Why are Financial Business Partners Different in the East and West? - Huxiu.com#
Omnivore#
This article explores the differences between Chinese and Western financial business partners (BPs) and their future development trends. The author believes that in the short term, operations will become the main force of Chinese financial BPs. However, in the medium to long term, there will be a trend of integration between operations and financial BPs, with performance management gradually returning to finance.
• In China, financial BPs are referred to as operations, and the way departments cooperate is different from the West.
• The reporting lines and power attribution between financial BPs and operations are different. Financial BPs report to the company, while operations report to business leaders.
• Although the actual role of finance in Chinese financial BPs is limited, with the improvement of financial capabilities in China, it may develop into a performance management organization with finance at its core.
Some say: Financial BPs in China are not really financial, they are called operations.
Some ask: In their own private or state-owned enterprises, can multiple departments work together on a budget? Strategic departments manage strategies, general offices manage coordination, operations departments manage indicators, finance departments manage expenses, human resources departments manage incentives, and business departments manage everything. Can so many departments work together on a budget?
Some ask: China's financial capabilities are too weak to perform the tasks of financial BPs. The real power is in the hands of operations, strategic, and other bosses' close aides. Does China's financial BPs have a future?
Who will be responsible for performance management in Chinese companies? Will it be centered around business and finance like in the West? Or will it follow a Chinese-style model, dispersed among the close aides of many bosses?
Today, I will attempt to predict this question, spark discussion among colleagues nationwide.
My prediction is that in the short term, operations will be the main force on the ground. However, in the medium to long term, the operations and financial BP organizations of Chinese companies may integrate, and the function of performance management will gradually return to finance.
I. What are the differences between financial BPs and operations?
Are there any fundamental differences between financial BPs and operations besides their names?
Yes. The reporting lines and power attribution are different.
Department operations report to business unit leaders, while finance reports to the company. Company operations report to the CEO, while finance is responsible to the board of directors. Overall, the reporting line for finance is higher than operations, effectively balancing and controlling company power, including information, approval, investment, and payment rights. However, the balancing of power can also have negative effects: decreased efficiency, internal conflicts. Operations can solve these problems well.
In fact, whether it is finance or operations, their purpose is to serve performance management, improve company revenue, profit, market value, and cash flow. So, how should the performance management organization be designed more reasonably?
Organization comes from work. Let's first clarify the work involved in performance management.
Performance management mainly includes five steps:
Performance management process (Yuecai copyright model)
- Define Strategy: Clearly formulate corporate strategies;
- Set Objectives: Determine short-term, medium-term, and long-term business and financial objectives;
- Deliver Results: Improve execution, continuously analyze and solve problems during the execution process;
- Evaluate Performance: Evaluate performance to provide a basis for compensation, promotion, etc.;
- Distribute Benefits: Including short-term and long-term incentives, distribute benefits.
In this process, who is responsible for coordinating and linking these multiple processes and actions? The organizational structures in the East and West show significant differences:
West: Business is the overall responsible party, and finance is responsible for the processes, jointly coordinating various organizations. In the entire process, finance assists business, from start to finish, with a relatively high degree of centralization, monitoring, and professionalism.
China: Operations take the lead and coordinate multiple organizations, with business making unified decisions. In the entire process, different organizations act independently, with decision-making power decentralized within the organization and centralized under the boss. The overall effect is not satisfactory, and sometimes the strategic direction and incentive policies are contradictory.
Why is the financial BP in the West the second in command in the company? Because they oversee the entire process from strategy formulation to incentives. Many people in China question the actual effectiveness of financial BPs, which essentially stems from finance not playing a key role in leading, connecting, analyzing, and making decisions in the performance management process, unlike in Western companies where they act as the "second in command" and take charge. Instead, they are reduced to mere accountants.
At this point, a crucial question is raised: as performance management in China gradually matures, will the organization gradually "westernize" and form an organization with finance at its core? Or will it continue to be dominated by operations?
II. Cultural Differences between East and West
Ten years ago, at a dinner for Asia-Pacific financial BPs held by the American Fortune 500 company I worked for in Singapore, there were three financial BPs at our table: myself, a BP from Australia, and a BP from Japan. The three of us enjoyed the evening, discussing our respective work situations.
Among the three, the BP from Japan had the most experience and was responsible for the largest business department, with a volume of several billion. However, she seemed to be more distressed. She said that in Japan, business leaders displayed very high authority and centralization, and they did not trust finance. However, in reality, Japanese financial BPs have a very high level of expertise, ranking first in the Asia-Pacific region in areas such as financial reporting and market analysis.
When conducting market analysis, both the market department and the financial BP would independently conduct their own analyses and cross-check with each other. Compared to financial BPs who do not report to business leaders, business leaders trust their "own people" more and have more trust from their bosses. However, even so, Japanese financial BPs still play a significant role. On the one hand, they do not neglect any of their work and have a comprehensive understanding of the business details. On the other hand, they actively communicate with headquarters. However, they are clearly in a weaker position in terms of decision-making and influence.
On the other hand, the Australian financial BP seemed to be more comfortable: there was no operations department in the Australian organization, and the financial BP was the operations department. At that time, it was the budget season, and he actively cooperated with business leaders in formulating incentive policies. The business team he was responsible for was not large, and the business leader was very open, allowing him to act as the assistant to the business leader and participate in and lead the entire process, including strategy formulation, communication with the group, goal setting, and incentive formulation. He felt happy and fulfilled, even though the business was not large, he had "real power" and was trusted.
