Years back, when I had more hair on my head, the corporate office of the enterprise I worked for at the time brought in a BCG trained consultant to work with the management teams of each operating division. One of the take-aways from the strategic planning session was this summary of the role of the senior Finance Executive in the organization. I kinda liked it, because I found it help me identify what kind of person I needed to be my controller so that I could work with the CEO of our operating division.
DEFINING THE FINANCIAL ROLE IN AN ORGANIZATION
Financial Management is made up of 2 broad functions:
- Prevention of Loss in the Value of the Enterprise (Protection)
- Acquisition of Gain in the Value of the Enterprise (Productivity)
In everyday words:
- Stopping us from losing money we already have
- Helping us to make more money that we otherwise would have
|EXAMPLES OF PROTECTION ACTIVITIES||EXAMPLES OF PRODUCTIVITY ACTIVITIES|
|Obtaining effective security for a delinquent receivable/debt||Educating managers with P/L responsibilities in the financial implications of decision making|
|Designing effective risk management and hedging programs||Designing a highly motivating results-linked incentive program|
|Rapid, tightly controlled cash handling and reconciliation||Negotiating cost-reducing supplier contracts|
|Reconciliation of accounts||Establishing a tightly measured productivity improvement program|
|Inflation-shield clauses in contracts||Designing innovative asset management programs|
|Expense budgeting||Negotiating a lower cost-of-debt with fewer constraints|
|Tax shield maximization||Participating in industry organizations that can materially influence the competitive market|
|Effective warehouse inventory receiving steps||Setting up creative and competitive pricing practices|
|Payroll processing and payments||Develop finance function training for all finance staff|
|CHARACTERISTICS OF PROTECTION ACTIVITIES||CHARACTERISTICS OF PRODUCTIVITY ACTIVITIES|
|Defensive, inward looking, preventive, procedural, technical, legalistic, bureaucratic, authoritarian||Outward facing, anticipatory, flexible, interactive, participative, innovative, social, developmental, educational|
|Banking relationships, preparing the marketing/ advertising budget, stakeholder reporting|
PITFALLS TO AVOID
You will almost always produce mediocre, if not downright substandard financial management, if you try to get a clear-cut Protection person to handle the Productivity functions, or the other way round. Very few people do both well, but many do one or the other very well indeed.
Split the two functions. Coordinate them, but split them. Staff them according to their Critical Success Factors.
MULTI DIVISION ENTERPRISES
If a Division cannot afford a fully staffed, twin stream financial structure at each operating entity, then set up Protection functions at each operating level and a Productivity function at the Divisional level,
So, what kind of person became my controller?
The answer is: the Protector. My role was to help the divisional CEO grow the operation. Our corporate CFO was more of a protector too, but I preferred the business side.