25 years of PLACON experience with regard to perceptions of functional managers and executives about Finance & Accounting functions highlights the following beliefs
- “I am not a Finance executive and my function has nothing to do with Finance. “
- “Finance & Accounting are technical subjects and I don’t have the required background. Even if I try, I will not be able to understand anything.”
- “In any business, Marketing and Production are the core functions. Unfortunately, the top management gives undue importance to Finance function.”
- Even Finance & Accounting executives are not an exception. Many of them believe that they have the authority to sanction the expenditure and that they are running the business.
In fact, our experience in Management consulting has shown that financial implications are a very important aspect of all the managerial decisions; irrespective of the function. Let us share some specific experiences.
- In an assignment where extension in credit limit was considered to be a marketing issue; it was realized that such a decision should not have been taken without understanding working capital status and its implications on cash flows.
- In one HR assignment, the HR manager was enjoying his remaining busy with increasing recruitment. He thought he was responding very well to the challenge from increasing employee turnover. We carried out a cost-benefit analysis for him and showed that spending more on employees would be more beneficial and cost effective than the amount that was being spent on recruitment.
- In another situation, the plant manager was on the verge of leaving with frustration because his demand for replacement of old machinery was not considered by the top management. Later on we explained to him the investment involved in replacement and the financial condition of the company. He was looking at the issue only from the perspective of quality and speed in production.
In all the above situations, the managers considered the decision aspects pertaining to issues related to their core functions only. In all the cases, they realized later on that their decisions or views were not balanced ones and ignored financial implications.
The above perceptions result in misunderstandings and conflicts between Finance executives and managers in other functions. This can also spoil work environment and team spirit in operations of the organizations. What can be done? We suggest as under.
- Make sure that every manager understands financial dimensions of his role and decision situations. He must be able to relate his functions with financial position and performance of the organization. Training and workshops can help in this.
- Encourage higher and better communication between Finance and non-finance executives. For this purpose; provide for frequent meetings and interactions between the two. Top management will have to inculcate such a culture of openness; and appropriate systems will have to be developed.
Spread the message that Finance is the business of every manager.