Building a High Quality Finance Function

Apply Newton’s laws to transform the finance function

Businesses are evolving rapidly, and you have a variety of organisations – Startups, Large companies, Multinationals etc. As a CFO over the years, I have tried to shape my finance function from first principles. In this note, I wanted to share my experience in building the finance function.

I have always believed in the ethos of Finance being “Great Business Partners Driving Great Business Performance.”   That is an easy statement to remember; it appeals at an emotional level. Of course, in building towards this ethos, it is always a journey – there is no destination.

The first step is to be clear about the larger Organisational Context and derive from there the implications for the finance function.  The organisational context is typically to look at, say a Five Year Vision for the Company – what is the company setting itself up to do – Growth, Profitability, Cashflows, etc. The CFO, as a member of the overall executive leadership team, would have played a key role in shaping this vision for the company.

Once this is done, it is important to lay out the implications for this on the function.  Interestingly, it is not just the CFO's job. The CFO needs to rally his troops to buy into the vision and, in the process, get a bottom-up view of the implications. This may sound very counterintuitive – how do you develop a bottom-up view? Is this not the CFO’s sole responsibility?

In my last role as CFO, within a couple of months after joining, I organised my first Finance Function conference, getting the key folks from India and around the globe.  As part of this conference, we organised a Visualization Workshop – Can we imagine a newspaper report five years out, say April 2030?  In this Visualisation workshop, the conference group was divided into 4 groups with two deliverables: First,  what would a newspaper headline look like five years out for the company?  So people came with their view – a Rs. 10,000 crore topline, a Rs. 3000 crore EBITDA, PAT of Rs. 1500 crores, the company receiving an award, etc.

But this was not all. I asked the team to imagine – While celebrating the success of the company five years hence, the Finance Team would be complimented for their role in making this happen. So, as the second part of the exercise, I asked the teams to imagine – what would the function have delivered to be recognised for their contributions to the achievement of the company vision? And this was eye-opening. This was an exercise in Standing in the Future.

The teams came back with several areas, where they would have delivered exceptional outcomes – some examples -  fast close of accounts in 24 hours after the month end,  fully digital dashboards on an integrated MIS systems,  a new ERP in place, great internal control systems which were both automated and preventative,  a celebrated investor relations function, driving the entry of long only funds on the cap table and being the largest company in the industry by market capitalisation et al. They also imagined a world where we achieve great work-life balance and people are just happy coming into work and going home each day on time.

The fun part was that we got the teams to present their newspaper headlines in multiple ways – some used the Bhagavat Gita context, some had imaginative TV interviews, some showed getting awards and being recognised – it was such a fun afternoon listening to this.

But here is the thing – all that the team stated – like great investor relations, great work-life balance, fast close, etc  - became the imperatives for the finance function in helping drive the organisation's success. Finance would then have truly achieved the status of being Great Business Partners, driving Great Business Performance.  Kindly note that the imperatives were generated from the teams in a bottom-up way – it was not something that the CFO had to think in his corner office in its entirety.

I am a big fan of the Washington-based strategy think tank, Gap International (Gap International | Global Management Consulting Firm) – an organisation which works with companies on Breakthrough Performance.  Interestingly, they use Newton’s three laws to describe transformations.  Newton’s First Law is on Inertia – a ball will remain in place until it is acted upon (with a kick).  As applied to transformations, breaking the inertia is getting out of the status quo mindset. The visualisation exercise is about breaking the status quo.

Newton’s second law is simply F=MA. Translated, this means that the greater the Mass (M) and the Acceleration (A) required, the greater is the force (F) required to achieve this. Applied to transformations, the greater the vision of what we need to achieve, the greater is the effort required to do so. From the visualisation workshop, it was clear that the function had much to do. That was the starting point of building the finance function, building capabilities, and delivering.

I have always focused on building my Exec Team within the finance function as a first priority. Now, as a new entrant to the organisation, C-level executives bring people they have known from past associations into the company.  I preferred working with the existing team and building a strong CFO-1 level.  Very quickly, you had to assess your team, but at this stage (since I was barely about 3 months in the company), I had to go with my gut as well. In building a finance team, you are really trying to get to an effective operating model for the finance function. 

Now comes Newton’s Third Law – Every action has an equal and opposite reaction. This is directly related to people. The key question that people ask is – if this is what the organisation is setting out to do, what is in it for me? People need to see the tangible benefits like pay hikes, promotions, new roles, etc, coming through.  When managing teams and creating the performance cultures that you want, an important discussion is around high-potential talent. It is true that Organisations must identify and nurture high-potential talent. But in legacy companies with a large workforce, an approach built around High Potential touches very few people. Instead, at the Tatas, we have followed a High Possibility Framework, which essentially implies that everyone can contribute and must be given a chance.  This builds culture, where no one is left behind, and yet this approach energises people.

Let me give you an example of using a High Possibility framework. I needed a person in Investor relations. Coming out of the pandemic, I did not want to hire but use one of our people. I turned to our Head of Tax and asked him if he would also manage Investor Relations. I knew he had a family business, and he was innately commercial. And this proved to be right – he took to investor relations like a fish to water.  So much so that several fund managers in places like Hong Kong and Singapore would specifically reach out to him or ask me if he was available to meet when they visited Mumbai.

There is very clearly plenty of discussion around a future-ready workforce and how companies and teams can work towards it. The strange thing is that in legacy corporations, this is not very easy. One key implication of Future Ready is an imperative to reskill. At a certain grade level and age level, the reskilling works well. But for a significant number of people in the team, who have been doing things in a particular way, reskilling has to be positioned as a win–win. Similarly, the changing technology landscape is also forcing companies to adapt.  Once again, we need to think fit for purpose. Empathy is at the heart of building a future-ready workforce, where you move the needle in an aligned way – perhaps it takes a longer time to build, but this is more sustainable than any fast-paced changes.

I have always found a non-hierarchical approach brings out the best in people. An open-door policy, which allows anyone to come to you and express a point of view, is essential.  This requires a listening mindset. Great cultures come when people work for the cause and not the boss. In this, the boss also has to remember that he does not have all the answers. I have found that setting the context is critical. Many times, we tend to tell people – Please do this -  without really telling them why we want this done. However, if we spend a few minutes setting the context, it is possible that you get better solutions.

Building a finance function for me has also been about the legacy I leave behind. The first question is - Did I leave it in a better place than when I inherited it? Combine this with an awareness that you are not going to be there forever in the role, keeps you grounded. At the heart, it is about getting people to be more self-directed in their work.

Dear reader, I would love to know what you think. How has your experience been in building teams?  Please comment.

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