ON the racetrack of change the slowest lane is definitely reserved for the legal system, with government running a little faster, but ahead of these is society, while over the horizon technology surges on ever accelerating. Somewhere in here is management and finance, but exactly where fundamentally defines companies and organisations.
Those tightly optimised for their RoI are doomed to failure in this fast changing world, while those lacking any control are on a tightrope in a hurricane facing precarious outcomes. Finance, as a function, continues to struggle to find its place, define its function, and become the dynamic enabler it should be.
During my working career I have experienced organisations with financial control down to the penny that has totally disabled creativity, delivery and entrepreneurship, and at the other end of the spectrum, individual empowerment, responsibility, and reward by long term results has created the likes of Apple and Google.
For the most part I have watched the finance function generally become dumber, more simplistic and centralist to the advantage of the short term and detriment of the long. At the same time engineering, production, marketing, sales and support along with general management have indeed become smarter. The increased use of modelling, analysis, predictive selling and maintenance have transformed these functions to keep companies and organisations ahead of the game.
In the defence of finance we might observe that their real job is to fully understand the entire supply chain in order to support every company function in their effort to satisfy the market, defend against competition and change, whilst delivering to the desired results to the board and investors.
Sadly, the tools to do all of this do not exist. There does not appear to be a ‘macro suite’ enabling the fuller function and finance are reduced to looking at material budgets and travel expenses as ‘micro accounts’ in their own right. In a disconnected world this might just work, or not, but in today’s connected environment such an approach is disabling and often disastrous. The unseen and unintended consequences of financial control instead of management are all to obvious to those responsible for creating success and delivery, and quickly drive a wedge between the creative and the blindly functional.
Financial managers now need a reasonably deep knowledge of technology, the market, competition, opportunities and risk. The microscope that is the spread sheet and financial package has to be replaced by the binoculars of modelling and a fuller understanding. Some of today’s packages go someway in this direction but often have their sophistication and full capabilities intentionally unused or disabled by a lack of understanding. At the very time when R&D, manufacturing, marketing, sales and support are becoming closer, connected, and integrated the finance function remains an semi-isolated island along with personnel.
In large organisations the first step towards integration is to outsource people and resources from finance into the operational units, to see the action, and be on hand to help, to be made partially responsible for enablement. This closeness and immediacy promotes understanding and tolerance on both sides and is a big step towards smart management rather than dumb control. The next step is to reflect the experiences and intelligence gathered back into the financial model of the company and the group. There is only thing more dangerous than an uninformed finance function, and that is a senior management layer and main board that understands even less.
In smaller organisations this move towards functional integration is often much easier. The specialisation and silos of responsibility tend to be less stringent and a fuller situation awareness is easier to grasp and span. Managers often find themselves fully or partially responsible for their departments spend. But all this still leaves one stone unturned. The providers and developers of Financial Management Apps and Tools are in need of the ‘real input’ of company and people experiences. There are commercial operations as ‘imagined’ on MBA courses, and accountancy packages conjured by developers with experiences of past employment, and then the reality of today’s dynamic business environment. Embracing these development talents and making them a part of the overall scheme of understanding is now vital.
Our commercial past was slow, stable, disconnected and relatively benign. Today it is fast, dynamic, non-linear, connected and highly competitive, and the old methods and mindsets are dangerous. Not only do we need functional understanding from the top to bottom of organisations we have to leverage Big and Small Data, modelling and war gaming. Dynamic complexity is the challenge, understanding and innovation the solution, and this does not reside in any one department.
Peter Cochrane is an IT consultant and a former chief technology officer at BT
In an era of modern finance, leadership is becoming digital leadership, explains Oracle
CIOs have switched from reporting to the CFO to the CEO, but has this affected CFOs? Sooraj Shah investigates
Digital technologies such as blockchain and analytics are being prioritised by public sector finance chiefs
Accountagility's research of 200 CFOs highlights the weaknesses in existing IT solutions and an unprecedented dominance of spreadsheets