Finance for Nonfinancial Managers
Jan 24, 2019
I have always found the phrase “finance for non-financial managers” misleading. To me, it implies there is a great wall that divides finance from operations (which is what “non” financial really means—who wishes to be labeled as “non” anything)? The phrase is archaic and may have applied back when finance professionals were viewed solely as bean counters, a pure counter of wealth versus helping to create wealth and influence key business decisions within their organizations. No longer is the finance professional the “bad cop”—they are business partners who influence the value creation activities of the organization regardless of size or structure.
Understanding Each Other
In order for an organization to be successful in an increasingly complex business environment, the key players cannot operate in silos, but must operate cross-functionally across the value chain on behalf of their stakeholders. Increased business complexity is driven by globalization, regulation and heightened expectations from investors and customers, for example, greater transparency in financial reporting and broader responsibility for the 3 P’s—Profits, People (employee satisfaction), and Planet (environmental safety, charitable contributions, etc.).
What does this imply for the finance professional? To be a successful business partner and influencer, it is critical that the finance professional understands “how the business works” in terms of its value chain, market segments, environmental factors, and infrastructure. If finance professionals do not understand the business issues, they will take a narrow and likely suboptimal approach to negotiating business cases, new product funding and operational budgets. Although finance professionals do have a responsibility to ensure sound, ethical, and transparent financial reporting, they also have a responsibility to understand critical business issues for the greater good—the organization’s key stakeholders. Additionally, finance professionals are often told that in order to “move up” the organizational ranks they need to “move out” and learn the business by taking on a job in operations, such as managing a product line or working in the customer service center.
Similar logic applies for the “nonfinance” professional. Accounting and finance are the “life blood” of any organization. For operations professionals to be successful in their jobs and be key influencers, they need to understand and apply the basics of finance and accounting, including financial reporting and analysis, budgeting, planning, and forecasting. Here are a few tips on how nonfinance managers can get up to speed.
- Take courses in finance and accounting—From your local college or university, or a professional association such as the Institute of Management Accountants (IMA®). While getting grounded in the “debits” and “credits” would be helpful, spend more of your time in management accounting courses that will enhance your cross-functional expertise and decision-making prowess. Management accounting-type courses could include decision support (e.g., forecasting, business cases, mergers, and acquisitions), risk management, budgeting, and planning. In addition to these primary financial and accounting skills, find courses that also emphasize cash flow since that is truly the lifeblood ensuring a sustainable flow of goods and services through an organization’s veins.
- Network and learn from the finance professionals—While getting rooted in the foundations of any discipline is highly desirable, the fact of the matter is that in the corporate world there is an opportunity to learn experientially with coursework and through on-the-job training. If you are working in a product management position responsible for leading a business case, listen and learn from the finance professional on the principles and analytics underlying the business case process. Not only will you grow in your understanding of the finance and accounting discipline, but in this instance, the process becomes less of a negotiation and more of a disciplined, critical thinking exercise to deliver what’s best for the organization’s stakeholders.
- Become the financial liaison—In the absence of getting a degree or certification in finance and accounting (recommended, of course!), there are often positions in larger organizations in business operations that interface heavily with the finance or accounting group, such as the support person responsible for working with finance in developing financial results, business cases, and plans on behalf of a project manager. Seek out these jobs, even though this may temporarily move you away from customer-facing type jobs. It is important to remember that the best managers are those that demonstrate skill and acumen in cross-functional thinking, not just expertise within a single function.
Build from Within
During my 20 years at AT&T, I was fortunate enough to serve in a variety of financial, strategic, and operational roles. In my last role, I was the CFO of Business Sales, a position that required not only a complex understanding of financial reporting and analysis but also necessitated a thorough understanding of the telecommunications business. As I ascended through the ranks, I began having people turn to me for operational business questions in addition to finance related questions. I quickly learned how crucial it was to speak the many different languages that are used everyday within organizations, in addition to finance and accounting. I would urge all managers to “think finance” and “learn the language.” Using management accounting language to drive business performance will certainly improve the overall capability of the organization in thinking and operating cross-functionally.
Many successful CEOs have spent time in finance roles, often as CFO’s, because to serve an organization’s stakeholders successfully, it is necessary to understand how the aforementioned lifeblood flows. An example is Pepsi’s current CEO Indra Nooyi, who was chosen for the top spot after serving as CFO for five years. Frederick Schea, IMA Board Chair Elect, was also recently named CEO after serving as CFO of First Savings Bank of Perkasie (PA).
The point, then, is that while it is important to stay true to your foundational knowledge and competency base, expanding beyond your roots and branching out is necessary for you and your organization to flourish and create sustainable growth. The complexity of today’s business environment coupled with high expectations of organizational stakeholders are demanding that finance and operations professionals work collaboratively to deliver the best results possible. Influence is infectious, but only if you are introspective and step out of your comfort zone. This cross-functional approach to driving business performance really does add up!