change and the finance function
TRANSCRIPT
Audit | Tax | Advisory
Finance Functions and Change
September 2012
Pesh Framjee Head of Not for Profits at Crowe Clark Whitehill Board Member of the Institute of Risk Management Special Advisor to the Charity Finance Group (CFG)
New times and new challenges
The status quo is not really a viable option
New pressures are demanding new responses
The charities that are succeeding are not the ones that are avoiding risk
Need to move on from traditional roles and competencies
5 questions
1. Where do we want to be? The core deliverables and competencies to deliver them.
2. Where are we now? The existing function supporting technology, resources, knowledge, skills and structures.
3. How do we get to where we want to be? The critical enablers and operating imperatives that get us to where we want to be.
4. What are the options? The strategic choices available considering the changing market conditions and new opportunities.
5. What might prevent us from getting there? The commitment to action of the leadership. The change management and resource / capacity implications.
Minimum requirements for the Finance function
1. Effective transaction processing
2. Regular and timely management reports and accounts, effective variance analysis and strong interpretation and narrative
3. Financial scenario planning
4. Yearend closure of the books should be like a more important month end with regular reconciliations and interpretive analysis of control accounts and other key reviews
5. Regular reliable rolling Cash flow forecasts
Minimum requirements for the Finance function (cont’d)
6. Producing other reports to meet internal and external reporting requirements and to provide the right information and knowledge for decision making
7. Treasury management
8. Manage and develop the budgeting process and programme management support
9. Interaction with other departments
10. Proper management oversight and control of the financial relationship, interaction and interface with other departments and “business partnering”
Six core disciplines
1. Transact, record and report effectively by improving
fundamental financial processes
2. Business partnering and the supporting of new initiatives
for other directorates
3. Decision support and the provision of knowledge for
decision making
4. Financial planning, treasury management and the
allocation of funds, people and other resources
5. Financial governance, control and catalyst for new
initiatives and change
6. Financial risk management and protection of assets
Finance is often still dominated by ‘low-value’ activity
Low-value activities are those that are optimal when they provide the highest level of accuracy at the lowest possible cost.
They typically do not add value no matter how well they are performed.
They have to be done right but do not earn any brownie points
Low level activities dominate
Effort available to support imperatives:
“Business Partnering”
About 15%
About 15%
About 60 - 70%
Must provide more value at lower overall cost
Understanding and Managing Business Risk
Supporting Business Growth Opportunities
Developing Performance Measurement Frameworks
Facilitating Change
“What Will We Do?”
Act as a trusted business advisor capable of identifying and recommending opportunities for allocating scarce resources, improving processes and reducing business risks to acceptable levels
“What Will We Do Well?”
Collect, analyse, process and disseminate business information for decision making to support the requirements of the organisation in a manner that is truly world class
“How Will We Do What We Do?”
Leverage information technology using skilled employees operating in an efficient organisational structure, and improve the processes that will position finance as a valued partner
Mission
Strategic Competencies
Shared Values
Finance function of the Future
Finance professionals must redirect their core competencies to areas which have positive strategic impact.
How might you start
1. Create a shared vision for finance
2. Drive down transaction processing and reporting costs
3. Provide leadership in the assessment and control of business risk
4. Partner with senior management and operations
5. Develop the skills to provide value-added information (knowledge)
1. Create a shared vision for finance
Start by assessing your business strategy in terms of
the information needed in the business
Start to envision how these concepts of business partner can be applied to your organisation
2. Drive down transaction processing and reporting costs
Benchmarking processes and implementing best practices
Reengineering end-to-end processes – focusing on the whole process rather than departmental silos - Avoiding duplication and sub systems
Leveraging technology – the right technology being used to best advantage
Leveraging technology
The impact of technology on business processes cannot be
over-stressed.
Efficiency becomes a given and there is the inevitable
pressure to use technology to streamline financial
processes.
This leads to shorter reaction times and opportunity
windows and finance is often tasked with ensuring that the
organisation has adequate systems to meet organisational
needs.
Is new technology needed?
When new technology is required the signs are usually obvious:
Hardware and/or software downtime and poor support
Business demands have outgrown current systems
Increased number of users/transactions
Need to support multiple sites
Foreign currency /language requirements
More complex business requirements
New lines of business
Increasing use of non-integrated spreadsheets to bridge gaps in systems; and
Reporting /information access is inadequate
3. Risk management
The finance role must be flexible to respond to evolving risks.
Problems can arise when:
Business risks are not clearly linked to impact on stakeholder
value
No common language or approach exists for risk assessment
Internal communications about risk assessment and control
are sporadic or reactionary
After-the-fact evaluations by auditors are too often seen as an
integral part of “the front line of defence”
Specialised skills for evaluating and controlling complex risks
are not used productively
4. Partner with senior management and operations to:
Align strategic and operating plans
Develop balanced performance measures
Continuously improve business performance
Align resource allocation process with the strategy
Link strategy to operations
“A visionary strategy that is not linked to excellent operational and governance processes cannot be implemented.
Conversely, operational excellence may lower costs, improve quality, and reduce process and lead times; but without a strategy’s vision and guidance, a company is not likely to enjoy sustainable success from its operational improvements alone”.
