This is the unsung hero of business scalability and transformation
As a management consultant, there is one business function that we see unjustly ignored more often than any other in strategic discussions of business scalability and transformation. And yet, finance is so much more than cost control: done right, it can be the engine that supports and shapes every aspect of your business strategy implementation.
A study from Accenture in 2021 argued that EBITDA could increase with a compound annual growth rate (CAGR) of up to 6.9 percent over the next three years if transformational changes to finance departments were made. We believe that the reason for this is that finance determines culture, which can enable growth.
Fostering agility
It’s often asserted that in scaling or transforming a business, a focus on changing the ‘culture’ is required. What’s often overlooked is what actually causes the culture of a business to change, and this results in costly failures to scale and transform. One common example of this is when organizations exhort their workers to ‘be more agile’ and encourage this with slogans and superficial behavioral changes such as artificial two-week ‘sprints’ that fail to address these root causes.
Most of us who work for large-scale enterprises know that making changes to anything in a truly agile fashion can be difficult. One example we experienced was at a major multinational bank, where a global Kubernetes platform had been built in the central IT function to host applications in production. This platform was gaining users and applications exponentially, doubling every three months over the past year.
In an agile organization, this rising demand would trigger a quick transfer of funds to the central team, underpinned by a global cost-benefit analysis of the time and money saved by having teams onboard to production within a day through a fully automated path. Here, though, no money could be moved for several reasons.
The lesson for enterprises is clear: to be truly agile, finance must be re-engineered so that money efficiently flows to where it can maximally support innovation and growth.
One was that budget cycles were annual, so no new money could be allocated until next year’s budget for central IT was finalized. Another was that, even if we could wait, incentives for the central IT business unit were based on cost control rather than effectiveness in supporting wider business goals like faster time to market and greater agility. Scaling the platform with more users was, therefore, a cost-escalating problem for the unit to solve, instead of being a strategic goal.
In stark contrast to the bank’s rigid annual budgeting process, SpaceX demonstrates how finance can drive innovation through a single KPI: cost per kilogram to space. Based on this KPI, they shift budgets daily, incentivizing rapid experimentation rather than cost control. Teams move rapidly from idea to decision to spend facing no strict deadlines or central procurement, all guided by that core metric. This fosters agility and decentralized decision-making that aligns finance to product.
By eliminating annual budget cycles and cost center mindsets, SpaceX’s real-time funding model drives cultural transformation. The lesson for enterprises is clear: to be truly agile, finance must be re-engineered so that money efficiently flows to where it can maximally support innovation and growth.
Finance functions for growth
These two contrasting approaches highlight how finance can either hinder or accelerate innovation, depending on whether it is structured as a cost center or a strategic enabler. While adopting SpaceX’s daily budget cycles might seem like an impossible dream, organizations can still take smaller steps toward a finance function better suited to growth that lies somewhere between the two extremes.
One large manufacturer we worked with coordinated approximately 70 teams building on a self-managed on-prem software platform under one business unit. Although the business had constraints preventing frequent changes, meshing software engineering and budgeting processes allowed them to spin teams up and down on a three-month cycle.
This meant that they were able to adapt in a more agile way to lessons learned throughout the year, growing and shrinking depending on the needs of the business.
Ultimately, if you want to scale, finance is where you must begin. Reshape how money flows and you reshape your entire culture.
The real challenge to making change, in our experience, is the difficulty of bringing together parts of the business that have grown both used to and comfortable with a lack of collaboration and engagement with one another. Just as most finance leaders find the nitty-gritty details of IT’s challenges difficult to grasp due to subtle nuances of jargon and technical detail, IT leaders can find finance challenges difficult to grasp for the same reasons.
A B2B software services company we worked with unlocked the value of the Kubernetes platform they had built up over the previous two years only after a series of meetings between the CFO, CTO and sales team. Once the various parties understood each other’s jargon and viewpoint, various solutions ensuring the sales team was appropriately incentivized to sell were implemented.
Strong leadership
These solutions both reinforced their technical strategy and were supported and sustained by the business’ accounting practices. Prior to this collaborative effort, finance had understood the platform build like the purchase of an asset that would depreciate over the following years rather than a tool that would enable efficiencies and reduce the cost to market.
Similarly, sales saw no benefit to them for selling software that ran on the platform, so continued to push the older, less efficient methods of software delivery.
Business leaders can lose patience instead of persistently and actively engaging with all parties to facilitate these vital collaborations. This is where strong and committed leadership becomes essential. Once it is grasped that the key to growth lies in finance, business leaders must either spend the time to facilitate these conversations or bring in help from outside.
By introducing stronger leadership, flexible budget cycles, iterative financial planning and aligned incentives, companies can foster innovation, accelerate time to market and build a more dynamic future. Ultimately, if you want to scale, finance is where you must begin. Reshape how money flows and you reshape your entire culture.