The strategic role of the finance function: The path to relevance

During my term as Global President of CIMA nearly a decade ago, the theme I chose for my year of leadership was a single word – ‘relevance’. The word relevance is perpetual. It is contextual to when it is used. It is extremely applicable to the finance function and the finance professional of the day. They must be relevant to the audience they engage with. 

At the time I flaunted the word it was clear that the role finance played in organisations was shifting from one of being passive and reactive to one that was more proactive. Management accountants had to shift their focus from just historical financial statement preparation to participating in actively managing their organisations. Today that expectation has jumped many notches.

Every major global accounting body is boldly promoting their members as ‘business leaders’ who can strategically take organisations forward. The challenge is for finance professionals to live up to this high expectation placed upon them when they are employed in industry and commerce.

In an attempt to force this realisation professional accounting bodies have not only enhanced the learning of strategy related subject matter in their syllabi but also included strategic case studies in examining the competence of their students. CIMA (UK) was one of the first global accounting bodies to introduce strategic case studies into their examinations to ‘road-test’ students’ ability to think strategically. Today, most professional accounting bodies do so.

Finance professionals are the best placed in their organisations to provide strategic decision support and lead from within. While strategic outcomes are the responsibility of every function in an organisation finance is able to recognise and coordinate the entire sequence from strategy formulation to planning, budgeting, forecasting, and performance management. This role is crucial in driving strategic outcomes and tangible wealth creation in organisations. In effect finance professionals play a key role in strategy execution.

With robotisation and automation relieving finance of the transaction processing and other bottom end tasks that it once performed, finance professionals are increasingly being called upon to add strategic value. 

Many finance professionals do not recognise this opportunity to step up to a more important role. Finance professionals do not realise that unless they play an active role in organisational strategy their involvement in budgeting, forecasting and management reporting is merely mechanical and could also easily be robotised. It is only through contribution to strategic thinking that they can really contribute to tangible value creation.

What therefore constitutes strategic involvement for finance? There is much ambiguity around the meaning of strategy in organisations. Strategy really is a set of decisions and actions taken by an organisation to achieve an outcome. In commercial organisations the ultimate outcome is almost always value creation – for two parties; a customer to whom value is delivered by way of a product or service, and the organisation that hopefully derives profit. Critical strategic thinking is what enables an organisation to deliver customer outcomes and shareholder wealth. It is in this space that finance professionals can exert the biggest clout.

At the heart of any organisation is a business model that enables the delivery of value. Such business models must be strategically nurtured and managed. Today every business model is being disrupted. The basic business model of bringing together a buyer and a seller at a village market has evolved into what is now the giant online platforms such as Amazon and Alibaba where almost anything is bought and sold. The business model of radio and television has been disrupted by the digital platforms of Spotify and YouTube. 

What do such shifts in business models mean to the customer value proposition and the organisational cost structures? This is where smart finance professionals must work alongside business managers to innovate new business models, commercialise the outcomes and optimise the organisation’s financial position. This requires a high level of commercial curiosity and critical thinking.

The complexity of managing organisations is increasing. Managers across the entire business require significant strategic decision support in their quest to achieve the strategic outcomes required of them in their respective roles. This is the opportunity for finance professionals to step in, lift their game and play a key role in working alongside such managers in jointly delivering business value.  Traditionally finance professionals have helped manage organisations in the context of a rear view mirror providing after the fact information to these managers. Those days are long past. In today’s dynamic business environment managers must be provided with forward looking insight that will support their decision making to best effect. This is a major mindset shift for finance professionals. It is however opening up new opportunities for them to excel in.

The shifting landscape of the finance function is driving the next generation finance professional into new and exciting areas. While the accepted domains of traditional finance such as regulatory reporting and governance controls have their place, the new playing fields for the finance professionals are in the areas of strategy, business performance, big data and analytics as well as the use of leading management accounting tools such as activity based methods, balanced scorecards and dynamic budgeting and forecasting. 

These new pursuits are supported by powerful technology both in the hardware and software space. In addition the proliferation of huge amounts of data must be harnessed. Finance professionals do not have an excuse for not playing a strategic role in their organisations. This is the only way for them to be relevant.

[The writer, FCMA, CGMA, is a past Global President of CIMA (UK). He is a global trainer and presenter and works with large organisations on finance transformation initiatives. He also runs public and in-house workshops in Sri Lanka.]