Business Partnering – Purpose and Implementation
What is business partnering and why is it becoming increasingly important for finance professionals to engage with the topic? Learn from finance expert Anders Liu-Lindberg how you can use insights from the finance department to strengthen collaboration in your company. He explains how you can develop a business partner mindset, defines value creation in the context of business partnering and gives answers on how to measure the value of the practice.
What is the role of Finance in the organization?
Is it compliance and control-oriented ensuring that the house is in order or business advisors that drive value creation and help unleash the potential of the company’s strategy?
I’m sure most consider the former a key role but many still have a hard time seeing Finance perform the latter. Not least if you don’t work in the finance function. However, this is where the true power of Finance is hidden. This is Finance Business Partnering. It’s a simple idea that finance professionals collaborate with business leaders from Sales, Marketing, Operations, etc. to help them meet or beat their goals.
What is business partnering? What is a business partner?
Known from IT and human resource planning, the term business partner is increasingly significant for the new role of controllers. Business partnering around controlling can be understood as a characteristic of the controlling activity. This means, above all, stronger support of the managers of a company that goes beyond the mere presentation of figures and analyses. Business partnering requires a proactive approach and management skills.
Business partnering is quite straightforward:
Insights x Influence = Impact
Insights is when you have information based on accurate data that business leaders do not know yet but can help them make better decisions. Influence is when you build trusted relationships, speak in a language that business leaders understand, and communicate your recommendations in a clear and concise manner. Impact is when you increase value creation through better decisions and stronger execution.
Key takeaways:
- Business partnering is an activity where you use insights to influence business decisions and create more shareholder value.
- Successful business partnering happens when your company is meeting or beating its targets, your business stakeholders recognize your support, and you can articulate how you contributed to business success.
- Finance business partners don’t always need to have all the ideas and solutions but can be strong facilitators and follow up if actions lead to the desired results.
What does successful business partnering look like?
How can we translate the “Impact Equation” into tangible success metrics that we can measure ourselves on? Since business partnering is a collaborative activity that happens together with other people how do we single out our own contribution?
Exactly because it’s a collaborative activity it’s really not the highest priority to mark your own contribution. Instead, your success is defined by the success of others. Is your company successful? Are the business leaders that you support more directly meeting or beating their goals? Do they recognize you for playing a part in their success? And can you articulate what your role was in achieving that success?
We can synthesize the essence of these questions into three simple goals of business partnering.
- Business success/strong business performance (meeting or beating its goals)
- Customer satisfaction e.g., Net Promoter Score
- A value log where you articulate exactly the role that you played
Let’s break that down further. Finance as a function is not successful by itself. The company wasn’t created because of Finance. Finance was created because of the company. Hence, part of Finance’s success measures (beyond compliance and control) must be that the company is successful overall. For this reason, “business success” is the top success criteria for finance business partners.
It could be though, that business leaders are successful without the help of Finance. In fact, Finance could be completely siloed away, and the organization would still be doing well. That is why it’s important to measure business leaders’ satisfaction level with Finance. You could conduct a quarterly or semi-annual survey to determine this. Always be sure to include, “How likely are you to recommend Finance/your finance business partner to another business leader?”. The answer will help determine the current satisfaction level.
Finally, it is likely that some business leaders are doing well on their own and are happy with getting the reports in time from Finance. Hence, on the first two measures you are scoring high. Yet, when it comes to articulating how you are supporting the business leaders all you did was send the report. That’s not business partnering!
What is finance business partnering then?
At this point it is clear what finance business partnering is not. Here’s an example of what it is. Years ago, I was working as a finance manager for a drilling company in the United States. We had recently signed two new contracts for some new-build drilling rigs in the Gulf of Mexico. These rigs had been allocated a start-up budget of $20 M each.
However, due to bad financial performance in the prior year, the company needed to tighten up its budget. Hence, the operations managers for the drilling rigs had been told to cut 10% of their budget. We didn’t really have any ideas of what to do and the deadline to act was approaching fast. What could be done?
One day, we were sitting in my office reviewing the financials when one of them asked openly, “So what about that savings target? Should we have a workshop to figure it out?”. I jumped on the idea immediately and turned around to my screen to get the workshop booked for two weeks later. In the days leading up to the workshop I took charge of preparing how to run it and setting the scene.
On the day, I spent the first 30 minutes setting the scene and then split the participants into two groups. Finance was also represented in each group. They had 45 minutes to do some brainstorming and get ideas on the table. We spent the last 30 minutes consolidating ideas and testing which could work. The result? We found viable ideas that could save the necessary 10% and $4M.
What was our role as finance business partners in all of this?
Facilitation, getting people to collaborate, calculate the business case and follow up on execution just to name a few. Would all this have happened if Finance wasn’t there? Maybe, but now we were there and an integral part of making it happen.
5 steps to develop a business partner mindset
The situation I just described would not have turned out the way it did without the right mindset. If you want to become a successful business partner that shifts the finance department from a cost center to a profit driver, you need to change your mindset and self-image.
To become a business partner, change your mindset
It is not easy though. In fact, it’s challenging and will require you to make some changes. In simple terms, I like to say,
“Change from thinking like a cost center and become a profit driver.”
Let’s expand on what that means. For a long time, finance leaders regarded one particular KPI as more important than everything else when they measured the success of their finance transformation efforts. It was the “cost of Finance as a % of revenue.” This led to an obsessive focus on being cheap and establishing outsourced finance teams. It also shaped the brand of Finance as cost-cutting naysayers that were halting the overall development of the business. In short, not a good place to be in.
