Plotting a Path to Financial Excellence

A simple diagnostic tool may help CFOs evaluate the finance function through fresh eyes.
Laura Miles and Henrik PoppeJuly 31, 2017

Digital disruption, investor activism, and a host of other forces are causing companies to look to their CFOs for more strategic support. And finance chiefs are more than happy when they’re playing a bigger role than corporate number cruncher. In fact, when Bain & Co. interviewed about 100 CFOs in 2015, we discovered that 41% would like to spend more time on strategic planning

Laura Miles

Laura Miles

Many CFOs act as their companies’ internal challengers and proactively identify new opportunities. Automation of manual processes gives finance leaders more time and money to invest in strategic priorities, while advanced analytics, artificial intelligence, and other developments enable them to make speedier, better-informed decisions.

Still, even today too many CFOs are devoting too much of their energy on activities that, while important for the business, don’t add strategic value. By overinvesting their time in reconciling reports or closing the books, for example, they don’t spend enough time on more important activities based on the company’s strategic priorities, such as supporting performance management, business planning, and M&A.

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Bain developed its “Financial Excellence Diagnostic” to help CFOs take a critical step forward. This quick exercise identifies the specific capabilities that will enable a company to achieve financial excellence, based on its own unique position.

After taking the diagnostic, CFOs can determine the activities the company needs to invest in to become world-class. Just as important, they can pinpoint the capabilities in which the company should limit its investments, becoming “good enough.” Indeed, in certain industries, some finance roles generate more strategic value than others and are more critical for helping a company outpace competitors.

The best companies start on the path to excellence by evaluating the characteristics of their industry and company — for example, the speed of change in the market, the uncertainty of the industry, the capital intensity of the business, or the degree of regulation. Next, they consider the company’s competitive strategy. Does it differentiate on quality/innovation or on price? Does it view M&A as a priority?

And then there are the company’s capabilities and culture to evaluate. Are business units stronger in planning or in execution? How value-oriented or risk-oriented are the company’s executives?

Henrik Poppe

Henrik Poppe

The diagnostic consists of simple questions. For example, to gauge a company’s existing strategic planning capability, participants are asked to rank themselves on this statement: My company’s strategic planning sets ambitious yet realistic targets, occurs separately from budgeting, and receives updates when required due to a changing environment.”

Similar questions address the extent to which finance advises the business on value-creation opportunities; the strength of the company’s existing M&A capabilities; and how well treasury optimizes the company’s capital structure based on business and investor needs, hedges undesirable risk exposures, and monitors and forecasts liquidity.

Ultimately, the diagnostic plots a chart that shows which finance capabilities will deliver the most value, ranking each area in one of three categories: those that need to be world class, those that should add value, and those that can be good enough. It’s a quick and effective way to evaluate the finance function with fresh eyes.

Laura Miles is a Bain & Company partner based in Atlanta who leads firm’s global mergers and acquisitions and corporate finance practices. Henrik Poppe is a partner in Bain’s Oslo office and global corporate finance leader.