The Sweeping Change in Finance

Decision making support is moving finance beyond the traditional governance model.

There are big changes afoot in finance. The back office and middle office are moving forward by creating value for the businesses they serve. Technology, better developed models, broader training and the eclectic nature of today’s finance professionals have put this movement into full gear. 

The general shift has been to increase the business guidance activities of finance teams, relative to the control activities the profession has been associated with in the past. Dramatic recent advances in the tools, talent and technology in finance have hastened this shift. Some of the traditional governance activities have been mechanized or even outsourced. 

Great examples of these changes are showing up in my small market client base, where:

• Owners have become conversant with QuickBooks. 
• Data downloads to spreadsheets provide great analytics and information that are driving business improvements. 
• Non-finance trained professionals are successfully running finance teams. 

Ten years ago all three of these examples would have been unusual. Today they are commonplace. This shift has occurred where: 

• The traditional governance activities of the finance team are recognized as highly effective. 
• Corporate systems simplify control activities like: policy setting, accounting, auditing and cash management. 
• The finance talent at the company is accepted and managed as a business building resource. 
• Companies are data driven in their decision making process. 

Pressure on costs during the 2008-2010 recession drove companies to make their transactional and non-value added finance activities more efficient. As the economy improved, savings from these efficiencies gave rise to investment in decision support activities including: mergers and acquisitions, earnings examination, competitor analysis, product innovation and business development. The top of the pack finance teams are spending a higher percentage of their budget on guidance activities and reducing the percentage spent on control activities. 

To help assess if your company is capturing the full value of your finance team, answer the following questions: 

Is your finance team a significant contributor in the following areas? 

• Business development 
• Investment analysis (M&A, organic growth) 
• Capital budgeting 
• Corporate capitalization 
• Risk management 
• Competitor analysis 
• Customer analysis 

Do you receive? 

• Key decision making information when you need it 
• Financial results that are explained and provide insight on how to improve your business 
• Forecasts that help define your roadmap for success 
• Excellent financial advice 

If you answered “yes” to more than half of these questions, congratulations – your finance team is providing your business with solid guidance, not just governance, activities. If you answered “yes” to less than half of these questions, there is a great opportunity ahead for your business. 

Here are some tips on how to take advantage of the opportunity: 

• Hire a finance leader with experience delivering “yes” to the questions above. 
• Include guidance objectives, in addition to standard governance objectives, in your finance team’s goals. 
• Identify information that is critical to your business’ success. Don’t get caught in the trap of analyzing information that happens to be available to you. Dig deep to ascertain information/knowledge that provides intelligence no one else in your industry has. Build collection processes around that information to create what you need when you need it. 
• Install technology that enhances your newfound information advantage and leverages your business systems. 
• Experiment with new tools and techniques, but don’t be afraid to fail. Be quick to recognize it and move on. With practice your success rate will increase.

Here is a great tool you can use to begin your sweeping change. Our Simple Price, Gross Margin and Unit Variance Analysis summarizes three key variables that drive earnings for most companies. The output, tables and graphs, will assist you in driving discussion around these key business drivers with your Executive Team.

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