Mismatch: Finance Roles’ Importance vs. Performance

Finance executives weigh in as strident critics of their teams' — and their own — performance in key disciplines.
David McCannJanuary 31, 2019
Mismatch: Finance Roles’ Importance vs. Performance

When it comes to evaluating the performance of corporate finance organizations, finance executives might be their own harshest critics.

New research reveals striking disparities between the relative importance of a dozen roles that finance plays, and finance’s performance of those roles, as judged by 127 finance executives that Berkeley Research Group surveyed.

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“Budgeting and forecasting” was rated as the most important role that finance plays, and by a wide margin: 53% of the respondents cited it as among the three most important finance roles, 20 percentage points ahead of the second-place “identifying opportunities to improve the business.”

Although some may not consider budgeting and forecasting to be a very strategic activity, it should be when done well, according to Elliot Fuhr, chair of Berkeley’s CFO solutions practice. “It’s very mashed together with corporate planning,” he insists. But for many companies, he adds, it’s in practice a “rinse-and-repeat activity.”

For their part, survey participants ranked budgeting and forecasting as only fifth among the 12 roles in terms of the quality with which finance organizations perform it.

But gaps between the importance of the next three most crucial finance roles — all very strategic in nature — and how well finance teams perform them are even wider than for budgeting and forecasting:

  • “Identifying identities to improve the business”: 2nd in importance, 11th in performance
  • “Executing company strategy”: tied for 3rd in importance, 9th in performance
  • “Capital structure/financing”: tied for 3rd in importance, 8th in performance

Finance teams’ ability to improve the business and execute strategy are lagging because many are still struggling to transition from being mere “fact gatherers,” Berkeley’s research report opines.

In fact, Fuhr observes, “Today it’s not even enough to create insights and analytics. You have to take it to the next level and drive it to a conclusion with your business partners, where they actually implement the action that needs to be taken. Many of the finance officers are criticizing their own teams for not [driving] those opportunities.”

For a CFO, a key to facilitating that improvement is to think beyond the existing talent pool. However, moving that needle is not easily accomplished.

“Taking somebody straight out of accounting, putting them into an FP&A role, and expecting them to go beyond reporting into analytics and then sell those answers to business partners generally doesn’t go well,” says Fuhr. “There’s a fair amount of training that has to happen.”

Even so, he adds, “The hardest job in corporate America to fill today is FP&A. There’s a shortage of those talents, and many of the people who do have them are going into banking, private equity, and consulting shops.”

With respect to the mismatch between the importance and performance of capital structuring and financing, the finance executives are essentially criticizing themselves. Those are not, by and large, team-wide activities but rather are typically handled by a small number of top executives.

“This gap is a little odd,” Fuhr muses. “We would have expected it to be narrower. It’s possible that a number of respondents feel that with the amount of stuff they have on their plates, they’re not doing as good a job as they could with this.”

The roles that finance is handling best, according to survey participants, are, in order, “working with the board, investors, and other stakeholders,” “closing the books and reporting financials,” “management reporting and analytics,” and “cash management.”

In importance, those finance roles ranked 11th, 7th, tied for 5th, and tied for 5th, respectively.