Finance to support the company of the future: what are the new skills and professionalism? 

In an international comparison with OECD, the Organisation for Economic Co-operation and Development, Italy ranks as one of the last countries in terms of financial literacy.

In fact, according to the report “The financial literacy of Italians: the results of Bank of Italy surveys 2020″, the level of financial literacy, with a score from 1 to 21, is 11.2, in line with what was already found in 2017. 

The study also finds huge disparities in terms of gender, professional role and territorial distribution: in fact, financial literacy varies according to socio-demographic characteristics, with higher levels among university graduates, men, residents in the Centre-North and the 35-44 age group. 

Teaching finance

On financial education, the 2021 data from the EduFin study confirm this scenario. According to the second report updated with data as of June 2021, it still emerges that Italians are poorly prepared in the financial sphere, with insufficient knowledge of basic financial concepts

As early as 2005, the OECD urged all countries to teach financial education from the school benches because it is considered an integral part of a community’s culture and value systems. 

We met with Prof. Vincenzo Mazzotta, lecturer of Executive Master in Human Resources Management at  Rome Business School , to understand how important the knowledge of Finance & Planning subjects is in order to achieve effective strategic and operational planning to reduce the level of entrepreneurial risk and guide companies towards success, and he told us:  

“It has happened to me many times to teach Finance to non-Finance People and I have developed a number of thoughts on the subject. When teaching this subject one must not take anything for granted and it is important to start with the foundations, the basic principles.  It is fundamental to have methodological rigour and clarity of exposition, but above all to put in place a meticulous work of communication because finance, like all technical subjects, requires the use of a specific language whose terms must be used appropriately. Furthermore, it is important to make the connection between principles and their concrete application understood: concepts must not remain abstract, but through the power of concrete example, a credible bridge must be built between theory and empirical reality.    

Teaching, in this way, does not develop in a vertical or unidirectional manner, but in a multidirectional manner, because starting from the principles and hinging them on concrete reality, the active participation of the learners is stimulated – active learning – who feel encouraged to share their experiences, expertise and points of view. This methodological approach is also used in the advanced teaching of Finance.

The Business Plan 

Since time immemorial, in the world of business, the assessments that lead to the decision to set up a company must take into account two fundamental parameters: opportunities and risks.  In today’s highly competitive and extremely turbulent economic scenario, it is more important than ever for management to equip itself with adequate planning and control tools to support the company’s strategy. 

The approach must be rational in order to understand the critical economic variables inside and outside the company organisation: the tool for this managerial conduct is the business plan, which makes it possible to guide company processes towards the correct destination and plan the most delicate entrepreneurial operations, from the start-up of the company, to its internationalisation, up to its potential placement on the stock markets.

“The business plan is important because it represents an entrepreneur’s calling card to stakeholders, particularly investors. It encapsulates the company’s business model, i.e. the value proposition that the company intends to realise, the target market and how it intends to realise the identified value drivers. It is emphasised that the needs of the market are the key reference point for analysis and planning. 

In this context, a distinction must be made between established companies and start-ups. Many financiers know that the credibility and reliability of BP projections may not be certain in the case of start-ups; numbers, in this case, are important but should not be overemphasised because they are not always reliable. For this reason, the analysts’ attention will be focused on qualitative aspects such as the quality of the entrepreneurial team, the ability to know the business in detail, soft skills, leadership and concrete evidence of results that, although embryonic, the enterprise has already achieved. 

Furthermore, let us not forget that – from a strategic point of view – it is essential to have a network vision so that the customer’s needs can be best satisfied in an integrated manner: this is why, nowadays, partnerships are increasingly being built with other companies (the strategic value of which was recalled years ago by the Scandinavian scholar Hakan Hakansson in his famous paper ‘No Business is an Island’). This is even more true for small companies, which, although lacking in size, can make the customer more satisfied through an appropriate system of partnerships.”

Budget management 

Today, more than ever in contexts characterised by deep systemic crises, the discipline of ‘Management Control’ assumes a fundamental role for business management because it allows management performance to be measured and corrected in a timely manner, with characteristics of effectiveness and efficiency, guiding the company towards the expected goals. Management control is a priority for all types and sizes of business and, if correctly set up, allows for useful and rapid information to be obtained to facilitate the achievement of set goals and resolve critical issues in a timely manner.   

