In the digital age, it is mission critical to not only deliver strong financial and management reporting and analysis but also explore unknown insights through predictive and advanced data analytics. The data-driven approach can teach the business about new ideas, opening up their worldview to unexplored opportunities.
4. Influence behaviors – While data-based analysis and insights are important, interpreting these and defining actionable strategies is really where the rubber hits the road. Often planning and decision-making are misinformed due to human biases and behaviors. Decisions are made in the blink of an eye, based on intuition. Many good decisions are made on this basis, however, these automatic impulses need to be validated and cross-checked, by sustainable processes based on data, requiring a deliberate moment of reflection and discussion. Working in networks of teams, and cross-checking facts together, coordinated by the finance business partner, is one way of accomplishing this, for example by consistently executing premortems as part of a standard process to manage risks, before initiating new business ventures. Further Finance should challenge the business’ assumptions, reassess their preconceived notions of success and create an environment where constructive tension between Finance and the business results in a healthy debate to pressure test ideas.
5. Remove distractors – Finance can also overdo its role, by putting in place too much bureaucracy, too complex processes, or too detailed analysis that can stifle value creation. Too detailed business case templates, too onerous controls, unclear accountabilities, as well as making it difficult to access information will result in the Finance being seen as an obstacle, rather than an engine for driving value. Value creation also requires that Finance focuses only where it is really needed, and otherwise get out of the way and let the business do its work.

Finance has a broad remit and has various roles to create value; being the policeman controlling risk, compliance and assuring trusted numbers; measuring and guiding financial performance and allocating resources by setting objectives and targets; funding the company, optimizing taxes and managing treasury; representing the business to external stakeholders by managing financial communication; in addition to the key aforementioned roles of delivering cost efficient and operationally excellent processes; and setting and supporting innovation and strategy execution through insightful actionable analysis and analytics.

Across all these core roles, areas of expertise and techniques, the finance business partner can moreover influence the culture, behaviors and competencies that create a supportive organization with an open fact-based discussion environment, where ideas thrive and value creating opportunities are brought to the surface, whether these are through exploiting existing and safe positions or exploring riskier new innovative ventures. In our experience, the successful finance business partner will therefore not only need hardcore financial skills but also strong emotional and communication skills and focus. If you have the same or different experiences, then we would like to hear about these as well!

If you have further interest in this topic or want to hear more from us please feel free to reach out here on LinkedIn. You can also leave a comment on the post and we’ll certainly appreciate if you will share the article.

For more articles from Anders on how to transform Finance, become more successful as a finance professional or how to become better at finance business partnering, you can continue to read below. To stay updated on future articles on the on-going developments in the finance function you can join Finance Business Partner Forum.

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