How to be an effective finance business partner: Insights for manufacturing CFOs from new and unique research by Gary Simon

How to be an effective finance business partner - Insights for manufacturing CFOs from new and unique research by Gary Simon

Earlier this year, some of my Rootstock colleagues and I were having an internal discussion on how the role of the CFO was evolving into a more strategic role, serving more as an advisor to other departments in a company. We knew from our conversations with customers and prospects in senior finance roles that many see themselves as partners to other departments within their organization. But in those discussions, we could find no consensus about what it means to be a finance business partner, how partnering “success” should be measured or even defined, and what the future of business partnering might look like.

Seeking answers, we turned to Gary Simon, one of the most respected observers of the modern finance function. Our timing couldn’t have been better. Simon was about to conduct a research study on this very topic, and we gladly became a sponsor of what we knew would be an important and timely research. Simon surveyed 660 senior finance professionals from around the world to create the first in-depth study of finance business partnering. Today, I want to discuss some of the more important and surprising insights that come from this seminal research, "Business Partnering and the Manufacturing CFO."

Most senior finance professionals see themselves as “business partners,” although there’s little agreement on what that really means.

If you think you’re already engaged in finance business partnering, you’re in good and plentiful company: per Simon’s research, 88% of those surveyed identify themselves, and their finance function, as “partners” to other departments within their organization. But that’s where the overwhelming agreement ends.

Among those surveyed finance pros, the definition of what it means to be a partner is incredibly wide-ranging. As Simon puts it in the paper summarizing his research, “Ask a room full of CFOs what business partnering means and you’ll get a room full of answers, each one influenced by their personal journey through the changing business landscape.” There are some areas of agreement among a slight majority of respondents. For example, 57% strongly agree that “a business partner should challenge budgets, plans and forecasts,” with a nearly-identical 56% strongly agreeing that strategy and development are a core element of business partnering.

But Simon also uncovers some hard realities about business partnering. For instance, although the vast majority of CFOs see themselves as business partners, almost half – 45% - admit that they struggle to spend any time in partnering activities. I suspect this lack of actual engagement is a big reason why only 57% of CFOs think operational functions have a good opinion of the finance team’s business partner efforts.

All of these findings align with the more anecdotal evidence we’ve heard from finance leaders we’ve spoken to, and reinforce our belief that there is much room for improvement.

Despite the wide range of views on what it means for finance to be a business partner, Simon’s research identifies four general personas.

Simon was interested (as were we) to learn how senior finance people thought about business partnering. So, rather than define it, he asked survey respondents to define it in their own words. Remarkably, the 366 “detailed” answers he received to that particular question were all different in some way.

Still, Simon and the rest of the study authors were able to conduct a detailed analysis of the key phrases and words used in the responses and, based on the frequency of those words, to discern four general personas or styles of business partnering: financial performance drivers, top-line drivers, strategic aligners, and catalysts for change.

Financial performance drivers constitute the single largest block of business partners, by far. These leaders see the role of the business partner in traditional terms. Their goals are to execute financial operations in a way that’s understandable to other parts of the business, manage business risk, and sometimes provide operational support, usually on request. While this is a comfortable model for many finance professionals, and can generate modest growth, it does little to promote anything but short-term outcomes and constrains business performance overall. It’s a useful approach, but only marginally so.

Top-line drivers look to improve growth and sales. They collaborate with various functions (especially sales) to positively impact commercial decisions. This cohort can be linked to better revenue and other commercial outcomes – higher sales, more efficient debt collection, even a successful change in business models – than financial performance drivers achieve, but both groups focus on the short-term. The big picture eludes them.

Strategic aligners use analysis and strategy to drive decision making and achieve business goals, which they tend to see through a lens of partnership and collaboration. They help strengthen the foundations of the business, although this focus usually leaves them with little time to spend on driving growth. And, while being a strategic aligner brings real benefits, there just aren’t that many CFOs or other finance execs who describe their role in these terms.

Catalysts for change are the rarest persona, according to Simon’s research. These CFOs are the most progressive, and envision the role of finance in an entirely different way from the rest. They involve finance in every aspect of the business. They aggressively look to challenge the status quo, champion change and innovation, and build an environment that promotes high growth over the long term. It’s no surprise that, despite the obvious benefits of this approach, very few respondents described themselves in these terms.

It’s important to note that while these personas are distinct from one another, they are not mutually exclusive. For example, a CFO who largely falls into one persona will often mention attributes of another persona when describing their view of business partnering. Regardless, the main takeaway is that most respondents still center their definition of business partnering around traditional – and increasingly outdated – views of the finance role.

While many remain mired in traditional aspects of finance, market necessity is creating a new generation of business partner: BP2.

Based on his research, Simon concludes that, while only about 19% of respondents are currently operating under the “catalyst for change” persona, there is clear evidence of growing momentum in that direction. We believe this is driven by the same market reality we hear about when we talk to manufacturing finance leaders. Companies simply need more from finance today than to just close the books and tend to other traditional finance tasks.

Manufacturers, in particular, are faced with such rapid, fundamental, and wide-ranging changes in their business models that every function – including and especially finance – must be moving in the same direction at all times simply to remain competitive. This is not an evolutionary change, but a very different way for finance to participate in the success of the entire business. In fact, Simon has coined a name for this new approach to being a finance business partner: Business Partner Squared, or BP2.

There are numerous obstacles to becoming a BP2 business partner, but one stands out: unruly data.

Data mastery is now the key to enabling effective business partnering, because it provides the factual, shared base of knowledge needed to support effective, timely decisions and actions. But the vast majority of survey respondents – 78% - have not reached data mastery. What prevents data mastery? The research paints a clear picture.

