How to Create a World-Class Finance Function

PwC offers an eight-step primer for rising above the masses and forging a finance function that drives the business to success.
David McCannJuly 10, 2015
How to Create a World-Class Finance Function

Like seemingly every company today, you want to “transform” your finance function. But how to do it?

Luckily for you, a new PricewaterhouseCoopers report describes eight “differentiating focus areas that define leading finance functions generally.” Actually, the report may not always tell you “how to do it,” but at least it tells where you should want to wind up.

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The report draws on more than 400 PwC benchmarking engagements in more than 100 countries, as well as interviews with 100-plus finance leaders, PwC subject-matter experts, and CEOs.

The eight differentiators — which PwC says distinguish “top-quartile” finance functions from “mid-quartile” or median ones — involve resource utilization, cross-functional transformation, business partnering, “lean” approaches to finance, people management, technology, competitive intelligence, and how the organization responds to change.

Here is a brief look at them:

Setting the standard for excellence: Top-quartile finance functions operate at a lower cost — as a percentage of revenue, 40% lower than their median peers — and at greater efficiency, delivering budgets, for example, 15 days faster than average companies.

But they also make more effective use of their resources. “Rather than simply cutting spending, they adjust how they target resources,” PwC says. “Enhanced efficiency means they can dedicate more [staffers] to business partnering roles and spend a greater percentage of their time on business insight.”

That enables them to “more successfully anticipate where they will be required to add value” and to continually challenge the status quo.

ThinkstockPhotos-186233448The top-tier functions also pay a premium for top talent, “especially in critical areas where finance intersects with business operations.”

Cross-functional transformation: According to PwC finance benchmark data and performance surveys, improving finance technology is the most important priority for making finance processes more effective.

But, says PwC principal Catherine Zhou, “It is important to understand that technological advances are not something that IT does to finance, or for finance. Finance needs to partner with IT and take an active role in system setup and be part of the design and implementation process.”

The most successful companies see all transformations as cross-functional, cutting across all processes and operations, the report notes. After improving technology, the most important priorities for making finance more effective were seen as improving communications processes and protocols, and improving collaboration related to finance processes.

“Finance professionals recognize that the nexus of improved technology, communication, and collaboration is critical if they are going to be more effective in carrying out their functions,” PwC says.

A step up in business partnering: Forward-thinking companies are measuring the success of finance leadership on the commercial outcomes of the businesses they support, the report says. “However, across most businesses, the deployment of finance professionals to business partnering roles has remained at consistent levels over the years,” with only about one in ten finance staffers in such roles.

Business partnering is less successful, PwC says, when those assigned to be business partners get mixed messages about their roles and responsibilities. For example, in many companies, finance staffers assigned to business partnering roles are still given many operational finance tasks. “Many of [them] are still quite tactical and operational in nature and thus unable to take on the significant strategic challenges of the role,” says Steve Killick, a partner in PwC South Africa.

Problems also can arise if the “partners” don’t actually spend much time working and being together. To overcome this, some companies are sending business-unit people and finance partners to common training. “But most importantly, finance business partners need to spend time in the business, working in the factories or with salespeople, [or] they will never be able to offer significant value.”

Reaping the real potential of “lean” finance: While lean processes have been most prominent in a manufacturing process, they are being adopted by other parts of businesses as well, including finance.

Lean strategies are allowing top-tier finance functions to increase the amount of time staffers spend on analysis versus data-gathering, according to PwC. But the firm’s benchmarking engagements often reveal a lack of process standardization and inadequate technology infrastructure, which handicaps lean processes from making a real difference in how finance teams perform.

“Companies that are successful with lean put pressure on their internal customers to adopt standardized reporting,” says PwC. “They create dashboards where users can access data and create self-service reports in a standardized way. They no longer present the same basic data in different ways to different internal customers.”

Leading-edge people management: Across companies, finance functions may operate with markedly different performance levels despite having very similar systems and processes. The variation comes down to leadership, people’s performance capabilities, and their organization and management, PwC says.

Common problems include (1) having activities that heavily rely on a few key people, creating inevitable difficulties when they are unavailable or there is a spike in activity; (2) working in silos, so that people are unaware of information needed from other teams for financial reporting; (3) spending so much time fighting fires that there’s little time left for identifying and tackling the root causes of the problems; (4) high staff turnover; and (5) managers dedicating less than 10% of their time to actively coaching performance on a one-on-one basis.

Beyond solving those problems, PwC recommends staff empowerment. “The concept of the ‘daily huddle’ around visual data may be familiar, but really embedding discipline around this is key. It must happen at the same time every day. Staff themselves take turns in leading the discussions and feel empowered by the process.… Through routine involvement of team members in decision making and problem solving, a sense of accountability and empowerment is fostered throughout the team.”

Technology that delivers business benefit and reduced cost: Finance was an early adopter of hardware and software designed to streamline and automate core processes. The result has been real improvement in finance operations. More recently there have been great strides in enterprise performance management (EPM) and data warehousing.

But today’s top-performing finance teams are setting themselves apart by using a much wider assortment of technologies to interact with customers, data, and each other.

“Mobile computing, online collaboration tools, and cloud computing allow greater freedom for finance professionals to work any time, any place,” PwC writes. “That flexibility in turn reduces turnover among key segments of the finance population.”

Targeted tools with quick implementation and low skill requirements allow for easy implementation by finance professionals. For example, if a company acquires a new business or has a new brand, new applications allow the company to replicate information based on previous work right through their finance models.

“A finance professional can then start planning against those brands within minutes,” says Paul Morton, a partner in PwC UK. “Models can be instantly deployed to sales teams who can put their sales forecasts against those new brands. Finance can then roll up profit within minutes. With traditional EPM systems, finance would need to raise a project request and involve IT, costing thousands of dollars and taking months.”

Turning management information into real competitive intelligence: Leading finance functions are harnessing the explosion in data availability, and advances in the technology to analyze it, as a competitive advantage. But PwC says its benchmark analysis reveals that in many businesses, the performance of finance management information is falling way below expectations.

“Top-performing finance functions are developing advanced ways to deliver MI using new technology and data visualization,” PwC writes. “And they are often blending new information sources together with traditional finance data to uncover new insights and tell an actionable story.”

Examples of how these finance functions are pushing back the frontiers of MI range from the granular behavioral and predictive analysis needed to identify and capitalize on new niche markets to the development of a much more effective understanding of the interdependencies between marketing, cost, and returns.

“In short, they are creating MI that can be translated into market actions on the ground, be this new market entry or the product mix and offers in a store,” PwC says.

Navigating through a new business landscape: More than 50% of the Fortune 500 that existed in 2000 has been acquired, gone bankrupt, or ceased to exist, PwC notes. “And changes are accelerating as businesses face a perfect storm of digital disruption, product fragmentation, and shifting customer expectations.”

Finance leaders can no longer debate whether they need to adapt. Rather, they must decide how, and how quickly, PwC warns.

The big professional services firm identifies five megatrends that businesses must negotiate their way through: a shift in global economic power, technological breakthroughs, demographic and social change, rapid urbanization, and climate change and resource scarcity.

“These developments are transforming the role and reach of CFOs within their businesses and wider society,” PwC says. “Seeing the world through short-term incremental shifts is no longer enough when whole markets can be turned on their heads in a matter of months. The focus has to be broader and more creative, with whole business models rather than just budgets and forecasts up for review and discussion.

“This broader scope is an opportunity for finance.… CFOs are ideally placed to provide the hard analysis and clear insight into what all this change actually means for individual businesses. This in turn will change the way finance operates.”