Are Finance and Operations people evil and clueless ?

There are probably very few people in the corporate world who haven’t had this thought at some point in their careers – and it probably is the primary belief system of many line executives . I used to be one of them – and from time to time, I still slip into that mindset – and then snap out of it .

So before I say anything else – let me say the answer is a resounding NO ! And they certainly are no more evil or clueless as the rest of us . I will go on to add that when we make use of their expertise the right way – life becomes significantly more productive !

As always – everything on this blog is strictly my personal opinion !

A lot of people I mentor have told me some version of “I could be doing a much better job if only Finance and Ops would let me” . There is some truth in that statement – and I have said it many times myself . I have also since learned there are larger truths that perhaps will change our perspective a little bit . That’s why I am attempting a blog to explain my point of view .

Finance and Ops colleagues have a very hard job to begin with – and we often don’t appreciate it. It’s not a job that many of us have the skill, aptitude or interest to do. I majored in finance in business school – and yet I don’t think I ever want to do a CFO role . Thanks to the nature of their job – most of us in line jobs don’t take the time and effort to understand why they operate the way they do , or how their analysis was done to reach the conclusion we disagree with .

Let’s use an example to put this in context . Revenue and profit are generally easy measures to understand . Cash flow and time value of money are less natural measures for many of us . So when a finance leader questions a deal that shows a high revenue and profit profile – it could be because the projected cash flow is poor , and there is debt that can’t be serviced . Another common occurrence is arguments about “expense vs cost” which both look similar to people without training in accounting, but have completely different accounting treatments . You don’t need a three year degree to understand the basics – but if you don’t take the time to do get it right , you will constantly talk past your finance colleagues and get frustrated .

Most people are familiar with how P&L statements work because their metrics are correlated to it . However there is also the Balance sheet and the cash flow statement that hold significance in a business – and till we understand how it all works together, we will never extrapolate our own reality to the company’s reality .

The reverse is also true that often the world looks different when you abstract it to a spreadsheet or PPT . So an Ops leader might tell every VP to cut 10% of their staff as a solution to save money – and it will make perfect sense at the highest level . And yet , for obvious reasons it is hardly ever a good solution . Another classic problem is resource fungibility looks infinite (Why hire a manager for AI in west coast now when we have two managers in IOT in Midwest and East who both have bandwidth to stretch?) on a spreadsheet when translated to headcount and dollars – but ridiculous when it is translated to skills and location and so on .

Essentially – a little bit of active empathy and trust building via training, job rotations etc will go a long way in reducing friction in decision making .

A CFO – now retired – that I respect a lot once told me this . “When a business is run well, my job is to make sure I record everything and provide insights to where we may have opportunities to grow. When it’s not running well , my job is to get it back to a shape where it can be run well again”. My appreciation for that statement was admittedly low when I first heard it , but it has improved over time 🙂

A lot of frustration happens when finance and operations policies are created by people who don’t have sufficient appreciation for what happens on the ground. All business needs a happy middle of “let’s not take any risk and let’s not trust anyone” vs “let’s take every risk and let’s trust everyone” . Similarly there is the tension on what’s the best way to generate profit – where should be the happy middle of “let’s increase revenue by any means possible” and “let’s cut costs to the bone” . The manifestation of this is best seen in how companies operate their budgets .

Budgets assume that almost everything is known upfront for the year in front of us and we can optimize resources to get a certain goal . It’s all good except that things do change all the time ! And this is where business reasoning should prevail over broad policies and processes .

When a leader says “sorry – no budget” to a proposal , what that translates to usually is “this is my first filter to see if you have the conviction to prove that my budgetary assumptions were wrong” . There is always budget to make more money for a company if you can prove the risk-return trade off works . But that needs you to ask questions to understand why your request is denied , have a relationship with all the stakeholders so that you even have a chance to ask in the first place , and a lot of effort to make the case in a way it makes sense . And in reverse – it needs finance and Ops to be flexible enough to change assumptions when there is proof that it’s the right thing to do .

The easy path – the one often taken by many of us – is to shrug and give up with “these bean counters don’t get it” and “These utopian ideas are why we are in trouble and why we need to tighten policies some more” 🙂

I am consciously staying away from a discussion on metrics as the driving force for some or all of corporate dysfunction. That needs a deeper discussion by itself 🙂

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s