Creating Value as Finance Business Partner: A Comprehensive Report

This report, based on the book "Create Value as a Finance Business Partner," explores the critical role of finance professionals in driving value creation within organizations. It delves into the finance function's purpose, roles, and organization, emphasizing the importance of shareholder value creation and the transformation of the finance function into a profit center. The report highlights the significance of business understanding, customer focus, and a partnership mindset for finance business partners. It examines the value chain and provides insights into the skills, competencies, and implementation strategies necessary for success. The report also covers topics such as stakeholder management, decision-making processes, and the finance function's strategic alignment, providing a comprehensive guide for finance professionals aiming to enhance their value contribution.

THE BUSINESS
Business understanding
THE CUSTOMER
Customer focus
THE PARTNER
Partnership mindset
C R E A T E V A L U E A S A
FINANCE BUSINESS PARTNER
Transforming the
finance function into a profit centre
B O F O G E D | A N D E R S L I U - L I N D B E R G | H E N R I E T T E F Y N
B U S I N E S S P A R T N E R I N G I N S T I T U T E
E D I T E D B Y A N D R E W C O D D

Create value as a Finance Business Partner
1st edition 2018
Authors: Bo Foged, Anders Liu-Lindberg & Henriette Fynsk
Translated by Clem Luxford
Edited by Andrew Codd
Graphic layout by Majbritt Andersen
Printing: CreateSpace
ISBN-13: 978-1724850744
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Bo Foged
Bo is the Group Chief Financial Officer (CFO) and
Chief Operating Officer (COO) at ATP. Before
that he was CEO at BankInvest and has held vari-
ous other posts both inside and outside the finance
function. Professionally Bo has more than 20 years
of practical commercial experience and has played
a leading role in finance transformation projects at ATP, BankInvest, Carnegie Bank, The
World Bank, Nycomed and Accenture. He originally graduated with a Masters of Science
(MSc) in Business Economics and Auditing and started his career as an auditor with PwC
Over the past 25 years Bo has lectured part-time in subjects such as financial accountin
management accounting, credit assessment, strategy and process management fo
undergraduate and postgraduate degrees in Business Administration and Economic
has also written two textbooks and was one of the initiators and teachers of the
Association of Lawyers and Economists (DJØF) Certificated Controller Programme (CCP).
Henriette Fynsk
Henrietteworksas a Head of Departmentat
ATP. Professionally,she has manyyearsof pra-
ctical experiencewith finance transformation
projectsin, amongstothers,ATP, BankInvest
and as a consultantat PwC. She has alsorun
many projects and tasks that transverse both the
finance function and the business where the business partner’s value mindset and comp
have been practised. Henriette Fynsk graduated with a Masters of Science (MSc) in Man
Accounting, and she has since supplemented her expertise by completing executive lev
including a Graduate Diploma in Business Administration in External Accounting and Fin
Anders Liu-Lindberg
As Head of Global Finance PMO, Anders is respon-
sible for driving functional excellence in the finance
functionat Maersk Transport& Logistics.This
involves, amongst other things, designing, building
and running talent training programmes for finance
business partners. He has previously worked as a
finance business partner and ran various transformation projects in the finance function
Maersk Line and Maersk Drilling. He graduated with a Masters of Science (MSc) in Financ
and Accounting and his entire career has been at A.P. Moller-Maersk in various financial
The authors

Business Partnering Institute (BPI) 3
Table of contents 4
Preface 9
PART 1 The goal 17
1 The finance function’s burning platform 19
1.1 The CFO’s vision for the finance function 20
1.2 Motives for behavioural change 23
1.2.1 Global motivation factors 24
1.2.2 Local motivation factors 25
1.2.3 Personal motivation factors 26
1.3 The value creation journey starts with self-directed questions 27
1.4 Summary 28
2 The finance function’s roles, tasks and organisation 29
2.1 The finance function’s purpose and generic roles 30
2.1.1 Role substance and role balance 41
2.2 The finance function’s tasks 43
2.3 Organisation of the finance function. 45
2.4 Summary 46
3 Value creation – the higher purpose 47
3.1 The choice of value creation definition 48
3.2 A formula for value creation in commercial companies 51
3.2.1 The free cash flow to equity owners (numerator) 55
3.2.2 Equity owners’ return requirements (denominator) 73
3.2.3 Are all shareholder value initiatives value-creating? 86
3.3 Direct and indirect value creation in the value chain 86
3.4 Value creation in non-commercial companies 91
3.5 Transforming the finance function into a profit centre – an ambition metapho91
3.5.1 Finance must grow a profit centre mindset 94
3.6 Summary 95
4 Understanding the business partner’s
stakeholders and their decision-making process 97
4.1 Potential conflicts of interest about goals and morals 99
Table of contents

