Tips to transform your finance team

I’m sitting in an almost empty office and my laptop is grinding away on 10 linked spreadsheets, all trying to pull data simultaneously from a slightly decrepit finance system. With a sigh, I cross my fingers and hope they will reconcile.

Of course, things could be radically different. If there were one set of clean data with automated reporting and analysis tools plugging into that, my role would be transformed. I could be helping drive impact within the business rather than getting bogged down in spreadsheets.

The technologies exist to make this possible. The sad thing is that many finance teams are still labouring away on ancient systems that rely heavily on spreadsheets and manual workarounds. Many finance departments have a transformation agenda, but delivering it and accessing funding can be a challenge.

Since this is all about innovation in the finance department, some tools from the innovation sphere could help deliver your finance transformation. 

Innovation isn’t just about creativity and ideas – it’s about the delivery of new products or services to market, underpinned by a sustainable and scalable business model. Delivery and growth are vital, as is a solid business model. This commercial element of innovation is often missing, which is the reason many innovation projects and start-ups fail.

‘Market’ doesn’t have to be external: for your finance transformation programme, your market is the internal business teams that use the products and services your finance team provides.

Innovation needs to be managed differently to the core business. First, you need to explore a problem area and test potential solutions (ideas) – and then you scale validated ideas. Developing an innovation framework for your business will help everyone understand the different stages innovation programmes go through, how innovation will be managed at each stage and how success will be measured.  

Your current business models are proven, so you can be reasonably sure about your future revenue and costs. You might model different levels of inflation, impacts of supply chain optimisation or the impact of a change in marketing, but the majority of your numbers are reasonably certain. The focus is on optimisation.

Now, think about a business model for a new product or service – such as a supermarket expanding to sell cars or implementing a radically different enterprise resource planning (ERP) system that will free up finance staff for business partnering. You can have a good guess at the business model, but this is largely built on assumption. Projecting into the future is fictitious and unsuitable for decision-making or planning. I recommend that you:

• identify the key assumptions underpinning your model; 
• prioritise these based on how critical they are to success;
• test these assumptions quickly and cheaply; and
• evolve your business model in response to what you learn – or stop.

The first step is to map your business model and identify assumptions. A useful tool covering the key elements of this is the ‘business model canvas’, as proposed by business theorist Alexander Osterwalder, co-founder of Strategyzer.

Next, identify the elements that are based on knowledge and those that are assumption. Prioritise these assumptions based on how critical they are to your model. Which of your assumptions, if wrong, would kill your idea? 

Now, get away from your desk and carry out experiments to test your key assumptions. Make sure you have a growth mindset and are open to learning. Keep these mantras in mind.  

• Focus experiments on your target customer to really understand them and their response to your idea.
• Keep experiments as cheap and as quick as possible. This isn’t about producing perfect prototypes or capturing perfect data – it’s about doing something good enough to gain some useful data. You can challenge yourself by asking: “How could I test this assumption in the next day/next week, etc?”
• Make decisions based on data. When you set up an experiment, agree up front how you will measure results and what results you would need to validate/invalidate your assumption.

As you learn, you will realise that many of your initial assumptions were wrong. You will either iterate your business model based on your learnings or choose to stop the project. Many ideas will be stopped early. If testing is quick and cheap and you fail quickly, then minimal money or time is wasted.

Focus on learning. Make time to reflect on, capture and share those learnings – this will build organisational knowledge and increase the chances of developing successful ideas in future.

Only scale once you have a validated business model. Scaling is expensive. Businesses should absolutely be taking new ideas to market and embracing the risk that comes with this – but you can mitigate this by only scaling a validated business model, ie, one where you have a reasonable amount of data to back up the key assumptions underpinning the model.

The model you end up with will look very different to the one you started with – did you know that Slack began life as a multi-player game? You might not make such a big shift, but if you don’t make significant changes to your business model based on your experiments, then check whether you have been as rigorous and open-minded as you should have.

Successful companies make high-velocity decisions. Amazon’s founder Jeff Bezos said in a 2016 shareholder letter: “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases you’re probably being slow.”

Deciding to invest when you only have 70% of the data will feel uncomfortable, especially when the metrics you’re using about validated business models and assumption tests are unfamiliar. 

When deciding to scale, you need a risk appetite that is higher than your other areas of work. However, there are ways that the risk can be mitigated.

• Ask whether a decision is reversible (Jeff Bezos again). If it is, then it’s lower risk.
• Continue to take an experimental approach while scaling and use experimentation to continually iterate the business model.
• Create a culture where teams are encouraged to stop projects if they subsequently learn that doing so is the best option. 

It would be wise to hold meetings about innovation investment separately from meetings about investment in your core products and operations. This makes it easier to involve different people – and take a different decision-making approach.

You could bring someone external to these meetings, for example, someone with experience of working in a start-up or from a company with a more entrepreneurial mindset than yours. They may help you challenge yourself to take a different approach.

These innovation approaches are useful, but it is also necessary to have the support of your team. Finance professionals have a unique skillset, which can enable growth and innovation. By transforming your finance function you will free up your team to be a valued strategic business partner. Seeing your transformation as an innovation programme and using some common innovation tools could unlock that future for you, your team and your business.

The ICAEW Library & Information Service provides full text access to leading business, finance and management journals. Further reading on innovation tools for finance teams is available through the articles below.