By: Ciopages Staff Writer
Updated on: Feb 25, 2023
Finance capabilities are an abstraction of what accounting and finance function does and can do. We are using the term “Finance Capabilities” to represent the construct of business capabilities – as in the world of business architecture. The finance capabilities represent the holistic set of mutually exclusive and collectively exhaustive set of the capabilities in the “Record to Report” value stream. A comprehensive list of finance capabilities, which is structurally sound and internally coherent is a finance capabilities map. A finance capabilities model, in turn, is an integral part of an overall enterprise business capabilities model.
Let’s look at the terms “Finance capability” “Financial Capability” “Financial Competency” and “Financial Capacity” and see how the terms are very different based on the context and the perspective of user and the use case.
“Financial Capability” may refer to an organization’s liquidity, solvency, and an ability to raise, deploy, and service capital flows (debt or equity.) “Financial Capability” for an individual may refer to his/her net worth and the ability to take on and service debt (for example, a mortgage). This may also be considered the “financial capacity.” “Financial Competencies” refers to an individual’s skills in the area of finance and accounting spanning technical, strategic, leadership, and collaboration skills.
Alternatively, if you speak with performance improvement experts or F&A transformation experts, their reference of finance capabilities may reflect their worldview – which is how to a) optimize the finance and accounting processes and b) reskill and upgrade the competencies and skills of finance and accounting workforce.
For the Org Dev and Perf Imp crowd, the finance and accounting capability framework may include the “abilities” necessary from several perspectives such as the following:
And looking underneath the “Accounting and Finance” Technical skills may reveal:
If you are looking for the Finance and Accounting capabilities from an “Individual” “Organizational Development” and “Performance Improvement” perspectives, this is not the right article for you. However, if you are interested in the structural decomposition of accounting and finance function into a logical grouping of finance capabilities (an essential and integral part of the capability modeling function within Business Architecture discipline), please read on.
What is the financial capability of a company? A simple answer may be how a company raises and deploys resources and how it keeps track of the cash flows. But when someone is thinking about a financial capability in the business architecture sense, the perspective is about “the abilities” or “what” the finance function does. Intuitively, we all know what accounting and finance capabilities are but often find it difficult to lay them out in a structured manner.
As an example, in a typical value chain diagram, Finance and Accounting capabilities may find a presence as one of the supporting capabilities.
In an enterprise map, depending on the company and the complexity of its business landscape, accounting and finance capabilities may be a Level 1 capability or in some cases, it may go underneath the Corporate Shared Services alongside HR (Human Resources) and other such functions.
Irrespective of the starting placement – Level 1 or Level 2 – decomposing the accounting and finance function to the next level may look like the following:
Decomposition of Accounting and Finance Capabilities to Level 2.
Let’s consider the example finance capability, the “Accounting Services.” Now taking the “Accounting Services” finance capability and drilling down further will yield capabilities at a lower of granulated within that grouping. For example, see the decomposition of the “Accounting Services capabilities” from 2.2.1 to 2.2.6.
Now one can go deeper into each of the Level 3 finance and accounting capabilities. For example, drilling down the “General Accounting Capability” may look like the following:
Typically, yes, many business architects place “Finance” as one box in a capability model or at least decompose it one additional level. While this two-level finance capabilities map may serve as a foundation and as an executive discussion material, it does not represent the operational and IT enablement level granular details. So, the best practice for documenting finance capabilities model is to decompose to level 3, 4, or 5 as necessary based on the intended purpose and the use cases.
CIOPages.com Finance Capabilities model is a sample straw reference model and comprises of 125 accounting and finance capabilities at various levels of granularity. It is not a question of volume, but what you wish to use the resulting finance capabilities matrix.
For example, if you wish to show an executive that you understand the scope of the accounting and finance function, a level 2 decomposition might suffice.
If you are trying to map the capabilities to features and functionalities of the F&A software platforms, then levels 3, 4, and 5 may become essential. Similarly, if you are evaluating vendor platforms for enabling the finance function, a detailed finance capabilities matrix will be necessary.
Why is a financial capability matrix important? For many reasons. If you are a company in the throes of change, you will need a finance capabilities model to anchor your finance transformation. A well-thought-out list of finance business capabilities, an integral part of the overall business architecture, is a critical deliverable valuable in many use cases. The use cases span strategy, operations, and technology-enablement, among others.
Seven reasons your enterprise needs a Finance Capabilities Model:
There are many ways to create a finance capability matrix or list. One is to create from scratch. Another is to buy a pre-built and customizable finance capabilities model. Another option is to co-opt capabilities (or abstracting features and functions to manifest capabilities) from an integrated and comprehensive Accounting and Finance software platforms.
While option one – of creating one from a blank slate – may be more of a fit for purpose finance capabilities framework, it also will take the longest and involve tremendous effort and iterative refinement.
On the other hand, the second and third options will accelerate your path and reduce the completion time and the number of iterations.
Buying a customizable finance capability map is a catalyst and an accelerator.
Depending on the state of business architecture and capability modeling in your enterprise, you may choose any of the available approaches.
The digital and cognitive technologies are reshaping the finance and accounting functions. While core functions remain the same – you still need to post a ledger entry and work on a financial close – how the functions operate, the value-added services which are being offered, and the way the function is enabling business agility and decision making is a new frontier.
What are the essential Finance Capabilities for the Digital Age:
Covering the Core: The following are the core digital finance capabilities that should be in place, even without the more advanced capabilities.
Drivers for digitalization of Finance and Accounting Functions:
Enterprises need first to get the basics right and then elevate the finance function to meet the challenges of the digital age.
Do you have a finance business capability map? How else have you used it in your finance transformation and optimization?
If you need a pre-built, customizable finance capabilities model, please consider CIOPages.com accounting and finance business capability model. The finance capability model is available in PDF, PowerPoint, Excel, and Word formats for ease of use and application to various use cases. If you need help customizing the financial capability map, please contact CIOPages.com consulting services.
Additional Information and Links for Finance Capabilities for the Digital Age
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