4.2 Equity owners are generally risk-averse 102
4.3 Directors and managers are – or should be – merchants 103
4.4 Decision-making styles and decision-making behaviour 104
4.5 Summary 115
PART 2 The means 117
5 The business partner 119
5.1 Basic skills and core competencies 120
5.2 The business partner’s value mindset and core competencies 123
5.3 Implementation of core competencies 125
5.4 The customer and customer focus 128
5.4.1 Who are the finance function’s customers? 129
5.4.2 Why is customer focus important? 134
5.4.3 What is customer focus? 136
5.4.4 How do you improve customer focus? 149
5.5 The business and business understanding 182
5.5.1 Why is business understanding important? 183
5.5.2 What is business understanding? 185
5.5.3 How do you get business understanding? 213
5.6 The partner and partnership mindset 226
5.6.1 Why is a partnership mindset important? 227
5.6.2 What is meant by a partnership mindset? 228
5.6.3 How do you get a partnership mindset? 232
5.7 Business partners at different levels of decision-making 252
5.7.1 The operational business partner 256
5.7.2 The tactical business partner 257
5.7.3 The strategic business partner 258
5.8 The company’s scale and importance for the business partner 267
5.9 Summary 269
PART 3 The path 273
6 The business partner’s value creation through the value chain275
6.1 The starting point of the value creation process 276
6.2 Start from the inside and create the settings 278
6.3 The most immediate and close opportunities lay in the value chain281
6.4 Most actions will end up with a journal entry 282
6.4.1 Shareholder optimisation 285

6.4.2 Customer optimisation 288
6.4.3 Product optimisation 297
6.4.4 Procesoptimering 309
6.4.5 Resource optimisation 324
6.4.6 Supplier optimisation 342
6.5 Summary 348
7 The business partner’s general precepts 351
7.1 Focus and prioritise value-creating activities 352
7.2 Get close to the heart 352
7.3 Be a proactive role model 353
7.4 Deliver at the right time and with the right quality 354
7.5 Give progress reports and communicate proactively 355
7.6 Create completeness, structure and correlation 355
7.7 Quickly get to the point and the recommendation 356
7.8 Be a team player and avoid the Teflon syndrome 357
7.9 Deliver 100% and avoid Star Wars projects 357
7.10 Bring management options into play 358
7.11 “Usually” is dead - understanding lives 359
7.12 Be a problem solver 360
7.13 Summary 361
8 The business partner in the finance function’s strategy work363
8.1 The finance function’s strategy model 364
8.2 The finance function’s mission 367
8.3 The finance function’s value mindset and core competence set367
8.4 The finance function’s vision 368
8.5 The finance function’s strategy 370
8.6 The finance function’s strategy map 372
8.7 The finance function’s strategic goals 375
8.8 The finance function’s strategic initiatives 377
8.9 Personal goals in the finance function 379
8.10 Launch and communication of the strategy 381
8.11 Follow-up on the strategic goals 382
8.12 Summary 384
9 Management considerations for the
implementation of the business partner concept 385
9.1 Take stock of the situation 387
9.2 Start with why 387
9.3 Seek managerial support for the change journey 389

9.4 Define clear and concrete strategic goals 391
9.5 Appoint cultural bearers 393
9.6 Adjust to the company’s vision and strategy 395
9.7 Select the method of approach 396
9.8 Set tactical and operational goals and prioritise 398
9.9 Competency implementation sequence 398
9.10 Translate to different organisational levels 403
9.11 This is how to close “The knowing-doing gap” 404
9.12 Create small successes, make them visible and celebrate them406
9.13 Communicate, follow-up and communicate 406
9.14 The long hard haul 407
9.15 Summary 408
10 Bibliography 410

Creating value in an organisation is one of the most central concepts in business
the field of management. Over time, the words added-value and value creation h
used in many contexts. Business books, media and speakers enthusiastically prea
employees regardless of where they sit in the company must add value to the bu
this light, it has surprised us how few have made an effort to describe what it rea
to add value, why we are trying to achieve it and, not least, come up with some p
ideas of how it is done in practice. Some refer to the company’s bottom line when
about value creation, but is it precise enough? Not in our opinion. Essential eleme
as cash flow, capital structure and the risk dimension are ignored in this slightly s
definition.
C H A P T E R 3
VALUE CREATION
– THE HIGHER PURPOSE

48 | C H A P T E R 3
3.1 The choice of value creation definition
We usually say that “it’s easier to make a simple thing more complex than it is to make
complex thing more simple”. This also applies to our definition of value creation, where
easy to academicise the concept and lose most of the employees along the way.
Our solution has been to opt for a relatively simple definition and say that ultimately val
creation in a commercial company can be defined as “shareholder value creation”. The
vantage of this definition is that it can be put into a formula and then clarified with relat
ease by introducing targeted key performance indicators and initiatives for employees a
various organisational levels. Shareholder value can be created either directly or indirec
The purpose of this distinction is to indicate the strength of the cause-effect link betwee
employee’s actions and the resulting value creation outcome. If it is direct, the correlatio
strong. However, if it is indirect, the correlation is less compelling depending on how far
target the action is. Operational examples of direct added-value can be the accounts pa
bookkeeper who makes sure not to pay supplier bills before they are due14 or the accounts
receivable bookkeeper who ensures that debtors pay on time. Operational examples of
indirect added-value can be the controller, who helps calculate the selling price of an or
that the sales department can use it for a profitable end-customer sale, which ultimately
leads to shareholder value creation or the finance manager that implements time record
at the company, which can be used to identify areas of efficiency in production, etc. The
can also be more strategic activities such as actions taken to strengthen the company’s
unique core competencies or to give the company a clear strategic direction.
Shareholder value creation happens best when it is a function of continuous value creat
the external customers. The rationale for this is that: “No external customers, then no b
and so no shareholder value”. We use the same general reasoning in our choice of core
petencies for the business partner. Similarly, customer focus and value creation within i
value chains are also crucial for shareholder value creation. However, it is important to p
out that the two concepts are not identical. For example, a business partner’s improvem
extending the credit period from a supplier adds shareholder value but in and of itself ha
associated value for external customers. We delve more into this later.
A concept such as value creation is prone to over-theorising and semantics with some
experts in CSR (Corporate Social Responsibility) arguing that having a shareholder value
mindset is a thing of the past and that today companies must have a broader stakehold
value perspective so that their value creation can be sustainable in the long-term.
14 In scenarios where, negative interest rates prevail it actually may be an advantage to pay invoices before the due date.

