Twice we’ve shown how you can help boost the value of your company by using the Enterprise Value Map™ (EVM) to come up with concrete steps to help address your most perplexing real-life problems. First, we illustrated the power of the EVM in helping to reduce a proposed IT investment to a simple question of future cash flows. Then, last month we demonstrated how you could use the EVM to help turn a dearth of skilled workers into an opportunity. This month we’re going to explore finance. How does your finance department add value? Wait a minute, you’re saying: “What’s there to explore? Finance is all about value. Why, the finance people quantify everything and prepare all those reports we need to stay out of trouble. That’s value, isn’t it?” Sure. But, your finance department probably does more than that. And, it could most likely do even more, and better, if only you understood its role in value creation. The Value of Finance Finance isn’t a mere steward of your company’s financial data. It’s also an operator in its own right, and it can be a valuable strategist and catalyst, according to a recent CFO Research Services/Deloitte Consulting LLP research paper.1 Your finance department can help to define your strategy. It can also help to educate your people about what makes your company valuable and flesh out that strategy with specific tactics. It can help your company translate concepts such as “return on capital” into terms that mean something to the workers who make, market and move your products and services. Your finance department can help bring discipline and a zeal for financial return to every aspect of your quest for enterprise value. Or, it can just count your beans. In short, your finance people can help drive value. Or destroy it. And knowing how will help you get the most out of them. Getting Started Work your way across the EVM, starting with revenues. For each box below, ask yourself: “How could finance help with this?” Finance can help drive revenue growth, for example, by supplying the metrics you need—and by teaching you and your people how to use them - to help determine which customers are most profitable, which products and services to pursue, and how to effectively price them. One large communications company was struggling because each of its business units had its own unique way of measuring things. It was impossible to make apples-to-apples comparisons, because the word “sale,” for example, meant one thing in the cable business and another in the telco business. Finance came up with a way to standardize the data and to translate it into a single, consistent set of numbers. Now senior management can see what is going on across the entire enterprise, compare and contrast various departments and divisions, and make better-informed decisions. Moving from left to right on the EVM, the next category is operating margin. It’s obvious that finance can help directly improve your margins by keeping its own costs under control. But, think about other ways finance can help improve margins by, for example, supplying the data you need to help evaluate costs in other departments and in areas of inefficiency. How do those costs stack up against other companies? The leading companies? How well do the company’s operations reflect its strategy? Just seeing that data is a strong incentive to improve. There’s even more room for finance to help enhance value in the realm of asset efficiency. If finance arms you with the right data on things such as asset utilization and inventory turnover, you can make smarter decisions about how to deploy resources. Take the case of a manufacturing company with 40 sites worldwide. Until recently, each site used its own unique information system to support decision-making at that site. There was no way to integrate it, so management couldn’t compare capacity utilization to achieve better economies of scale. Now finance is beginning to gather and present data in a consistent format. Armed with that data, senior management can decide where to send the work, which sites to expand, and which to close. Or take the case of a big-box discounter, where finance sees itself as “value evangelists.” Finance makes sure that every person in the company understands the concepts behind “cost of capital” and “return on investment”—and uses that understanding to make decisions. Buyers seek extra terms for paying bills later and bigger discounts for paying early. Warehouse managers reduce inventory shrinkage. And, everyone has variable compensation linked to value-based incentives. For a larger view, select the image Enterprise Value Map. 
Digging Deeper Even in its role as a humble steward, finance can do more than appease regulators and investors with the requisite data. It can actually help to enhance expectations by supplying data that gives the market reason to believe in your bright future. The finance department at one big pharmaceutical company does it by providing consistent earnings forecasts, giving details for each segment of the business and delivering it to the markets before the competition. Finance does all that not only quickly, but also accurately. That way it doesn’t wind up having to correct the numbers later, a notorious market value killer. No matter how finance adds value, it’s essential that finance stays bound tightly to operations. When finance does its job right, operating managers understand the importance of financial goals and metrics and welcome the insight that finance can bring. Stepping Back Of course, that’s just what finance has done at those companies. What it can do for you will vary depending on your industry, your company, and its strategy. But the principle is the same. Order your copy of the Enterprise Value Map™. 1 "Different Paths to One Truth: Finance Brings Value Discipline to Strategy Execution," CFO Research Services in collaboration with Deloitte Consulting LLP, 2006. Related Content: The Value Habit Newsletter Archive
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