The 4 Stages of Maturity to Futureproof Financial Health
It’s an interesting time in finance. Stability seems to be returning, indicated by actions such as the OECD revising its GDP growth forecast for 2021 by more than 1 percentage point upward compared to three months earlier. Nearly 90% of CFOs predict an increase in revenue.
But these statistics sit alongside another truth — a shared realization that unpredictability is here to stay. The COVID-19 surge in India, the GameStop short squeeze, the Suez Canal blockage, and the Colonial Pipeline hack serve as recent evidence. Instead of asking, “What’s next?” the question should really be, “When’s next?”
There’s also the question of, “What to do now?” Finance leaders essentially have two choices: maintain their default modus operandi and just react when a crisis hits, or become proactive in a way that anticipates disruption and takes better financial control as a way to prepare.
We think the latter is a smarter approach for these times. The key to regaining control is increasing your financial maturity — having a full set of capabilities to help you make decisions accurately and quickly to optimize working capital, invest in growth, or control costs when it’s most urgent. Every company can advance its financial maturity using a holistic Business Spend Management (BSM) approach.
Why BSM for finance?
BSM succeeds where point solutions and manual processes struggle. Incorporating advanced technology like cloud and AI, a BSM approach prioritizes data and quantitative insights to deliver greater visibility into and control over cash, liquidity, working capital, and risk. It also improves financial performance by harmonizing a wide range of spend and liquidity-related processes. BSM empowers everyone in Finance, AP, Procurement, and Treasury to collaborate and work smarter together to optimize financial health.
The financial maturity model at a glance
We developed a 4-stage financial maturity model to visualize the journey of financial maturity via BSM transformation. The model outlines a typical progression of development, beginning with a “reactive” stage in which financial management practices are in place but demonstrate enormous gaps. At the other end, “optimized” companies anticipate adversity and identify key opportunities early.
Finance leaders can use the model to:
- Assess their company’s financial health
- Understand how visibility, control, and financial performance affect financial health at every stage
To view the complete version of the model, please refer to our recently released guide to optimizing financial health.
Benefits of BSM for every stage of financial maturity
The guide also describes how BSM-driven improvements in visibility, control, and financial performance optimize financial health across Finance, AP, Procurement, and Treasury.
Reactive organizations (known as Stage 0) typically face:
- Expensive manual processes, error-prone payments, and a limited financial picture that prevents sound decisions
BSM can help reactive organizations:
- Digitize and automate manual processes across functions and unite them on a common data platform
- Start to consolidate financial data into a single source of truth
Operationalized organizations (known as Stage 1) typically face:
- Undetected fraudulent expenses and inconsistent risk screening for suppliers
- Legacy manual structures and blind spots in global liquidity needs
BSM can help operationalized organizations:
- Gain control over expenses and automate screening of every supplier
- Roll out source-to-settle processes to obtain the full picture of financial health
Orchestrated organizations (known as Stage 2) typically face:
- High FX and borrowing costs along with working capital trapped in several places
- Forecasting processes hampered by manual data entry
BSM can help orchestrated organizations:
- Establish in-house banking, improve rate of return on capital, free up cash flow, and run scenario analyses
Optimized organizations (known as Stage 3) typically need to:
- Maintain momentum through continuous optimization of spend, payments, and liquidity
BSM can help optimized organizations:
- Achieve best-in-class results by continuing to track performance against community-powered KPIs
The notion of economic uncertainty for the foreseeable future is certainly a daunting one. We can’t avoid disruption from now on, and we can’t prevent it. But you can prepare your organization for it — by advancing your financial maturity. “Prosperity is a great teacher,” essayist William Hazlitt reminds us, “but adversity a greater.”