The Capital Allocation Process: Methods & Best Practices Every CFO ...
Finance Transformation 101: A Guide To The Modern Finance Department
Finance isn’t what it used to be, and that’s a good thing. While it’s always been an indispensable component of a financially sound enterprise, leadership now looks to finance for its unique perspective and skill set for strategy and development as well. In other words, Finance helps drive a wide range of decision making, providing a sense of direction for an organization’s growth.
As you might’ve guessed, Embark is well-acquainted with this evolutionary process across the corporate finance function and can honestly say that, without hesitation, we think it’s a much-needed breath of fresh operational air for enterprises. In today’s data-driven, technology-pushing world, organizations that best harness the pure power of information provide themselves with an inherent competitive advantage and, best of all, finance’s evolution is just getting started.
Finance Transformation at a Glance
More a significant overhaul than a complete reinvention, finance is building on its traditional roots to combine governance-oriented responsibilities like accounting, budgeting, and auditing, with tasks devoted to strategic thinking and planning. It’s a more involved role for finance, one that uses advanced analytics, demand planning, pricing, customer and employee satisfaction, and other dynamic facets of operations to provide leadership with more precise and far-reaching insights.
Naturally, this new perspective isn’t random or without a specific purpose or origin. The marketplace itself is driving this transformation, now requiring a sense of agility and adaptability to meet the needs of an exceedingly complex and ever-changing environment. From the rapid flow of business ventures moving in and out of the market, to the accompanying M&A activity that continually changes the landscape -- both internally and externally -- finance is growing up right before our very eyes.
Finance’s rapid evolution is making it a central figure in an organization’s strategic initiatives within an enterprise, leveraging an enhanced and expanded finance function to meet those goals and vision. As part of that transformation, CFOs are quickly becoming consiglieres of sorts to the CEO, advising on all strategic matters thanks to their unique and specific perch within an enterprise. From that position, CFOs can concentrate on creating new value, utilizing innovation in thought and practice to develop cost efficiencies and streamline operations. Budget and forecast cycles become slimmer and more accurate, attrition and overhead fall, and that critical agility increases.
While technology plays a significant part in finance’s continuing transformation, it’s still just a single piece of the bigger transformational puzzle. Yes, Embark’s elite squad of financial consultants can certainly guide your organization on the technological front, but a focus on the most common hurdles while transforming the finance function will help ensure a solid footing that will serve your enterprise well into the future.
It’s Not Just About Costs
We’re not going to be fashionably contrarian and say that costs aren’t important because, of course, they’re critical to every enterprise. However, a balanced approach that places adequate attention on value creation rather than a strict emphasis on costs can help create sustainable growth that doesn’t sacrifice long-term stability for short-term profits. An evolving finance function shifts that focus from one specifically targeting costs and cutting overhead to improvement and growth which, over time, will naturally lower costs.
Also, from an employee satisfaction perspective, finance’s evolving role within an enterprise means new, highly efficient processes that leverage technology can effectively handle what were once arduous and repetitive tasks for staff. Employees previously tasked with those responsibilities are now freed to innovate and collaborate, creating a more fulfilling work experience that ultimately means they’re happier, more productive, and less likely to leave the firm.
The same notion holds true for customer satisfaction as well. Those highly efficient processes that can now automate and streamline internal tasks give your employees the opportunity to better focus on the customer experience. This is especially important for your customer-facing staff, where a sense of empathy goes a long way in maintaining brand loyalty and spreading a positive word-of-mouth around your enterprise. Such improvements in both employee and customer satisfaction are much more difficult, perhaps even impossible, to accomplish without an expanded finance function that streamlines your operations and draws out the very best from your team. Happy employees lead to happy customers, pure and simple.
The Only Constant Is Change
Another impediment to the expansion and evolution of the finance function is the fast and unrelenting nature of innovation itself. From an enterprise’s perspective, it can be difficult to continuously stay aware of what advancements are in the marketplace, making it imperative for every organization to designate personnel within their ranks to stay abreast of technology advancements.
Likewise, an enterprise must also look for ways to streamline their processes, always in search of areas for improvement that those new innovations can address. Granted, not every company has the means to devote themselves to such efforts, which makes relationships with partners like Embark all that much more important. Whether through an in-house capacity or an experienced partner, however, it’s in every enterprise’s best interest to maintain a current understanding of advancements in the marketplace and how those innovations might apply to create new efficiencies.
Best Practices to Boost Your Transformation Goals
We understand that high-level advice only goes so far in illuminating the importance of a transformed finance function in today’s enterprises. Although we’ll take a more granular look at transformation specifics in the very near future, a handful of best practices will help your organization’s finance department get up and running on the transformation front, giving you a solid foundation to build from in the future.
