When we look at how most companies are structured, few functions comprehensively address all business aspects.

There are more externally focused functions, such as:

• sales and marketing, which are driving top line or revenue for a company;
   
• supply chain focuses on bringing the best products to customers most efficiently and cost-effectively.

More internally focused functions include:

• human resources, which focuses on recruiting and optimising talents for the company;
   
• information technology is a mix of providing the best technology platform internally for employees while ensuring the company’s external platform provides the best experiences for customer interaction via different technology channels.

What About Finance?

Besides the core accounting and compliance function, finance teams support both externally and internally focused functions. This support means looking across the whole company and balancing different business levers. 

Similar to a conductor of an orchestra, the finance team looks at all different functions, allowing some to grow faster at times but never taking eyes off other functions so that every function in the company always performs as one to achieve the best results possible.

How Can Finance Help Frame the Direction or Strategy of the Business?  

We can visualise this through the most common tool used in finance – the P&L. We can break it down into two main parts: revenue and cost.  

Finance can use its core competencies, that is, its analytical skills, business acumen and communication skills, to frame various strategic insights for the business to assess.

1. Drive revenue.

By understanding the business, finance teams can start to help frame go-to-market strategies. For example, in a business-to-business type (B2B) company, what would be the benefit of going directly to customers versus indirectly through developing a strong partner network?

By understanding the value proposition of the company and its products, finance can help provide analysis such as the profitability of different go-to-market options (e.g. what is the cost of developing a direct sales force versus developing partner channels?).  

Even within the different go-to-market options, finance can provide the information and data required to set up different strategies. For example, how to structure a commission scheme and how various commission schemes can impact sales behaviour for companies that choose a direct selling model or what would be the cost for partners to choose to sell its products versus a competitor’s products, which will impact the company’s ability to attract the best partners in the industry.

2. Analyse revenue drivers.

As the business develops, finance can start to analyse more revenue components and drivers to help businesses adjust their strategies. I will have another article on how finance can break down these business drivers and support better decision-making. Still, it is about understanding how business drivers impact underlying variables such as pricing and volume. Take a consumer business as an example – finance can help analyse per-store sales, provide data on seasonality and provide return on investment (ROI) analysis of various marketing activities (promotions, discounts, etc.). All these can help the business adjust its strategies and activities.

3. Identify new revenue sources.

Finally, finance can help provide input on future business developments by looking at historical performances and overall business acumen. Such future developments may include expanding into new geographies, developing new go-to-market channels, and designing new products to improve the company’s portfolio.

The key element is for finance to look across functions – sales, marketing, supply chain, etc. – and help bring these functions together by identifying the right business drivers and how each of these functions will impact business results.

How Finance Can Help Prioritise and Optimise Resources?

It is not enough for a company to solely focus on driving top-line or revenue without closely monitoring cost and return on investments. Finance can deep-dive into the cost side and provide businesses with more strategic guidance.

1. Controlling the cost of goods or services. 

No matter how good a company’s product or service is, there is always a trade-off regarding the cost required to deliver that product or service. Through understanding of detail costing, finance can help control and provide data to help businesses decide how much to invest in the cost of delivering that product or service. By having that information, finance can also help shape the strategy on the procurement side, e.g. how many vendors should a company have and what are the differences in cost? What are the risks of having a sole vendor, or what would be the cost if there is a disruption in part of the supply chain? What would be the investment to replace people with automation? All these are essentially cost-benefit analyses that finance is best equipped to do.

2. Understanding support / general and administrative (G&A) costs.

G&A functions are essential to allow various teams to focus on what they do best and let others take care of other business necessities. For example, how do we control the people cost in a rapidly expanding business? While HR is probably best at providing overall people and talent management strategies, finance can work with HR to ensure a company optimises the cost. This is especially useful in the when-and-where-to-hire discussion. Finance can provide an analysis and advise if the company needs to set up a centre of excellence or to pursue a less centralised people strategy.  

Another example is in IT. There is an obvious trade-off in providing world-class IT infrastructure to every employee versus the cost of doing so. Even decisions such as when real estate should be looking at opening a new office will require finance to provide relevant data.

We have touched the surface of how finance can support the business and provide a strategic picture for management. It is important to remember that while going into the details, finance should maintain a five-hundred-feet view of the business. 

Going back to the orchestra example, finance can dive into the string section or even direct the cellists to play differently but still keep the overall composition in perfect harmony by always maintaining the big picture or strategic view in mind.

The article was first published in Unit4/Prevero Blog.