In the same company, with the same set of processes and systems, the organizational forms are completely different in different countries due to different cultures. Japan and China have similar situations, where they follow the line of the boss's close aides, but the West clearly trusts finance more.
III. Where will China go?
Some may ask, is it really important to have more or fewer departments in a company to perform this work? As long as someone does the work, isn't it enough? Performance management is the most important management process for a company. If the organization is not effective, how can the process maximize its effectiveness?
In order to find a suitable organizational structure for the Chinese, let us once again compare the advantages and disadvantages of the financial and operations organizational structures:
From the perspective of reporting lines, finance has its own separate line and does not directly report to business, but rather to the headquarters. Operations report to various levels of business.
It is as if the company delegates business to various business leaders, and the company provides a deputy who helps and supervises them: through the power mechanism, power is decentralized and centralized, effectively grasping the business leaders. They are encouraged to strive forward but dare not have any rebellious thoughts. This power mechanism is very effective.
Compared to operations, finance has an additional role in decentralization, checks and balances, and supervision.
For example, during the process of setting targets, if business and operations jointly set targets and operations report to business leaders, they will definitely listen to their own bosses. So, if a business leader deceives and underreports, saying they can achieve 1.2 billion in revenue when they can actually achieve 1 billion, in order to receive more personal bonuses, operations will not only not report it but also "assist in the wrongdoing": the butt decides the head, they share the same worries as the boss. However, finance will definitely report it because finance does not report to business leaders.
For the company's boss, the information is more transparent, and the power balancing mechanism is stronger. However, because finance can report misconduct, in China, business leaders reject finance and only trust "their own people". Therefore, the model dominated by operations is mainstream in China.
In addition to power balancing, finance more effectively consolidates information such as revenue, expenses, profit, cash flow, market value, and accounts compared to the perspective of operations. To avoid giving operations excessive power, many companies only allow operations to manage revenue and not expenses, profit, cash flow, etc. Financial BPs can link accounts and accounting standards to achieve greater effectiveness.
Whoever controls the profit and loss statement controls the overall situation.
Since finance has advantages over operations, why is finance in China seemingly incapable and not highly valued? Because the current financial capabilities of finance personnel in China are generally unable to handle specific tasks such as formulating strategies, setting objectives, allocating resources, and formulating incentives. This is the practical reason why finance is not suitable for major responsibilities in China. I believe that the organizational problem is the result of the combination of three factors: environment, talent, and organization. It is not feasible to discuss organization without talent as the foundation.
Three levels of organization (Yuecai copyright model)
So, if in the future, China's financial capabilities improve, will Chinese finance be able to take up the banner of performance management like in Western countries? Or will it continue to be dominated by the boss's close aides like in Japan?
I speculate that in some companies, for a long time, the Eastern approach may still prevail, with the top leader holding the power, and the boss's close aides dominating. The decision-making power of finance may not be very high.
Why? I recently read an interesting book called "Pan-Power: Insight into the Power Rules in Chinese History" by Zhang Cheng.
The author believes that throughout history, rulers in China have had a phenomenon of generalized power, which is based on power beyond legal authority, obtaining more non-legal authority, and having less legal constraints.
Therefore, in many private and state-owned enterprises, many founders and business leaders are like "local emperors," pursuing unrestricted and boundless power. Under such a culture, power will be delegated to various business "vassals" to let them conquer territories with their close aides.
The same power, in different cultures, is understood and utilized differently, and the organizational forms are completely different. This is why the best practices in the West sometimes do not work in China.
However, from a longer-term perspective, I believe that in the future, finance and operations will merge and become one.
From a power mechanism perspective, the merged organization will be under the jurisdiction of finance. This not only conforms to the power balancing mechanism but also effectively integrates data, accounts, etc. In other words, in the medium to long term, Chinese organizations will converge with the West.
The performance management organization will first merge and then return to finance. For Chinese companies, this is the right path and the way back.
Everything needs to return to the "right position," but the premise of returning to the right position is a reasonable power structure, effective self-restraint by the top leader, and the emergence of talent with a combination of finance and operations.
Currently, it seems that finance should learn from operations and operations should learn from finance in China to better adapt to future trends and challenges.
IV. The Perspective and Pattern of Unity
A chief accountant of a state-owned enterprise once told me that his team was cornered: five or six departments held the real power of performance management, leaving him only with bookkeeping and tax reporting. The capabilities of his finance colleagues were also limited to traditional accounting. Later, he changed his perspective. He saw these six departments as one unified department or "committee." He conducted a comprehensive assessment of the personnel in these six departments, transferred capable individuals to his finance department or committee, and his personal authority greatly increased.
This chief accountant's understanding of performance management organizations in China shifted from multiple departments acting independently to the sum of all performance management departments, dispersing and gathering. By assessing and utilizing talents from the perspective of a "committee" with unified power, he achieved significant improvements. With the presence of a higher power, the form became less important.
From a short-term perspective, Western financial BPs in China may be the sum of different departments. Although they are not called financial BPs, strategic, operational, and management departments perform the same tasks as Western financial BPs. This viewpoint is crucial for Chinese colleagues to understand and apply financial BPs.
For individuals with capabilities, since this work falls under operations rather than finance, financial experts may choose to work in operations to have more real power. For organizations, financial leaders can search for talents in various departments to enrich their financial BP team.
For each individual, it is not important which department they work in, but whether they truly have real power. In the tide of history, the department with stronger capabilities and the ability to drive business development will have a greater chance of holding power.
Time waits for no one. Enhance yourself and become a trendsetter of the times!