Finance as Customer Service

This post is co-authored with James Blom of Data Factory Labs and Jonathan Goldberg of D2D Advisory.

In our last post we outlined the changing landscape for finance teams and the pressures that is putting on CFOs. Here we will take a look what CFOs can do to position themselves and their companies to thrive in our changing times.

We see successful finance teams presenting themselves as Customer Service for the rest of the company. They are not taking calls for product support, we mean they are providing service for internal customers.

Beyond managing a company’s accounting infrastructure, finance teams need to provide the tools to let other executives make better management decisions. Once upon a time this was hard to do. Just keeping the company’s ledgers up to date was labor-intensive work. Now, companies using sophisticated database tools, the finance team is sitting on top of a treasure trove of data. The finance team is in pole position to provide useful analysis of this data, giving the whole C-Suite real guidelines of how to think about their investments.

All companies have their own set of Key Performance Indicators (KPI) which they use to track the health of their business. But profit is the root all of KPI. Finance teams provide the linchpin that can translate KPI into impact on profit. This is especially true for unprofitable companies, as most start-ups are today. All too often, high-growth unicorns look at operating profit as an afterthought. But better profitability equates to less dilution, especially for employees. While investing for growth makes sense, the most successful companies, and the ones who will survive any downturn in venture funding, will be the ones who can best measure their investments for greatest returns. Generous fund raising rounds are not a substitute for financial discipline.

This does not mean that companies need to rush to profitability, instead they need to understand the full impact of any investment decision. Does the company really need to hire ten new specialty salespeople? It should not fall to the CFO to decide that, instead she should make sure the Chief Revenue Officer knows how to view that decision in full light of what it will mean for the company’s valuation (and the CRO’s options and RSUs).

We have found that Finance teams which understand their businesses well can propel other key constituencies to success. By translating the KPIs of various teams into operating profits the finance team can help these constituencies include

  • Chief Product Officers and the Engineering Team
  • Chief Digital Officers and the Marketing Team
  • Chief Revenue Officers and the Sales Team

The Chief Product Officer needs to make major decisions about where to spend engineering resources. There are serious trade-offs within launching new products, adding new features or improving quality of existing products.  Too often, these teams focus on an incremental approach driven largely by their own imperatives. The finance team should be able to demonstrate which areas of investment yielded the best returns in the past. We have found that often, these conclusions are non-intuitive.  Sometimes throwing a lot of resources at seemingly non-productive areas like Quality Assurance can reduce downstream costs like returns and warranty payments. The finance team should keep a close high on operations benchmarks of peer companies to identify Hidden Costs which burden a company.

The Chief Digital Officer in today’s companies are fortunate to sit on mountains of data, but that can become as much curse as blessing. Data has weight, the gravity of which can come to control a company’s trajectory. Strong marketing teams can optimize their spending along dozens of axes, but the Finance team can play a strong role in tying those to total company profits. For instance, the return on marketing investments need to be measured not only in terms of end-customer engagement but also for correlation to increased sales and overall profitability.

Chief Revenue Officers and their Sales Team are perhaps the most important constituency for greater Finance support. All too often Sales and Finance are at loggerheads – the bigger the discount the easier it is to close a sale. Finance needs to work with sales management to ensure that quotas and incentive schemes are tied to profitability not just revenue. Even in cases where they company has made a deliberate decision to eschew profitability (i.e. to grow market share and acceptance) smart Finance teams can still provide tools for the CRO to best weigh trade-offs among sale size, volume targets, discounts and commissions to optimize for the company’s longevity.

These principles extend beyond these three officers to almost any function at the company. The common thread among them all should be that the Finance team is not monitoring or supervising the other teams. Instead, they are supporting those other teams, providing tools to better align everyone around cash flow, profitability and success. This can be as simple as providing accurate, timely historical data or building easy-to-use but insightful Excel spreadsheets.

In this way, the Finance team can leave behind its traditional adversarial role found at many companies and transform into a backbone supporting the company’s broader success.

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