Financial Management Fix Up Finance – And watch the payback

Gone are the days when the finance function was all about transaction processing, planning and external reporting. Now finance teams must help deliver the strategy and create shareholder value. Senior finance personnel should be well-rounded business people and leaders, not just highly skilled accountants.
Running parallel to the shift in expectations about what finance does is shift in expectations about how finance performs its functions. Historically, stodgy culture of conservatism permeated most finance departments. Then came push for more creative approach to accounting, when finance was pressured to find ways to improve short-term financial results and capitalise on ‘financial loopholes’.
The new breed of successful finance professionals conducts their responsibilities with clearer vision of financial stewardship. This vision, plus strategic thinking and broader skills base, has put the finance function at the leading edge of business excellence initiatives.
Four main factors have driven these changes. For start, systems improvements have dramatically reduced the time required for transaction processing, planning and reporting. This has freed up substantial resources that are now diverted to more value-added activities.
Then, many organisations have reached the limit of the benefits delivered by downsizing, efficiency and productivity initiatives. Finance departments took centre stage on these projects. Now they must look elsewhere to make contributions.
Thirdly, Enron-type debacles and seemingly excessive, non performance-based pay for senior executives has re-focused interest on governance frameworks. And here, finance has key role to play.
And finally, an increasing acceptance of non-financial drivers and measures of business performance and value is shaking the ground beneath the feet of CFOs and CEOs alike. According to research findings by the American Brookings Institute “… something like 75 percent of the sources of value inside corporations is not being measured or reported on their books”. Organisations need new systems and indicators for monitoring, evaluating and reporting these sources.

Friend or foe?
The way in which internal stakeholders perceive the finance function is one of the best indicators of the extent to which it is coping with this evolution and adding value to the organisation.
It’s good sign if colleagues view their finance workmates as internal consultants rather than policemen, proactive rather than reactive and partners rather than spies.

And your finance department is probably adding value if:
* Managers pro-actively involve finance representatives in strategy sessions and decision-making processes.
* Finance processes consistently take operational considerations into account (eg, payables and purchasing, receivables and customer services/sales).
* There is broad understanding of financial management and performance throughout the organisation as result of the training, coaching and tools provided by the finance team.
* Finance employees know how the company operates and understand what drives the financial outcomes.
* Finance employees consistently ask questions that help managers to make better decisions on opportunities that will impact the long-term interests of shareholders.
* Management information produced by the finance department is relevant, timely, highly valued and action oriented.
* Finance departments find ways to make good ideas into profitable ideas.
* The finance team helps close the strategy-execution gap by developing and reporting balanced measures that capture evolving indicators of performance and value.
* Finance assists senior management to establish and maintain an appropriate balance between risk and reward for shareholders.

World-class finance teams
Developing finance departments that are responsive and successful in today’s environment starts with recruitment. Along with the traditional technical skills, potential employees must demonstrate an ability to think strategically about customer service. They need to fit in with the organisational culture, abide by its values, and contribute to its vision.
The induction and orientation pro-cess is also more important than it used to be. Give new employees running start by providing thorough introduction to the business. For some reason, this step is often neglected for finance staff. Emphasise the ‘how and why’ over the ‘what’. New staff should be introduced to the key players in the enterprise, and be encouraged to maintain regular personal contact.
Focus on retaining top finance employees. Start by looking at the “Best Workplaces for Finance Professionals” programme conducted by the Association for Finance Professionals and The Hackett Group in conjunction with CFO magazine.
The programme uses benchmarking and provides best practice examples of employee retention, including personal and professional development, quality of work life, employee job satisfaction, innovation and tools and business ethics. For more, hit www.bestworkplaces.org
World-class finance teams regularly check how well they are aligned to the organisation’s structure, strategies, goals, vision, values and mission. The more closely they are aligned, the more likely they will add value.

Diagnosis and treatment
In addition to verifying alignment between the finance department and the organisation, the following checklist can be used to identify and rectify potential problems:
• Ensure the team understands their role and how they contribute to the organisation’s vision, strategy and goals.
• Ensure the team’s mission or vision statement, and their behaviours, are customer service orientated.
• Assess finance staff competencies to ensure broad range of both technical and people skills.
• Ensure recruitment, induction and retention processes will deliver and maintain the right mix of skills and values.
• Align training and development, performance management and compensation to the mission, vision, strategies and team goals.
• Discuss and agree the desired role and culture for finance with internal stakeholders.
• Ensure that senior management supports the department’s role, objectives, strategies and vision.
• Prepare gap analysis of the team’s vision statement against the current reality.
• Check whether efficiency and productivity gains could free up resources for reallocation to value-adding activities.
• Review systems and processes to ensure they are effective and responsive to current requirements.
• Put the best tools into the right hands. Obsolete and inefficient tools drain the motivation of high performing staff.

Ongoing evaluation
Traditional measurements of cost, efficiency and accuracy still have their place and can boost morale. However, indicators that reflect how well individuals and the team are contributing to corporate performance and value are superseding historical measures.
These indicators are most likely to be aligned to overall corporate performance measures if they have been developed by cascading the organisation’s scorecard (or equivalent) through all departments. Once the indicators have been developed, the performance of the finance team can be measured against past performance and benchmarked against other finance departments.
Linking compensation and incentives to such measures is good way to encourage and reward desired behaviour. This is just another way to relate the efforts and outcomes of the department to the bigger picture. It has the added benefit of reinforcing the finance team’s place in the organisation’s value chain.

“What’s in it for us?”
Trends in the role and expectations of the finance function will push some employees, finance staff included, outside their comfort zones. Managers of other departments within the business may see any ‘stretch’ by finance as an encroachment on their territories.
CEOs may also baulk at any incremental investment in the fina

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