Modern Day Finance- Answering not only "What?", but also "Why?" and "How to counteract?"

Every organization is trying to understand the true value drivers of their business. Finance has taken the lead in dissecting the financial statements and connecting the outcome performance metrics (Y) to value drivers of the business (Xs): Y = F(x). Gone are the days when leadership would read or listen to performance reports in terms of accounting variance gobbledygook. Management teams are looking for meaningful explanation of performance based on actual business physicals. Example: We missed EBITDA forecast by $200K because of lower refrigerant sales in mid-west, driven by milder than forecasted winter. Here, we are not only explaining what happened, but also why did it happen that way. Next logical question that teams are asking- what are you going to do about it? And what is the near term and long-term outlook? Modern day Finance teams are being challenged to not only explain what happened, but also why and how. Further, Finance teams are partnering with business to proactively identify and execute countermeasures to deal with the situation. 

When we look at the traditional make up of Finance teams, we usually see plenty of talent and experience in answering the “What?” question. But, traditional cultures have normally discouraged Finance to get into “Why?”. I have struggled with this mindset in legacy manufacturing environments, where Finance was typically positioned as caretakers of fiduciary aspects of accounting, reporting and controls. The moment Finance ventured into “Why?”, functional leaders would protest, “stay out of our turf!” (not in these words, but you get the picture). Also, traditional Finance teams are laced with good folks who are top notch accountants and CPAs. Their mindset is very process and policy driven, and they do a great job keeping the books clean. Some of the proactive ones, would do an excellent job of understanding “What?” by interacting with field staff. However, typically they have stayed away from the “Why?” as they do not see that as their burden to explain. They have also stayed away from recommending countermeasures to deal with business situations. Those days are becoming history in most organizations.

Modern day Finance teams are redefining the boundaries. To be more accurate, modern day management styles are blurring the boundaries in general. Even though modern-day management structures follow functional excellence model, but that structure sits on top of shared common values of the organization that have “Collaboration”, “Cooperation”, and “Respecting Dissenting Opinions” at its core. My favorite way of describing modern day Finance is- If there is a business meeting going on, and an outsider walks into the room then he or she should have tough time identifying who is the CFO and who are the heads of commercial or operations etc. That’s how embedded Finance needs to be in the business.

It is heartening to see that organizations are opening up, previously restricted disciplines, like Finance to “outsiders”. As Finance leader, I have recruited some great analytical and business talent with diverse educational background, including systems, general business, engineering, and yes even English literature majors. Moreover, modern day organizations are becoming more flexible about hiring talent from diverse industries and cultures. Finance teams are getting trained in lean- six sigma methods. This is a very welcome change, as it helps Finance become more embedded with the business. We are no longer the introverted bunch of bean counters. Finance is becoming an intrinsic part of strategy development and execution. In the last several years, job description of finance leadership roles talks about high business acumen, high EQ, ability to partner with CEOs etc. As one of my team members would say, Finance is becoming almost as sexy as Marketing!

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I welcome comments and questions!