Far from being simple accounting, financial operations is actually a complex mix of strategy and forward planning.
For most business line managers, the word ‘finance’ conjures images of bean counting – of strict budgeting, cost-cutting, and operational efficiency. Indeed, in my experience, the ‘finance function’ for the operations person is more akin to cost accounting. Hence, the finance executive on any operations team is often stereotyped as the person whose main job it is to police the purse strings – the so-called “bean counter”. But finance is not just about cutting costs or saving money. It is also about spending money to help the company grow. In fact, one of my favourite sayings is: “You can tell what a company’s growth strategy is by where it puts its money.”
Sure, the role of finance in helping the company grow is most prominent in merger and acquisition activities. Its cooking up of leveraged buy-out schemes or stock and cash deals worth billions always makes the headlines. But finance also plays an important, if less public, role in efforts to grow the company ‘organically’ – on its own or without buying or merging with another company.
Imagine some recent behind-the scenes activities involving the finance function of two competing fast-food giants – McDonald’s and Burger King. Competition and changing tastes and preferences have put a serious dampener on the duo’s top-line growth. But after several years of declining same-store sales, McDonald’s finally reversed the downward trend. In the third quarter of 2015 it grew its same-store sales by 4%. Its sales in the fourth quarter of the same year grew 5%. The switch to an all-day breakfast menu and a simplification of its offerings were cited as the two main drivers of this turnaround.
So where does the finance function come in? First, imagine the cost of providing breakfast ingredients for an all-day service in McDonald’s 14,000 US restaurants, where the all-day breakfast rollout has begun. Second, consider the costs of training managers and workers to handle this menu shift and the price negotiations with suppliers. Third, McDonald’s does not offer the same number of breakfast offerings all day in every restaurant. For example, Egg McMuffins will not be offered in the southern states because the firm decided that it was difficult to serve both what Americans call biscuits (known as savoury scones in the UK) and McMuffins all day. Egg McMuffins are to be served only in the northern states, while biscuits will be served in the South, where McDonald’s has identified a preference for this form of carbs. Fourth, McDonald’s is now testing the use of touch-sensitive screens in front of its restaurants to help speed customers through the ordering process. Mobile apps for ordering ahead of time are also on the way. All this costs money, and I have to assume finance was part of the decision to invest heavily in IT.
What is McDonald’s arch-rival Burger King doing to energize its top line? Rather than modifying its existing menu, it has decided to add a new offering: hot dogs. As with McDonald’s, Burger King’s strategic marketing move began in the US. In doing so, it hopes to capture a share of a market in which around 20 billion hot dogs are eaten annually – more than 60 hot dogs per person a year. Imagine the financial analysis that went into this business case. Consider all the work the company’s finance, planning and analysis professionals must do to monitor and control this rollout. Conclusion: finance helps companies grow, not just to cut costs.
Phil Young PhD is an MBA professor and corporate education consultant and instructor.
An adapted version of this article appeared on the Dialogue Review website.