Leading business advisors. Finance business partnering Making the right move

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1 Leading business advisors Finance business partnering Making the right move

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3 Contents Snapshot of key findings 5 The role of the CFO is shifting 7 Getting started requires a solid approach 10 You want to do it right, but how do you ensure success? 11 Define value opportunities 12 Prioritise and spend time on value-adding activities 13 Build an information and analytics platform 14 Develop, attract and retain the right capabilities 16 Ensure business alignment and capacity 18 Contacts 20 About the finance business partnering study. In 2014, Deloitte launched the finance business partnering study inviting finance leadership from top Danish and multinational com panies to share their views on finance business partnering.

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5 Snapshot of key findings Finance business partnering is still hot on the CFO agenda and compared to common beliefs, business wants finance to step up and act as a true business partner and hereby providing the opportunity for the CFO s to impact the business agenda. The business wants finance to step up 95% do not experience lack of buy-in from the business as the #1 barrier. But, 1 in 4 is unclear about the value that business partnering could provide. The majority of businesses surveyed, wait for finance to make a move, but many finance organisations fail to seize the opportunity, because they do not actively involve the business in how and where finance can add value. Finance wants to step out of the shadows 91% seek to increase the level of business partnering over the next three years. 2 in 3 spend less than 30% of their time partnering with the business. To succeed, finance needs to reprioritise and make a serious effort to put business partnering on the agenda. System barriers prevent success 62% of the companies identify inadequate finance systems as a barrier to effective business partnering. If finance cannot get the basics right, they lose credibility as a business partner, so be sure to prioritise accurate and reliable data. Moreover, the right tools and systems can enable insight and transparency critical to the success of a business partner. However, be careful not to put off business partnering initiatives until systems are perfect (they will never be). Business partnering is mainly about people, relationships and competences. Finance is lacking the talent 45% state that the biggest challenge in relation to delivering finance business partnering is that they lack the talent to partner with the business. Business partnering is a personality not a job description. While the analytical toolbox needs to be in place, the business rate capabilities, like business acumen, influencing skills and strategic thinking are even more important. Unfortunately, those capabilities are lacking in many finance organisations. Not a desk top exercise 31% have no coordinated approach to business partnering it is ad hoc driven by individuals. Moreover, many business partners get tied up in operational activities, which limit their availability to the business and focus on business partnering activities. Successful organisations have freed up their business partners from the majority of operational activities by clearly aligning roles and responsibilities throughout the finance organisation. 5

6 The essence of business partnering: Acting as one with the business to create the highest financial value at an acceptable level of risk throughout the organisation. Deloitte

7 The role of the CFO is shifting The role of finance is changing. Driven by shifts in internal and external factors, finance needs to be agile, lean and ready to respond to the needs of the business. The latest trends demonstrate that the role of the CFO is shifting towards a focus on exploring new frontiers. The ability of finance to provide the insight needed for better decision-making is rapidly becoming a comparative advantage. This is especially the case for many companies trying to achieve profitable growth in difficult markets, however, in many organisations finance does not deliver the insight required to drive better performance. The increasing demand on finance to create a highperforming business culture has encouraged CFOs around the world to look to and embrace finance business partnering. Making the transition from a traditional back office function to a strategic business-facing front office is not always an easy task and requires commitment and effort. Organisations that successfully build business capabilities in finance are outperforming their piers. Succeeding as business partners will impact the bottom line, and the business leaders are turning to finance to have them step up as true business partners. Deloitte s view is that finance now has the opportunity to use the wealth of available data to provide insights that guide, influence and challenge decision-making in the business. However, this will remain difficult to achieve as long as business partnering continues to be an ill-defined discipline. As such, finance must clearly define the role of the business partner, the capabilities required and the performance expectations to take advantage of this opportunity. Many organisations have already started investing in and developing finance business partnering capabilities. However, it is important for CFOs to translate such capabilities into tangible strategic benefits that are meaningful to the organisation. 95% of finance organisations do not experience lack of buy-in from the business as the primary barrier to succeeding in business partnering. 7

