Historically, finance and operations have worked as separate entities with limited visibility into how one function impacts the other. This divide reduces agility and makes it difficult to align objectives effectively. Today’s businesses can benefit from finance leadership that can reach across the aisle to facilitate cross-functional collaboration and foster a culture of integrated business planning. Still, organizational barriers persist.
Fractional CFO and COO Arjun P. has seen and managed this divide from both sides. He explains the factors behind these silos and his strategies for aligning finance with the operational arm of the organization.
Paro: How does your understanding of both finance and operations as a CFO/COO help you approach common business challenges?
Arjun: In nearly all industries, businesses are hit with having to manage their financial picture in tandem with operational inefficiencies. For a company that may be tight on cash, for example, I can first develop leadership awareness around cash flow trends and ways to improve runway, which I find is the first and essential step. From there, I can discuss and model financial plans that align with industry trends, streamline operations to improve productivity and implement a culture of profitability that relies on the harmony of business operations and financial performance.
Paro: Why are operations and finance, though so interconnected, often disjointed? What makes cross-functional collaboration so difficult to foster between these functions?
Arjun: There is a historical divide between these two functions, with finance traditionally focusing on financial reporting, budgeting and compliance, while operations focuses on “running-the-business” with day-to-day activities and process efficiency.
The nature of the work in each function differs. Finance tends to see the business from the lens of numbers, data analysis and financial growth plus strategy. Operations, I have seen, is typically less future-focused. Operations focuses its attention on production, supply chain management and product and service delivery to achieve, hopefully, customer satisfaction. The different skill sets and priorities can create a gap in understanding and communication.
Another factor is the organizational structure. Operations and finance departments are typically organized separately, reporting to different leaders, which can lead to siloed thinking and limited collaboration. Without open lines of communication and collaboration, it becomes challenging to align financial goals with operational objectives.
Paro: What information often goes unshared between the functions, especially for operations, that can help close this divide?
Arjun: The disconnect can stem from a lack of shared information and metrics between the two functions. Operations teams may not have a clear understanding of the financial implications of their decisions, and finance teams may not fully comprehend the operational intricacies and challenges.
Encouraging cross-functional collaboration, joint planning and regular information sharing can help align both functions towards common objectives. Involving operations in the budgeting process and providing them with financial insights can enhance their understanding of the financial impact of operational decisions.
Furthermore, using technology and data analytics tools that integrate financial and operational data can facilitate better alignment and decision making. By providing a holistic view of the organization’s performance, these tools enable operations and finance teams to work together, identify areas for improvement and jointly optimize processes and financial outcomes.
Ultimately, recognizing the interdependence of operations and finance is crucial for organizations to achieve their goals.
Paro: What can CFOs do to better communicate financial insights with operations?
Arjun: To connect operations and finance, I focus on creating transparency and establishing clear lines of communication. Here are a few strategies I employ:
- Regular cross-functional meetings: I ensure that there are regular meetings and check-ins between finance and operations teams. These meetings provide an opportunity to discuss ongoing projects and operational plans, financial implications of operational decisions and align goals.
- Shared metrics and KPIs: I work with the operations team to identify key performance indicators (KPIs) that align both financial and operational objectives. By tracking shared metrics, we can monitor performance, identify areas of improvement, and make data-driven decisions together.
- Collaborative budgeting and planning: I involve the operations team in the budgeting and planning processes. By understanding their needs, challenges and growth plans, I can incorporate their input into financial forecasts and allocate resources effectively. I typically see these two departments work well together when finance uses a top-down budgeting approach to drive growth while other departments like operations go bottom-up, allowing them to scrutinize their expenses to align with finance growth initiatives.
- Data-driven insights: I provide the operations team with financial insights and analysis that can help them understand the financial impact of their decisions. This includes sharing reports on costs, profitability and cash flow.
- Process optimization: I collaborate with the operations team to identify opportunities for process improvement and cost reduction.
By implementing these strategies, I ensure that finance and operations are closely connected, enabling a unified approach that maximizes financial performance while driving operational efficiency.
Paro: Now, from the perspective of a COO, how can operations provide the finance function with information it needs to plan strategically?
Arjun: I prioritize collaboration and open communication. Here are some steps I take to foster this connection:
- Cross-functional project teams: I encourage the formation of cross-functional teams that include members from both operations and finance. This allows for a holistic approach to project planning and execution, where financial considerations are integrated from the beginning.
- Financial literacy for operations: I work with the finance team to provide training and resources to the operations team, helping them understand financial concepts, metrics and reporting. This enhances their ability to make informed decisions that align with financial goals.
- Collaborative forecasting and budgeting: I involve the finance team in the forecasting and budgeting processes. By collaborating closely, we can ensure that financial plans align with operational requirements and that resources are allocated efficiently.
- Data sharing and analysis: I promote the sharing of relevant operational data with the finance team, allowing them to gain insights into operational performance. I like to think of data as a shared organizational resource that can be used cross-functionally. If an organization can aggregate their data to be used across the organization, this only creates more opportunities for open communication and creative problem-solving. Likewise, I help educate ways on leveraging financial data to assess operational efficiency and identify areas for improvement.
Paro: What is your key takeaway for business leadership? Is it mandatory for leadership to have experience from both sides of the aisle?
Arjun: The key takeaway is clear: bridging the gap between operations and finance is vital for the survival and growth of today’s businesses. It’s not only about having expertise in both areas but understanding how they function together. Successful businesses will prioritize open communication and collaboration between these departments.
The insights above underscore the importance of leaders who can navigate both realms. Having experience shortens the learning curve for an organization, but the willingness to foster a unified approach will position organizations for greater efficiency and success in a competitive market.
Aligning the Poles: Employing the Right Talent for Integrated Business Planning
Cross-functional collaboration is critical for growth and resilience, but realizing potential requires talent capable of bridging the divide. Seeking out talent based on collaborative skill sets, rather than traditional titles, allows business functions to translate their respective languages for the other.
At Paro, we match businesses with fractional CFOs and finance experts from across the country with the necessary skills to build strategic and operational success. Find expertise from within your industry or business model to help you align your financial and operational goals.
As a seasoned consultant, Arjun brings a wealth of experience spanning various industries, having supported clients in sectors such as CPG, DTC/eCommerce, SaaS, retail/wholesale and professional services. His core strengths lie in financial analysis, CFO/COO advisory, team leadership and end-to-end project execution.