Three financial capabilities senior managers most often need to improve


Senior managers often have the opportunity to attend courses on skills such as leadership or strategy, but the one area that is most difficult for a functional or business manager to learn on the job is finance. Not everyone is always able to get their head around finance in a business context, and even the most experienced of managers can often make these three simple mistakes...

Added on 11 January 2016 by Jo Whitehead

Financial capabilities graphs and stats

Prior to my current role as a lecturer and consultant on finance and business subjects, I was a senior manager with the Royal Dutch Shell group specializing in mergers and acquisitions.  During that time and subsequently while working with clients, it became abundantly clear that as people progress through an organization, the skills needed to remain successful in a job undergo profound change. The capabilities you relied upon to commence and pursue your career are necessary, but are no longer sufficient as your role becomes more senior. By and large many of the new capabilities you require are learned on the job and through interaction with colleagues, with other successful managers in your own company, and elsewhere. Sometimes you may have the opportunity to attend a course on skills such as leadership or strategy, but the one area that is most difficult for a functional or business manager to learn on the job is finance. 

In particular, senior managers need to know the ways in which performance should be judged and most importantly, the ways in which performance can be improved. Not only that, it turns out that most business decisions are determined on an understanding and an interpretation of financial metrics. It is easy to see how good managers who lack the necessary financial insights can sometimes make poor business decisions.

In my experience, the most common financial capabilities that senior managers lack are:

  1. Using basic financial analysis to identify adverse trends in the business and to identify and propose action plans for performance improvement. The use of financial analysis should not be seen as the exclusive preserve of the finance function. Properly interpreted, it can become a powerful tool for any business manager in monitoring the business, in identifying areas of declining performance and in formulating plans for improvement.
  2. Backing up a sound business plan with a strong financial case. Being able to put together a good investment appraisal or business plan is a critical skill for senior managers. However, many business plans are poorly formulated and can end up being re-written several times. High-level management time is wasted and the implementation of good investments is delayed. In the worst case, inappropriate decisions are taken. 
  3. Using finance as one of the tools to develop a strategy – rather than just a spreadsheet at the end of the process. Strategy and finance are sometimes thought of as competing functions. The CFO wants to get involved in the strategy; the Head of Strategy wants to have a strong influence on the capital allocations, acquisitions and financial targets that turn a strategy written on paper into action. In the end, every business manager who wants to put a strategy or business plan to the board must be able to describe and calculate the financial consequences of the proposal.  They must be able to use financial analysis to explain current performance and trends. The proposal itself must contain the financing requirements and indicate why it will meet the financial hurdles set by the board. It is not enough to hope that the Finance function will fill in the details.  

If you found this blog useful you may also be interested in our other blogs elaborating on the themes discussed here. Try Getting the Business Plan Right by David Smith for more on point two, or explore the link between Strategy and Finance by Jo Whitehead to find out more about point three. If you are keen to develop your understanding of strategic financial decisions you can also find out more about our Strategic Finance open program here.