In this lesson, we're going to look at assessing our current level of credibility. credibility is in large part determined by the maturity level of the finance function. The better the CFO has control of the business they have, the better position they will be to participate in and support the business they have yet to attain. I like to use a simple maturity model to help me assess whether or not the finance function is ready to lead the growth agenda. With the numerous businesses I've been involved with over the years, I now assess the maturity of the finance function into one of three stages. The initial level of maturity is what I'll call the compliance driven stage.

A finance function performing at this level is your traditional back office that primarily deals with recording and reporting the financial transactions. Finance at this level is lagging the business in some cases, survival. Might be a fair descriptor. The processes and people are focused on reporting the past to meet statutory reporting requirements and minimal management needs. processes may be informal or inconsistently developed, documented and applied, the function may rely on the efforts and expertise of one person or a small group of individuals. Many businesses I first get involved with are operating at this level of maturity.

Most small businesses operate in this way, which is fine up until a certain point when the business itself outgrows this sort of informal ad hoc structure. When the finance function is solely compliance driven, the overriding perception is that the department is nothing more than a cost center and containing costs is the sole performance indicator. The second level of maturity is what I call center of excellence. At this level, finance begins shedding the perception of just being a back office. Instead, it replaces Is it with one of being a controlling mechanism inside and across the organization. The key with this level of maturity is that the finance function is fully staffed and configured to support the execution of the existing business model.

This means that we have reporting processes that not only deal with the statutory reporting, but also strong internal management reporting as well. This management reporting allows for the identification and response to issues in the business, perhaps not in real time but on a timely basis. Finance is able to help the organization bring a bottom line orientation with these full diagnostic capabilities. So I believe that all finance functions should be aspiring to this level of maturity to establish a healthy level of credibility. The third level of maturity is what I'm going to throw out there and call world class finance. This is a stretch goal for many finance functions seeking its attainment depends on how aggressively the organization is serious about the growth agenda.

Where Center of Excellence is focused on the execution of the present business, world class finances focused on the future business. The mindset shifts from being profit oriented to becoming a value creation partner working on the front lines with sales and marketing and the CEO in the strategic pursuit of growth. In all likelihood, a world class finance function is leveraging technology to enable its team to spend more time analyzing and sharing information, then collecting and assembling it. At the same time finance is putting information in front of those making decisions in real time. We now have tools and analysis that allow us to forecast the future with confidence. Now we can facilitate an entirely different conversation.

One that is strategic and forward looking. Now, working your way through this maturity model from level one to three takes years to achieve in my experience, it takes a committed and established finance team. It takes discipline focused, it takes an investment to adopt enabling technology. And it takes buy in, buy in from all those across the organization, from your fellow executives to the board of directors. If they don't buy into your vision of the finance mandate, then you'll have a hard time getting the resources you'll need to achieve it. We ran a poll on this particular assessment at a recent pro formative event.

And the findings were interesting because it confirms that the majority of finance functions are still largely limited in their mandate. Nearly 60% of the finance functions assess themselves at level one compliance, another 30% of level two security excellence and only 10% rated them as level three world class. credibility grows as you achieve higher levels of maturity. Let me carry on with my story to illustrate the point. I was involved with the food processing company for about a year and a half. And during that time, we initially abandon this idea of strategic growth.

Because until we had complete control of the business we already had, it didn't make sense to take on any more business that only added to our losses. And as a result of dozens of initiatives, we're able to optimize production and shed on profitable customers and product lines, improve our supply chain and outsource a number of things that we just weren't all that good at. At the same time. The finance function was reforming itself by streamlining the business processes and spending more time on analyzing information. In the end, the private equity investors for whom I was working, sold out their interest to another strategic buyer, tripling the value of their investment in the US year and a half, I was involved. The business was smaller but highly profitable after our involvement, and we were happy with our return at the time of our exit, but the best part of the story was yet to come.

The company was acquired by a Canadian competitor who is looking for a larger us presence, the US management team carried on in the ensuing years with the acquiring company. Having cleaned up the existing business during our involvement, they were now afforded the opportunity to deal with the much bigger strategic issues of the business. The company has been pursuing a disciplined acquisition strategy during the past six years, they have been able to create significant shareholder value building on the initial us footprint. This is a truly remarkable achievement in my mind that nicely illustrates transformation from disorganized chaos, to organize execution to strategic growth. Let's test This idea against some recent statistics, a recent FBI survey looked at how companies had improved their bottom line. growth was achieved in more than one way including both internal and external opportunities.

The launch of new products and services and geographic expansion and acquisitions are typically strategic growth moves. However, also on the list was training and development and internal reorganizations, which are directed more at execution of existing strategy. Both execution and strategic growth, provide opportunities for return and align with our maturity assessment of the finance function. So let's summarize this lesson into three key takeaways. First of all, there's a high correlation between the maturity level of the finance function and its level of credibility. The higher the maturity, the greater the credibility and preparedness for the growth agenda.

Secondly, we maturity is achieved in stages, executing the existing business proceed adding on strategic growth. And then thirdly, recognize that getting beyond compliance is a stretch for the majority of CFOs. breaking this cycle requires an investment of time people and often technology as we are going to learn in the lessons to come