Rethinking People Development in Finance
It’s time to overhaul the way companies develop the careers of finance professionals
by Ankur Agrawal and Bill Huyett, McKinsey & Company
For all the innovation in financial management over the past 20 years, it’s remarkable how little the process of hiring and developing finance talent has evolved. Many CFOs do so pretty much as they did a decade or two ago, recruiting talent from a largely homogenous pool of candidates, predominantly with accounting backgrounds or quantitative skill sets, and assigning most of them to budgeting and planning or to finance operations. Many believe that rotational assignments can create the breadth that finance function generalists—and future CFOs—need.
CFOs report a growing tension between demand for traditional finance operations and demand for finance support elsewhere.
Yet that approach isn’t likely to deliver the leadership profiles needed to manage increasingly complex finance organizations and to serve business leaders broadly in the modern era. Turnover is high. Few new hires with an accounting background ever get the kind of sustained business experience that would hone their strategic and top-management advisory skills. CFOs report a growing tension between demand for traditional finance operations and demand for finance support elsewhere —in planning and strategic analysis, reporting to shareholders and regulators, and coordinating activities across a complex web of outsourced and automated transaction providers.
One way to develop the skills that the modern finance function requires is to differentiate development paths for distinct roles: specialists to handle traditional finance domains; advisers to counsel senior executives in business units and functions; and experts to manage areas such as investor relations, risk management, treasury, or taxation. The recruiting pools and profiles for these segments would differ, as would their career development paths (through rotations or formal training), and the people in them would be evaluated and compensated differently.
Operational and financial-services specialists
The individuals who bear responsibility for traditional transactional tasks—managing financial processes (such as journal ledgers, accounts payable, and receivables) and basic reporting—hold roughly half of the management roles in most finance functions. Many of these activities are now handled by shared-services groups that can standardize processes and take advantage of scale benefits. Staff members in these roles often provide finance transaction support for internal and external customers. Their development goal should therefore be to get broad customer service expertise and skills, including the ability to ensure zero error rates, continuous cost and quality improvements, and legal compliance, as well as the project management savvy to run teams dispersed across a number of locations. Finally, these specialists should be adept at information technology, given the increasing use of enterprise-resource-planning (ERP) systems, and at building relationships with the third-party vendors that often support finance subprocesses.
Companies that aggregate these roles into a distinct professional track could not only recruit individuals for them beyond the typical pool of candidates with accounting degrees but also better define their career progression. For many people, a clear career path would make this track an attractive one by providing the kinds of skills—motivating teams, driving quality assurance, improving processes—that would prepare people for future roles running groups or projects that share similar management goals. A few companies have already adopted an approach along these lines. One leading transportation and logistics business, for example, has given the finance function a lean shared-services center that hires people with process rather than functional capabilities. Managers measure success by their ability to develop the organization’s service quality and process skills rather than functional knowledge alone, and it now boasts one of the industry’s lowest costs per transaction, high employee morale, and minimal turnover.
Internal financial-performance advisers
Much of the increasing demand on the finance function comes from business unit managers who want support for decisions that affect value creation and its recognition by equity markets. At the most senior level, CFOs spend most of their time in this role, but traditional hires as division finance directors are not always well prepared for it. The best candidates may hold advanced business and professional degrees, such as MBAs, or have experience in other parts of the business, for these people are more likely to have the technical, strategic, and competitive knowledge to integrate finance and strategic thinking. Depending on the industry, we estimate that the professionals in this track should account for around 25 percent of the management positions in the finance function.