8 The modern finance function is an increasingly important strategic partner to the business, acting within a range of complex roles. Figure 1: Deloitte's four faces of the CFO Finance business partnering supporting strategy formulation and execution Catalyst Gain business alignment Catalyst to successfully identify, evaluate and execute strategies. Steward Ensure company compliance with financial reporting Steward and control requirements. Execution Leading edge Threshold performance Finance function Efficiency Control Performance Strategist Strategist Leveraging financial perspective to improve risk awareness. Strategic decision-making. Integrating performance management. Operator Operator Dynamically balance costs and service levels in delivering on the finance organisation s responsibilities. CFOs must assess the level of opportunity to deliver more value to the business against the four key roles that their finance function has to play: steward, operator, strategist and catalyst. Each role is important. However, while the operator and steward activities are important enablers of finance business partnering, leading businesses aspire to optimise the amount of time spent on those activities in order to let finance focus on being effective catalysts and strategists. The strategist and catalyst roles deliver the most value to the business, enabling better decision-making and supporting the delivery of business strategy and performance. CFOs must prioritise the efforts to unlock the benefits that finance business partnering can deliver. The Deloitte finance business partnering survey confirmed that the main benefits identified are the ones that support finance s strategist and catalyst roles, including: Better decision-making (76%) Enabling strategic initiatives (60%) Improvement of financial performance (60%) Better sense of risk and more responsiveness to changes in the economic environment (40%). Achieving tangible benefits requires concentration of partnering efforts within the areas of the business that can deliver the most value in return. Understanding particular business areas where a finance strategist or catalyst role is most useful is essential to selecting the right focus. However, this is often where finance fails. To identify how to deploy efforts successfully requires a strategic approach supported by sound knowledge of the business drivers and of the untapped business opportunities across the organisation. 8

9 Why is business partnering becoming more important? Expectations for finance are changing, and there is a heavy demand from the business that finance drives performance with increased focus on strategic advice and business insight. That provides an opportunity for CFOs to help drive the strategic agenda of the organisation. As finance is uniquely positioned by having access to all relevant data and analytics, they can focus their effort on the problems and opportunities that are most critical to the business. Business partners assist the business with better decision-making by focused interventions via their insight into the biggest challenges/opportunities. A refocus of efforts towards driving business and shareholder value and providing the right environment to successfully create value is a demanding task, and organisations are thus focusing on implementing strategies to provide better conditions for business partnering. The figure below illustrates the shift of business support requirements for finance. While standardisation and automation result in less time spent on traditional accounting, the finance function increases time spent on supporting the business by increasing the information value. The shift results in an increased focus on providing strategic advice, business insights and decision support. Figure 2: The evolving role of business partnering Taking a strategic approach to ensure that finance business partners are focused on key areas of activity will gain trust and buy-in from the business. A consistent approach to defining and delivering finance business partnering activities ensures that valuable resources are aligned to the organisation s goals. Acting together with the business in order to define those activities and goals results in shared expectations of the value that finance business partners provide. When finance executives are asked to define the main barriers to delivering financial business partnering, a lack of role definition and a lack of understanding of value drivers are at the top of the list together with limitations on talent and capabilities to deliver. While competences and capabilities are critical success factors, it is Deloitte s view that they take second place to the main challenges of having a clear picture of the organisation s value drivers and well-defined roles in regard to delivering that value. Figure 3: Finance influence on shareholder value Getting the basics right Foundation for your continued journey Your permission to speak You will free-up time! Value-adding reporting and direction-setting finance Clear visibility to your internal customers Often measured indirectly in terms of managerial effectiveness Partner with the business Define your strategic business partner focus areas Create the business case Measure the shareholder value from your activities Decision support Business partnering Strategy advice Before investing in finance business partnering, be sure to Finance Analytics have the foundation in place. Finance reporting and planning BI investments Business insight and decision support Performance Management Finance reporting and planning Transactional activities ERP, SSC and outsourcing Transactional activities Data Management Traditional view Emerging view 76% of the organisations identified better decisionmaking as the key benefit of investing in business partnering. 9

