Welcome to Finance Function 5.0
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
You might’ve heard of the fourth industrial revolution and the vast changes happening in business today. Now it's time to take one step further we're entering the fifth industrial revolution. In this post, we’ll discover what Finance Function 5.0 is, and how it could affect you.
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Industry 5.0 is a shift from pure economic value to a broader focus on social value.
The perspective is driving a change in what we value as a society from simple monetary transactions to wider value creation at a societal level.
It sounds hyper-strategic and conceptual but think of it in terms of how we’ve placed significant societal value on the green credentials of an organization.
If a company is perceived to be contributing to greenhouse gas emissions, rather than reducing its carbon footprint, they are less likely to be viewed as valuable to society going forward.
Industry 5.0 has the potential to radically change your business strategy. In the same way, as value creation moves from a simple transaction basis to an emphasis on wider societal benefit, Finance Function 5.0 will be the driver to enable that shift and we need to be ready for it.?
What is Finance Function 5.0 and why you should care?
How do we judge value from Finance? Profits, right??
What if those profits were at the expense of someone, or something? At its core, Finance Function 5.0 is about creating value beyond the traditional financial metrics we use to assign “worth”.
While the “old” finance function may focus on cost saving, profitability, or risk management, Finance Function 5.0 looks to the wider societal impact of the business and puts factors like environmental sustainability, employee well-being, and social impact at the very core of the model.
What this means is, if value is not being generated for society as a whole, then value is ultimately being destroyed.
This mindset should lead to a fundamental change in the economic models we employ and the paradigm through which we view our role in value creation. Big stuff.
How the finance function has evolved
If the evolution from Finance 1.0 to 2.0 was a shift from a more transactional focus to a more analytical focus. 2.0 acted as a move from an analytical to a more strategic focus, and Finance 3.0 to 4.0 was a shift from a strategic focus to the rapid technological development characterized by automation, artificial intelligence, and analytics; what then is Finance Function 5.0??
Simply a continuation of this evolution where finance professionals will be expected to focus not just on financial performance but on the wider societal impact of their organizations.
And, not only that but being able to conceptualize “value creation” in a much broader context, while using the benefits and foundation of Finance 4.0 to allow the C-suite and the CEO to creatively tell the story of value creation to a wider audience. Some responsibility.
Human centricity, more resilient, highly sustainable
It’s not only potential customers who’re aware of and drawn towards companies that prioritize ethics, environmental sustainability, and sound governance models.
Investors and employees place immense value on doing “the greater good”, or at least, “doing no harm”.
In fact, McKinsey says that 70 percent of employees want purposeful work, and Millennials and Gen-Z employees are actively choosing companies that prioritize ESG (Environmental, Social, and Governance).
Think of Tony’s Chocolonely, which was only started by a group of Dutch journalists with an emphasis on shunning unethical practices in 2005.
The chocolate costs more than the competition because it is ethically sourced, but because of the wider value they add or are perceived to add, is now the UK’s fastest-growing chocolate bar brand . Coincidence?
How will Finance Function 5.0 change your business strategy?
Just like Tony’s Chocolonely, Finance Function 5.0 can help your company move beyond current short-term profit maximization and start thinking about long-term value creation that benefits everyone.
What does it take to be ready?
1. A mindset shift
Firstly, it will require a shift in mindset. Finance leaders will need to broaden their focus beyond just financial metrics to include wider societal impact.?
This means working with other functions to ensure that the business is creating value for all stakeholders. A kind of strategic oversight role where Finance is now using its expertise and specialism to create wider value.?
2. New skills & capabilities
Secondly, it will require new skills and capabilities. Finance professionals will need – now even more so – to develop skills outside of Finance, and come up with creative ways to marry environmental sustainability, employee well-being, and social impact data and metrics with their traditional roles.?
3. Metrics for success
Thirdly, it will require new metrics for measuring success. Traditional financial metrics such as ROI and EBITDA will no longer be enough. They already aren’t.?
Finance Function 5.0 requires fusion with new metrics that take into account societal impacts. Not only that but competent communication - and creative ways of presenting the data - of this wider societal value-add for business stakeholders and shareholders is vitally important.
4. New technology?
Finally, it will require new technologies. Finance professionals will need to leverage technology to gather data on wider societal impact and to communicate this information to all stakeholders.
What does this mean for the future of Finance??
The key is to embrace Finance Function 5.0 by building on top of the solid foundation of Finance 4.0 for value creation. For this finance leaders will need to wear more than one hat.?
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They’ll need to be both financial experts and visionary, progressive, and people-focused leaders who believe change is not only possible but necessary.
They’ll need to collaborate with other functions right across the organization to keep abreast and influence the ways the business is creating value for all key stakeholders.?
And, last but not least, they’ll need to stay on top of developing new skills, metrics, and technologies to measure, demonstrate, communicate, and share good news stories on wider societal impacts.
Where do you think Finance Function 5.0 is headed? Tell us in the comments below.?
To learn more about what we’re seeing in the market and what you can do to prepare, why not get in touch?
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Anders Liu-Lindberg ?is the co-founder and a partner at?Business Partnering Institute ?and the owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 11,000 members. I have ten years of experience as a business partner at the global transport and logistics company?Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a?long-time Finance Blogger ?on LinkedIn with 230,000+ followers and more than 280,000+ subscribers to my blog. I am also an advisory board member at?Born Capital ?where I help identify and grow the next big thing in?#CFOTech . Finally, I'm a member of the board of directors at?PACE - Profitability Analytics Center of Excellence ?where I support the development of new analytics frameworks that can improve profitability in companies around the world.
QuickBooks Certified Pro-Advisor, XERO Advisor, MSS, M. Com (Accounting), CMA (Final),
1 年Follow me on LinkedIn: www.dhirubhai.net/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=m-shafiul-azam-6358b831
DIRECTIVO FINANCIERO CON AMPLIA ENFOQUE OPERATIVO Gerente de Finanzas y Tesorería en CERRACO MEX SA DE CV
1 年Congratulations Anders for your great insights on what does means Finance 5.0
Agronomia | Desenvolvimento de Mercado | Nutri??o de Plantas | Fertilidade do Solo | Lideran?a | Mentoria
1 年Great article! Thanks a lot
Finance Director Norway at Recover
1 年Great read! Totally agree. However, I guess it will take time before we see significant changes in the finance functions. Also, I think finance professionals need to learn more of basic IT skills in order to maximize the cooperation with IT/digitalization functions.
H U M A N & INDUSTRY 5.0 FOUNDER
1 年Dear Anders Liu-Lindberg thank you for your post referring to INDUSTRY 5.0. My name is Michael Rada, I am the Founder of INDUSTRY 5.0 implementing its principles in companies and businesses since 2013 already, leading a global network in 111 countries at the moment. I would like to ask what FINANCE FUNCTION 4.0/3.0/2.0 and 1.0 looks like because the information is missing in the article. You are right that INDUSTRY 5.0 represents a mind shift, we call it the transformation from WASTEFULL to WASTELESS and it has a direct impact on all industries, businesses, functions, and setup of society on a local, so and global scale. Let me share with you a keynote delivered at the WORLD IMPACT INVESTMENT FORUM, I hope it will resonate with you and your readers and network members https://www.youtube.com/watch?v=4g_Pkggoek8 If any questions, feel free to ask, please Have a nice time free of waste and wasting in all ts forms, stay safe and free Michael