Continuous improvement – the path to a world-class finance function

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How do you define a world-class finance function? Simple. It’s cheap AND good. Many finance functions have solved for being cheap. They have outsourced or offshored the finance function's more operational and heavy transactional parts. This has often resulted in significant savings from labor arbitrage and general efficiencies. 

However, these finance functions often struggled with improving the finance operations services delivered away from the core business, and they almost forgot about the organization that remained close to the business. This created cheap but poor finance functions. That’s because the quality of finance operations wasn’t high, driving the remaining organization to spend all their time in spreadsheets to consolidate and analyze data manually. 

Attempts were made to solve these deficiencies with new tools and systems. However, many CFOs still need to be satisfied with the output they get from their FP&A and business finance teams. What’s worse, business leaders struggle to see the value the finance function provides and push for further cost savings. That's the start of a death spiral. 

Today’s blog discusses breaking this death spiral by sharing hacks that enable Finance to remain cheap but improve. Simply put, it’s to increase data quality to free time for value-adding analysis and business partnering. It’s what we would refer to as the true Holy Grail of Finance. 

Five hacks to increase efficiency 

Let’s start by increasing efficiency. We’re not yet at a point where we can call victory on “Light Out Finance,” where no people are needed to run finance operations. You can get far, though, with a modern ERP system and an updated tool stack. Still, if you have to start improving tomorrow, here are some hacks to try. 

• Lean Accounting practices: Adopt lean accounting principles to eliminate waste and optimize processes. This can include reducing batch sizes, minimizing handoffs, and implementing just-in-time processing for financial transactions. 
• Streamline approval processes: Simplify and standardize approval workflows using digital tools to speed up processes like purchase order approvals and expense report approvals. 
• Automation of repetitive tasks: Implement Robotic Process Automation (RPA) to handle repetitive tasks such as data entry, invoice processing, and reconciliations. This not only speeds up operations but also reduces errors. 
• Centralized data management: Use a centralized data management system or Enterprise Resource Planning (ERP) software to ensure all financial data is in one place, easily accessible, and consistently updated, reducing time spent on data gathering and consolidation. 
• Implement self-service reporting: Enable self-service reporting for non-financial staff with tools like Power BI or Tableau. This reduces the time finance staff spend generating routine reports and allows other departments to get the information they need more quickly. 

These are a few of many hacks we could have presented; however, continuous improvement methodologies such as Lean Accounting are great ways to remain competitive and efficient. 

Five hacks to increase effectiveness 

Most finance functions have stopped here or struggle to increase effectiveness. Part of the reason is an outdated skillset in many finance teams. In the article “How CFOs can triumph in the war for talent” we describe how to address this issue. Let’s instead focus here on more process-oriented hacks. 

• Driver-based planning and forecasting: Shift to driver-based planning and forecasting to focus on the key factors that drive business performance. This approach makes your forecasting more dynamic and responsive to changes in the business environment. 
• Advanced analytics and data visualization: Use advanced analytics and data visualization tools to gain deeper insights into financial and operational data. Tools like Power BI, Tableau, and Python can help identify trends, anomalies, and opportunities for improvement. 
• Scenario analysis and stress testing: Conduct scenario analyses and stress testing regularly to prepare for various business conditions. This helps in making informed decisions and developing robust contingency plans. 
• Integrated business planning (IBP): Implement IBP to align financial planning with operational planning. This ensures that financial plans are closely linked to the company’s strategic goals and operational realities. 
• Enhance collaboration across departments: Foster a culture of collaboration between finance and other departments. Regular cross-functional meetings, finance business partners, and collaborative planning tools can enhance communication and ensure financial insights are effectively integrated into business decisions. 

The finance function can do things in isolation, like driver-based forecasting and scenario analysis. However, most of these initiatives become effective when driven by the business. Integrated business planning is becoming a must to align company activities around strategic execution. This naturally requires a culture of cross-functional collaboration, which has proven hard to establish in many companies. An effective finance function with strong business partnering skills could catalyze this. 

Intra-finance function handover points 

We must address the handover points between finance operations, FP&A, and Business Finance to become world-class truly. This is often the cause of significant inefficiencies, poor engagement, and ultimately lower quality and output delivered from the finance function. Here are five hacks to improve intra-department collaboration. 

• Standardized processes and documentation: Develop and enforce standardized processes and documentation for handovers. This includes clear protocols for data transfer, standardized report formats, and checklists to ensure that all necessary information is communicated effectively. 
• Integrated technology platforms: Use integrated technology platforms that allow real-time data sharing and collaboration between finance operations and business finance teams. Systems like ERP, EPM (Enterprise Performance Management), and collaborative tools like Microsoft Teams or Slack can facilitate smoother transitions. 
• Regular cross-functional meetings: Schedule regular cross-functional meetings to discuss ongoing projects, upcoming deadlines, and any issues that need addressing. This ensures that both teams are aligned and potential bottlenecks can be identified and resolved promptly. 
• Clear roles and responsibilities: Define clear roles and responsibilities for finance operations and business finance teams. Ensure that everyone understands their part in the process and the expectations at each handover point. This can be documented in a RACI (Responsible, Accountable, Consulted, and Informed) matrix. 
• Feedback loops and continuous improvement: Establish feedback loops where both teams can share insights and suggestions for improving the handover process. Conduct regular reviews and post-mortem analyses after major projects or reporting cycles to identify areas for improvement and implement best practices. 

What we find most often missing is the feedback loop. Too often, there’s a one-way flow of communication from finance operations into business finance and FP&A. This is a missed opportunity for finance operations to understand their operating context when preparing the numbers. Moreover, understanding how your output is being used and what decisions it improves gives a greater sense of belonging. Hence, this should be a key focus area for most finance functions to become world-class. 

The path to a world-class finance function 

Many CFOs have the world-class stamp mentioned in the vision for their finance function. Naturally, few achieve it, not least because it’s a moving relative target measured against peers. Those who do, however, are committed to continuous improvement and strive to increase the efficiency and effectiveness of their finance function constantly. 

The hacks we have suggested here are not necessarily difficult to implement; however, they cannot all be implemented simultaneously. You most likely need to fix your finance operations before tackling FP&A and Business Finance. Not least, both these teams are dependent on high data quality to work with for sharing reliable insights with business leaders. 

Is your finance function also aiming for world-class, or are you settling for less? Have you already implemented some of these hacks, and if so, what results have you seen? Finally, is increasing intra-departmental collaboration in the finance function a focus area for you? We’re curious about your path to creating a world-class finance function, so let the comments flow!

This was the seventh article in our new series, "Hacking the Annual Wheel in Finance." In it, we will explore different hacks to transform our standard work in Finance. You can read the previous article(s) below.

Hacking the Annual Wheel in Finance

Hacking the Annual Report - The Holy Grail of Finance

Month-end reporting - the dreaded never-ending finance cycle

The 100-year-old management process - budgeting

Quarterly forecasting - your view of the future

Strategic planning - is your finance team involved?

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How CFOs can triumph in the war for talent

CFO, your time to get on top of data is running out

CFO, how are you planning for success?

CFO, it's time to break down the finance silo you've been living in

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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn, which has more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner”, a long-time Finance Blogger, a LinkedIn Learning instructor, and a Top Voice on LinkedIn with 350,000+ followers.