In the latest in our series on ‘all you needed to know but were to afraid to ask’, Nigel Beck offers tips on how the finance function can be a better business partner
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This article was first published in the June 2018 UK edition of Accounting and Business magazine.
Finance functions today are being encouraged to embrace business partnering in order to support the organisation in its need to become more competitive, innovative, agile and forward-looking. The finance team is in a unique position to support these ambitions because it looks right across the business.
From my experience in business partnering at a number of FTSE 100 companies, I see three critical areas where finance can have a positive impact, particularly in today’s disruptive business environment.
Operating cost analysis
Today’s accounting software can be set up in order to provide management with an overview of activity and process costs across the company in a format they understand, helping them make faster and better business decisions. For example, imagine if they had information on costs relating to activity and processes, including the cost of answering a customer phone call, raising an invoice, acquiring or retaining a customer, or providing the product or service to the customer. Sharing this information with management is a great way to demonstrate that the finance team can speak the same language as them and provide valuable cost transparency.
This information becomes even more powerful if you can explain how changes in the underlying volumes in the business impact the cost base. By understanding the volumes that drive the business, you can calculate the unit rate of particular activities. For example, let’s say the cost of answering a customer phone call is £3.60. This information can be used to improve management decision-making for such areas as outsourced telemarketing campaigns or overflow call-centre facilities to maintain the same level of customer service.
In addition to helping with cost transparency and capacity planning, it can support benchmarking activities, sales channel analysis, and even product profitability and pricing decisions. In my experience, activity-costing models can provide a 2% reduction in costs, without the need to reduce resources.
To drive the business forward in a balanced and measured way, using Robert Kaplan and David Norton’s balanced scorecard approach is still a great way to achieve positive results. Reporting on key performance indicators (KPIs) can keep the focus on the time taken to complete key processes and on improvements in quality. These metrics put the focus on customer, employee, operational and financial measures.
One of the key areas to focus on is streamlining management reporting, reducing the number of metrics reported across the business. ACCA and KPMG research on enterprise performance management over the last couple of years (bit.ly/ACCA-KPMGperf) has consistently identified the challenge of businesses reporting on too many KPIs, including ones that are not linked to the true value processes in the organisation. Businesses must report only one version of the truth and produce management information centrally to enhance business insight.
The balanced scorecard provides structure and simplicity, and in my experience can produce results that far exceed expectations. In one particular project I was involved in, balanced scorecards provided an increase in sales as well as a 1.7% reduction in costs without the need to reduce resources. This initiative also achieved increased levels of customer satisfaction and employee satisfaction.
But critical to success is the finance team having access to the right data in the first place. ACCA’s report The race for relevance emphasises that good data governance is essential. This is all the more challenging in today’s era of data democratisation, where many more business units have access to company data. It’s increasingly important to work through appropriate data governance mechanisms, and finance has a critical role to play in this.
Over the last few years, methodologies that improve underlying business processes have become increasingly popular. Finance teams in particular have been strong advocates of Six Sigma – a fact-based methodology that values defect prevention over defect detection. It drives customer satisfaction up and improves bottom-line results by reducing inefficiency.
At the core of Six Sigma is the importance of focusing on customer needs and measuring the metrics that support the customer experience. Measuring processes to identify any weaknesses and then implementing change can significantly enhance business performance in a short period of time. You can then measure the process to quantify the level of improvement achieved. The key here is the measurement. This will always ensure you have a control point, and can determine and communicate the absolute level of improvement.
Finance business partners should embrace the many opportunities to implement one or all of the above methods. Each of them can improve the contribution of the finance team
within a company and demonstrate added value to the business’ bottom line.
Nigel Beck FCCA, managing director, Optimum Value Solutions
CPD technical article
"Sharing process cost information with management is a great way to demonstrate that the finance team can speak the same language as them"