People
The pace of business is only accelerating, and the demands placed on PE-backed CFOs and finance functions to deliver insight-to-value have never been higher. Here's what PE-backed CFOs should think about when looking at their organizations in 2024.
Advanced technologies like generative AI and analytical engines to finance functions show great promise to automate transactional work and free up time and energy to focus more on strategic, value-additive tasks to support the enterprise. Borrowed capital means pressure to rapidly perform, and with an economic environment that’s difficult to read and predict, portfolio company (portco) CFOs are more worried than ever about achieving their value-creation objectives while keeping their sponsors informed.
To deal with this dynamic, disruptive business environment, finance functions need, more than ever, to be organized as value-creation centers, not just cost centers. Automation and even the fanciest AI-powered tools will only get a team so far; at some point, the existing organizational silos and ways that teams tackle work need to be re-evaluated and restructured; and those advanced tools need to be put to use helping to find customers and keep them, improve margins in supply chains and operations, etc. Before considering deploying buzzy assets like AI and advanced analytics, CFOs first need to explore restructuring their own function’s operating model so that it is a center for value creation and to set the conditions for continuous digital evolution.
The Problem
Despite the advances in data warehousing, processing, and ongoing implementations of automated or algorithmic productivity levers, finance functions at even some of the largest companies still struggle to drive real tangible value to business units and operating teams. Timely reporting and refreshed forecasts are table stakes; investors, operators and management teams want storytelling, they want the “so-what” behind the numbers, and they want Finance to marshal resources to tackle cross-functional information gaps.
Best-in-class Finance teams that we've observed have undertaken this journey, proceeding with both vigor and rigor. They understand that to be more than a transactional cost center, they need to differentiate themselves by spending a greater portion of their time on higher activities that identify, support, and expand the company's value drivers. To future-proof their organizations, CFOs need to drill down into the very foundations of how their teams operate, clean-sheeting their teams and activities to capture the most value in the quickest time allowable.
Our Point of View
We see an opportunity for CFOs and their teams to redraw the finance organization - incorporating an operating model that combines fixed centers of expertise (COEs) with a pool of variable agile individual contributors who can be deployed across the enterprise's prioritized areas, and connects them both to highly efficient and digitized, and transactional support processes for technical expertise and data provisioning.
Four principal pillars make up this future-proof Finance organization:
I. Strategic Business Partners
Source: AlixPartners
Strategic Business Partners are members of the finance team who are dedicated advisors to a business unit. The title is intentional - the role of the Strategic Business Partner is to be an advisor to the business unit leader; a highly-skilled integrator who is charged with going after the “big rocks” impeding value creation. A smaller subset of the Finance function, these roles help manage the deployment of Flex Pool resources to tackle problems while leveraging and spot-checking analysis from the Finance Specialist centers and corporate support to help guide their BU lead's plans.
II. Flex Pool
Source: AlixPartners
What we're calling the Flex Pool are the "rapid response force" inside the finance function. Composed of generalists who would normally be siloed supporting specific BU efforts, these individual contributors are deployed through a staffing model on a project-to-project basis. This fluid deployment would enable this population of finance professionals to get exposure to enterprise-wide financial challenges; it also allows specialists in subdisciplines (e.g., sales and operating planning) to deploy across several business units. Time tracking and resource management tools are essential components to ensure efficient deployment of these resources, along with tight interlocks with HR.
III. Finance Specialist Support
Source: AlixPartners
Finance specialist support makes up the second-largest segment of Finance talent. These are the specialized teams that are organized into COEs to provide technical expertise focusing on specific areas of financial performance (e.g., expense analysis & management, working capital management, etc.) The Finance Specialist teams are both enterprise-level resources and subject matter experts to advise & provide analytical throughput to the Flex Pool teams and Strategic Business Partners.
IV. Transaction Support
Source: AlixPartners
Future-proofed finance functions are rapidly looking to create a lean, efficient, and automated team to manage the core processes of the function (e.g., journal entries, payables, etc.). This is also the area of the finance function most immediately ripe for transformation (and in some cases, outsourcing). Leaders of these teams need to first ensure that key processes are standardized to avoid rework and complications within the core accounting responsibilities of this small team.
Next Steps
Companies have been working to capture value through advanced analytics & ML/AI applications, but even the most comprehensive technologies are underpowered unless the operators and the systems they organize themselves in are fit for purpose. Going forward, CFOs and the finance teams they lead will need to look holistically at the people & processes across the breadth of the function and make some bold choices to restructure themselves. Those that do, may reach the next level of sophistication in charting a path to maximum and sustained value creation in the organizations they serve.
