The finance strategist: A new paradigm for a new world

Payables, receivables, closing the books, creating budgets, analysing variances — for decades these have been the core of the accountant's job. But times are changing. While assuring the integrity of financial statements remains job one, it is becoming an increasingly smaller part of the accountant's role.

The combination of process redesign and automation has reduced the core accounting workload by more than 50% over the last 20 years; further advances through machine learning, robotic process automation, and artificial intelligence will see the effort reduced even further. The accountant's role is changing from doing the work to making sure the work is done correctly. However, as rapidly as the productivity of core accounting operations improves, the demands on finance are increasing faster, especially during these uncertain and volatile times.

Finance is being asked to expand its role in many ways: add insight by combining market, financial, and operational data; move from static budgets to dynamic, driver-based rolling forecasts; and address risk, uncertainty, and compliance, all while fully leveraging available new technology. It's a daunting mandate but also an incredibly exciting one. Finance professionals are increasingly at the heart of the strategic process: assessing portfolio performance, modelling alternative investment scenarios, and ensuring adequate cash and capital are on hand to weather economic storms and invest in attractive growth strategies.

What does it take to be an effective finance strategist? Let's review some of the main attributes:

Don't forget job one

It is easy to get wrapped up in exciting stuff that now appears on the finance agenda, but organisations still rely primarily on finance to produce accurate financial statements. New technology and upgraded processes are helping, but finance cannot overlook its core role.

Adopt a future-oriented mindset

Accounting means we are recording things that have already happened. Strategy is a forward-looking discipline. We care more about the next quarter or year than the last quarter or last year. Unlike the past, detail does not equal more accuracy, and things don't always add up or balance. Being able to pivot to a world of uncertainty and risk requires a new paradigm that is tolerant of ambiguity and able to weigh probabilities and risks.

Go from being descriptive to prescriptive

Traditional accounting and financial reporting are overtly descriptive in nature. They describe past events and maybe seek to explain them. For example, revenue was below plan last quarter, and this was driven by customers' switching from higher-priced to lower-priced offerings. A finance strategist goes beyond answering the what happened and why did it happen questions; they focus on the future implications: What can we do differently in the future? How do we mitigate negative trends and accentuate positive ones?

Move beyond finance data

The financial results of any business event are the last thing that happens. By the time anything is recorded in the financial statements, it is too late to do anything about it. The good news is that over the last few years, we have gained access to incredibly rich sets of new data that can inform our view of future financial outcomes in the near and long term. Market, customer, and operational data power almost all strategic finance models by connecting events and actions to financial outcomes.

Being right is not always the goal

This can be hard for someone with accounting training to accept, but as soon as one looks towards the future, being right is more about luck than skill. Our crystal ball simply isn't good enough to predict the future accurately. We need to develop forecasts that incorporate uncertainty by testing different assumptions and modelling how to respond in different situations.

Being agile and responsive when events don't go as expected is the hallmark of not just a high-performing organisation but also of a high-performing team. Consider how many plans or budgets correctly anticipated the COVID-19 pandemic. Those that performed best were those that looked at their plans and forecasts and used them as a basis for adjusting strategies, reprioritising investments, and adjusting resource allocations to a new reality. These events explain the increasing importance of scenario planning and sensitivity analysis to finance professionals. The ability to embrace unpredictability and model alternative situations in advance equips management with tools to help them navigate turbulent waters.

Focus on actions taken, not reports produced

Historically, many finance processes were slow and manually intensive and required multiple checks and balances to ensure their accuracy. Closing the books took days, reports required hours of careful manipulation and formatting, and budgeting could consume six months or more. It was not uncommon to see office lights in the accounting department burning long into the night during the close or budget season. Finance teams were exhausted by the time reports were delivered and budgets approved.

For some, the combination of process simplification and automation has eased some of the burden, but for many the journey is far from complete. There is no reason why core accounting and finance costs should be more than 0.5% of any company's revenue. Current benchmarks indicate the average remains around 1%. Closing the books should take no more than three days and budgets no more than four weeks.

Embrace new measures of finance value

Many of the benchmark metrics used by finance have barely changed in the last 30 years, yet the finance function has changed beyond all recognition. The metrics in the previous paragraph are typical of the cost and process measurements that still predominate. It is time to move on and adopt metrics that embrace the enterprise value of finance, not the enterprise cost of finance. This shift should put the focus on measures that track the cost and availability of cash and capital; the amount of time finance professionals directly engage with management on forward-looking planning and resource allocation tasks; the percent of finance information that provides advice on actions to be taken, not just explanations of past variances; and finance quality measures that address audit quality, compliance and control effectiveness, and process quality. The focus on simple cost metrics is misplaced. Any CEO would spend more on finance for a 5% reduction in enterprise operating costs, a 3% improvement in working capital, and a one-step upgrade to the company's credit rating — all things a high-performing finance team can deliver.

The impact of these changes reflects a radical realignment of where finance professionals spend their time.

Instead of being mired in transaction processing, accounting, internal controls, compliance, and reporting activities, a finance strategist's job starts when they deliver the report or analysis. Strategists spend time helping business leaders understand the analysis, providing advice on alternative courses of action, and planning the outcome of the chosen actions. No matter how good the analysis or reporting that finance provides, it is only as effective as the decisions that result.

The events of the past year have increased the urgency for finance to pivot from bookkeeper to strategist. The good news is that finance professionals have the skills, passion, and energy to make the change. They must be provided with the data, technology, tools, and leadership to truly fulfil their potential.

Those who make the shift will find themselves in more challenging but immeasurably more satisfying roles that open up the path to leadership positions throughout the organisation.

David A. J. Axson is a consultant and author and a retired partner from Accenture, a co-founder of The Hackett Group, and former head of corporate planning at Bank of America. To comment on this article or to suggest an idea for another article, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.