10 Getting started requires a solid approach Deloitte's finance business partnering framework provides a structured approach that enables the finance function to unlock their business partner potential. Deloitte has a proven methodology to help clients identify value drivers, define the finance business partnering role and recognise the operational enablers required to deliver value to the business. The finance business partnering framework identifies the key activities that finance may deploy to deliver value and the operational enablers required to deliver that value. It is essential to apply a consistent approach across the business when implementing finance business partnering. This ensures that priority areas and activities are identified, and that the financial return on any partnering investment is justified. Figure 4: Deloitte's finance business partnering framework Delivery on strategy The finance business partnering framework identifies areas through which business partners can add value. Each value driver can be associated with finance business partner activities that can add significant value to an organisation and help unlock opportunities. Enablers The underlying enablers required to effectively deliver the desired business partnering activities are identified in the diagram below. Aspects such as organisational structure, people, data, process and technology are key to empowering the finance function with the tools to deliver those value-adding activities. DELIVERY OF STRATEGY Operating margin Asset efficiency Revenue growth VALUE Information and analytics Focused interventions Value creation Trust and common language Market expectations CHAIN Talent and capability FINANCE BUSINESS PARTNERING ENABLERS Business alignment and capacity 10 31% of respondents stated that an uncoordinated approach to business partnering represents the biggest challenge to achieving finance business partnering buy -in within the organisation.

11 You want to do it right, but how do you ensure success? Finance finds it challenging to deliver on the business requirements, but most of the challenges lie within finance. Challenges: Spends a lot of the time on getting numbers right Backward-looking, not forward-looking Inadequate skill set Fragmented system support Risk-based financial controls Moving finance to the fore The increasing demand on finance to create a high-performing business culture has encouraged CFOs around the world to look into and embrace finance business partnering. The expectations of finance to add more value to the business are growing, and the opportunity for finance to support business success has never been better. If the business wants finance to step up, why do so many finance organisations fail to seize the opportunity and deliver according to expectations? In many cases, it is the transition from the traditionally known finance factual-based work to the more non-factual relationship-based work and the inability to visualise how to get to the desired end state that prohibits them to step up. To succeed as finance business partners, the enablers need to be in place, but what should organisations start with - getting the systems and data platforms in place, recruiting finance business partners or ensuring alignment with the business on the understanding of the value drivers? Deloitte has identified the key drivers and the sequence to implement to ensure sucess. Define value opportunities Understand the key value drivers and work closely with the business to identify and prioritise the biggest value opportunities. Prioritise and spend time on valueadding activities Define success measures with the business based on the identified value drivers to ensure that time and focus are spent on the value -adding activities. Build an information and analytics platform Equip business partners and the business with insightful information and ensure that you have a back office function that provides the analytics platform and ensures data integrity. Develop, attract and retain the right capabilities Define the capability and competence requirements for successful business partnering. Match against the current organisation and develop a plan to close the competence gap. Ensure business alignment and capacity Ensure that clear roles and governance are in place to ensure that the environment supports the business partners focus on value creation. Business partnering is not a desktop exercise. There are significant opportunities for finance functions to explore when partnering with the business. By trying to manage all opportunities at once, finance will find it hard to convince the business of the benefits that a finance business partnering environment can deliver. However, through identification of a small number of value-adding opportunities, a pilot approach can be deployed to evaluate the merit of investing in business partnering. 11

12 Define value opportunities If the strategy delivers real value to the business, it can act as a springboard for finance to take on further business partnering activities. It is Deloitte s view that in order to maximise the effects, the first step to succeed is to engage the business and in collaboration perform a value-mapping session to identify the areas in which the finance function can contribute to value creation in the business. Figure 5: Finance's influence on shareholder value Shareholder value Revenue growth Operating margin Asset efficiency Expectations Volume Price realisation Selling, general and administrative Cost of goods Sold Income taxes Property, plant and equipment Inventory Receivables and payables Company strengths External factors Acquire new customers Retain and grow current customers Leverage incomegenerating assets Strengthen pricing Improve customer interaction efficiency Improve corporate/ shared service efficiency Improve development and production efficiency Improve logistics and service provision efficiency Improve income tax Efficiency Improve PP&E efficiency Improve inventory efficiency Improve receivables and payables efficiency Improve managerial and governance effectiveness Improve execution capabilities Product and service innovation Product and service innovation Cash/asset management Demand and supply management Marketing and advertising IT,Telecom and networking Product development Logistics and distribution Income tax management Real estate infrastructure Finished goods Accounts, notes and interest receivable Governance Operational excellence Marketing and sales Account management Price management Sales Real estate Materials Merchandising Equipment and systems Work in process and raw materials Accounts, notes and interest payable Business planning Partnership and collaboration Retention Customer service and support Human resources Production Service delivery Program delivery Relationship strength Cross-sell/ up-sell Order fulfillment and billing Procurement Business performance management Agility and flexibility Business management Strategic assets Financial management Value-creating opportunities Business partner strategy and activities should always take a starting point in the business strategy. Developing a successful partnering organisation requires finance to be clear about its role in value creation in the business. Effective business partnering should therefore focus on the key drivers of value in the organisation. In the process of building a business case and measuring the value of business partnering, it is important to focus on the activities and interventions that deliver the most value for the given resources and thus pick the low-hanging fruits. By engaging the business at this stage, organisations maximise the likelihood of getting buy-in and acceptance of the business partner initiative. Once the value opportunities have been defined, organisations will have a commitment from the business and can better determine the kind of analytical data they need access to and the kind of competences that are required to succeed. That approach will ensure a faster, more efficient and less expensive deployment of business partnering and will ensure that success can be demonstrated faster. While business partnering requires a mandate to succeed on a broader scale with the business, these smaller scale successes will ensure increased credibility and buy-in on the operational business level and increase the demand for business partnering services. 12

