The finance department has traditionally been relied on to pay invoices, keep accurate records and prepare the annual budget – and little else. It lacked the strategic and market knowledge to make the big decisions, and it based its forecasts on data that could be months, even years out of date.
But there has been an evolution in the last 20 years, a change in the finance model that has seen it emerge into a much stronger position.
Today, most senior management teams want more than good record-keeping and the annual budget from their finance teams. What they are looking for is a true business partnership.
Tomasz Nowakowski, Vice President Finance at Red Bull Distribution Company, told Finance Innovation & Tech Fest that he had a similar experience when his finance team underwent its own transformations. The drive came from senior management.
“They wanted finance to be a key business partner and offer insightful analysis and support,” Nowakowski says.
“They weren’t talking about invoices being paid on time, those are technicalities, taken for granted. What they want and expect is a business partnership.”
Challenging the Status Quo
Nowakowski says there are several business partnership models sharing similar components.
“The number one component is support: data and insights. You need to inform the business managers on how the business is running. As a finance director, you need to make sure there’s no risk in terms of compliance and penalties,” he says.
“The second is advisory – finance needs to be a trusted advisor to be a business partner. But in order to advise, you need credibility, so you need business acumen. You need to understand the market, competitors, and what your business is about.”
Once finance becomes a trusted advisor, it can start influencing decisions. Finance should also challenge assumptions, he says.
“Believe it or not, strong CEOs like to be challenged. They expect finance to challenge them. Who’s going to tell them that they’re spending money the wrong way, if not the CFO? That’s the way we influence.”
The Evolution of Finance Transformation
Nowakowski outlines what he calls the Evolution of Finance Transformation.
The first phase, from 1995 to 2005, was the Shared Service Centre (SSC) model. The SSC model centralises finance, controlling operations from company headquarters. SSCs are largely transactional in nature and at a remove from other company activities, such as sales. In addition, the SSC model does not allow for regional differences such as language and culture, instead giving unilateral services across regional and national branches. The challenge for SSC is how to monitor compliance in all states and countries while operating at a distance.
The second phase, 2005 – 2015, was marked by the concept of Global Business Services (GBS). With GBS came the evolution of regional hubs for finance and an opening out of the local SSC model. The regional centres were close to the business, on the same time zone. Compliance became a focus after several accounting scandals in this period.
Most recently, the model being adopted is what Nowakowski calls Centres of Expertise plus Digital (COE plus Digital), an ongoing technical division driven by digitisation.
COE plus Digital is taking over from the GBS model as data-driven, expert advice on corporate decision-making eclipses compliance as the focus for finance. The shift began when advanced data analytics became crucial to finance operations, and in turn, customer service.
Nowakowski points out that Robotic Process Automation can automate processes for as little as $1 an hour, and can do 95% of what accountants do.
“With AI data processing you can do demand planning for production or deliveries – supply chain is an easy target for that kind of predictive analytics,” he says.
“Then there’s blockchain, and despite the issues with cryptocurrencies, I think it will be adopted to some degree in functions like legal or accounting.”
Get the latest thinking on finance innovation from the best in the industry. Delivered straight to your inbox once a month.
The Three Stages of Business Partnership
Nowakowski says general managers generally don’t like the traditional SSC model because there’s no face to face contact and finance is perceived as a mere service provider. They run on transactional KPIs, so cheaper is better, and they often have low business acumen. The way they are set up means the level of business partnership is low.
“With GBS there is some GBS-field crossover, so people do talk. They usually control end to end processes so it’s not only about finance – other functions are involved. They guarantee compliance as they have to connect with the business to achieve results,” he says.
“So GBS is still not where management wants the business to be, but it’s better than the hardcore SSC model and it’s more accepted in many companies by non-finance people.”
Nowakowski says few companies have fully implemented the COE plus Digital model. Most Fortune 100 companies are still at the stage of transforming their GBS model.
What changes with COE plus Digital is that finance produces business insights because they are working with data. They have data scientists and this is what businesses appreciate because they are making decisions based on knowledge. Finance becomes a true partner, almost a separate entity.
“In this model, finance is seen as a go-to SME. Because if you have real tax experts, the president or CEO can actually talk about the problems they are having. And because they are working with the customer, there is a blending with what are more typically sales functions, delivering through technology services that were previously owned by sales.”
As finance emerges from being simply reliable record keepers to data controllers, its market focus also improves. All this elevates this model from the typical GBS finance model.
Old vs New Finance Skills
Nowakowski had been building a finance resource at Red Bull based on the experience of companies around the globe. It defines the finance skills management wanted from people and what skills were missing and needed training. The question is what training should be done to build a business partnership?
After consulting eight large companies, there emerged a spread of traditional and new finance skills. Nowakowski chose five from each category as most important:
- Planning & Budgeting
- Process Orientation
- Management Reporting
- Innovative Mindset
- Adaptability to Changes
- Fluency with Data Insights
- Business Acumen
“Within the new skill set, I would personally add a ‘secret sauce’ that makes everything work: collaboration,” he stresses.
“A common, real-life situation in finance is where two people are in different locations but working on the same problem. They are happy to share knowledge, but they are not collaborating. There is no platform for collaboration, and this is a problem many companies face.
“It’s a problem the big tech giants – Amazon, Microsoft, Google – cracked some years ago. They have built collaboration tools and their employees can use them anywhere, following similar formats and processes. If you don’t have collaboration, you are missing out, and you are not where you should be.”
So, Why do Finance Transformations Fail?
Transformations fail because the business is not customer-focused or staff have a skills deficit, says Nowakowski. Driving transformation by cost savings is also a reason for failure. By doing peer interviews, Nowakowski identified resistance to change, poor processes and the wrong operational model as the chief reasons for failure. The operating model needs to match the company culture – it cannot be disconnected.
Then there’s Deloitte research that identifies three main points of failure:
- Resistance to change
- Limitations of existing systems
- Lack of executive commitment
“This resistance to change in the finance department or outside. You can get people who are really uncomfortable with transformations, not playing ball,” he says.
“Then you have people outside finance, like sales, who don’t buy into the change and are not going to buy in, which makes things difficult.
“Of course, if anything goes wrong during transformation – an invoice doesn’t get paid – there’s going to be a lot of finger-pointing. It’s frustrating.”
Collaboration the Secret Sauce for Finance Transformation
No longer content to have the finance department along as passengers on the corporate journey, CEOs are looking for insightful analysis and data-based advice from finance. All this points towards finance developing a business partnership style of operation with the company.
Nowakowski says developing a business partnership means new skills are needed for finance professionals in today’s connected, data-rich environment.
Financial transformations fail: resistance to change being key, but skills gaps, lack of infrastructure, no customer focus and poor executive commitment play major roles.
“Above all, I stress a culture of collaboration – the secret sauce of financial transformation. Without it, nothing can successfully change.”
Hear more from the boldest innovators in finance at Finance Innovation & Tech Fest.
About the Speaker
Tomasz Nowakowski is Vice President Finance at Red Bull. With broad experience in finance, business transformation, and process improvement, Thomasz is responsible for the Finance function of the $1.3 billion Red Bull Distribution Company.