investiledysfunction

I had dinner with a good friend who works at a hedge fund this past week, and after we discussed the markets and our views on where things are going (sorry we didn’t come up with an answer), he made an interesting comment that struck me.  He felt that this downturn may be a good thing for the US economy for the long-term.  His logic was pretty simple.

• A lot of very smart people over the last many many years moved into careers in finance because it was lucrative and was seen as a path to quick riches.
• Back in the day, there was a similar belief about becoming a doctor for instance but it was not a “quick path” but one that existed for the best and brightest after many years of hard work.
• With this being a potentially protracted downturn, some of the current and many more from the next generation of smart people may go back to pursuing careers which in his words “are not just about trading paper”.  This means more innovation, entrepreneurship, etc from smart people trying to solve real problems.

I found this perspective quite interesting coming from someone in the hedge fund world - especially someone who is successful at it.  I also agree with him. Finance companies (banks, hedge funds, etc) have had a voracious appetite for PhDs and smart people in general who’ve helped them build complex derivatives and the like.  This downturn/recession may mean less of these people are inclined to go into or stay in finance and if this happens, they may look elsewhere, e.g., in science and math disciplines either with employers or in research organizations (mainly universities).  This is a good thing as it can lead to ideas and innovations that drive the next great wave.

I’ve seen this migration to finance firsthand.  I graduated from the Jerome Fisher Program in Management & Technology (M&T) at the University of Pennsylvania which is a dual degree program between Wharton and Penn’s Engineering school.  As I’ve met alumni from the program over the years, it has become apparent that fewer and fewer of us went down the engineering route in our careers (I’m guilty on this count).  The early graduates of the program were more likely to have worked in engineering fields for at least some time while with the more recent grads, most have sought to go down the business (especially finance) with a belief that their training from engineering would always be valuable.

It’s obvious that these types of attitudinal and structural shifts don’t happen overnight, but if some small segment of the smart people who previously pursued careers in the world of finance move towards entrepreneurship and innovation, this is a good thing for us in America as well as globally.

This doesn’t mean the finance types go away nor should they.  Someone will have to extend credit and funding to these entrepreneurs, right?

The one thing that finance and IT organizations constantly are complaining and moaning about is their inability to focus on strategy or become strategic.  These aspirations are never really well articulated but being strategic or better “a partner to the business” seems to have become the rage so everyone is constantly pursuing this.  It’s not a bad thing, but it doesn’t seem everyone understands why they’re doing this or how to do it. 

And in line with this, CFO Magazine ran an article entitled “Are We Strategic Yet?” which describes a study by our friends at McKinsey which found that 72% of new CFOs wanted to spend time on corporate strategy and 45% on M&A/business development but instead spent a lot of time on FP&A/reporting/performance management (56%) and accounting/audit/compliance (42%).  Typically, I’d be skeptical of research like this because a strategy consulting firm, McKinsey, issued it so it would seem a bit self-serving.  But I speak at numerous conferences and ”how do we become a more strategic partner?” is invariably a topic

For those who read CFO Magazine, it is customary they run an article describing this issue at least 2 or 3 times a year.  And this is not their fault.  It’s just that CFOs and finance organizations continually complain about this but seem to do little to tackle the problem.  They seem to be afflicted with the disease that Rose Macaulay nicely articulated when she stated,

“It is a common delusion that you make things better by talking about them.”

So what seems to be the problem?

• What the hell does strategy mean?  It sounds sexy to be strategic, but you were to ask CFOs and their finance organizations what it actually means, I suspect few would be able to articulate what this means.  I suspect many organizations and people across all functions would have problems articulating this.  So let’s agree on a simple definition of strategy.  Strategy simply is a plan of action to achieve particular objectives.  Feel free to disagree with me on that definition, but as this is not a post about the definition of strategy so I’m being sufficiently expansive. 
• Variance analysis is not strategic - Subtracting two numbers from each other and pointing to the resulting number as good or bad is not strategic.  Creating charts (no matter how pretty) which show a trend (”the bars are getting bigger so that is good”) is not strategic.  These are things that can be done by a college kid or an Excel-savvy middle schooler.  If we go back to our definition of strategy, it is about achieving particular objectives.  This means the finance organization is strategic if they can impact decisions that help achieve these objectives by utilizing data and information.  Just parroting back #s in interesting presentation formats is not strategic unless it helps to enlighten on these objectives.  If it’s just to look smart and busy, it’s a waste of time.
• Let bean counters be bean counters - This may sound terrible at first blush because the term bean counter has gotten such a bad rap.  Basically, not everyone is “strategic”.  What this does mean is that getting the numbers right and reconciling them and ensuring proper controls are in place has a lot of value - immense value actually.  And that the people who are good at those things may not be “strategic” nor do they need to be.  They need to make sure that invoices get paid and receivables collected and that people aren’t stealing money from the corporations coffers.  These are critical functions but not strategic per se.  They’re just required else the company ceases to exist. 

If the finance organization wants to be strategic, at least in part, they should focus on utilizing the information they have to impact resource allocation decisions.  To see an article discussing how to do this (and stop whining about it), please click here.