Embracing Risk & The Finance Function 4.0 with Anders Liu-Lindberg
“Risk is neutral. Without it, there's no reward. We have to shift the finance team’s mindset from “no risk taking” to “taking the right risks”. Yes, you will fail from time to time, but you will also learn from it.”
Businesses and finance leaders have faced great challenges in recent years, especially with risk management. And for good reason: the stakes are higher than ever, from navigating complex markets to identifying the best opportunities to pursue.
Anders Liu-Lindberg is COO and Partner at the Business Partnering Institute. As an industry thought leader, he writes about financial planning & analysis, and advises senior finance leaders on building successful business partnerships.
In this episode of the CFO Yeah! podcast, we asked Anders to share his vision on the future of finance. We discussed the industry’s current shift in mindset, new ways to embrace risk, and why finance professionals have an “unfair advantage”.
In this post, we’ve summarized the main highlights from our chat with Anders. Read for more insights on reinventing your role in finance, both at the team level and company-wide.
Listen to the full episode on Apple, Spotify, or RSS.
Table of contents
Helping finance leaders elevate their careers
I'm a partner at a company called Business Partnering Institute. We help finance functions all over the world elevate their influence in their companies through business partnering. My day job is quite diverse: I engage with clients, I do occasional consulting jobs to help them set their organization or create a framework for business partners… And of course, I create a lot of content and engage with lots of people.
I have a blog on LinkedIn with over 150,000 subscribers, on which I put out content on a daily basis to help finance and accountable professionals all over the world succeed in their careers. I'm very much purpose driven to help anyone out there be successful.
Tracing parallels between finance and HR
I've always worked in finance, except for a short time in HR, when I was a student. I really liked the idea of working with people and helping companies find the right people. But this experience was a bit frustrating, because people in the company would keep the HR function at a distance.
So I went back into finance thinking, “I'm not going to spend the first 10 years of my career trying to convince people all the good that HR can do.” But ironically, what I found in finance was exactly the same! Business people think about finance in a similar way. They think finance should stay out of their business, and simply send them the reports and the numbers. So, I ended up spending the first 10 years of my career trying to convince people all the good that finance can do. And here we are, because finance can indeed do a lot of good!
The future of the finance function
On LinkedIn, I used to talk a lot about the finance function of the future. But the term I really use now is “Finance Function 4.0”, building on Industry 4.0.
Historically, there are a lot of transactions needed in finance for compliance and controlling purposes. These are not necessarily things that are adding value to a company. So we need to first digitalize, and then automate all these transactional processes to free up time for generating insights which we can influence business leaders with, in order to make better decisions. If finance can unlock this, there is an immense value potential just there for the taking. I call this value potential the trillion dollar opportunity.
That's the future to me: it's much more human to human interaction, while the numbers are generated automatically. It's all about using the number for making better decisions.
With the pandemic, I think we’re starting to move faster in that direction, at least on the transactional side. There was an Accenture study in 2021, which said that from 2018 to 2021, the rate of automation of transactional tasks in finance had gone from 34% to 60%. That's a massive change in such a short period!
Mindset: transitioning towards finance function 4.0
Of course, the Finance Function 4.0 is not just about automating transactional processes. It's also about planning and analytics, big data and data science, and predicting the future.
Unfortunately, in this shift, I think what's stalling us is mostly mindset. All the tools, all the methods are already available. But traditional finance people were brought up in either auditing or accounting, where it's much more about not taking risks and making sure everything is compliant.
But when you go into a much more uncertain space, you can't say “this should be 99% correct before we can send it through.” If it’s 80% correct, it's actually pretty good. And accepting, adapting to this is the internal change that needs to happen - but it’s hard.
I launched a poll on LinkedIn with close to 1500 votes, asking people what was holding finance teams back. I was expecting people would probably answer systems or processes. But actually, 62% of the respondents said it was the mindset! It was mind blowing for me to realize that the problem starts with us…
I think that's a realization we are having today, which we didn't have five years ago. It means we have to change a lot within ourselves, but it's great that the awareness is now there, and that people are open to what's changing.
