leadership
Companies around the world must transform their finance function
to improve decision making or risk jeopardising their competitive
edge, according to a report from the Chartered Institute of
Management Accountants. Carolyn Canham reports
The launch of the Chartered Institute of Management Accountants
(CIMA) latest report, entitled Improving Decision Making in
Organisations, could not have come at a better time.
“[Troubled UK bank] Northern Rock is an absolutely timely reminder
that getting our decision making right is vitally important,” CIMA
chief executive Charles Tilly explained at the report’s launch this
month, adding that it would have been difficult to predict the
capital markets would dry up. “The message for me is this is really
challenging stuff. I think it’s a timely [occasion] to release this
publication.”
The report warns that companies worldwide are putting their
competitive position at risk if they do not transform their finance
function to help improve decision making.
“High-performing companies usually have high-performing finance
functions,” the report states. “Although the causality has not been
proven with academic rigour, the correlation is clear.”
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By GlobalDataThe report is based on the discussions of the CIMA Improving
Decision Making in Organisations forum, which includes participants
from motor companies Ford and Rolls-Royce, electronics company
Fujitsu Siemens Computer, manufacturer Unilever, the UK’s Royal
Mail and the UK Department for Work and Pensions.
The forum contends that high-performing finance and accounting
(F&A) functions are vitally important. “These leading companies
look to their F&A functions to not only operate efficiently and
produce accurate financial accounts and useful management
information, but also to work closely or to ‘partner’ with the
business to help improve decision making and support value
creation,” the report states.
The report suggests that finance/business partnering varies in
form. “Credibility as a finance/business partner usually rests on
the financial expertise and analytical rigour contributed to
decision making rather than an ability to provide expertise or
leadership in other business disciplines,” the report states.
It also notes that finance professionals can “already provide both
quantitative and qualitative management information including
accounts, analysis, balanced scorecards and narrative reporting.
The challenge is to help apply financial and accounting expertise
to decision making in the business.”
To bring F&A expertise to the business, the CIMA report
suggests, finance/business partners must have sufficient business
understanding to recognise the relevance and practical application
of the information, be able to communicate their insights in the
business’s terms, and help determine and manage actions through to
achieving impact.
The report also suggests that accountants within business should
develop their skills to “support the changing face of finance
functions”. One of the skill sets highlighted is soft skills. The
research paper outlines statistics from the PA Consulting Group,
which show that of a sample of FTSE 100 financial directors, the
vast majority have thinking processes that are logical, analytical,
quantitative and fact-based.
“These are valuable qualities for them to contribute to decision
making,” the report states. “However, their nature may make it
difficult for them to develop empathy with more emotional or
intuitive colleagues.”
The CIMA report suggests that finance professionals need to be
trained “not just to furnish and assemble financial information but
to draw insights and to communicate these effectively to support
decision making. They will be expected to use their understanding
of the numbers and metrics to evaluate opportunities and support
decision making about investment opportunities and resource
allocation.”
Roland Ginn, the finance director at Jobcentre Plus and the UK
Department for Work and Pensions, told attendees at the report’s
launch that “you do actually find that [finance] people want those
soft skills”.
According to the research, management accountants are “keen to work
with the business to improve decision making”. “They can provide
the metrics and analysis to support evidence-based decision
making,” the CIMA report argues, adding that management
accountants’ invitation to participate in business decision making
rests on their ability to provide timely and accurate management
information efficiently and to work closely with the business to
combine financial expertise with business understanding to inform
decision making.
Significant contribution
The report suggests that management accountants have a “significant
contribution” to make at each stage of this decision-making
process. It says: “However, the F&A function has challenges to
overcome before it will be engaged to provide finance/business
partnering; it must be transformed to better support decision
making.” The challenges the report outlines are providing useful
management information more efficiently and working closely with
the business to improve decision making.
More efficient use of time is demonstrated in the report through
statistics from IBM Business Consulting that show that in 2005, 27
percent of the F&A function’s time was spent on stewardship
activities, with only 26 percent on decision support. IBM estimates
that for F&A to be effective as a finance/business partner, the
proportion of its time spent on decision support needs to increase
to 40 percent at the expense of transaction processing. In 2005,
transaction processing was still absorbing 47 percent of F&A’s
time, on average.
The CIMA report suggests that leading companies may already be at
the 40 percent level for decision support. CIMA technical
specialist Peter Simons says: “This is not the future. It is the
reality already in the top companies.”
The report concludes with the suggestion the CEO and CFO must work
together to develop a vision for the finance function.
