Finance people are quite smart people… when it comes to Finance but when it comes to Business Finance and finance business partnering there’s this other element called BUSINESS. No matter how smart you are in Finance you cannot be good at Business Finance without knowing about the business. In fact, it’s not just about knowing the business but even more so about understanding it.
To some that might be a subtle difference but to someone in the finance function trying to partner with the frontline managers it’s the difference between success and failure. Let’s examine that statement closer by first expanding on what the two words “knowing” and “understanding” mean.
Knowing: ‘Knowing,’ or the act of knowing, which is called ‘knowledge,’ is defined as ‘the expertise and skill acquired by an individual through his or her experiences and education.’ It includes facts and information about certain things of which you are certain about. It involves the basic recall of data which have been previously presented.
Understanding: ‘Understanding’ is processed in the brain. It is defined as ‘a psychological process related to a person, object, situation, or messages which require an individual to think and use concepts to deal with.’ Also, called ‘intellection,’ understanding involves conceptualization and association.
Building upon above the difference between the two is described as.
It [understanding] is the awareness of the connection between pieces of information that are presented and has a deeper level than knowing and, in fact, is essential to put knowledge to good use.
Now it starts to make sense, right? Understanding is a deeper level than knowing where you process and connect pieces of knowledge to put that knowledge to use. A finance professional might know what the business is and what it does without understanding how the business does it. In an article written by Anders, he tells a story about a drilling rig and the difference between just looking at the numbers (knowing what happened) vs. going to experience the real thing on-site and develop an understanding of what happened so that better guidance can be provided in terms of what to do about it. Let’s try and stay in the world of drilling and look at the difference from a practical point of view. We know that a drilling business is about having a drilling rig that works for an oil company to drill wells where oil or gas can hopefully be found. We also know a lot of lingo like a jack-up rig, a semisubmersible or a drillship. Do we, however, understand how they operate and what are the differences between them? If we do, we can start to inquire deeper into each of them where we will first get to know more about their features and operations to further my understanding of how they operate. It’s not until we understand how they operate that we can truly start to partner with the business. We might be able to fake it for a while by speaking the same lingo as the frontline managers but eventually, we will be called out on our lack of understanding.
What can you do to increase your understanding of the business to become a more effective business partner? Here are five practical tips that you can start to work on right away.
- Take a job in the frontline for a while and walk a couple of miles in your stakeholder’s shoe. That will right away enable you to start insightful conversations, deliver recommendations and create a business impact.
- Sit next to your stakeholder at least for a couple of days a week. Then you get a chance to pick up on what’s happening in the frontline on a daily/weekly basis plus it gives you a chance to build a closer relationship with your stakeholder.
- Go visit customers and vendors together with your stakeholder so you understand their pain points. This will help you create a shared language with your stakeholder and understand the challenges (s)he faces every day.
- Shadow your stakeholder for a day to get insights into what (s)he’s doing daily. It will also help your relationship building.
- Invite your stakeholder into your (daily/weekly/monthly) finance meeting to talk about how (s)he sees Finance helping the business.
We invite you to try at least one of these tips and if you’re already well under way with many of them then just stay the course. Otherwise, how can you expect to build an understanding of the business?
When you have developed an in-depth understanding of the business and are almost as good as your stakeholder doing his or her job then you’re ready to accelerate value creation for the business. You will have a common language and can find shared solutions. You will have built a trustful relationship meaning that your stakeholder trusts your insights and recommendations when it comes down to making the decision. Furthermore, you’ll be able to base your recommendations on insights into actual business developments rather than just what the numbers tell you. It’s the combination of the numbers and business understanding that will be Finance’s most important competitive advantage over the coming years. Do this well and ultimately you will be able to help the business create more value.
Do you know about the business or do you understand it? What initiatives have you taken recently to get closer to your stakeholders?