For 18% of respondents, managing their data, let alone mastering it – remains a tremendous challenge. They suffer from data overload: too many data sources and they have yet to establish a useful data governance framework. I don’t think it’s an overstatement to say that, as business partners, they’re basically flying blind.

Another 26% are slightly better off. They identify as “data constrained,” saying “we cannot get hold of the data we need to drive insight and decision making.” The largest number of survey respondents – a full 34% – identify as being “technology constrained.” In some ways, I think this is the most frustrating situation. These finance leaders know that the data they need for effective business partnering already exists, probably sitting in their CRM or ERP system, but they lack the right technology to fully exploit that information.

That leaves just 22% who say they are able to actively manage data as a corporate asset, and a source of competitive advantage, because they have the technology and resources needed.

The fact that so many are still struggling to make sense of the oceans of data they generate could be good news for you: if you can achieve data mastery, you can expect to also achieve an advantage over your competitors who don’t operate with the same depth and quality of insights that you’ll have.

When finance teams become data masters, the benefits start internally and extend throughout the entire organization.

Data mastery by the finance team manifests itself in concrete improvement to everyday performance. You’ll be able to close the books faster, generate more accurate forecasts, run alternative forecasts faster, and generally operate with more speed and confidence. But that’s just the start. Being able to access, analyze and explain organizational data drives effective, fact-based engagement with the business, turning the finance team into a positive agent for change, innovation, and growth. Significantly, finance teams who have achieved data mastery are more often seen as trusted advisors to the business.

Size also matters.

Simon’s data support some interesting conclusions regarding the impact of an organization’s size on the ability to partner effectively. It appears that finance business partnering is most difficult at mid-sized organizations, with 500 to 3,500 employees, works best with 500 employees or fewer, and benefits from the resources a company of 3,500 people or more can bring to bear.

Why do small firms fare best? They have several structural advantages. First, they’re inherently more collaborative. As Simon notes, these are places “where everyone has to roll up their sleeves and get involved.” It’s woven into the culture. Second, “everyone” tends to be physically closer, often in the same building. It’s easier to be collaborative when you can walk down the hall or the stairs and make it happen. And “smaller” usually means fewer transactions, so less data to understand. You spend more time getting things done when everyone agrees on the numbers.

Unfortunately for them, mid-sized companies are often in a sort of wilderness when it comes to business partnering. Obviously, with more size comes more complexity to manage. More data to organize and understand. But, unlike their larger counterparts, mid-sized companies routinely lack the budget to afford the technology and cadre of professional managers needed to achieve data mastery and effective partnering. Finance would like to be engaged in growth initiatives and innovations, but they’re too busy paying the bills, so to speak.

In the large organization, you’ll find professional managers, an organized business partnering team, and even acknowledged measures of success. You’ll also find, to a greater extent than in smaller companies, circumstances that greatly inhibit partnering success. Surveyed companies with more than 3,500 employees complained most often about depending on spreadsheets, lacking standardized processes, and a lack of automation. On this last point – automation – Simon’s research uncovers that many respondents are looking to robotic process automation, machine learning, and other technologies to enable data mastery and, with it, modern business partnering.

To measure success, look past standard finance-focused KPIs.

The benefits of business partnering are not always obvious or concrete, especially when functional strategies overlap and cloud the picture (which happens with regularity). That makes the process hard to measure, but it doesn’t stop people from taking credit for success. 34% of responding CFOs said they do not believe it’s possible to quantify the contribution driven by their partnering efforts…but 91% say those same efforts significantly add to profitability. Clearly, measuring something as nuanced and elusive as the benefits of business partnering comes with obstacles. But business partnerships are too intrinsic to success to go unexamined.

So, what works? Respondents point to three potential paths.

Ask your business partners what they think. Every good business partnership is built partly on “soft” measures like trust and communication, and the perceived value of the partnership and its outcomes. 360° appraisals and satisfaction surveys are excellent ways to gather data on how finance is viewed as a partner.

Use financial metrics specific to the operation or project owned by the partnership. There’s a certain comfort in using generic financial metrics like revenue growth or profitability, but the more closely related your metrics are to the subject of the business partnership – for example, using sales and returns to measure the efficacy of a partnership between finance and marketing – the easier it will be to demonstrate value.

Establish targets at the beginning. Sit down with your operational partners and set outcome targets before the project begins. By including both financial (budget or profit) and non-financial (engagement, accuracy) metrics, you help ensure that everyone is motivated and accountable. At the project’s end, it should be a pretty straightforward process to assess whether or not targets have been met.

Simon has surprisingly good news for finance business partners in the manufacturing space.

Simon’s research reveals manufacturing finance business partners are more advanced, in terms of both data mastery and their ability to act as true partners and change agents, than their peers in other industries. There are two reasons why.

The first has to do with the ongoing revolution in manufacturing technology. Personalization, make to order, and rapid prototyping are just a few of the reasons why so many manufacturers now embrace a culture of rapidly-paced innovation and change. That culture is increasingly reflected in finance, as the function works to offer business partnering that meets the needs of the business.

The second reason is ERP. Simon explains:
“Manufacturing was the first sector to benefit from authentic ERP. In systems terms, manufacturing has been ‘joining up the dots’ and integrating a complex set of applications for more than three decades. Where other sectors often find themselves organized and working in functional silos, manufacturing simply can’t function separately without risking the whole process.”

And as ERP moves to the cloud, the inherent benefits of cloud – mobility, customization, scalability – makes it easier to achieve data mastery and collaborate effectively even across widely dispersed organizations. We think it’s fair to say that a cloud ERP solution like Rootstock amplifies your ability to function as a BP2 business partner.