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Learning from finance leaders—three things top organizations can teach us

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Learning from finance leaders—three things top organizations can teach us


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Companies in virtually every industry are undergoing a secular change to new, platform-based businesses. To thrive amid the constant disruption and uncertainty of today’s economy, organizations need to learn from finance leaders to digitally reinvent their enterprise business and operating models. CFOs are instrumental in providing the analytical insights to help the enterprise invest capital into new opportunities, helping steer the strategic direction of the enterprise and doing so iteratively.

The IBM Institute for Business Value (IBV) recently surveyed more than 2,500 CFOs and other senior finance leaders in two important studies to gain insight into the ways that digital is transforming both the enterprise and the role of finance. In Elevate your enterprise: Chief Financial Officer perspective, the IBV interviewed 2,102 Chief Financial Officers. To better understand how some organizations succeed, we applied cluster analysis to identify distinct segments of organizations. Three archetypes emerged, which we’ve named the Reinventors, the Practitioners and the Aspirationals.

Reinventors, Practitioners and Aspirationals among finance leaders

The Reinventors are the standouts. They report that they outperformed their peers in both revenue growth and profitability, and lead in innovation as well. Their organizations are exceptionally well aligned between business functions, from formulating strategic objectives to executing at the operational level. Reinventors report that members of their C-suite team collaborate with each other to a far greater degree, IT strategy is more in sync with their business direction and business processes are more optimized to support their strategic intentions. Meanwhile, Practitioners haven’t yet developed the capabilities to match their ambitions. But over one-half of Practitioners plan to launch new business models in the next few years. The Aspirationals, as their name implies, have a ways to go in both their digital transformation and in their ability to move quickly to seize new opportunities.

The second study, Unlocking the potential of digital: Digital Reinvention in finance surveyed 511 CFOs and senior executives. In analyzing the survey responses, we identified a small group (14 percent) of the most effective finance leaders. On average, these leaders were more effective than their peers across ten finance-focused activities: cash forecasting, expense management, finance process optimization, financial planning, management reporting, mergers and acquisitions, order-to-cash, procurement, profitability and margin analysis and revenue forecasting.

In these studies, CFOs confirmed that finance’s role within the business now includes applying analytics and creating insights that impact enterprise-wide strategic decisions. Traditionally, the CFO must help the enterprise execute on strategic opportunities: driving growth, reducing costs and managing risk. To do so, they leverage data to provide analytical insights, which inform strategy execution by those in operations and other areas of the business. Multiple digital technologies are critical to help CFOs transform their processes, address disruption and provide influence beyond the finance function.

Three things the rest of us can learn from finance leaders

From these two pieces of research, we identified three things that leading finance organizations do that other functional areas within their organizations can learn from.

 

  • Pursue a new focus – Finance leaders report that they are very effective at partnering with the CEO to help set strategic direction and optimize capital allocation to further strategy and growth. They have considerable data and sophisticated analytics to inform their vision. Eight in ten leaders turn to data and analytics to inform strategy – more than twice as many as some peers. Finance leaders have analytics in place for organic growth opportunities 67 percent more than their peers.
  • Build new expertise – A growing number of organizations seek to derive significant strategic advantage from intense collaboration with other organizations. For CFOs, this propensity to collaborate with others is a boon in that it opens up access to new data and new lines of sight across the value chain. Finance leaders have become particularly adept at ecosystem advantage, partnering with organizations in their value chain and even collaborating selectively with competitors. Finance organizations need to identify, retain and build the necessary talent and acquire the necessary tools to create and sustain a digital organization. Seventy percent of leaders have developed the analytical talent in their finance organizations to partner with the business. For example, the finance team needs to know which business drivers will impact cash flow and capital spending in areas such as sales and operational planning (S&OP), supply chain and demand planning. Additionally, finance leaders recognize the need for specialized skills and have invested in specific roles. Such skills include analysis, visualization, security, mobile, social, machine learning and modeling.
  • Establish new ways to work – A primary mechanism to help drive growth is the ability to extract insights on opportunities from both internal and external data. Leaders do so by being better than their peers at integrating data across the enterprise and producing analytics that provide insight on ways to enhance growth and enterprise performance. Across the board, leaders excel in profitability reporting, forecasting demand and product pricing—all of which benefit their counterparts in operations, sales, marketing and other disciplines. They share data among business functions, avoiding the data silos that often inhibit coordination and collaboration.

Honing insights for finance leaders

To support these actionable insights, finance leaders are digitizing their services and processes. They are applying digital technologies (including analytics, AI, robotic process automation and blockchain) in the record-to-report, procure-to-pay and order-to-cash processes. Leaders are far more likely to excel at applying technologies to uncover new insights, a critical endeavor when the goal is to be a full partner in setting a new enterprise direction.

To learn more about how these leaders achieve their results, read Elevate your enterprise and Unlocking the potential of digital

And to learn about the technologies that your organization can use to put these lessons into action, please visit IBM Planning Analytics.

Spencer Lin is Chemicals and Petroleum and Industrial Products Lead and CFO Lead, IBM Institute for Business Value

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