The Productivity Gap

Ask most non-finance people how they would identify a productive and efficient finance department and their responses will probably run the gamut from ‘they get the books done on time’, to ‘we haven’t been closed down yet, so I suppose they’re doing something right’.

“Generally, the finance team’s performance isn’t questioned until something goes wrong,” says Gavin Fallon, GM for Board International in the UK. “But just because a team isn’t failing, that doesn’t necessarily mean it’s succeeding.” Those within finance recognise that the drive towards greater efficiency and productivity is an ongoing process, and one that is more urgent now than ever before.

But what makes a productive finance function, and how can FDs know whether it’s failing or succeeding to deliver the most efficient service for the most competitive cost?

“If you go into the finance department and it’s bigger than it needs to be, but people are still working long hours, then that’s an immediate red flag – a sign that the department is potentially dysfunctional,” says Tom Lewis, FC at Pharmaspectre and an experienced FD across a number of companies.

Keep it simple Having mostly worked for SMEs, Lewis says there are three key questions he asks to gauge the efficiency of a finance function.

“First, I ask about the number of 90-day debtors and the plans in place to reduce them. Understanding that gives me a sense of how plugged in the finance function is to a critical metric – it means they know their data is accurate and they understand what the plan is.

“Then I ask: what’s next month’s revenue looking like? I know that if they are looking ahead like that then they understand the business’s purpose and can plan accordingly. “Finally, I ask how long it typically takes to produce management accounts.”

Answering those questions will give the FD a sense of how efficient the finance function is and help inform next steps.

“The analogy I use is that chefs fi nd a wooden spoon the most useful tool in the kitchen, so focus on the results to be achieved, get the right people doing the right things and let the team work out the detail of the best way to get things done,” says Lewis.

Ultimately, improving your efficiency and productivity requires a balance between doing things right and doing the right things.

“So, when I’m producing numbers I ask what they’ll be used for – will the business be making decisions based on these, because our most scarce resource is the time to make decisions.”

In order to do that, finance will need the right information. “That means it’s key to generate a smaller amount of more meaningful data,” says Lewis. “Am I producing information that’s driving decisions? And then efficiency covers how long and how many people it takes to generate and deliver that information.”

A broader view In Gavin Fallon’s view, FDs must embed intelligent planning across the business, utilising the insights gained to effectively analyse the performance of the business as a whole.

“With this comprehensive understanding, FDs can begin to understand the effectiveness of team performance, address challenges and capitalise on opportunities,” he explains.

And Fallon says we should expect an overhaul of the office of finance in the next five years – particularly those that grasp the nettles of recruitment/ skills and data management.

“Combine the skills gap with the data silos across the organisation and the finance function’s productivity is hamstrung. Until all data is analysed holistically, finance teams are unable to undertake intelligent planning or drive business decisions from these insights. “92% of finance leaders believe that company culture should encourage the finance team to be creative, curious and rebellious – a clear appetite for diversification of the traditional finance role.”

Increasingly, tools need to help finance functions streamline the number of finance systems.

“The next wave of transformation will be moving the finance function to the cloud – e.g. cloud ERP systems (Workday, Netsuite), integration platform as a service (iPaaS) solutions (Workato), reporting tools (Workiva) and so on,” says Luke Bebbington, finance and transformation director at Cloudorizon.

In his view, completing the year-end process remotely has been incredibly frustrating for most using legacy technology.

“While not an immediate priority it will be a big focus over the next 12 to 24 months.”

On the front foot As a portfolio accountant and adviser, Rob Rattray says he sees evidence that finance leaders are waking up to the possibility of using new tools to boost and measure productivity levels.

“I think tools like the recently released and excellent six-day and 30-day cashflow tool in Xero, which uses AI/machine learning to predict how current debtors and creditors will impact your cash position, are really exciting. Using tools like that will help you improve its accuracy by programming in expected payment dates for both customers and suppliers.”

Rattray believes that FDs will be able to develop new and alternate scenarios to stress test the business and establish what actions you can take to improve the situation. You may, based on that insight, consider adjusting terms or prices to customers to retain their business. Getting the most from the tech isn’t always straightforward, however.

“The technology has to work out of the box, with minimal customisation,” says Tom Lewis. “But where tech projects fail is when the tech does one thing and the business does it differently, and no one bridges the gap between getting manual processes into line with what the technical processes will look like to automate them. “In my experience, when you’re in an inefficient and dysfunctional business you need people who understand why it isn’t efficient and who can suggest different ways of doing things. And this is about intelligence: about the ability to look at a process and ask: why don’t we do things differently?”

Christian Doherty is a freelance journalist