13 Prioritise and spend time on valueadding activities Deloitte's studies show that the business controllers spend 75% of their time preparing reports, which only 25% of the audience find useful when managing the business. Once the value opportunities have been defined, it is necessary to ensure that organisations prioritise the activi ties that create the most significant value to the business and deselect the others. Are business partners freed up from operational activities? Business partnering is performed whenever the request and opportunity presents itself. In order to be positioned and able to act as a true business partner, the CFO's strive towards freeing up business partners from operational activities, as business partnering takes place all week. Figure 6: Example of prioritised business partner value map Revenue growth Acquire new customers Volume Cash/asset management Shareholders value Sales Operating margin Selling, general and administrative Customer service and support Order fulfillment and billing Value opportunity low Value opportunity medium Value opportunity high 21% of business partnering time is spent on true business partnering activities. 13

14 Build an information and analytics platform With the opportunities defined and prioritised, it is essential that the required data become easily accessible. Figure 7: Current level of system support of FBP activities) Reporting and predictive tools, allowing informative analytics 5% Mainly spreadsheets 14% Reporting and predictive tools widely available, minimal use of spreadsheets 17% Basic reporting tools supported by offline spreadsheets 64% Internal and external data need to be high quality, timely and easy to analyse in order to fully equip finance business partners with the tools to perform their role. Many organisations have invested in new ERP platforms and have optimised business processes. The question is have organisations sold themselves short by not broadening their transformation investments to incorporate the reporting and analytical tools required to enable finance business partnering activities? Some of the key questions to help defining the data requirements are: What information is required to support realisation of value opportunities? To what extent does management reporting include operational, external and forward-looking measures? A practical approach Finance business partnering requires a combination of financial and operational data supported by robust finance systems. In addition, finance has a tendency to focus on what is comfortable historical backward-looking data. With support from finance, organisations must further embrace looking to the future through the use of leading performance indicators. Finance should drive the organisation to consider future indicators and outcomes and should source the data and information that will support finance business partners with forward-looking proactive data enablement. 62% of respondents believe that their finance systems are a barrier to effective finance business partnering. 14

15 Finance business partners are a valuable resource, yet they often spend a significant amount of time on data manipulation, reconciliations and reports that are of no direct value to the business. Typically, that is caused by poor systems and processes. Fundamentally, there is a lack of understanding of the activities that will add value to the business, and until that is resolved, they will be unable to drive the required change and unlock the potential.

16 Develop, attract and retain the right capabilities With the value opportunities defined and prioritised, the core competences required from the business partner can be defined. A personality not a job description A simple one size fits all approach to finance business partnering does not work, and blindly sourcing more technical accounting skills is not the answer. Defining the skills, knowledge and behaviours necessary for effective finance business partnering requires a prescriptive approach. Developing those competences requires a clear talent strategy. Figure 8: Defining the #1 challenge to delivering finance business partnering 40% 30% 34% Higher performance through functional and personal excellence leads to bigger organisational value. Successful finance business partners are seen as leaders who can influence the decisions that a business makes beyond the numbers. Traditionally, finance development programmes have focused on honing technical proficiency and not on commercial leadership or influencing behaviours. The combination of the identified top competences suggests that finance business partners should be business leaders and strategic advisers. That is a move towards a more commercial skill set than has traditionally existed in finance. With this list of necessary competences comes a challenge of how to recruit, train, develop and retain talent that meets the criteria. Organisations need to look at their existing talent agenda and ensure that focus in relation to the changing role of finance is correct. 22% 20% 15% 12% 12% 10% 5% 0% Lack of talent with the appropriate skills Lack of defined Lack of organisatorial understanding structure of value and roles drivers and accessibility of information Technology limitations Inefficient processes Weak existing relationship with the business Commercial acumen was ranked #1 competency required by a finance business partner. 16

