Insights and Resources
Inspire an evolution - building, executing a strategic finance vision
INSIGHT ARTICLE |
Authored by RSM US LLP
This article is part one of a seven part series providing a practical playbook for today’s CFOs
Translating the strategic vision of a chief financial officer (CFO) into measurable action items can be a fine art - one that shines a spotlight on an organization’s comprehensive finance operation. Building a thorough, successful strategy is the first step to making positive changes during uncertain and evolving times when proven leadership is needed more than ever.
The overarching mission of today’s CFO is to provide that leadership, as well as operational oversight and system coordination, of financial products and services that address the organization’s strategic needs and issues. An effective approach will see the CFO’s focus shift from a tactical level of cost control to one that drives key decisions across the company.
While a well-defined corporate strategy transforms the finance function into a high-performing operation, the process is often accompanied by an unsettling amount of change. As a recent Gartner survey revealed, more than half of change management initiatives fail, underscoring the critical need for CFOs to place a strong focus on managing these changes in order to drive success.1
The CFO should be viewed as the custodian of an organization’s strategy, responsible for steering change across the finance operating model while also accommodating industry impacts. Modern CFOs have not only expanded their functional scope, they are also increasingly relied upon to drive changes that affect the organization as a whole, becoming a virtual superpower behind the enterprise strategy.
Piecing together the strategy
The success of a strategic vision can be measured by how seamlessly the corporate CFO and functional strategies align. The functional strategy is defined as the collective or individual grouping of the finance functions and how it lines up with leading practices. World-class organizations assign leaders who are visionaries, embrace change, and are able to evaluate the current state with an unbiased viewpoint. A CFO must also determine the degree of change necessary to become best in class, as it is this gap that will indicate future success for the organization.
Finance functions of the office
Driving strategic financial change begins with an in-depth examination of each functional area to yield the current state of conditions, needs and obstacles in achieving the vision. Termed “bridging the gap,” the deviation between current state and leading practice becomes the groundwork for defining next-stage goals, along with outlining the steps needed to achieve them.
A future-state plan and pathway include a series of functional blueprints that directly align with the vision and strategy established by the CFO. These blueprints include critical details that expose the future-state operating model between each of the respective components: organization and people, process, technology, performance management, data and policy, and controls and compliance.
Equally important to achieving the optimal future state is ensuring that it aligns with the corporate strategy and obtaining buy-in from key stakeholders. This buy-in is dictated by a large number of factors, including future-state value, clear articulation of efficiency, effectiveness, automation, control, integration and the reduction of overall cost of finance. The ability to support future state with a financial return on investment is the primary ingredient sought after by stakeholders.
Because custom-tailoring the approach is a necessity--as the DNA, strategy, industry and related regulations differ among organizations--it is important to remain flexible, assign innovative stakeholders, think outside of the box and gain alignment before beginning the process.
Moving from today’s status quo to tomorrow’s operating model
The finance operating model forms the foundation and building blocks of every finance organization. Yet shifts in the model are required in order to transform, to remain relevant in the market, to stay current and to be competitive. A clear strategy will set the curve and degree of change, as well as establish the pace at which change occurs.
It is important to remember that advanced preparation beats a reactive response of continuous blocking and tackling. CFOs are faced with designing the operating model of the future to confront a very dynamic marketplace, recognizing that today’s reality must compare to tomorrow’s objectives. Each function in the current environment can be adjusted to ensure the bigger picture is understood, and a successful transformation program is achieved.
Well-defined strategies, combined with functional and reliable data, create an edge in the marketplace. Successful CFOs know that the design of their company’s operations and the models they follow are as critical to success as any product or service.
The path to transforming and innovating can be measured by the relative strength of each component of the finance target operating model. Every function within an organization includes seven components, each of which should be analyzed and ranked across a spectrum of lagging to leading in their field. Only after a thorough review of operational practices should executives set a course for the future.
While any of the seven points can represent a catalyst for change, each company must begin by understanding and defining their corporate strategy to ensure that finance is aligned with the overall vision.
Analyzing each component of the target operating model will also help identify key areas that hinder finance executives from accomplishing the strategic mission and underscoring the business case for change. The seven components of the operating model are defined as:
- Strategy: First and foremost, it is essential to establish the strategy. There should be a clear and defined execution path that links the functional strategy to the corporate vision.
- Organization and people: Because people represent an organization’s most important asset, aligning them based on strength, weakness, experience and succession is just as critical as defining their roles and responsibilities.
- Technology: Business-led technology enablement is a leading practice, making it imperative that the optimal technology is included within any future business blueprint. Performing these steps in reverse can create a cascading effect of problems.
- Process: Process design requires exceptional objectivity in order for an organization to free itself from current habits and practices. The tendency to believe that current state is best practice is shortsighted.
- Policies, controls and compliance: Evaluating and documenting standard operating procedures, policies and control matrices is a fundamental requirement of any change, helping to reduce risk and manage challenges.
- Data and reporting: Data is a challenge for every organization, from access to accuracy to ease of reporting. Appropriately integrating finance application architecture, including reasonable levels of data governance with the correct reporting engines and warehousing, creates a culture of informed business decisions, thereby minimizing the risk of manual error.
- Performance management: Finance teams must be viewed as the backbone of the corporation, easily serving internal and external customers with varied and extensive data.
Each component of the operating model has its own unique value; yet when assembled and aligned with the overall corporate strategy and leading practices, the pieces form a high-performing finance function. While the corporate strategy sets the vision, careful planning, coordination and alignment are required to design the future-state operating model of each functional area. It is important not to lose sight of the fact that finance plays an integral role in every aspect of a company’s daily operation, and improved performance makes the most of people, budgets, time and data resources.
1 CFO Strategy in Times of Change, Gartner, https://www.gartner.com/en/finance/insights/cfo-strategy-in-times-of-change, accessed Aug. 1, 2020.
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This article was written by RSM US LLP and originally appeared on 2020-10-06.
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