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Reinventing the Finance Role

Feb 4, 2019

What will 2030 look like?

If asked to prophesize about the future of accounting/finance departments, most people would have difficulty envisioning a future much different from today’s most state-of-the-art departments. Yet, if we look back at the careers of those professionals who are about to retire, the profession looks far different today than it did 40 years ago.

In 1978, most companies still kept their accounting records in paper ledger books. The only personal computer you could buy was an Apple 1 sold as an assemble-yourself kit. Visicalc, the first personal computer spreadsheet, did not yet exist. Those companies that had computers entered their data using 80-column Hollerith punch cards. The mechanical chains in computer line printers cranked out reports on 12” x 17” “green bar” paper the computer operator might print in up to six carbon copy parts.

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.

— Microsoft Founder Bill Gates
At the time, business school graduates were still about 75 percent male and supervised overwhelmingly female clerical staffs. Finance professionals wore suits and ties, might have a beer (or two) at lunch and likely carried a paper appointment calendar in their breast pocket.

What will finance teams look like in the year 2030? I will make this prediction:

Some companies and some industries will have made radical changes to how they perform business processes and others will look very similar to today.

I base this prediction on the experiences of my own 40-year career.

When I first saw Electronic Data Interchange (EDI) being used in the late 1970s, I thought this was the wave of the future and everyone would be transmitting data electronically within a few years. It happened in automotive supply, retailing and the securities industry, but in most industries, companies are at best exchanging PDF images of paper documents, rather than exchanging uploadable data.

Most Organizations are Decades Behind

In 1986, the management accounting experts recognized that using activity-based costing (ABC) could provide a significant competitive advantage. Today we know that using it in pricing can actually double a company’s profitability. Yet perhaps only 50 percent of all companies use ABC.

In 1992, the balanced scorecard became the recognized method to develop performance metrics to tie budgets to corporate strategy. Today, only about 20 percent of all companies use this method.

Organizations have had the ability to pay vendors via Automated Clearing House (ACH) transactions for years, but many accounting software developers have no feature that will let this happen through their accounts payable software.

The point of these stories is that in order to be at the forefront of our profession, you do not have to invent new technology no one has ever used before. Merely using today’s accepted best practices will put most finance departments way ahead of anyone else in their industry.

 The Best Companies are Early Adopters

Research led by Jim Collins and reported in the books “Good to Great” and “Great by Choice” revealed the great companies identified by these two very different studies were not early adopters of new technologies. The “Good to Great” companies avoided technology fads or adopting any new ideas too soon. They might become a pioneer user of a carefully selected new technology, but not before carefully examining the change’s impact and the technology’s reliability. None of the “Good to Great” companies relied on pioneering technology to begin their transformation from good to great, but many used new technology to accelerate their transformation.

The “Great by Choice” companies used a similar process, which Collins called “firing bullets before cannon balls.” They experimented with new technologies but adopted them only when they proved reliable. While the CEOs of these companies sometimes seemed to be bold innovators to the outside world, in reality, Collin’s team viewed them as “paranoid neurotic freaks” whose bold gambles were, in fact, carefully calculated moves based on experimentation and analysis of cold, hard empirical data.

This research shows us great companies adopt technologies not because they are new, but because they have proven to be better. We do not want to adopt new ideas too early, but we also do not want to adopt them too late. Being familiar with what is going on around us will allow us to adopt new technologies at the right time. 

Seeing the Possibilities

How do we see the possibilities? Most financial professionals have at least a superficial exposure to the internal workings of multiple companies due to their former role as external auditors. How many of us, though, have a deep understanding of multiple companies? I have often posed this question in seminars involving senior level financial professionals. When I define a “deep understanding” as requiring at least six months working inside the organization, I only get a few people who will say their experience is with more than 10 companies, and I have rarely had anyone whose number is as large as 15. Thus, none of us has seen more than a very small sample of the possible ways finance departments might work.

Whether you think about your job this way or not, every business activity has products and customers. Our product is financial information and the CEO, Board, bank and others who use that information are our customers. To see the opportunity for improvement, take a moment to understand your product from their viewpoint.

If the CEO was to walk into your office at 8:30 a.m. on the 15th of the month, what would he or she want? Some CEOs would want sales data; others cash balances or cash flow. However, if you put yourself in the CEO’s shoes, the first thing you would realize is that you do not want to go groveling to the controller to get financial information. You want to walk into your own office, turn on your own computer and see your information (whatever that may be) displayed on your dashboard.

I would want to see our current cash balances, net working capital, year-to-date sales and profit. Your CEO’s numbers might be completely different. Each of us may focus on different numbers, but we would all want to see our numbers, when we want them, which is now, not on some schedule predetermined by accounting. I do not expect the numbers to be up to the minute. I understand people go home at night. At 8:30 a.m., it is perfectly acceptable for the numbers to be current as of 5 p.m. the previous afternoon. However, seeing the state of the company as of one, two, three or four weeks ago is not acceptable. Your CEO wants what every customer for every product wants. They want their information now!

The information your CEO sees is going to satisfy her for a while. She will go to some meetings and make some phone calls. At noon, she has lunch with the vice president of sales and learns the company invoiced a major contract this morning. Thus, when she goes back to her office, she wants to click on the “refresh” icon on her desktop and see how her numbers change. This look at the state of the company’s finances may be enough for today or for a whole week.

Is the CEO seeing good GAAP financial information? No; every company has some transactions they post only once a month, such as rent, depreciation and utilities. However, most information, such as sales, cost of sales and the liability for goods received should be current within a few hours.

Today only about 5 percent of all accounting departments can make information of this quality available. This process might initially sound like more work, but because being fast also requires you to drive the errors out of accounting processes, once you embark on this journey, you’ll learn that faster also means better and cheaper. 

Where You Need To Go

Once you can see where you need to go, the route to get there will be much clearer.

Investigate ways to exchange actual data with your vendors and customers rather than PDF images. Look for software that will allow you to put payments directly into the banking system from accounts payable rather than requiring duplicate entry. Discover how metrics used by both activity-based costing and the balanced scorecard can give everyone in your organization a much better view of your organization’s business.

It is going to take a while, but I am looking forward to seeing what you have achieved by 2030.

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John H. Daly, CPA
About the Author
John L. Daly, CPA, CMA, CPIM, MBA, is a Chelsea, Michigan-based management consultant specializing in costing, pricing strategy and pricing model development. He has taught continuing professional education courses since 1995.