The following Insights post is contributed by Keith Davidson, Finance leader at ICS, the specialty logistics division of Amerisource-Bergen.
Keith Davidson is one of our top presenters who will be presenting at our two summits in Chicago – our Financial Forecasting, Analytics and Transformation Summit and our Implementing Analytics Academy. Register to attend his session and all the other great sessions.
The corporate finance function is at a crossroads. It lacks alignment on purpose, path forward, and the skills and tools required to achieve it. Unsurprisingly, the function and the broader corporate world cannot even agree on a common name. Is it corporate finance? FP&A (forecasting planning and analysis? BP&A (business planning and analysis)? Analytics finance? Or just finance? For this article we will use finance. A trip through both the Fortune 500 and smaller private companies reveals a plethora of names, missions, and preferred skillsets. For the most part, other corporate functions do not have this problem. When was the last time you were unclear about the purpose of sales, marketing or HR? Likely never. And while there are several reasons for this chasm, some of which can be traced to a lack of understanding that accounting and finance are not the same thing, what matters most is that those in the profession focus on building high-performing finance teams and pushing their business teams in a positive direction. In time, those finance teams will let their success and contribution speak for itself, along with providing clear benchmarks to companies and business leaders on what to expect from a true high-performing finance team.
Before building these teams, though, it is important to understand the traits and behaviors of a high-performing finance team. Those currently in finance, FP&A, or BP&A, may work in a company that has all, some, or none of these traits. That company may be at the cutting edge of corporate finance, or it may think finance people are only accountants with a better personality. In either extreme, most companies suffer from the finance identity crisis because they have yet to see “what great looks like.” Those who have been with companies on different sides of what I call the “finance awareness spectrum” can probably list pages of different traits of a high-performing finance team. My attempt is to focus on a starting point and those most integral to the function at large today.
While a common and obvious characteristic, many would be surprised at how often accuracy is overlooked within finance teams. Although finance is mostly free from the burdens of extreme detail and precision that weighs on accounting or tax teams, business teams still expect finance to be accurate, whether it is an informative waterfall slide with numbers rounded to the nearest million or in an e-mail communicating key business drivers for the quarter. This expectation is what builds the initial confidence and overall credibility in a finance team that eventually provides the freedom to act as strategic partners and change agents within the business. Consistently misquote or change revenue growth or margin numbers? Repeatedly inform the business team that the operating profit target was reached, but the next day or week reveal you made an error and it was missed? Then forget about being asked to take the overall business lead on a new transformation project or embedding yourself within the sales and marketing or operations side of the business. If Maslow had a hierarchy of needs for finance, accuracy would be at the bottom of the pyramid.
Dependability and consistency
Related, but different, business teams must be able to depend on a finance team to deliver on deadlines and commitments, while maintaining consistency on those tasks. Like accuracy, finance teams will never build credibility if it constantly promises month-end analysis on day 7, but always delivers somewhere in days 10-14. Similarly, confidence in finance will also suffer if the analysis and insights result in contradictions. For example, if analysis shows Q3’s operating profit increase was due to overperformance on high-margin products in a particular sales region, the executive summary or subsequent slides cannot change the story and label the increase in profit as driven by lower costs as a percentage of sales. Although both sides of the example are technically correct from different points of view (albeit one of the points of view is inherently lazy), many finance teams make simple mistakes like this without understanding that a lack of cohesive storytelling and analysis only confuses the business team and reinforces the adage that finance teams do not understand the business and are only a spreadsheet team.
Ability to influence without authority
Once the basics are covered, a high-performing finance team should command an influence without authority. In most large organizations, finance and accounting are separate departments. As a result, the finance team typically lacks decision rights on everyday financial control items (accounts payable process, period close, etc.), outside of large capital requisitions and/or major pricing changes. Therefore, a key realization that finance teams should understand is on average they have little to no explicit authority on the business areas they impact. In other words, the business teams can make business decisions without your approval or input. Large shift in how the business segments sales divisions? Change in key material in the manufacturing process? In many cases these types of choices can be made without explicit approval from finance. If not completely ignored, finance may only be asked for input/output work that reinforces an unsound hypothesis. In either case, a high-performing finance team will have the ability to influence in such a way that they are pulled into these discussions and the comprehensive business case (including financials) is considered. It does not mean that the business teams will always listen and do as finance says. However, for the high-performing finance teams, business teams are unlikely to make any key decision without their input, and at times even have that input carry the most weight in the decision process. This trait is a key differentiation from other financial roles and is why natural communication skills and high EQ is prevalent in high-performing finance teams.
