In the modern business environment, levels of uncertainty are rising and the finance function is changing rapidly. Finance business partners are increasingly expected to provide leadership in the business and to support value creation. But how should they provide leadership when information is incomplete?
Some argue that business partners should use financial data in an attempt to reduce uncertainty. There are risks, however, that simple numbers-based answers to organisational challenges will lead to superficial responses, support existing organisational assumptions, and ultimately precipitate more complex challenges. We argue that business partners should engage with the uncertainty and embrace diverse views in a search for new knowledge (see the sidebar, "Key Takeaways for Management Accountants," at bottom of page). It should be recognised that uncertainty cannot be completely eliminated and that taking numbers at face value can sometimes lead to disaster.
CIMA provided funding for our preliminary research that explored the four principles that came out of its 2016 report Dealing With the Unknown, to help finance business partners to act as knowledge "orchestrators". We interviewed seven companies, four of which were studied in detail and included the perspectives of the financial directors, CFOs, business partners, and HR directors.
Engaging with uncertainty
Only two of the seven companies we interviewed had a systematic approach to engaging with uncertainty. One was Toyota's sales and marketing company in the UK, Toyota (GB). It had developed a systematic way of dealing with brand-sustaining capital budgeting decisions. The other was a midsize family-owned manufacturer — anonymised as "Alpha" — which was developing a systematic way of maximising the potential of product launches and product portfolio planning.
A culture of collective responsibility is at the heart of Toyota (GB). The accounting function has developed a governance framework for creating robust investment proposals to support decisions about its marketing investments (eg, media campaigns) that are responsive to the market and support the global brand.
Alpha's financial director is undertaking the role of its senior finance business partner and is introducing a new business partnering architecture for product launch and portfolio planning decisions. He employs two business partners who will have wider responsibilities when the new architecture is fully embedded in the business.
In these two companies, finance business partners provide leadership in bringing together the different areas of the business to "orchestrate" new knowledge by embedding four principles:
Principle 1: Create opportunities to open up discussions
Both companies have created a vision for their finance business partners incorporating opportunities for open discussions, challenging decision-making hierarchies, and creating positive expectations of finance.
Toyota (GB)'s vision statement for its finance business partners includes a robust governance framework for decision-making that reflects its culture of collective responsibility and focuses on joint business and accounting priorities. Its business partnering architecture reflects this. Each division has a business partner embedded within it to develop their commercial acumen, humanise relationships, and develop trust.
Alpha signals its vision for collaborative discussions by formalising a cross-departmental meetings culture for product launches and portfolio life-cycle planning. Business partners are referred to as "analysts" to avoid negative perceptions of "controlling". They are embedded in the business and coached in relationship building to create trust, as this enables them to have open discussions.
Both companies promote informal discussions. Toyota (GB) co-locates its finance business partners in its open plan offices to facilitate informal discussions across divisions, and Alpha encourages its finance business partners to spend time on the shop floor getting to know staff personally. In this way silos break down, and finance business partners develop a rounded view of the business and are viewed, in turn, as the facilitators of open discussions rather than as corporate controllers.
Principle 2: Adopt practices to raise, praise, and mediate different viewpoints
Toyota (GB) approaches investment proposals through a process of enquiry that reflects its cultural values across the business. These values provide guidelines to probe a business case ("a first-hand investigation with stakeholders"); actively seek legitimate doubts and alternative views ("a spirit of challenge"); and sustain its relentless efforts for continuous improvement and innovative thinking ("Kaizen", a Japanese total quality management principle).
As not all costs were allocated to product lines, Alpha's financial director created cost centres. This allowed him to challenge the assumption that profit was created equally across all product lines and to gain buy-in for an alternative to numbers-driven discussions. He conducted a product-line cost-volume-profit analysis, but rather than sharing the accounting analysis with the marketing director, discussions were anchored to business priorities and used simple visuals (see principle 3 below).
