Does a lack of insight threaten your business?
Business leaders, strategists and finance professionals often lack the data-driven insights they need to make confident, robust and effective decisions, regardless of company size.
Companies have access to increasing volumes of Big Data and diverse management information (MI) tools enabling them to report what has happened and why, but some can find it difficult to answer the crucial questions ‘so what?’, ‘what if?’ and ‘what next?’.
In fact, studies by both Deloitte and KPMG respectively found that 83% of organisations wanted to increase the time spent on finance business partnering and 82% of CFOs were working to improve how their team challenges and supports the business.
A lack of clarity regarding the real drivers of current and future financial performance against strategic objectives is a major threat to profitability, liquidity, the ability to control risk and take advantage of opportunities and ultimately business survival.
So, what is insight?
Insight differs from data and information.
Data answers the question ‘what?’ and comprises facts and figures, mainly numbers. It explains what has happened or what will happen and may be unorganised, organised or visualised in to tables, graphs or dashboards.
Information answers the question ‘why?’, which normally means using words. Data is turned into valuable information by uncovering the root cause driving a trend, which is where finance business partnering comes in. You will rarely find the root cause in any system, database or spreadsheet.
Insight answers the questions ‘how?’, ‘so what?’, ‘what if?’ and ‘what next?’. It can be defined as a clear, accurate, deep and sometimes sudden understanding of a complicated problem or situation.
Insight is to understand the future implications of decisions made today. A finance business partner may answer those questions or may ask them and facilitate the wider business in answering them.
Finance business partnering begins after standard reports and analysis have been produced. At this point the focus then shifts from accounting to management and insights are developed to inform decisions and improve performance.
The Deloitte survey on finance business partnering identified the main benefits as being those that support Finance’s strategist and catalyst roles: making better decisions (76%), enabling strategic decisions (58%) and improving financial performance (56%).
What causes a lack of insight?
A recent study by the Chartered Institute of Management Accountants (CIMA) found that effective finance business partnering, and thus insight, is still proving to be a challenge for many businesses.
There are many possible reasons:
Detail: Staff can be overwhelmed by an increasingly diverse range and volume of data sources, with the onset of Big Data and extensive data warehousing options. A tendency to produce overly detailed diagnostic information can result, obscuring the real picture at a strategic level.
Complexity: Businesses, operating models, systems and analytics tools are increasingly complex. It can sometimes be difficult to drill down to credible, underlying data.
Growth: Growing companies, large and small, often suffer from the negative effects of rapid growth, with unintegrated systems, inefficient processes and duplication of effort.
Capacity: Finance and other staff may simply lack the time to answer the ‘so what?’ and ‘what if?’ questions, having consumed all resources navigating overly complex systems to report on the ‘what?’ and the ‘why?’
Capability: A lack of dynamic forecasting, planning and modelling skills can limit capability to model sensitivities, scenarios and strategic options and give a clear snapshot of where the business is heading. Companies may need support in embedding commercial, business and modelling expertise to bridge the gap between data and strategic impact.
Recognition and buy-in: The CIMA study also found that accountants may not always be recognised as having the business acumen or soft skills required. This may boil down to perception and/or development needs. The Deloitte Finance Business Partnering survey reported that 40% of organisations believe a lack of buy-in from the business is a barrier to finance business partnering.
Structure: Despite growing recognition of finance professionals as true business partners, in more traditional structures and in many SMEs, finance teams are often still expected to focus mostly on historical financial reporting, compliance and transaction processing.
Why does it matter?
Without insight, decisions tend to be made on gut-instinct rather than being driven by data. Whilst gut-instinct may end up being right, this is a high-risk strategy, which may fail to unlock the true value in a decision and lack the underpinning and transparency needed to make confident choices.
Without insight, there is a tendency to focus too heavily on what has happened rather than what might happen in future and what early corrective actions are needed to align performance with strategic objectives. This leads to a reactive rather than proactive approach to performance management and threatens business longevity.
Too much time is often spent on producing volumes of data and information that management may not use or fully understand. Finance (and other) staff become reporters rather than partners. In an attempt to get insight, companies spend large amounts of money on software tools. Whilst these can play an important role, the result is often glorified data and a multitude of data slices and dices, which still fail to provide real insight.
Opportunities may be overlooked, and risks may not be foreseen or put in to perspective. Management may focus on the wrong risks if they do not understand their relative financial impact.
The relative contribution of different products, services, markets and customer groups on net profitability and cashflow may not be understood. As a result, leaders may make the wrong decisions regarding investments, divestments or target markets for example. Worse still, management may not have the confidence to take vital strategic decisions at all, thus risking falling behind the competition.
Data-driven insights can reduce bias in decision-making, help to retain a ‘single source of the truth’ and objectivity. Further, too big a focus on detail, data manipulation and reports that have limited use is a major source of inefficiency.
How can you develop greater insight?
Develop a culture of questioning and challenge
It is questions and conversations that can lead to the insights needed to improve performance.
Start with the high-level questions that need to be answered, rather than the data. For example: How do we really generate value? What is our business model? How do we need to develop our business model for the future? What do we need to measure to manage our performance in this period and the future? What data do we need to consider for this purpose?
Develop a finance business partnering approach
Strengthen finance business partnering skills in your finance team and empower them to work across the business.
Involve finance staff at a strategic level and engage them at the start of projects to understand the business model and key decisions and enable them to challenge, question and influence.
Review and rationalise your management information and business intelligence processes
Transforming your efficiency in data manipulation, analysis and management reporting can provide the capacity for the role of finance to extend to finance business partnering.
Understand what drives your financial performance
Ensure a clear link between strategic objectives and underlying data, so that you can predict and investigate performance drivers and their impact on the bottom line. Clearly communicate strategic objectives and Key Performance Indicators at all levels of the organisation and do not produce information unless there is a clear line of sight to strategy.
Build a dynamic high-level financial model to understand the potential impact of scenarios, sensitivities and options. Use the results to determine strategy and underpin and track strategic objectives.
Utilise external partners to embed commercial finance expertise in your business
The need for top-up commercial finance expertise can often be linked to projects, key decisions, bids, challenges or initiatives for larger organisations. Similarly, SMEs may require a specific project to embed efficient, insightful management information processes or regular, independent challenge and support from an external perspective.
The flexibility, wider perspective, independence, experience and fresh view of an external partner can generate greater value and cost-savings compared to employing full-time staff.
How can we help?
At Financial Insights, we can help you to gain greater insights and value, reduce your decision risk, increase efficiency in the production of management information and embed decision-making tools that you have confidence in through:
Integrated and dynamic forecasts, business models, plans and option evaluation
Model design, build, reconstruction and repair
A flexible Finance Business Partner or Non-Executive Director service from ½ day per month
Financial management process review and recommendations for improvement
Good practice guidance to strengthen your in-house commercial finance capability
Independent peer review and testing, including an initial Free Health Check
Procedures to identify, control and review your critical spreadsheets
Performance analysis to find out what is really driving value in your business
If you would like to discuss how we can help you get better insights for your decisions, please do contact us for a free consultation on 07718 518019 or by email at firstname.lastname@example.org.