As your organization scales and moves through successive stages of growth, companies ought to closely examine and understand the nuances of their spend culture. Because it’s essentially a cultural experience, spend culture is a much more effective approach to control spending than spend management.
Whether you’re a Finance, Operations, HR or Culture Leader, Spend Culture should matter a great deal to you, since it directly involves you. Spend culture is a segment of a business’s broader organizational culture that encompasses the values and behaviors of the people working within it. It’s hard to get growth right because it is a process of great change — both internally and externally.
What is a proactive spend culture?
An organization’s spend culture reflects the shared beliefs and practices that inform how, why and when money should be spent. Every single company is required to spend money, and just like every person has a unique set of values and beliefs influencing how they choose to spend, manage, and invest their own money, each business also has a distinct Spend Culture that impacts its operations.
A proactive spend culture, then, describes the preparatory unification of an organization’s processes and planning systems to spend capital in alignment with key performance indicators. These indicators are connected by integrated business planning tactics where data, AI, and technology solutions inform forecasts, plans, and decisions, and suggest a clear course of action with little variance.
Why should you have one?
An organization should look to have a proactive spend culture if they are interested in financial or operational controls that are not reactive or involve more than just reporting and forecasting.
Proactive spend cultures manifest themselves in organizations pursuing analysis and reporting beyond Excel, and that lean on process automation, removal of information silos, and the integration of technology solutions to stimulate visibility across the organization and leverage data-driven analytics to supplement the forecasting process.
Proactive spend cultures are not a dependency on data and analytics, however. Financial controllers and operations executives definitely need tools to enhance their business intelligence and analytics capability, but they also need to be able to constantly interpret data and know the biases.
So how can you implement one?
Identify the Right Controllers
It’s important to identify the specifics of their past spend cultures and how it matches up with the new spend culture that you’re creating, and the one they are entering. For instance, a CFO with experience in an Agile environment will likely embrace adaptability and innovation in their tools and processes. From our existing analysis on spend culture, “Organizations that are agile attempt to balance strategic decision making and cooperation between stakeholders.”
Because Agile organizations gain visibility by way of data consolidation and prefer to adapt to changing circumstances, this means that it could be a challenging fit for an organization that needs more specific estimates on project requirements and less ambiguous expectations for the sake of their books.
For an organization that expects their CFO to be more deadline-oriented and operate with a more rigid structure, they should look for more administrative experience in their portfolio – likely a role that proves they can be extremely strategic when it comes to making organizational decisions, making sure the cost and benefits are identified before taking action.
Develop and Sustain a Spend Control Process
Sustaining a proactive spend culture might just mean tweaking some existing processes in your company, and it might be as easy as starting your approach to invoices and approvals.
Invoice approvals are approvals that are obtained after the fact, which means these approvals are sought from the relevant stakeholders after an invoice arrives — or to put it more bluntly after the company already owes money to the vendor who issued the invoice. But what if you could pre-approve something, and make this a completely proactive process?
Purchase approvals actually take place before the fact — or before an order is actually placed with a vendor. It starts with a requisition that is approved by the budget owner and is further passed along and subsequently approved or denied by a financial controller. It’s a simple change that could mean you’re filling out books prior to the invoice as opposed to after, streamlining your procurement processes proactively.
How does this impact growth?
We’ve likely all been a part of businesses that choose to focus the majority of their energy on strategies for revenue generation, with spend treated as an afterthought or perceived primarily as something to be squeezed when people are looking in the name of efficiency.
Such a dynamic is sometimes described as a healthy tension between revenue growth and profitability as if the two are in direct competition with each other. Cost-cutting might be a strong element of your spend culture, and a great habit to nurture, but it surely is not a replacement for a financial strategy.
The term “lean” was never meant to be synonymous with cost-cutting, but many organizations have unfortunately chosen to interpret it this way. Budget allocation can align with strategic goal setting, but in reality, the majority of spend decisions are not made around the time of budget setting. In order for a business to have a “financial strategy” it needs to think about spending proactively, and as a strategic operational process rather than an allocation of capital to be continually pinched.