So, for example, questions were asked about how the product life cycle could be extended and kept "fresh" and how existing designs and materials could be reconfigured to maximise profit. Having gained buy-in to this approach, the financial director coached the business partners to enable them to facilitate interdepartmental discussions and thereby generate new ideas about product launches.
Supported by the cultural value of "consensus building", Toyota (GB)'s business partners harness ideas coming from sales, marketing, after-sales, external distributors, and advertising agencies to generate new ways of maximising the customer value proposition. Probing and mediation occur at the executive level across the entire investment portfolio.
Alpha does the same across product development, marketing, and sales (eg, probing sales volumes) to generate new ideas for reconfiguring the materials mix so as to maximise profit and avoid late project cancellations.
Accounting analysis and business assumptions are thereby challenged in both companies. "If it [the investment proposal] hasn't gone through this cycle [of probing], I won't even look at it," the Toyota (GB) CFO said.
Principle 3: Use visuals to facilitate better understanding
Both Toyota (GB) and Alpha use visuals and spaces to facilitate a better understanding and to draw different parts of the business into discussions that can demystify business challenges.
Toyota (GB) has innovation labs in each division that contain write-on walls and various whiteboards and flipcharts to encourage free thinking. For proposals greater than £100,000 business partners prepare simple investment request forms in these labs. The forms link the commercial view of proposals with a more financially oriented perspective through the use of business, rather than accounting, language.
In Alpha, a margin and selling price visual is used to show how the various product mixes affect the overall percentage margin of the business and highlight the products that have the most influence on it. "I try to discuss [risks and opportunities] in just [visuals and] words, [otherwise] people would get lost, and it would take forever. So, everything that I do now, everything's about the visual," said Alpha's financial director.
Principle 4: Simplify coordinating systems to invite scrutiny and generate new ways of constructing knowledge
Simplifying the process used to coordinate the different parts of the business can be a prerequisite for value creation.
In the case of Toyota (GB), once investments are approved, the simple investment request form is used to track each project, and the project owners, working alongside business partners in the innovation labs, create performance indicators and easily understandable visuals to track progress and to identify further improvement opportunities.
Alpha has replaced the financial reports used by nonfinancial managers with simple visuals that facilitate joined-up decision-making and generate new knowledge.
Finance business partners in both companies take a leadership role in orchestrating value creation through the use of simple coordinating systems, which generate new knowledge, rather than oversight systems that seek answers in the numbers.
The above four principles will not, in themselves, create new knowledge. Knowledge is created in different ways in different businesses. So, rather than seeking a set of rules, we recommend engaging with uncertainty through these four principles. The two companies, which have a systematic approach, engage with uncertainty in different ways, but nevertheless their approaches align with the four principles. Consequently, their business partners are able to bring together different views and provide leadership in orchestrating new knowledge and thereby create value for the business.
Key takeaways for management accountants
When there is uncertainty and information is incomplete, finance business partners require an understanding of the business that goes beyond the numbers. Numbers-based answers, with a "finance knows best" attitude, can be perceived as a form of functional arrogance (as one HR director put it) not seen in other business partners, eg, legal and IT business partners.
If they are to become leaders, finance business partners need to be adept at engaging with the business and forming trusting relationships. They also need the ability to communicate with others in the business, who have different perspectives, in a language they understand. Without this, they are likely to be perceived as corporate controllers rather than business partners.
Finance business partners should engage with uncertainty in a systematic way by embracing diverse views on a path to new knowledge that will create value for the business. By so doing, others in the business will see them as value creators.
Research input wanted
CIMA is always looking to engage with members to ensure that its research is relevant to business and the management accounting profession. If you would like to contribute to its ongoing business partnering research programme, please contact Peter Simons at Peter.Simons@aicpa-cima.com.
Julian W. Jones, Ph.D., is a senior lecturer in accounting at Alliance Manchester Business School in the UK, and Robert W. Scapens, Ph.D., is professor of accounting at Alliance Manchester Business School and professor of management accounting at Birmingham Business School in the UK. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.