A simple barometer I use to gauge the proactiveness of a finance team: how often are they in their office? Although some roles may not be front-end facing, a high-performing finance team is generally proactive and constantly involved in operations and the strategic part of the business. This involvement does not occur in an office behind a spreadsheet for 10 hours a day. Of course, this does not mean that those in finance never sit at their desk either. A balance exists, but to find that balance, the high-performing team will use clues from their internal customers (the business teams) and drive their work habits to meet those needs and drive the success of the business. Notice that the success is not limited to merely financial success or financial needs. At many companies with high-performing finance teams, finance is almost indistinguishable from the rest of the business (operations, marketing, etc.). This is not because the team stops leading finance, but instead it is due to how embedded they are with the business. As a result, the team is positioned to attend and be pulled into meetings and offer proactive insights when hearing the issues of the day. This cannot happen if the team stays behind closed doors constantly churning out numbers and/or data without a purpose.
High P&L and commercial acumen
Finally, a high-performing finance team possesses a high P&L and commercial acumen. A finance team is no good for their business if they do not understand how the business works, its strengths and weaknesses, how it truly makes money (not just on paper), and how its decisions really impact the P&L. Most would assume that all financial disciplines have a high P&L acumen, but that is not always the case. This issue is key for companies who try to force a traditional accounting department to also act as the finance team. Given the predominant background of that industry (public accounting and especially auditing), many will have a balance sheet centric view of businesses and a failure to understand complex P&L and commercial dynamics. I have worked with many ex-accountants and auditors who know more about the balance sheet and accounting literature related to the balance sheet than I will ever hope to know, but most could not explain the simple product concept of SKU cannibalization causing mix shift in the gross margin line and offer potential commercial solutions to the business team. Unfortunately, it is not only accountants with this problem since academia in general does a mostly poor job of teaching the P&L to even finance, economics, and other business majors. Along with the P&L, the best finance teams know the business at hand. They know operations nearly as well as those on the manufacturing floor. They can explain the sales cycle and product pros and cons similar to the sales and marketing team. Having this ability is not just for show or to impress people at company happy hours. It gives finance the necessary perspective to understand how business decisions impact the P&L, as well as leads to finance recommending business decisions with a specific P&L impact in mind. Further, when we later discuss building a high-performing finance team, possessing a high commercial acumen is a key factor in establishing credibility with a business team. Without a high commercial and P&L acumen, finance will find itself left out of key decisions and discussions.
While not exhaustive, the above list serves as a basic barometer on the effectiveness and performance of a finance team. Not all finance teams have the exact same mission, but on average, business teams and companies in general rely on these key traits as a starting point in extracting the most value out of finance. For those teams absent of these characteristics, stay tuned for Part 2 when I address how to establish and maintain a high-performing finance team.
Keith Davidson is the Finance leader at ICS, the specialty logistics division of AmerisourceBergen, a Fortune 11 company focusing on pharmaceutical sourcing and distribution services. He oversees strategic planning, forecasting, financial analysis and client financial services and accounting. Keith has been instrumental in driving businesses to profitable growth in both the consumer products and medical device industries. He was formerly of EndoChoice, a small cap medical device company, where he rebuilt and modernized the Corporate Finance and FP&A teams, along with investor relations functions ahead of EndoChoice’s IPO in 2015. His teams were also responsible for driving commercial strategy and execution in the company’s three business divisions. Prior to EndoChoice, Keith spent the majority of his career at Kimberly-Clark corporation, where he held a series of progressive positions in international FP&A and corporate strategy, along with international experiences in restructuring and business development. Core experiences and passions for Keith include building high-performing teams, international M&A and integration, and corporate strategic planning. Keith holds a Master of Business Administration from Texas A&M University at Commerce and a B.Sc. in Business Administration-Accounting from the University of South Alabama. He is also a Certified Public Accountant.