Key takeaways:
- Finance must shift from being a cost center to becoming a profit driver
- Successful business partnering is about making five key mindset shifts
- Anyone can become a finance business partner if they are ready to change
It’s time we change our brand to being profit drivers, which translates to value creators. We should be a function that helps the company succeed with whatever goals it has. To do that we need to change our mindset by working on the following five factors.
The 5 mindset shifts
Changing one’s mindset means uprooting the most fundamental behaviors and beliefs around how the finance function should operate. Therefore, we need to make simple descriptions of what needs to change. We call this the five key mindset shifts.
- From minimizing cost (of Finance) to maximizing business value
- From explaining past performance to improving future performance
- From eliminating risks to taking the right risks
- From primarily working with data and reporting to changing business decisions
- From trying to succeed on our own to enabling others to succeed
When you apply this lens to all the work you do today, you will quickly find out that a lot needs to change. Roughly speaking, Finance today is spending 70% of your time on data, reports, and analysis and only 30% on sharing insights to influence business decisions and having an impact. This allocation needs to be flipped. Mindset changes won’t do it alone as you’ll also need to revamp your processes and upgrade on the technology front.
So, it’s likely a multi-year transformation journey that you are looking at. It starts with you changing and this will take you outside the comfort zone. Does it mean that only extroverted people can be good finance business partners? Not at all. But you do need to be conscious about how to leverage your strengths and not get beaten by your weaknesses.
The personality traits of a business partner
Since business partnering is largely about influencing decisions through building strong relationships and being a standout communicator, it is often thought of as something for extroverts only. However, it need not be like that yet. Anyone who wants to become a finance business partner should be aware of what activities energize them. If they don’t like to present in front of an audience or do small talk at the coffee machine, you need to create structure and process around how to influence that will help you.
Let’s consider 2 such examples:
Relationship-building: It helps to be sociable. However, if that’s not your strong suit, then take a different approach. Identify your key business stakeholders and rank them based on importance. Then book a 1:1 meeting with the most important ones to learn more about their business and their current priorities. Finally, develop solutions that can help them deliver on their priorities. You might not end up best buddies, but you will be appreciated for your professionalism and recognized for making an impact in the company.
Communication: It helps to be lively and engaging in a group. However, if that’s not your strong suit either, structure is your new best friend. One such structure is the Pyramid Principle. It dictates to present the most important points first, then your main arguments, and only then your analysis. Too often finance professionals do it the other way around. Structure beats an entertaining presenter any day!
How Business Partners have impact and drive value creation
Any business partner initiative should start by answering these simple questions: Why should we invest in business partnering? Why would you want a business partner at the table when critical business decisions are made?
The answer is simple. Good business partners enable higher shareholder value creation by improving the quality of business decisions and ensuring that decisions lead to action. The “superpower” of business partners is that we understand how various business decisions impact value creation. Other functions will tend to pursue other goals that might not necessarily maximize return to shareholders. Thus, by creating insight and constructively challenging financial consequences, we can improve the quality of business decisions.
The ultimate purpose of any business partner should, therefore, be to improve the value creation in a company.
Let’s agree on a definition of value creation
Now, what is value creation? Many equate value creation with a better bottom-line, however, as finance professionals, we know that balance sheet, cash flow, and risk matters just as much as the bottom-line. That’s also why our definition of value creation is wider than most use. We’ve outlined it in full detail in the value driver tree below.
As you can see there are many components of value creation but in simplified terms, we defined it as the “discounted cash flows to equity owners”. We then specify this as ten distinct value drivers.
- Growth in turnover
- Growth in margins
- Tax
- Net working capital
- Fixed assets
- Net interest rate
- Net interest-bearing debt
- Operating risk
- Liquidity risk
- Financial risk
Each of these value drivers exists in all organizations although their further breakdown might look different as well as different teams could be working with only some of the value drivers.
As a business partner, you create value when you move the needle on any of these 10 value drivers. You should constantly ask yourself: Is what I am working on helping to improve a value driver. If not, you are likely not spending your time on the right tasks.
How do you know if you are creating value today?
Measuring the impact of business partnering is seen by many as challenging, as you mainly create an impact in collaboration with others.
In simple terms, there are three ways in which you can document your impact:
- Business results are improving
- Business stakeholders believe that you have contributed to the improved results
- By solving specific problems or delivering specific insights, you’ve documented behavioral and financial change for the better
Good business partners consistently track and try to improve all three parameters.
A global pharma company took it one step further and implemented a value log to track the positive impact contribution of Finance. The annual target: $150M. The purpose of the log is not “to claim success”, but to drive behavior, where all finance employees actively are conscious about, how they contribute to the value creation of the company.
How much impact have you created in the last year?
Looking back at the past year:
- Did you take part in qualifying and likely improving any decisions?
- Were you invited from the start or only asked to validate decisions that had already been taken?
- What have your stakeholders said about you?
Conclusion
Whether you are an introvert or an extrovert, you can succeed with business partnering. Extroverts will typically be good at building relationships, be strong communicators, and excellent at demonstrating the value of information. Introverts are often good at deep thinking, analyzing numbers, and navigating complexity. The combination of the two makes for an exceptional finance business partner.
You can start changing your mindset today and check in on how to activate your personal strengths and how to build structure and processes around where you have challenges. It starts with making a mindset shift and recognizing that you are a value creator in your organization. Are you ready?
