3 priorities for building future finance leaders

Editor’s note: As explored in three previous articles in this series (“How to Plan for Sustainable Growth”, “How to Successfully Use Integrated Business Planning”, and “Enabling Finance as a Business Partner”), integrated business planning (IBP) is an approach that can help companies address the growing volatility and complexity of the business environment. The previous articles described the key role of finance in this process and how this way of working enables and leverages the operation of a finance business partnering approach. This is the final article in the series.

In June 2018, the Association of International Certified Professional Accountants published the report The Changing Role and Mandate of Finance. The report is part of the Association’s Future of Finance research series. The research included more than 300 interviews and 50 roundtable discussions on the topic of the finance function of the future. This future vision is derived from the emerging needs of organisations as they address increasing complexity and rapid change in their businesses.

The report identified the key developments of the finance function as it evolves from a provider of core basic activities to a custodian of organisational value. This evolution is summarised in the graphic “The Evolution of the Finance Function”. This highlights a number of key changes, including the operating environment and remit of the future finance team.

The evolution of the finance function

Source: The Changing Role and Mandate of Finance, the Association of International Certified Professional Accountants, 2018.

In order to make progress towards this future vision, three key transformation priorities are proposed:

1. Leveraging technology to release the full capacity of the finance function.
2. Widening the remit of finance to span a broader range of management information and using this to generate new insights and business solutions.
3. Empowering finance professionals with new competencies and mindsets to support this new way of working.

Integrated business planning (IBP) provides a key foundation for the ongoing progression towards the future finance function by supporting transformation priorities (2) and (3) as outlined above. In particular, IBP is a key enabler for the finance function to extend its remit, develop new capabilities, and shape new mindsets.

IBP as presented in this article is not integrated thinking or integrated reporting, as they might be used in developing an integrated report using the International Integrated Reporting Council’s Integrated Reporting Framework. The use of the terms “sustainable” and “sustainability” in the context of this article refer to adoption of an IBP approach as outlined in the article and not the adoption of a multi-capital approach to sustainable management.

IBP is a specific process for using specific business goals to develop precise financial and operational resource requirements with the goal of minimising risk and maximising either cash flow or profit. As presented in this article, IBP is an operational planning system with origins in supply chain planning systems. Sustainable growth in IBP refers to the maximum rate of growth that a company can support without taking on new financing, and not to broader environmental, social, and governance factors that are taken into account in a broader definition of sustainability.

1. Widening the finance remit

The graphic “The Evolution of Critical Finance Capabilities” summarises the high-level activities of the finance function and how the future vision involves finance having more direct influence and impact on business decision-making and, ultimately, performance.

The evolution of critical finance capabilities

Source: The Changing Role and Mandate of Finance, the Association of International Certified Professional Accountants, 2018.

IBP shapes a role for finance teams beyond pure analysis and insight generation. This requires them to play a key role that both supports and challenges decision-makers in the monthly IBP planning cycle.

Finance participants retain an important stewardship role in ensuring the rigour of data analysis and interpretation that supports effective decision-making. However, IBP also provides a sharp focus on risk and opportunity management, and in this area finance typically plays a key role by providing a scenario planning (“what-if”) capability that supports agile decision-making and ensures that all the relevant financial dimensions (for example, sales, margin, working capital implications) are considered in the decisions driven through the IBP process.

The finance role is also critical in supporting IBP teams to adopt a cross-functional perspective. IBP is based on shared data sets and standards that support the teams to take an enterprise, rather than a siloed, view in decision-making. This can be a major mindset shift in organisations as IBP is deployed and finance members often become the champions for maintaining a consistent enterprise perspective in the teams. This requires finance managers to demonstrate broad organisation-wide understanding and also to challenge leaders in other functions (typically commercial and supply chain) to ensure optimal decision-making.

This broadened remit for the finance function is underpinned by the contribution of finance as a regular member of monthly IBP discussions on performance management, business outlook, and risk and opportunity management. This broader expectation on finance’s contribution is driven directly by the design of the IBP process, and hence IBP can provide key leverage for the finance function in its transformation towards its future vision.

