There’s a revolution brewing in finance departments. Activist investors are pressuring companies on costs just as digital disruption and mounting complexity take their toll. These forces are causing companies to rely even more heavily on their finance teams.

Laura Miles

Laura Miles

And with artificial intelligence and other advances enabling them to make speedier, better-informed decisions, the stage is set for CFOs to step up their games as proactive internal challengers and identifiers of new opportunities.

But this isn’t happening often enough.

CFOs get high marks for using technology and top talent to satisfy business units with better-than-agreed-upon service-level metrics for key transaction and accounting processes. They produce thousands of reports faster as they gain access to real-time data.

The trouble is, too many CFOs know they’re not creating as much value for the company as they could. For example, while the financial planning and analysis (FP&A) function is facilitating the budgeting process, many CFOs are not really challenging those plans.

When finance functions fail to fully deliver on their potential, it’s often because they can’t divert focus away from areas that are not adding value — reconciling reports and closing the books, for example. By overinvesting their time and energy in those areas, CFOs have little left to devote to more important activities, based on the company’s chosen strategic priorities, such as supporting performance management, business planning, or M&A.

When Bain & Company interviewed nearly 100 CFOs in 2015, they readily admitted that they struggle to align their energies to strategic priorities. We learned that 41% would like to spend more time in strategic planning.

Not surprisingly, many continue to struggle as they attempt to evolve the role of finance with two often-conflicting objectives: saving money and making the department more efficient, vs. helping the business make more fact-based and effective decisions. But CFOs can change course by adopting an owner mindset and then making clear choices to become more efficient in routine activities, generating savings that can be plowed into carefully selected, higher-value endeavors.

Based on our experience, CFOs face three major challenges when they set out to boost their role. We’ll look at them one by one.

Challenge #1: Knowing where (and where not) to excel. Does the industry you operate in require you to excel more in strategic planning or in risk management? Does your company strategy require you to outperform competitors in M&A or in treasury? The truth is that some finance roles generate more strategic value than others and are more critical for helping a company outpace competitors.

Henrik Poppe

Henrik Poppe

Knowing where to invest begins with understanding the industry, strategic priorities, and organizational needs — and then evaluating the finance function with fresh eyes, stepping back to rigorously assess the changes that need to be made.

The best companies start by evaluating the characteristics of their industry — the speed of change in the market, for example. 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. How risk-oriented are the company’s executives?

Consider the example of a global consumer goods company whose CFO made several clear choices to maximize the value of his department.

The company operates in a rapidly changing market environment and maintains ambitious growth targets, aiming to win a few points of market share from its main competitors. The CFO opted to build a world-class M&A team to help make scale a competitive advantage. The company wants to reduce its tax burden and is operating across many countries with a complex legal structure, so he improved his tax management capabilities.

On the other hand, the company determined that there would be no strategic advantage for the company or value to be created in accounting and transaction processing. The CFO decided that those finance subfunctions could just be good enough and superefficient, freeing up cash in the process.

Challenge #2: Understanding where you stand. After determining where and where not to excel, you need to assess how much potential for improvement exists and how much in the way of new capabilities you need to build. Are you a cost leader in account and transaction processing? Underperforming in cash and capital management?

Learning how well your finance capabilities stack up requires a detailed assessment of both quality and cost for each role, including benchmarks to compare your position with that of relevant peers. Increasingly, companies are using a simple diagnostic tool to help them see where they stand.

The consumer goods company mentioned above held a management team workshop, conducted extensive internal interviews, and performed deep benchmarking in a few areas. The effort helped it see that half of its existing initiatives were not critical to meeting its strategic objectives. It also identified a 20% reduction in annual finance costs that could be reinvested in strategic capabilities.

Those findings served as the starting point for reducing the percentage of the finance budget devoted to auditing and increasing the percentage going to M&A. The findings also showed how, by installing new digital tools for predictive analytics, the company could up its game in forecasting accuracy to help manage growth.

Challenge #3: Closing the gap. Once you have a clear picture of where you want to be best in class, what that looks like, and what you need to get there, the next stage involves building a solid case for the changes and designing a concrete roadmap of the initiatives to roll out in a multiyear process. Success requires unwavering support from top management. It also requires an early risk assessment to identify the barriers to change — and a plan for mitigating those risks.

A diagnostic helped a diversified industrial company determine that its finance department was highly effective but also burdened by high costs, as well as complicated and cumbersome processes. It then used a zero-based redesign to address the main pain points in its finance function, from planning to transactional activities.

As part of the overhaul, it defined a set of initiatives and developed a five-year plan for achieving a 60% cost-reduction target that would bring finance spending in line with industry benchmarks and free up funds to invest in its most value-added activities.

Better-quality, less-costly accounting and transaction processing paved the way for the industrial company’s finance department to have the time and resources necessary to influence decisions and identify value creation opportunities. Now that members spend less time generating and reading reports, they can spend more time advising the business.

That’s the ultimate goal. Companies hoping to replicate such success systematically tackle the three challenges that keep finance from reaching its full potential. Only after you determine where to excel, understand your starting point and lay plans for closing the gap can the finance function become the strategic partner it needs to be.

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.

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One response to “How CFOs Can Take on Bigger Roles”

  1. Yesterday’s Chief Accountants are called now CFO, job content almost
    remaining the same. They are experts of Financial Accounting, the quantitative areas. Management Accounting covering qualitative areas
    of Budgeting, Costing , Management efficiency reports are much beyond
    their depth of understanding. FP&A, M&A, Treasury are also bothersome
    to acquire expertise so late with great responsibility of CFO being carried.

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