Organizations are growing and evolving at a rapidly increasing pace, driving complexity and a need for better information faster. Legacy systems and finance functions built for yesterday’s business environment can no longer keep pace with the speed and demands of today’s.
As a CFO, has your finance function continued to operate as it always has, following the mindset that there’s no need to fix what has worked? If so, while the rest of your business has moved on with new strategies, faster growth and more complex structures, finance may not be positioned to do its part.
Common triggers we often see that signal it might be time to modernize your finance function include:
Additionally, near-zero unemployment in accounting and finance talent, rising compliance requirements and rapidly maturing technology mean the costs of waiting are growing daily.
Fortunately, there’s a well-defined structure that offers you a practical blueprint to build a modern CFO operating model that scales with your business. Understanding these dimensions gives you a clear view of where your finance function now stands and what it needs to be for your entity’s success.
A finance operating model is a blueprint for how your finance function offers services, makes decisions, and supports the business and its external customers. A modern operating model spans five key dimensions that should be considered in tandem to maximize the benefits.
Strategy and vision sets the direction, followed by process, which is how the work gets done. Additionally, you will need to consider data and technology to enable efficient processes and drive business insights, governance and controls to manage the risk that comes with growth, and organization and talent to ensure you have the right people in the right roles, appropriately trained and supported to carry it forward.
The modern finance function cannot be created in a vacuum. You must align it with the broader enterprise strategy by considering what your business is trying to accomplish, whether that’s growth, margin expansion, M&A, international expansion or specific customer service goals.
Many organizations have historically had a disconnect between finance and strategy. You may be a CFO who is controller-based and primarily serves as a steward, overseeing and closing the books. This is a critical role, but it leaves you looking backward instead of driving the business forward. The modern CFO function is far more engaged as a catalyst, informing and driving enterprise strategy rather than simply reporting on it.
Not every finance process in an organization is created equal. While some processes are foundational and should be systematized, others require more of your focus, attention and your best employees.
Foundational and lower-value processes, such as closing the books, tracking receivables and payables, and transactional accounting are good candidates for automation. New solutions and artificial intelligence tools can now effectively handle many of these tasks.
Financial planning and analysis (FP&A) is where your organization should be investing the most. The goal is to evolve your finance function from the historical backward-looking approach to one that supports forward-looking decisions. The building blocks of this whole system are a solid budgeting process, monthly forecast updates and the right visibility into key markets.
Take, for example, a manufacturer investing $20 million into a new line. The company may see revenue growth but declining EBITDA and cannot explain why through financials alone. Creating a deeper diagnostic layer, such as profitability by SKU, customer or geography, can offer more insight. In another case, a distributor selling to big-box retailers may discover notable cost-to-serve differences among customers once they break down the data at a granular level.
Modernizing your FP&A capabilities can deliver a wide range of benefits, including better negotiation, tailored service levels, and smarter freight and distribution decisions.
First things first. It’s important to remember technology itself is not a standalone pillar but a cross-cutting enabler that touches all other functions in your organization. It’s best to take a “crawl, walk, run” approach. Start with basic data visibility and progress to enterprise performance management (EPM) and FP&A tools with dashboards and demand-based forecasting.
Your goal should be to get the right information to the right person at the right time, enabling your organization to drive a competitive advantage through faster decisions on investments, acquisitions and margin moves.
Today’s technology typically involves cloud-based software applications coupled with AI tools. Achieving a full return on either of them depends on your readiness. Before you make a major investment, it’s important to assess whether your data, processes and people are prepared to support it. Otherwise, you could be left with expensive systems your teams cannot use effectively. When considering new technology and its costs, know that it often is not the best approach to install the underlying data structure off the shelf; it’s generally more beneficial to build it to match the business’ complexity and needs.
Regulatory complexity is increasing across many industries, which may be keeping you up at night. While some sectors, such as manufacturing, have seen only modest changes, compliance in spaces such as not-for-profits has grown notably in recent years due to state and federal grant funding requirements.
You may be left with several core questions around whether you have the right risk metrics, internal audit function and controls testing in place. However, don’t be tempted to chase governance, risk and compliance (GRC) for its own sake. Start with a gap assessment to define your actionable needs before overinvesting.
The accounting profession is now at near-zero unemployment, with a genuine talent shortage and fewer graduates entering the field each year. Even a single departure at a low-level role in your organization could bring your finance function to a halt.
The real value of technology is decoupling growth from headcount and learning to do more without proportional hiring. And while AI continually offers new potential, its applications in the field are about increasing efficiency, not about replacing people wholesale. Instead, it makes your team more powerful and better problem solvers. Assess where your skill gaps exist today, and realign your roles so people can spend more time on analysis and decision support.
Building the modern finance function will also require careful change management. You will have to assess whether people are ready for new technology and roles, identify change agents versus resistors and use structured change management approaches to find ultimate success.
Before touching on process, technology, governance or organization, you must have a clear vision and a defined set of strategic objectives. Strategy is the roadmap for where your finance function is headed and how you will get there. Once that’s in place, you can build the other dimensions to support it.
Remember this framework is a starting point, not a fixed destination. As your business grows and changes, your operating model should evolve with it. Take a hard, real look at where your organization stands across these five areas of your finance function. Then use it as a starting point for a deeper conversation with your advisers about what building a modern finance function may look like for your organization.
Contact John Cavalier or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.