Why risk needs to be embraced, not feared
I don't know if there's anyone in the world that's more risk averse than accounting people and some finance people. Most of us are risk averse by nature. For some of us, that's even why we went into this field in the first place. Because we could actually use our risk averse skills for something good.
But, now the game is changing.
Systems are taking care of most of it, so that risk averseness is not so useful anymore. We need to stop thinking about risk as something bad, but rather as something neutral. And we need to tell the opportunities from the real risks that we definitely have to mitigate.
Risk is neutral. Without it, there's no reward. So, we have to shift the finance team’s mindset from “no risk taking” to “taking the right risks”. Yes, you will fail from time to time, but you will also learn from it.
In order for finance professionals to work on this, four pillars need to be in place:
The first thing is that people need to understand what is changing, and why it is changing. Most importantly, it has to make sense to them.
A second pillar is having role models in the company who are already doing it, and sharing their results. Finance leaders can learn from them.
Then, the systems, the processes, and the organizational structure need to support the new ways of working. You need to feel supported by everything going on in the organization to make change happen.
Lastly, it’s about getting the opportunity to work with these new things, and train to work in these new ways. If finance leaders are supposed to be business partners, they need to have someone on the business side to work with.
What companies need from modern CFOs and finance teams
Executives need finance teams to help them make better decisions, mostly through data-based insights. They’re also looking for a discussion partner, someone to help them qualify and also quantify the best decisions they can make, under any circumstances.
We call it the unfair advantage of finance. We understand the business, we have and own access to financial data. But we also typically have access to non-financial data, even though we might not own it. Besides, we have analytical skills. So, we can actually do something with this data and figure out what are the trends and patterns and whatnot.
As a consequence, we can look across the value chain. We need to use this unfair advantage to drive better decisions.
Finance teams need to focus more on driving that mindset of searching where to create value, together with the business. Instead of looking at the historical numbers, it's about looking towards the future. Maybe the most important shift we need to make is to stop trying to succeed on our own, and enabling others to succeed instead.
3 trends finance leaders should look into
There are quite a few trends we are looking into with Business Partnering Institute. Right now, we are writing about frontier technologies and how they can be used in finance: blockchain and AI, all these things.
We'll also write about coding, because I recently asked in a poll if finance and accounting people should learn code. And surprisingly, two thirds of respondents said yes! I also asked what kind of coding languages people should learn, and 50% said Python.
We’re also going to dig further into the ESG topic for finance people. I think the key point is that businesses should revamp their business model to a point where ESG is not a cost, but going back to the profit driver notion that we do ESG because it makes sense for our business. Because if you can get your business model to that point, then you'll find everyone working towards that common goal.
Finance automation in the next 5 years
I like to ask how far we can push the rate of automation we are currently rolling out. I think it's probably landing somewhere around 80 to 85%, if companies really do it well. But of course, we’ll also get to a point where getting that last few percent is going to be very expensive.
So, I'm expecting that in the next two to three years, we'll have to make conscious choices along the way. These will be about how much we want to push automation versus making investments elsewhere. Because automating for the sake of automating is not always the right decision.
More from CFO Yeah!
Subscribe and listen to more episodes from your new favorite finance podcast, including:
Why Zapier Doesn’t Believe in Fundraising with CFO Jenny Bloom
How Strivr Puts Real People First in Virtual Reality with VP Finance Mike Libby
The Stories Behind 17 Startup Exits with Notion's Myoung Kang
Inside FIIT: The #1 Fitness App with Finance Director Kerry McClelland
Growing a hospitality business during COVID with Mews CFO Pavla Munzarova
The Bond Between Finance & Analytics with Miro’s Misha Advena
Why Finance Teams Hate Surprises with Soundcloud's Jan Gackenholz
How financial data makes your company smarter with Permutive's Mark Yates
Growth vs Profitability: Finding a Balance with Tiny CFO Founder Jana Kovacovska
The Story Behind Backmarket's $120M Series C, with Pauline Sauvage
"Let Them Say No" with Habiteo CFO Elodie Hadjidakis
Managing Hypergrowth and Becoming a Unicorn, with Alka Tandan of Gainsight
Raising Funds and Entering Hypergrowth During a Pandemic, with Pedro Barros of Remote