There have been increasing discussions on various forums about the role of the finance department in an organization. Should the finance department be perceived as a support & controlling function, or should it be viewed as a business partner?
This debate is gaining momentum as recent organizational trends indicate a rapid transition of finance function towards the business partnering roles rather than merely a support function.
There is no precise answer to this debate. However, to understand the rationale behind both arguments, let us understand the theories of a support function and business partnering followed by the motives behind this shift and why business partnering is becoming important for any organizational success.
During the decades of the 70s and 80s, the traditional support functions of a good finance department used to include bookkeeping, payables/receivables accounting, financial reporting and controllership through basic accounting systems.
With the advent of new technologies post the 90s, traditional finance jobs, like bookkeeping, accounting and controlling are either moving away through outsourcing or simply being automated. Further, with the increasing globalization, management is becoming cost-conscious due to shrinking margins and need innovative ways to remain competitive. Organizations constantly evaluate their staff and functions based on their ability to create and add value for the organization.
In the wake of changing business dynamics, it is also becoming imperative for the finance executives to support decision-makers as business partners to make informed decisions, especially in the areas of treasury, effective working capital management and Capital Budgeting.
Here it is essential to understand what is Finance Business Partnering (FBP)?
FBP is a twin role that can provide a pragmatic financial overview equally balanced against any business’s financial and operational needs. Thus, it supports the whole business to raise standards in key decision areas by taking a forward-looking commercial view strongly supported by operational understanding.
FBP involves finance executives working alongside different business departments, providing financial information, necessary analysis & insight to operations and c-suite executives, challenging their thinking, helping them make more informed decisions and driving business strategy to achieve organizational objectives.
Faced with a constantly changing and complex business environment, companies are forced to develop a clearer understanding of the business drivers, key performance indicators and the effect of new initiatives on the organization. FBP helps the organization to achieve this.
Some of the examples of how the business partnering relationship operates collaboratively with other functions are explained below:
• Operations – FBPs can work with the operations team to help clarify how a particular key performance indicators / Service level agreement are calculated and the quantum & impact of penalties on account of non-compliance.
• HR – FBPs can work with the HR team to help them calculating employee compensation packages, their overtime calculations across the business – using comparable data of other projects and monthly trends.
• Procurement & Stores – The finance business partner can work with procurement teams to analyze the slow moving/dead inventories, multiple vendor contracts, procurement processes and suggest analytical ways to bring efficiencies in reducing inventory levels, better negotiation with vendors by undertaking comparative pricing analysis across projects etc.
Key skills for FBPs
Finance business partners should have the right blend of financial and commercial skills on the one hand and strong communication skills on the other hand for a smooth relationship with other stakeholders. Building bonds through strong interpersonal skills and a thorough understanding of the organization’s vision & mission are the key attributes that are critical for a business partner to possess.
Building an Effective FBP Team
Business partners should align themselves to businesses, senior management and other functions. Conventional finance teams focus on reporting historical financial performance. In contrast, FBPs analyze the current decision-making potential impact on future business performance and challenge management thinking to drive better decision-making accordingly.
To perform effectively, FBP teams need rich and comprehensive data sources, Analytical tools such as BI, structured frameworks, robust and best practice processes and strong 360-degree communications across the organization.
Companies will deliver better financial performance if they invest in FBP roles, bring the right level of FBP resources who understand operational requirements, build a culture across organization to promote and support FBPs and focus on the right decision areas by keeping in view the financial and operational parameters.
Authored by Mr. Pankaj Khandelwal – Financial Controller, EFS UAE & India