Finance in transformation
Over the past ten years, the finance function has been under increasing pressure from several directions. Shifting shareholder and market expectations, new regulations, rapidly changing technology, and increased competition have all taken their toll. This has led many companies to launch cost-cutting initiatives, reduce duplication of work and extend the influence of the finance function across the organisation.
When it comes to transforming the finance function, there is no single approach. However, certain trends are clear. Typically, routine financial activities are now undertaken by a shared service centre or outsourcing provider. Centralised centres of excellence are charged with running specialist activities, such as treasury. And the rest of the finance department, while still overseeing compliance and control, is increasingly expected to take on a value-added, ‘business partnering’ role, to help other parts of the business improve their analysis and decision-making.
According to Gary Rourke of AstraZeneca, “There is a vital role for finance business partners to help optimise performance and make the right business decisions to ensure we’re allocating resources in the right way, and making the right calls in terms of strategy and the overall direction of the business.”
Finance business partnering has become mission critical for many businesses. In the survey, 62% of Belgian respondents say that their companies are looking to form a deeper, value-adding relationship between the finance function and other parts of the business, compared with 74% of respondents overall. Yet, almost four out of ten (38%) say that they are not seeking to develop this relationship, which is the highest proportion of all countries surveyed. This implies that, even though the overall majority recognises the importance of business partnering, Belgium is not one of the forerunners in this context.
However, when looking at the prospects within three years, there is a significant increase in the levels of business partnering expected. Currently, 19% of Belgian executives state that more than 10% of their finance function currently serves a business partnering role. But in three years’ time, this number is expected to double to 38%, which suggests that the trend for business partnering will become more embedded in Belgian business life. Respondents identify the CEO (33%), the board of directors (15%) and the CFO (14%) as the most influential stakeholders who will be instrumental to develop a deeper business partnering ‘relationship’, emphasising that the responsibility for developing business partnering lies at the executive level.
How business partnering supports the business
Finance business partnering often means different things to different people. Broadly, though, it involves finance executives working alongside different business departments, providing financial information, tools, analysis and insights to executives, challenging their thinking, helping them make more informed decisions, and driving business strategy. “The pilot has to drive the vehicle and make decisions on the road, but he has to have someone with him able to identify road turns, to give him hints on what’s going on, give early warning when they are heading off track,” says Thierry Vernier, vice president for Plan & Financial Control at Sanofi, a healthcare company.
These business partnering relationships operate in myriad ways. For example, business partners might work with business unit heads to help clarify how particular key performance indicators (KPIs) are calculated, or how exchange rates are managed. They can work with HR to help calculate compensation packages across the business – using comparable data, and correcting for inflation. They might review forecasts to ensure these are realistic and that no big risk factors have been overlooked. They may explain to a sales team the financial impact of guarantees included in a promotion. They might work with the R&D department, ensuring that competing research projects are evaluated consistently, or by setting the criteria, such as short-term returns, level of risk, or strategic interest, in order for such judgements to be made.
Although there are many activities currently being carried out by the finance function, Belgian respondents identify the analysis of historical performance (37%) as well as forward-looking decision-making (37%) as the most important priorities for business partners. The conclusions derived from forward-looking analyses have an influence on many departments’ decision-making, strategy and consequently, the overall business performance. André Oerlemans, CFO, Weight Watchers Benelux says: “Finance has a key role to play in strategic thinking. While you need to have a core team looking after the strategy, you also need people from the finance team to consider and evaluate the financial implications of future scenarios. There are a lot of questions to be answered. What is the best strategy for the business to move forward? What kind of information do we need if we want to take this route? What kind of processes would change for this organisation if we want to take that route? What are the investment implications? Strategy is such a big word but effective strategy is nothing more or nothing less than what we as business want to achieve in the next couple of years and how we plan to make it happen.”
Although business partnering has been around for many years, it has taken on increased importance, particularly because of economic volatility – a major concern cited by half of respondents, including 42% of Belgian finance leaders. Frank Plaschke, partner and global topic leader for ‘Office of the CFO’ at BCG, a consulting company, notes: “In today’s volatile business environment, business partnering is crucially important to assure alignment between the finance function and the business. Furthermore, companies will need to develop a good risk culture; they will need to be good risk managers.”
This uncertainty and volatility has made support for forward-looking decision-making the most important priority for business partners – a goal identified by half of all respondents. This entails a shift away from a historical view of the business using lagging indicators. Business partners are also involved in analysing the impact of initiatives on the development of the business. “I expect my business partners to get involved in the shaping of any new product development or any new pricing strategies across the organisation,” says Stuart Rollings of Lloyds Banking Group.
Given today’s shorter business cycles, resource allocation has become a complex area to manage. Companies need to be extremely agile to reallocate resources from areas where it no longer makes sense, and invest in those where it will have a high-value impact on the business.
Overall, finance is not just checking the data and the formulas, but understanding and checking the hypotheses behind management’s views, and ensuring the goals being pursued are aligned with the company strategy. Indeed, finance is increasingly expected to support strategic development. Even though this trend is present throughout Europe, there are some significant differences between countries. Among Belgian respondents, 27% report that finance collaborates with the business on different aspects of the strategy development process, but this proportion is higher among all other countries. In addition, 35% of Belgian finance directors provide decision support for strategic choices, making the finance function significantly present, though not dominantly, in strategy development and decision-making and support.
This dual role is a challenge in itself. It requires the strength to take a tough line, despite any pressure to the contrary. As BCG’s Mr Plaschke notes: “This job is not about being liked. Finance partners need to give the right input and challenge – not just say yes and do everything you want.”