When are management accountants more than just management accountants? When they transform into business partners, according to the Chartered Institute of Management Accountants, in a report that seeks to set the benchmark for how top companies treat their finance functions henceforth.

The report, based on an extensive series of deliberations by the CIMA Improved Decision Making in Organisations Forum, argues that in a world where global markets give every company much the same access to resources, and where business processes are converging on similar standards, the one real remaining differentiator lies in the decision-making function.

As Peter Simons, one of the report’s authors and a technical specialist at CIMA, explains, CIMA’s case is that some of the world’s leading companies, such as Unilever, Shell, BP and Vodafone, are already transforming their finance function. The main aim is to produce business partners instead of bean counters.

This initiative represents an enlargement of the traditional role of management accountants as purveyors of ad hoc reports to line management and the board. This was a necessity when enterprise systems were opaque data mountains that required skilled financial analysis and presentation before line management could make sense of them. However, corporate performance measurement systems are now delivering much of what a management accountant used to do, direct to an executive’s PC, with all the drill down facilities that any line manager could wish for.

So what can the management accountant offer after the line manager has digested the massaged and highlighted key performance ­indicators and significant figures that pertain to their area of expertise, and which they now get at the click of a mouse?

Sparring partners
What research shows, CIMA says, is that emerging best practice has the (unusually skilled) ­management accountant taking on a new role as the “sparrin g partner for the business”.

To do this effectively, the management accountant has to have a good understanding of the line manager’s terrain and the challenges the manager faces. They also need their core competence in finance, and they have to be able to present their insights in a way which the line manager will find useful, stimulating and interesting.

But first, let’s turn to the evidence that change is indeed happening and corporates are behaving differently. Accenture and KPMG have carried out substantial research and produced reports that show a very high correlation between outperforming companies and outstanding finance functions, as measured by criteria which focus on the extent to which finance professionals in top performing companies are ­taking up the role of being true ­business partners.

Scott Parker, global head of financial management at KPMG, argues that what FTSE-100 companies have grasped is that there is a global shortage of skilled finance staff, and the pool of people you have in your finance function, therefore, constitute an asset that you need to develop fully if you want your business to continue to enjoy competitive advantage.

One indicator, he points out, is the fact that around half the FTSE-100 companies now have internal finance academies whose objective is to develop the finance function team members and turn them into value-adding professionals.

However, Parker believes that it is still early days. “The majority of companies, outside of the FTSE-100, still have highly trained finance ­people doing a lot of number crunching. You bring in really bright people who could be a huge help to the business, then you turn them into glorified spreadsheet jockies,” he says.

Companies that persist in treating their finance function in this way will lose their best people to the competition. “We identified outperforming companies by looking at those with the highest rates of earnings growth in the past three years, then we looked at the finance function to see what they were doing that was different,” he says.

KPMG found a number of differences, but the key point was that outperforming companies found it easier to attract and retain highly skilled finance people. They could do this because they were getting their finance team involved in ­business decision making and that felt good to the finance function.

However, CIMA’s Peter Simons and KPMG’s Parker recognise that it is an open question whether the role of competent financial expert in business strategic planning will fall to management accountants or to other specialists. “There is an interesting challenge and dialogue going on in business over this issue,” says Parker.

For him, the advantage finance professionals have is a deep training in objectivity. Sri Srikanthan, a senior lecturer in finance and accounting at Cranfield School of Management and himself a CIMA member, agrees. However, he argues that the downside of that objectivity is that accountants, by training, tend to be very rules based and can often miss the bigger picture.

Like CIMA, Srikanthan argues that typically, today, management accountants struggle with two gaps, the communications gap and the ­business culture gap.

“This cuts them off from the strategic focus of the organisation so they end up being out of sync, focused on minor tasks and ripe candidates for outsourcing,” he says.

Companies want more proactive decision ­making that is more financially informed. Yet the lack of communication skills keep many ­management accountants out of this process. “I have plenty of examples of management accountants in a manufacturing company that haven’t seen the inside of the factory in years, or where a management accountant in a plastics moulding company knew nothing of the most basic ­elements of the moulding process.” To be a ­business partner, you have to get over this gap or the line management will boot you out the door so fast it will make your head swim, he says.

According to Srikanthan, the best way to broaden and deepen a management accountant’s experience, he argues, is to have them work with other specialists, including engineers and ­marketeers – and this is what business schools such as Cranfield do all the time on an MBA ­programme. “To be part of a team you have to trust the other members of that team. This is what the accounting function needs to learn more of and it is closely related to personal development, learning to work and play with others. This is something we focus on closely,” he says.

On the positive side, he argues that the stakes are enormous for management accountants who grasp the nettle here. “A competent, commercially aware accountant is a huge asset to a corporation and their rise to the board is often meteoric. In 20 years, having communications and ­business skills will be table stakes for accountants and those who don’t have this will be out of the game. Right now, having these skills is a real ­differentiator and a massive plus,” he says.

Investing in people
Steven Culp, head of Accenture’s finance and performance management practice in the UK, says that FDs around the world are under huge pressure when it comes to funding their own departments. They are competing for every pound with R&D, marketing and so on. So it is all about investing in people development so that you can steer financial information in a manner that helps the business to execute, and this, as he says, “is very different from what CFOs have been doing before”.

“There is no doubt that the lack of finance skills is seen by global businesses as a barrier to growth. It is all about the pressure to see that the projects you are launching and the investments you are making are sound and will generate shareholder value. It’s all about the principle of stewardship,” he says. Management accountants have a great opportunity to step up and show that they – with the help of training in communications and business skills – can provide this line of ­business support at the strategic ­decision-making stage.

“The drivers for this are becoming plain. We saw, in the dotcom crash, companies taking ­significant bets around ­business models that proved to be ­unsustainable. CFOs are seen as bringing ­sobriety and discipline to the decision making process,” he says.

In this context, the business partner role is not about the accountant being a nay-sayer, it is about the value of financial prudence and being able to deliver solid advice in fraught ­circumstances where there are very tight ­windows of opportunity that businesses are ­trying to evaluate.

Imagine the following conversation going on in a UK bank on, say, 8 August this year:
Commercial director: Is now the right time for our bank to take a solid position in the US sub-prime sector?

Accountant/business partner: No, Clyde, there never was and never will be a right time for that. It’s sub-prime, you see, allow me to explain…

Go to www.financialdirector.co.uk/2197511 to read about finance team business plans.