Controllers must have a good understanding of the business

It is essential to take both financial and non-financial metrics into account

Controllers are among those employees who have a good understanding of the business as a whole. However, this is largely limited to the use of financial metrics. But this will not be enough in future. Those who want to be business partner to management need to understand the inner workings of the business. Positive sales figures are just the start; it is becoming increasingly essential to have a broader perspective and a much more in-depth knowledge of the business. Controllers cannot afford to have "blind spots" in their business knowledge.

In controlling, a business’s success is traditionally measured in financial terms. Controllers help managers to run a company successfully. Consequently, controllers speak in the language of performance metrics, which are derived from internal and external accounting systems. Controllers demonstrate the pros and cons of decisions using such figures; they help to run the business with these figures. By reflecting reality in figures, it is possible to manage even the most complex companies. It means that the most diverse business areas can be compared, sub-targets can be aggregated to overall targets, and target achievement is measureable, and thereby comparable, using the same metrics. In fact, it is the "language of finance" that made complex organizations possible in the first place.

Controllers are increasingly becoming specialists in this area. Building on their knowledge of traditional periodic performance metrics, such as operating results or annual net profit, they have been involved with payment amounts on a project-by-project basis for a long time now – this is the only way to evaluate investments correctly. Moreover, the payment level is currently becoming increasingly important for periodic control systems. Cash flows and committed capital appear as parallel control objects alongside the usual performance metrics.

Discussions about the advantages and disadvantages of the balanced scorecard have made it clear that financial results are no longer enough to run a company successfully. The key argument against this is that financial metrics track events that have already taken place. Their suitability for managing a business is limited because they are the consequence, rather than the cause, of management control. In the words of Kaplan and Norton: They are trailing indicators. Controlling should, however, use leading indicators. From our experience of the balanced scorecard, we know which indicators Kaplan and Norton had in mind: They viewed performance indicators from the perspectives of learning and growth, business process, customer, and market. These indicators have in common that they are all non-financial, although they have a strong influence on the classic financial metrics. If controllers want to help managers run the business successfully, they cannot simply ignore them.

The feed-forward metrics are measured in different dimensions: cycle time, market share, customer satisfaction, service grade, contract termination rates – this heterogeneous list could go on and on. The reason for this is simple: The feed-forward metrics reflect the very diverse strategies for success adopted by the various business areas. Anyone wanting to filter out the reasons for financial success and use these as a basis for management control, must know precisely how that particular business works, what the levers to improve it are, and where to start in order to be successful in the long term.

For controllers, this means two things: First, they have to learn to compare apples with oranges. Levels of service cannot be offset by cycle times, and there is no equation for converting customer satisfaction directly into market share. What should be done, as those who are familiar with the balanced scorecard know, is to work out cause-and-effect relationships and hold in-depth discussions with management. The aim is to reach general agreement – not mathematical formulas.

On the other hand, controllers need to delve deep into the different business areas and understand their function; they should not allow themselves to be blinded by what appears to be clear and obvious. They must develop an instinct for identifying what the levers are, be able to join in the discussions, and be in a position to act as critical counterpart to managers. This is a tough break for those who have been happy to work primarily in finance and who acquired their expertise from an intimate knowledge of financial planning and decision making tools. We know from the WHU Controller Panel that controllers have largely specialized  in different financial topics in the past. There is much less focus on procurement controlling, marketing controlling, and logistics controlling. These have in common that financial metrics on their own can contribute little to successful management control. Controllers have some catching up to do here, which is obviously not readily evident. Again and again, we hear that management in these areas would like to have more active and helpful controllers. It would appear that it is not the resistance of managers, but rather the reluctance of controllers, that is preventing more intensive controlling at department level.

There is a second reason why controllers should get more intensively involved with non-financial metrics and gain an understanding of the underlying business: When controllers are asked what role they would like to have in future, they say they want to be business partner. When managers are asked about the role controllers should have in future, they say exactly the same. Controllers and managers have rarely been in such agreement about what controllers should be and do.

We should no doubt be a little critical about this high level of agreement. The concept of business partner is still too vague, and it is not clear whether it means that controllers adopt a specific, service-oriented role or that they concentrate on certain, strongly supportive tasks. Nevertheless, everyone agrees that there is one key prerequisite that controllers must meet in the role of business partner: an in-depth knowledge of the business. Managers want controllers to "unburden" them. They feel increasingly overburdened by the growing demands made on them. They want to hand over some of their tasks to controllers; they want controllers to get more involved in management duties and to be responsible for some of them. The word "co-pilot" is occasionally used.

This wish can only come true if controllers are able to follow and understand a large part of their managers’ tasks. It is not enough to know the right figures and what to do with them. It is more a case of: The closer you get to management, the more business knowledge you need to have. It is difficult, although in principle possible, to critically examine something without having business knowledge, whereas providing active and focused management support is not.

There will be less and less demand for controllers who focus solely on figures. Controllers need to learn the company’s business and to recognize the levers for success. They will not be able to do this from a pedestal of pure financial analysis, that ivory tower of traditional success factors. It is not enough to have a "helicopter" view of finance; controllers must have an overview of the whole business and its inner workings, too.  

But there is a limit to what you can know about driving and shaping a business based on abstract learning. Seminars can help by giving initial insights into the business, but nothing more. It is more important that controllers learn about the business from their own experiences. The only way to do this is through actual on-the-job experience. Controllers need to leave the finance function behind and move into different business areas and departments. Learning by doing is the best way to learn such a complex web of knowledge. Controllers who switch to a business unit not only learn the business, but also gain first-hand experience of what it means to be a manager. What is more, put these together and they create the best conditions for a successful return to controlling at the next step of the career ladder.

Professor Utz Schäffer & Professor Jürgen Weber

  • Schäffer, U., & Weber, J. (2015). Controlling – Trends & Benchmarks. Vallendar: IMC
  • Weber, J., & Schäffer, U. (2016). Einführung in das Controlling (15. Aufl.). Stuttgart: Schäffer-Poeschel.