I was recently asked to give some help to a team working on an operating model for their Finance function. The prime objective was to upgrade the function, so that it added more value and cost significantly less. The particular discussion was about organization structure: who should report to the CFO, how to free up some of the CFO’s time for interacting with stakeholders and for spending more time on business strategy, and how to resolve the overlaps between “controllership”, “FP&A”, “strategy” and “performance management”. In this company strategy reported to finance.
My first recommendation was to do a value chain map. This was not because I expected there to be significant overlaps or common capabilities across value chains, but because the teams did not seem to have made a clear list of the “value propositions” of the Finance function. You cannot do a value chain map without first defining the value propositions for which you need value chains.
The list of value propositions included things like “Provide a controllership function”, “Provide tax services”, “Provide treasury services”, “Produce management accounts”, “Propose changes to the portfolio of businesses”, “Influence performance outcomes”, “Help set budgets and KPIs”, etc. We had a list of nearly 15 value propositions.
When we laid out the value chains, we noted that there was very little commonality across value chains. Yes, a number of value chains involved analysis. But we concluded that tax analysis is a different capability from internal audit analysis or portfolio analysis. Also, most value propositions involved some partnering with the business divisions. But, we concluded that strategy partnering is a very different capability from treasury partnering or risk management partnering. So we concluded that any organization design for Finance should have a person in charge of each of the value propositions, with all the resources needed to deliver the value proposition. This meant that cost cutting would have to happen within each value proposition or some value propositions should be dropped.
We then needed to think about how to group the 15 (or so) value proposition owners for the purposes of reporting to the CFO. Ideally we only wanted 5 or 6 direct reports to the CFO to help free up some of her time.
Some value proposition owners (or departments) needed to report directly: Strategy, Internal Audit and Treasury. So the question became “how to group the rest” and whether some of the rest could report to Internal Audit or Treasury or Strategy. This raised some interesting debates about whether M&A Support and/or Performance Management could report to Strategy. I counselled that I thought that both M&A and Performance Management were incompatible with Strategy because Strategy is about reasoning, creativity and intellectual rigour, whereas M&A is about deal doing and Performance Management is about holding people’s feet to the fire even when it seems unreasonable. But we observed that many companies do put some of these activities together.
A number of logics for grouping departments were discussed
- Operations type activities, like accounting; specialist departments, like tax, treasury and M&A; departments with heavy interaction with business divisions, like FP&A and Strategy
- Activities with an “innovation” orientation, like Strategy and Tax; activities with a “customer intimacy” orientation, like FP&A and Risk; activities with an “operational effectiveness” orientation, like Management Accounting or M&A support
- Activities that are primarily about setting policy, like Controllership and Risk; activities that are primarily about shared services, like Management Accounting and M&A support; activities that are primarily about “influencing”, like Strategy and Performance Management
To date, no decisions have been made. But I thought you might find the process of thinking interesting.