As finance directors struggle back to work after their Christmas and New Year breaks they will probably do so with a few private New Year resolutions about how work life will be different. Over the last few years, FDs in leading companies have made more than just idle promises. They have changed their departments into value adding finance functions. But they are, as yet, a minority. In an analysis of 750 companies and major public sector organisations in Europe, a (pre-merger) Coopers & Lybrand Pan-European Finance Function Benchmarking survey* found that, on average, only a small proportion (less than 20%) of the finance function’s time is applied to more value-adding support operations, such as financial planning and budgeting. Most resources continue to be spent on day-to-day accounting operations. The first reaction may be to dismiss such a finding. Hold the front page! Shock horror, finance department admits to spending most of its time doing accounts! But this time-honoured occupation is no longer good enough. There are two pressures driving the finance departments to contribute more, to add value. First, the immediate pressure is that accounts departments cost a lot to run, therefore, quite rightly, the corporation wants to know what value it is receiving for that spend. On average, a leading company will spend around 1.4% of its revenue on the finance process, though the spread can go from 0.4% to 7.4%. Second, gazing a little into the future always provokes the same thought. As the US-based Hackett Group, a leading benchmarking outfit, put it: “By the year 2005 the finance function as we know it will have changed almost beyond recognition. Transaction processing will be simplified, standardised, routined, streamlined and automated. That’s 60% of the finance department’s current responsibilities about to disappear.” So finance departments will become like the old joke about the factory of the future. Only two staff remain: a man and a dog; the man feeds the dog and the dogs ensures no one touches the machinery. But it will be no joke for those finance departments which may disappear, swallowed up by IT-driven processing centres. A Hackett benchmark study* of over 700 leading companies listed 29 finance processes which can be put into three broad categories: transaction processing; control and risk management; and decision support. Few could argue with such a broad summary of any finance department’s responsibilities. While finance departments have been good at the first two, these are the ones that are under threat from the march of progress. It is the final one where they are deemed to be weakest. The strategy has to be to boost the ability to perform well at helping the company make decisions, while at the same time not letting the first two go hang. After all, it’s no good becoming the organisation’s internal business consultant if the company is easy prey for fraudsters and the employees aren’t paid on time. The FD cannot say goodbye to those duties, even if they are outsourced to the far corners of the earth. It’s a question of balance. With the right use of IT and with tools such as outsourcing and shared financial services centres, there is a chance that the 80% day-to-day/20% added-value split could be permanently reversed. As Andrew Sawers, the editor of this magazine, says earlier in this edition, the idea of the finance function at a crossroads has been around for as long, if not longer, than the magazine itself. However, it would be foolish to dismiss questions over added value as the latest business school chatter, forming a murmuring backdrop while FDs and their staff get on with the job in hand. Like every part of business and industry, the finance director’s job has changed over the years and that change will continue. The better finance directors have always been trying to add value to their company by participating in the business. One finance director explained to me how he had made what he saw as a routine visit to one of his new company’s most important storage and distribution depots. While being shown round, the newly appointed FD was informed that he was the first chap from finance who had been to the place in years. Sitting at head office and issuing orders and reports to the troops is the old way. FDs have to make sure that they both grasp the practicalities of the business and demonstrate that they are willing to work alongside those in other parts of the company. The FD that won’t participate won’t survive. Apart from the fear that the quest to provide added value will end up with the basics being forgotten or ignored, there is one material doubt over whether the FD can create the value adding finance function. If FDs and their staff have one weakness it is probably in the area of the softer skills. Those in finance, especially when they are leaders of change or business re-engineering, must understand people issues. One FD has predicted that finance groups will be more involved in communicating with the business units – adding value by focussing on delivering business solutions. This calls for an understanding of the business with strong interpersonal skills, neither of which were particularly important in the past. Finance staff need, in the human resources jargon, to have communication, coaching and facilitation skills. If it is true that over the last decade or so, most finance directors have been looking to do more than count the beans, it seems now that their offers for help are being more gratefully and graciously received by the rest of the organisation. Is this the year to go public with those New Year resolutions? Peter Williams is a freelance journalist. * From Creating the Value-adding Finance Function by James Creelman, published by Business Intelligence at £595.
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