17 30% of organisations believe that they do not have adequate resource capacity in finance to successfully deliver business partnering. A practical approach Managing employee performance when there are complex reporting lines and responsibilities to both the business and finance requires a strong definition of those responsibilities and accountabilities and a set of clearly described performance outcomes. The Deloitte approach to help clients identify their individual partnering competences and develop finance business partnering talent follows a structured path, and consideration is given to tangible outcomes that individuals can describe, recognise and deliver. These outcomes we call them value events are again focused on identifying priority activities that help finance s business counterparts create additional value. Figure 9: The number one competences to prioritise when developing finance business partners Relationship management: 19% Strategic thinking: 43% Analytical capability: 88% Challenge, negotiation and influence: 52% Project management: 31% Customer focus: 55% Commercial acumen/ decisionmaking: 90% Ability to reprioritise when strategy and/or environment changes 36% Outcome focus 26% 17

18 Ensure business alignment and capacity With the value opportunities defined and prioritised, the CFO needs to ensure that the organisation is ready to deliver on these opportunities. Are the roles clearly defined? To ensure success as a business partner, the finance operating model needs to be aligned with the business partnering vision, and the internal KPI s and compensation models need to be structured accordingly. A clearly defined finance operating model will ensure a cost efficient finance function, as duplication and poor allocation of tasks and resources will be eliminated. Figure 10: Finance operating model Business area Business partnering Business area Business partnering A focus on the minute details will direct the focus of the finance function to the operator/steward activities and hence reduce the likelihood of the finance function evolving into business partners. What activities does the business partner perform? The business partner will operationalise the value opportunities by creating supporting initiatives and ensuring that necessary data and analytics are available to track and illustrate progress. The business partner will participate in the scheduled business meetings and get an understanding of the strategic and operational challenges. From this insight, the business partner will create transparency for the business decision-makers of the impact of the decision options. Finance operating model Centre of Excellence Decision Support Supply chain Sales and marketing Decision Support Supply chain From this insight, the business partner will create transparancy of the impact of the decision options for the descision-makers. Transactional Finance Management reporting Controlling Financial controlling The business partner will spend a lot of time with his business counterparts and less time in front of the PC, as most of the insight and impact are generated from the engagement with the business counterparts. RtR, P2P, O2C Are business partners freed up from operational activities? Once the finance operating model is defined and operational, the roles and responsibilities within the finance function are clear, and hence the business partners will be fully dedicated to their partnering activities. Do you have visible buy-in from top management? To succeed with business partnering, top management needs to lead by example. The board sets the operational standards of the finance function by the level of details they require from the CFO. The business partner will ensure that the decision-makers have the necessary KPIs, data and analyses available to share insight and enable informed decision-making. Are you ready to harvest the results of business partnering? Successful business partnering has bottom line impact, and can play an active role in outperforming peers in the industry. It is essential to visualise the value they bring to the business and to the table where decisions are made. Make sure to communicate and celebrate successes, and continuously strive towards contributing to the success of your colleagues. What's the point? 1 in 4 is unsure about the value that business partnering can provide. 18

19 Finance is excellently positioned to be a catalyst for growth but reprioritisation is required for business partnering to be a success. Jeppe Larsen, Partner Finance business partnering is not just a job description. It requires that you see beyond the numbers to create value for the business. Claus Thorne Madsen, Partner It is no longer enough to approach the business with challenging questions. Direction is needed. Dorthe Harding Keilberg, Partner Next generation business partnering requires flexible analytics tools to deliver data-driven business insight. Alan Jespersen, Partner

20 Contacts For more information on the Deloitte business partnering survey please contact: Jeppe Larsen Partner CFO Services Claus Thorne Madsen Partner CFO Services Dorthe Harding Keilberg Partner CFO Services Alan Jespersen Partner CFO Services Copenhagen, Denmark Weidekampsgade København S Tlf koebenhavn@deloitte.dk About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. Deloitte Touche Tohmatsu Limited Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms Deloitte Statsautoriseret Revisionspartnerselskab. Member of Deloitte Touche Tohmatsu Limited