In recent years, Agile working methods have gained popularity in various industries, including software development, project management, and marketing. However, Agile is now making its way into corporate finance, promising to revolutionise traditional financial planning and analysis practices.
Traditionally, Corporate Finance Strategy has been based on a top-down approach, where decisions are made at the highest levels of management and then cascaded down through the organisation. However, this approach can be slow and inflexible, making it difficult for companies to respond quickly to changing market conditions and customer needs.
On the other hand, the agile approach is based on a more collaborative and iterative approach, where teams work together to deliver value in a more flexible and adaptable way. This approach has been widely adopted in software development but can also be applied to corporate finance strategy.
For example, consider a company that wants to develop a new product line. In a traditional approach, the finance team would thoroughly analyse the potential market, create a detailed business plan, and then present their findings to top management for approval. However, this process could take months, and market conditions may change when the plan is approved.
In an Agile approach, the finance team would work closely with the product development team from the outset, using iterative planning and testing to develop a minimum viable product (MVP). They would then use customer and market feedback to refine the product and adjust their financial projections accordingly.
This Agile approach allows the company to respond more quickly and effectively to changing market conditions and to create more value for customers and shareholders. It also fosters greater team collaboration and communication and allows continuous improvement over time.
In this way, an Agile approach can change Corporate Finance Strategy holistically, enabling companies to become more agile, flexible, and responsive to market conditions while still achieving their long-term financial goals.
An agile approach is centred on collaboration, iterative development, and rapid feedback, focusing on delivering value to the customer. These same principles can be applied to corporate finance, where traditional methods of financial planning and analysis can be slow, inflexible, and often disconnected from the needs of the business.
So, how will Agile shape the future of corporate finance?
Let’s explore the statistical evidence and real-life examples from companies already adopting Agile.
Harvard Business School (HBS) has identified Agile as a significant trend in corporate finance, highlighting the need for finance teams to be more responsive to the changing needs of the business. In a recent article, HBS notes that Agile finance teams can provide more value to their organisations by prioritising and delivering work more iteratively and incrementally.
Similarly, the London Business School (LBS) has also recognised the potential of Agile in corporate finance. LBS has suggested that Agile can help finance teams better collaborate with other departments, such as sales and marketing, and respond more quickly to market and business environment changes.
A Financial Executives Research Foundation survey found that 70% of CFOs believe Agile will significantly impact their organisations in the coming years. In addition, a survey by KPMG found that 82% of CFOs believe that Agile can help their organisations to respond more quickly to changes in the business environment.
One Organisation that has successfully implemented Agile in its finance function is Ericsson, the Swedish multinational telecommunications company. Ericsson’s finance team has adopted Agile methods to improve collaboration with other departments, reduce lead times for financial analysis and reporting, and to provide more value to the business. As a result, Ericsson has seen a significant increase in the speed and accuracy of its financial reporting and has been able to respond more quickly to changes in the market.
Another Organisation that has embraced Agile in its finance function is PwC, the global professional services firm. PwC’s finance team has adopted Agile methodologies to improve its financial forecasting capabilities, enabling the company to make more informed business decisions. As a result, PwC has seen a significant increase in the accuracy of its economic forecasts and has been able to provide better guidance to its clients.
Challenges to Implementing Agile in Finance
While Agile methods offer many benefits to finance functions, there are also some challenges to implementing Agile practices in a traditionally risk-averse and compliance-focused environment. These challenges may include the following:
- Resistance to change from finance professionals who are accustomed to traditional ways of working
- Difficulty in integrating Agile practices with existing financial reporting frameworks
- Limited knowledge of Agile Frameworks among finance professionals
- Concerns about the potential impact of Agile on regulatory compliance and risk management
Companies may need to provide training and support to finance professionals to help them understand and embrace Agile ways of working and to ensure that Agile practices are implemented in a compliant and risk-controlled manner.
Some Agile practices that can be implemented in corporate finance to make it more responsive and value-driven:
Scrum-based financial reporting: Scrum is an Agile framework that can be used to manage financial reporting cycles. Scrum-based financial reporting involves breaking down financial reporting tasks into smaller, more manageable chunks that can be completed in short sprints. This approach can help finance teams deliver financial reports more quickly and accurately.
Kanban-based cash management: Kanban is a Strategy that can be used to manage cash flow. Kanban-based cash management involves visualising cash flow data on a Kanban board and using pull-based workflows to manage cash inflows and outflows. This approach can help finance teams optimise cash management and improve cash flow forecasting.
Lean-based budgeting: Lean approach reduces waste and increases efficiency. Lean-based budgeting involves identifying and eliminating unnecessary expenses and streamlining budgeting processes. This approach can help finance teams create more accurate and responsive budgets.
In conclusion, the evidence from top business schools, statistical surveys, and real-life examples all point to the fact that Agile methodologies are poised to shape the future of corporate finance. By adopting Agile practices, finance teams can become more responsive, collaborative, and value-driven, enabling their organisations to thrive in an increasingly dynamic and unpredictable business environment. As more companies recognise the benefits of Agile, we can expect to see a significant shift in the financial landscape in the years to come.