C H A P T E R 3| 49
We do not disagree with long-term value creation, and indeed it can be broadly re
through a consideration of stakeholder value but many companies already have p
of challenges in simply getting their organisations adjusted and aligned in relatio
concept of shareholder value creation and given, as mentioned earlier, that more
boards are largely copying the management principles and philosophies of privat
funds only reinforces the point. It can also be difficult to quantify stakeholder valu
practical terms because the stakeholders have different views on what creates va
what is detrimental to value. A historical example of this is Christopher Columbus
to America in the 15th century. The voyage was not an immediate financial succe
departed with three of the King’s ships and only returned home with one, and eve
he did not bring the spices or other treasures he had promised. On the other han
discovered a new continent and subsequently Spain went on to establish one of t
well-functioning trade routes in living memory by leveraging the nautical charts d
following his first expedition to this new land. In the longer term the voyage was a
ding success and illustrates one of the paradoxes in value creation.
In our line of argument for choosing the shareholder value model’s strength as a
value creation, we will also highlight the fact that many professionals, in our opin
too narrow a view of its definition of value, particularly when it is only expressed
risk and return. For example, to the extent that environmental, ethical, moral or s
considerations have an impact on shareholder return or risk, then any useful mod
expected to take these into account. It can also be argued that when creating sha
value15
, value is often created as a by-product for most, if not all, of the other stake
see the following rationales:
1. + Turnover represents value creation for customers.
2. - Production costs represent value creation for suppliers and production sta
3. - Sales and administration costs represent value creation for service provid
administrative staff.
4. - Interest and fees represent value creation for bondholders and banks.
5. - Tax represents value creation for the State, municipalities and society.
6. = Net profit represents value for shareholders.
Shareholder focus has a clear correlation with the scale of revenue that can be ac
instance, if the company’s existence is threatened shareholders will tend to beco
focused on their own needs (survival through a focus on risk and return), while th
reversed as the revenue base grows and the shareholder’s basic needs are cover
15 Expressed here in terms of net profit in the profit and loss statement.

50 | C H A P T E R 3
case the focus for some will become more directed towards the needs of others and bui
heir own legacy (self-actualisation).
It should also not be forgotten that institutional investors are sitting on substantial tranc
global stock and credit markets and nowadays are consistently demanding from their sh
and bond-holdings, as well as their own asset managers, better all-round corporate soci
responsibility through Environmental, Social and Governance (ESG) policies and the like
Other considerations of the “stakeholder value” concept are where shareholders specula
on return/risk asymmetries, such as, when they incorporate their company with the veil
limited liability. This gives shareholders a de facto call option16 which may also encourage
them to increase their speculation by taking excessive risks since they only have the op
premium (capital injection) at stake, while society (other citizens) bears the remaining b
if the shareholder’s project goes wrong. Conversely, they retain the majority of gains if i
goes well. This may be inappropriate and is one of several reasons why after recent fina
crises, financial institutions have been required to meet increased capital requirements.
this way, the chance for a fairer return/division of risk is ensured between the sharehold
and other citizens in society. When politicians still live with this socially asymmetric retu
risk profile, it is probably due to the desire to motivate citizens to start-up businesses to
create jobs and the associated increases in tax revenue collections.
The broader stakeholder angle can in practice be covered via an internal code of ethics,
values, as well as analyses of relative power distances, etc., which map out what other
stakeholders’ companies should focus on to keep their shareholders satisfied. Alternativ
a political majority can ultimately choose to introduce similar rules in legislation, for
example, via a requirement for the fulfilment of certain non-financial targets, limiting
short-term remuneration forms, increased capital requirements, etc.
In practice, the art of adding value is relevant all the way down the organisational pyram
and across the company’s value chain so that the probability of its realisation is increase
We will attempt to show this in the next chapters.
Let us conclude that throughout this book we have chosen the concepts of “business ne
or “customer need” as catch-all terms for the value creation needs and the other stakeh
needs that a company may have.
16 The shareholder shall retain all profits after taxes, while as a starting point, the loss is limited to shareholders equity.