Nimble thinking takes the lead

The past few years have seen unprecedented uncertainty. The ever-increasing rate of change in global trade, the regulatory environment, and technology—even social expectations of businesses—have set strategies in new directions and confounded those charged with developing credible forecasts and setting capital investment priorities.

The dynamics also have prompted people to think differently about finance, forecasting, and the role of financial planning and analysis. Business leaders are focused on understanding the impact of uncertainty and volatility, and they’re looking to their finance teams to help them understand the trade-offs around strategy. They want finance professionals to act as business advisers and help the business make more confident decisions.

Useful insight, however, requires more than just traditional accounting skills. Today, being great with the books is merely the price of admission. The successful finance professional also is comfortable with providing insight and ideas. To fulfill this expectation, finance professionals must embrace uncertainty. And to do that, they need to develop business acumen, which manifests itself in the ability to make faster, more confident strategic decisions. Business acumen requires a more holistic view of the business. It requires a better understanding of the objectives of key stakeholders, better risk awareness, and better collaboration across the organization.

To get there, several themes are front and center: Finance must, in certain cases, spend less time focusing on the past and more time seeking better predictions about the future. Finance must collaborate with the rest of the business and measure the most important indicators that drive the business. It must be a filter to deliver correct, actionable information and drive decisions quickly and with confidence. And it must synthesize that information into a strategy that capitalizes on the strengths of the business.

A MORE GLOBAL VIEW

Forecasting is challenging today, in part because organizations are required to take a global view. Events in one part of the world have a ripple effect across the globe, and many more variables are at play. Sixty years ago, for instance, the automotive supply chain in the United States went from Detroit to Cleveland. Today, microchips are being manufactured in Thailand and installed in cars in Germany that are then being sold in the United States.

Because of this changing landscape, high-performing finance professionals must have a global view, not just from a geographic standpoint but also from an ecosystem standpoint—the ecosystem of customers, competitors, suppliers, employees, and other stakeholders within the business.

They must have a comprehensive understanding of what drives profitability, cash flow, and shareholder value creation within the organization. They also must know how decisions will impact each of these elements, and this is where accounting moves into planning and analysis. Being able to show the value that is being created—but also being able to understand how different decisions will affect that value creation at some point in the future—is the essence of business acumen.

Finance professionals need to understand the competitive strategies required for success. They need to understand the people and activities needed to create and sell products and services in the market. And they need to think about business processes that enable a manager to deal with a much more complex operating environment. This more global view has three basic components:

• The world out there. No one has the luxury of ignoring the macro environment. Demographics, politics, and economics shape what’s going on in the world today. Political leaders, for example, can have a fundamental impact on many aspects of the economy. A CFO cannot be effective if he or she doesn’t understand the impact of the world environment on the organization.
• Markets. What are customers doing? What are competitors doing? What are regulators doing? These groups will change the dynamics of the marketplace, which will change what is important or not important within the business.
• The organization. What’s the organization’s strategy? Does it align with the business goals and direction of the market? More importantly, within that strategy, how is the company seeking an advantage over competing offerings in the marketplace? What are the sources of advantage, differentiation, and uniqueness that allow the organization to be competitive? Is it the best product? Is it delivering the best service? Does it have the best price? Does it have the best reputation?

This broad view can’t be developed in a vacuum. The deepest insight comes from finance collaborating with people in other functional areas, across geographies, or with colleagues in other parts of finance to truly understand cause-and-effect relationships.

Armed with a more holistic view, finance professionals can think more effectively and clearly about the future.

For a full version of this article, see “Nimble Thinking Takes the Lead,” by David A. J. Axson, in the latest print edition of CGMA Magazine (Issue 2, 2014, page 12), which is available in PDF format at cgmamagazine.org. Also in the issue:

• Corey Sanders, CPA, CGMA, explains how he helped unite MGM Resorts International’s properties under a common corporate umbrella.
• Paul Worthington, CGMA, draws on his experience at British telecom O2 to provide guidance on safeguarding customer data.
• Donny C. Shimamoto, CPA/CITP, CGMA, offers eight questions that can help finance leaders get the most value out of the information technology function.
• Performance management consultant Brett Knowles offers six ways to make sure you are making the most of the data you already possess.
• Best practices and tips show how to build decisiveness into your DNA, including a look at how Virgin Atlantic does it.
• Organizations can take five steps to ensure that their ethics policies become embedded in the company culture.
• CGMA road warriors share experiences and insights on assignments in emerging economies.

—Jack Hagel, editorial director, CGMA Magazine

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CGMA Magazine is published in conjunction with the Chartered Global Management Accountant designation, which was created through a partnership between the AICPA and CIMA. The magazine offers news and feature articles focused on elevating and emphasizing management accounting issues.