Budgeting has its own strict logical and temporal order and is composed of a set of specific budgets of the various business areas. Here too, as with the business plan, one must start with the study of the market to build the sales budget and then proceed backwards with the production and purchasing budgets. We must also not underestimate another decisive element: sales targets must always be matched with the economic and financial sustainability of the business, not confusing economic balance with financial balance. 

Finally, we are well aware that we are living through some very difficult years, first the Covid 19 pandemic and now the war in Ukraine: companies are facing some very important challenges along the entire value chain and it is essential that they equip themselves with appropriate risk management tools to understand the type of risks they are exposed to on the basis of a whole series of parameters, to estimate the potential loss resulting from the negative event and the probability that this event may occur. From this point of view, new technologies come to the rescue with increasingly sophisticated tools and methodologies.”

The role of Human Resources 

Human resources play a fundamental role in the growth and sustainability path of any organisation and represent a very important investment over time. It is precisely for this reason that the personnel budget is an integral part of every corporate strategy.  

While it is essential to use new technologies and quantitative information management and processing tools, we must also consider that human capital is also a key resource for the finance function.  Let’s remember that intellectual capital not only includes technical skills, but also soft skills, emotional intelligence, long-term vision and above all participative leadership, to motivate staff through shared objectives.

Today, moreover, in order to better manage complexity, the concept of a holistic view of economic organisations is being reaffirmed, which considers the interconnected areas of the enterprise as systemically as the human body: it is necessary to analyse the individual problem with an overall view – understanding the cause-effect links – in order to be able to deal with it and resolve it in a sustainable manner. It is interesting, in this respect, to note that the drivers of value creation are often found in human resources, which are the real strength of companies. There is a value interconnection between customers and companies’ human resources since the former are satisfied when they are ‘cared for and looked after’ by human resources; the strategic control and finance function must understand and economically enhance this process.

In this sense, the role of the CFO – or Chief Financial Officer – has evolved, becoming the first collaborator of the CEO – Chief Executive Officer – because the finance function increasingly contributes to the definition of corporate strategy in order to identify and quantify the impacts in terms of value creation and sustainability of corporate decisions and business opportunities that are being considered. Of course, ethics cannot be ignored, because promises given must be kept. Inconsistency is inversely proportional to reputation.”

The required market profiles

“Financial modelling experts, capable of managing complex spreadsheets and using financial databases, are becoming increasingly important.  The interpretation of big data is a fundamental skill that can be combined with artificial intelligence and machine learning to obtain relevant results. There is so much data available to companies these days, the issue is knowing how to interpret and use it to make correct business decisions!

Also in great demand are risk management experts to manage market turbulence and profiles with a solid humanistic basis to understand the holistic view of the company, to grasp the links between finance and other business areas, to educate on flexibility, resilience, and sustainability of business choices in a long-term horizon.

Finally, innovation experts are very important. In finance, innovation is developing along two lines: on the one hand, Fintech, finance that meets technology, and on the other, Sustainable Finance – or sustainable finance – which increasingly represents a means of creating value for the company, improving its reputation and thus reducing the expected risks, to the point of having a positive impact on the cost of capital.

VINCENZO MAZZOTTA

Lecturer in Financial Management& Marketat the Lumsa University of Rome.He teaches Accounting and Finance in various Executive Master’s programs provided by theRome Business School and has extensive teaching experience in Study Abroad at American Universities.He graduated in Economics with honors from LUISS-Guido Carlied and received a Doctorate of Philosophy(PhD) in Economics and Business Finance from La Sapienza University. He obtained a Master in Business Administration (MBA) from the University of Buckingham with final distinctioned exchange programsvolved at SDA Bocconi and a Master in Project Management from Il Sole 24 Ore. He also attended variousExecutive Courses in Finance at SDA Bocconi.He wasResearch Fellow at La Sapienza University.His research activities are focused on the following topics: Corporate Finance, Entrepreneurship, Organizational Behavior and Decision Processes.A Certified Public Accountant, he foundedStudio Mazzotta about 15 years ago, specializing in Financial Advisory and Business Valuation.

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