The world is changing fast. Brands come and go at speed. New companies are challenging the market position of established names. Consumers are more demanding and new regulations and laws are obliging companies to adapt both their business and operating models. These shifts are not temporary. New economic structures are being formed. The ability to innovate and constantly adapt to new situations are keys to survive.
In an interview recently published on CFO.nl, my colleague Edwin van der Stam and I discussed how and why the finance function and CFOs should adapt to keep tempo with these changes.
Traditionally, the finance function operated somewhere in the center and back of company processes, with a fairly limited knowledge of how and why a company adds value. In the past, this way of working was enough: the finance function mostly looked back in the rear view mirror and to the future through a keyhole.
In today’s volatile economy, this is no longer viable. The finance function faces a stark choice: either stand still and gradually become irrelevant, or transform to play a proactive role in determining the company’s future. As such, CFOs have a great opportunity to reinforce the finance function’s position. By focusing more on performance than compliance, they can shift the strategic direction of a business and bring true added value.
Four phases of transformation
At present, the finance function lacks the right knowledge, insights and tools to make it a true business partner. Transformation needs to take place and this should be planned in four phases: strategy, design, prototyping and go live.
The transformation process starts with doing a scan of the finance function and the business to arrive at a shared end-state vision. What should the future operating model ideally look like? Which processes and systems, and what level of automatization, are needed and how can current processes be adapted accordingly? In theory, the business case should reveal where value can be added. In practice, it often also reveals several gaps. For instance, the cost drivers are not correctly mapped or the total perspective misses a net-net calculation.
Once the roadmap is ready, it’s time to start building and adapting the operating model, including technology and reporting. By building clever automatization, this process will be less labor intensive. Companies can appoint new functional process owners, who are responsible for continuous improvements, and lean principles will become more and more embedded in daily work.
The closer the transformation process is connected to the existing organization, the greater the chance of success. This usually leads to a temporary increase in pressure on the organization. Therefore, it is crucial that the leadership sets a clear direction and keeps to it.
With transformation, the CFO becomes a true partner of the COO and CEO, serving the entire value chain. Value is crucial; it’s not only about profit but also about cash flow, in which working capital management is an important attention point. The best results are reached when finance and business work closely together and when there’s always a clear focus on the differentiating factors that really convince customers.
European companies are lagging behind in the world economy. They must step up to play a more active role at global level. In this context, the role of the CFO, and the transformed finance function, will be more important than ever before.