Business leaders and decision-makers need a good understanding of what their employees are actually doing, not what they’re supposed to be doing. That’s where activity analysis comes into play, a way for leadership to track how long it takes employees to accomplish tasks. Whether through software, surveys, or daily tracking polls, management gauges that time and compares it to a benchmark or performance standards. The gap between the two represents a potential area of inefficiency and a critical driver for transformation.
Would you start a road trip without a destination in mind? Probably not. You can say the same for most, if not all, aspects of your operations. Your goal is the future state you have in mind, what your enterprise strives to become. Keep those goals reasonable and actionable, but not so simple that they don’t stretch your team to excel. And yes, venturing into dad joke territory, Excel is an especially convenient way to track those goals -- go figure.
Once in place, compare your current state with that desired future state, and begin to assemble a strategy to get you from point A to point B. This might include new technology, partnerships, staff training & development, a change of processes, or a combination of things to help you reach your vision.
Start Small and Grow
While we absolutely love it when enterprises come to us with big visions and even bigger dreams, it’s often best to start evolving your organization’s finance function with the low-hanging fruit. Identify the most obvious sources of inefficiency in your organization, put together a strategy to address it, and then place your plan into action. In other words, get some wins under your belt and grow from them, letting those smaller wins evolve into an enterprise-wide process that, with time, consistency, and relentlessness, will redefine your organization, internal processes, and how you compete in a crowded marketplace.
A Word for CFOs
At Embark, we understand what it’s like to be in a CFO’s shoes, to be pulled in countless different directions at once. As the old saying goes, there are only so many hours in a day and, as we’re sure most CFOs will attest, the responsibilities weighing on your plate only seem to get heavier by the minute.
Are we saying this to pour salt in the wound? Not at all. However, that endless list of responsibilities and tasks are precisely where a transformed finance function shines brightest, getting the most from a team while adding value through greater productivity and efficiency. And while it’s easy to get caught up in sometimes confusing semantics behind such thoughts, this one included, the premise is as straightforward as the innovations already commonplace in everyday life that, collectively, make people as efficient and productive as possible.
For instance, let’s take a look at the typical day of a CFO, only from a more personal perspective. A smartphone alarm wakes them up in the morning, also allowing them to check their emails and schedule before they even get out of bed. A streaming app then plays the day’s financial report while they’re in the shower, meaning they’re fully apprised on both the markets and that day’s schedule before they’re even dressed. From there, they either use a ride sharing service or an AI-driven traffic app to negotiate their way to the office.
During the workday, they might order lunch through another app, book a hotel for an upcoming vacation, and remotely adjust the temperature of their house before leaving the office and heading home. Once back at their house, a streaming service’s algorithms choose a new show to binge watch based on their viewing preferences and, as their head hits the pillow that night, their virtual assistant turns off the lights through smart electrical outlets.
To an outsider, all of that technology would seem complex and cumbersome, perhaps even to that typical CFO as well, as they introduced each new innovation into their life. However, once they understood the premise and utility of those different tools, each one quickly became second nature, the learning curve suddenly seeming a heck of a lot less daunting. The end result is a transformed life that is now efficient, streamlined, and well-attuned to their individual habits and demands through specific, well-placed technology.
The same premise holds true for a CFO and the finance function they oversee within an organization. Real-time KPIs automatically populate on a tablet’s dashboard, push notifications from a cloud-based cash management platform appear on a smart watch, algorithms create a spectrum of forecasts based on different variables culled from big data and daily operations -- all as part of a transformed finance function that redefines the term for the digital age. Best of all, the technology a CFO needs to create those efficiencies, both for their own job performance as well as the enterprise itself, are already available, just waiting for Mr. or Ms. CFO to integrate them into their operations.
Although these transformative qualities sitting untapped within an organization’s finance department are just now coming to light, word spreads fast and, as you know, today’s news is tomorrow’s history. The role of the CFO is changing quickly and drastically as technology transforms the landscape, and it’s the early adopters that stand the most to gain, a title that Embark is abundantly qualified to help enterprises attain. Long story short, we take the scary out of finance’s transformation, leaving you to reap the rewards.
A Bigger Perspective
As we said, we’ll be taking a far deeper dive into the different aspects of finance’s evolving role just shortly down the road. For now, however, take this primer on a transformed finance function and use it to examine your enterprise from a bigger perspective. Are you getting the most from your talent? Are your employees and customers satisfied with your organization, or are there obvious areas for improvement?
Remember, profitability doesn’t exclusively stem from cut costs, but from revenue growth as well, a notion propelled by added value within your organization. Give Embark a holler and let us show you what a transformed finance function looks like. As we said, your finance department is growing up, so maybe it’s a good time to see what they’re capable of accomplishing for your operations, employee base, customers, and stakeholders. We promise you won’t be sorry.