Why do senior finance managers frequently struggle to make the step up to director level? Perhaps we should be doing more to develop financial leadership skills
It is likely that the best finance people you will meet are those who can tell the difference between a pure financial problem, a non-financial problem that finance can help to solve, and a problem that has nothing to do with finance at all, and can respond appropriately. This is a skill that is demanded of finance directors, of course, but it is also a skill that comes in handy for other finance professionals, and not just so that they can one day develop into directors.
To begin to understand how to make these judgements, it helps to appreciate the difference between technical challenges and adaptive challenges.
A technical challenge is one that can be solved by applying technical skills and knowledge and lends itself to process and systems-based solutions. Technical problems can be very complicated – for example, brain surgery and driving a Formula 1 racing car are both technical challenges, but nobody would suggest they are easy to master. Nevertheless, once technical skills and knowledge have been mastered they can be applied over and over again to similar problems.
An adaptive challenge is harder to explain, and perhaps the best way to think of it initially is any challenge that is not a technical challenge. An adaptive challenge is one that requires us to think differently and perhaps act differently from the norm in order to solve it. The ability to adapt is useful when it comes to tackling new problems that no-one has faced before and for dealing with the challenge of change. These are the skills needed to address the ‘wicked problems’ - the ones that require a leadership solution.
One of the commonest mistakes made in managing change is applying the wrong approach at the wrong time. Classical economics and, to some extent, traditional financial management struggles in times of extreme economic uncertainty because essentially it is a technical discipline trying to respond to adaptive conditions. Technical skills are ineffective in tackling adaptive challenges, for the obvious reason that they are unlikely to provide the answer to a really difficult problem that is outside the technical norm.
On the other hand, there are points in the change process at which no amount of adaptive thinking will work – what is needed is a technical response. A change that involves introducing a new system is a classic change that has elements of each.
Taking the challenges we face in the public sector at the moment, saving money and generating income to close the widest budget gap since World War 2 is undoubtedly an adaptive challenge for most organisations and for most public sector managers. On the other hand, the solutions are frequently broadly technical.
Imagine a project that involves using new technology to make front-line staff more mobile, enabling them to deliver better service where it is needed, and saving money by reducing the cost of desk space. The tendency is to see this as a technical challenge – and there is a lot that is technical about it – but the staff affected need to change the way they have always worked and how they think about their jobs, which for them is an adaptive challenge, and to bring about that change project directors and project managers might well need to react adaptively too.
Finance people often make good managers, because they are trained in key business skills, are analytical and cope well with technical challenges. To be effective in times of change, though, finance people need to be able to react to adaptive challenges and to display ‘financial leadership’.
Financial leadership is not just for finance directors. Effective finance business partners generate a vision of what effective financial management looks like, communicate that to their clients, create buy-in from their clients, ensure financial objectives comply with organisational ones and identify and deal with change and risk in the financial environment. These are all traits that require adaptive skills rather than purely technical ones. It is not too grandiose to describe finance business partners as finance leaders.
So, in developing the FDs of the future we must understand why senior finance managers frequently struggle to make the step up. At that higher level, any deficit in financial leadership skills is shown up from the very start – in fact, it normally shows up at the selection stage, thankfully for many candidates, who might otherwise find themselves with an unmanageable learning curve. Training and leadership development for senior managers is the obvious solution.
But it will also pay us in the long run as a profession to consider financial leadership as a set of skills that we need to develop in all finance staff from the very start of their careers, and not just those who we see progressing to top-table positions. Anyone acting as a business partner – as a financial adviser to a decision maker who does not have their own financial skills – needs that set of financial leadership skills – and it is a set of skills that need to be learned. Instead, we often seem to assume that finance business partners will be effective enough if they can simply ‘make friends’ with their internal clients.
As people progress through their careers they face tougher and tougher challenges and work in more highly political environments, particularly in the public sector. Equipped from the start of their careers with a set of adaptive skills – the skills of financial leadership – they are more likely to be successful and we are more likely to end up with a strong supply of top-table executives in the future.
More importantly, perhaps, developing our new recruits as finance business partners makes for a happier set of clients, and a profession that is guaranteed to remain relevant as the world changes around it.
Knowing the right way to respond to a particular set of challenges when it is presented needs to be made easier for people in our profession.
Alan Finch is Senior Financial Analyst at the London Borough of Tower Hamlets