2. Developing finance competencies for the future vision

As outlined above, IBP creates new and extended expectations for the finance contribution to business decision-making and performance. However, to deliver on these expectations finance staff will typically be required to develop and apply new competencies.

Three competency areas in particular are critical:

• Business acumen: The regular monthly IBP cycle provides an ongoing opportunity for finance members to build a deep understanding of their business area. Monthly IBP meetings will consider performance versus plan and the midterm business outlook and drive decision-making to optimise the contribution to corporate goals. In itself, the transparency of shared data sources and common key performance indicators (KPIs) helps provide a clear picture of the key drivers of value in the business. However, it is important that finance members go beyond the traditional finance measures and KPIs in order to understand the dynamics of the market and the company’s performance in that market. A key differentiator for a high-performing finance leader in the future vision for the function will be the credibility and confidence they acquire as a result of this understanding. This is critical as it drives the greater depth and quality of business influence as they work cross-functionally in the business to enable optimised enterprise decision-making.
• Cross-functional leadership: The IBP process defines cross-functional teams that then create a shared view of business performance and outlook in order to optimise value at the enterprise level. As outlined above, it is critical for finance members of these teams to develop a deep understanding of the business areas in which they operate, including commercial and supply chain elements, and both an internal and external perspective. However, this knowledge in itself is not enough to enable finance managers to fulfil the cross-functional leadership expectation created by IBP. Softer skills — for example, in understanding cultural differences across functions, management approaches for leadership of matrix teams, and building high-performing teams — are all important enablers of a strong cross-functional leadership competency. As well as being a key requirement for IBP, this ability to understand and lead teams across functional boundaries is a core feature of the Association’s future vision for finance.
• Influencing: The value added by finance members, both in IBP and in the future vision for finance, is ultimately determined by their ability to influence business decision-making. IBP provides a regular forum in which finance is expected to both provide business insight and influence decision-making by senior leaders. This competency is underpinned by the business acumen and cross-functional leadership skills outlined above. However, high-performing finance leaders will also leverage a deep understanding of techniques for building productive relationships, communication, and negotiation. The hierarchy of IBP forums provides the opportunity for developing finance leaders at all levels to apply these capabilities with leaders with a range of seniority and functional backgrounds.

3. Shifting mindsets for the future vision

IBP provides significant support for shifting mindsets to support the transformation to the future finance vision.

In defining the IBP process and its expectations for ways of working, the business sends a clear signal throughout the organisation on its vision for cross-functional collaboration to support optimal enterprise decision-making. It also establishes a key role for finance, not in traditional core accounting but in value-added business contribution, directly influencing decision-making as an equal partner in a cross-functional, cross-disciplinary team.

Creating this cultural norm is important both for the finance function and for colleagues across the business. Establishing a norm in which finance is expected to be represented at all stages of performance management, planning, and decision-making is crucial to shaping the behaviours across the business. This norm in which finance is expected to understand the detailed business dynamics and provide clear challenge and support to decision-makers leads to a significant culture change in many businesses.

Seeing finance as a valuable source of insight and influence, rather than as a final numbers check to a decision effectively already made, is a major shift that drives greater inclusion of the finance team. This is also an important cultural shift for the finance team itself and helps create a supportive environment from which finance staff members can be confident that they have a broader and more influential role to play at all levels in the business.

As the remit of the finance function moves from core accounting and financial planning to a broader business contribution, it also requires finance to shift its mindset. One example of this is in the agility required to support flexible but robust operational and financial planning. The discipline of IBP, typically operated on a monthly cycle, creates a focus on the midterm (typically a time horizon looking forward 24 months). With this midterm approach, the IBP process drives both operational planning within the current financial year and beyond. This in turn creates the need for a dynamic and agile mindset in which the business can identify risks and opportunities and rapidly create robust enterprise responses in the short- to midterm.

For finance staff with experience in more traditional financial planning (for example, in a major planning exercise run once or twice per year) this requires a significant mindset shift in which rigour and financial stewardship are still required but at a pace to support agility in a volatile market environment.

— Neil James is an associate partner in Camelot Management Consultants in the UK. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.