– Kaplan and Norton
Performance measures
should focus on measures aligned to the needs and expectations of stakeholders;
must be easy to use and simple to understand;
must be aligned to the organisation’s strategies and processes, and illustrate cause and effect relationships;
should satisfy all key information needs: financial, operational and strategic; and
should stimulate and direct change throughout the organisation
5. Managing knowledge
exactly what knowledge is required and how it adds value for decision making
who needs it and why
how it will be prepared and by whom
whether it can be obtained as a product of another process
whether the cost of having the knowledge is commensurate with the benefit
Knowledge is needed about
Performance - inputs, outputs, outcomes and impacts
Critical processes - cost, quality, time
Risks - significance and likelihood
Ants
What is the secret of the ants success?
A culture of knowledge management: This is based on a unified common objective, a shared goal that translates best as “the good of the colony”. They understand about stewardship.
Outstanding knowledge sharing processes:
Communicate really effectively and relevant knowledge is rapidly
passed around to whoever needs to know.
Information
Value
Data
Knowledge
Translation
Managing and understanding
Skilled application
Knowledge to value
Skilled Application of knowledge is
how organisations add value
Information
Value
Data
Knowledge
What Data needs to be captured
Who will transform the information, and how ?
What knowledge is needed?
Start with what is needed to add value
Ensure that data gathered is relevant and useful
CFO
Focus
Triangle
CFO
Focus
Triangle
Threshold
Performance
Finance
Function
Leading Edge
Provide financial leadership in determining strategic business direction and align financial strategies
Balance capabilities, costs and service levels to fulfill the Finance function’s responsibilities
Protect and preserve the assets of the organisation
Stimulate behaviors across the organisation to achieve strategic and financial objectives
The Four Faces of Finance
Source: Deloitte
4 Faces - 5 Actions
1. Understand the four distinct, but interrelated roles Finance plays
in the organisation and how finance resources are aligned.
2. Determine how Finance fulfills the four roles and dynamically
prioritise the personal focus.
3. Recognize the inherent conflicts these roles may cause in
organisation, leadership development models, incentives and
operating models
4. Identify the critical challenges to fulfilling each role individually
and the overall mission of finance collectively.
5. Recognise the value drivers and capabilities required of finance.
Determine which gaps in current vs required performance to
address first (and the pitfalls of getting the sequence wrong)
Developing organisation-wide performance measurement systems
Improving fundamental financial processes
Conducting value added business analysis
Managing business risks and opportunities
Sharing knowledge
The Strategic Finance Framework
Source: EIU/Andersen
Critical imperatives - Finance must:
improve its core business processes so that it can allocate additional resources to more strategic undertakings
undertake value-added interpretative analysis that will help operating managers understand the financial consequences of their strategies and decisions.
take the reins on organisation-wide management of financial and non-financial risks and balance them with non-traditional development opportunities.
develop organisation-wide performance measurement systems that help operating managers ensure that their day-today decisions reflect long-term strategic goals.
What can we learn internally?
Review workflows
Talk to employees
Identify bottlenecks
Areas for improvement
Learning internally
What they do?
Why they do it?
Who they do it for?
How long it takes?
How often it is done?
Should someone else be doing it?
Should it be done at all?
Can the task be improved?
Top 10 Challenges
Control Challenges
Efficiency Challenges
Performance Challenges
Execution Challenges
Change and Transition Challenges
1. How do I ensure the data the organisation relies on is accurate and provides the most useful information?
2. How do I reduce the burden of maintaining my control environment without compromising its integrity?
3. How should I organize Finance to serve the needs of the different stakeholders?
4. Given the heterogeneous nature of Finance roles, how do I attract, develop, and retain the talent required to fulfill Finance’s mission?
5. How do I create a common language that empowers management to see themselves the way stakeholders do?
6. How do I ensure our investments in innovation and growth yield the greatest returns?
7. How can I partner with other senior managers to drive strategy execution across the enterprise?
8. How do I reduce costs while continuing to add value?
9. How do we determine our key gaps?
10. Being “world class” in everything seems expensive and takes too long; where should we focus?
Skill
Dev
elo
pm
en
t
•Relationship Building •Team Building •Strong Communication Skills •Change Management
•Broad Business Skills •Exemplary Leadership Behaviours •Facilitation and Negotiation Skills
Evolving competencies – reflected in the team
Analytical Foundation
Systems Thinking Awareness
Organisation Performance Mindset
Strategic Partnering Focus
Risk Management Transaction
Processing Problem Solving
Business Process Analysis
Technical Skills Customer Focus Technology
Awareness
Career Progression
Relationship Building Team Building Strong
Communication Skills Change Management
Broad Business Skills Exemplary
Leadership Behaviours
Facilitation and Negotiation Skills
The right people, with the right skills, doing the right jobs, in the right place, at the right time
The one constant is change
Consider both organisational and personal transitions
As a generality the primary obstacles to successful change in organisations include resistance to change and inadequate team skills
Neglecting the impact of personal transitions may very likely result in the failure of an organisation’s change effort.
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EIU survey – difficulties experienced
Organisations have taken a good hard look at the business and have recognised
real improvement opportunities to drive transformation
How the crisis has impacted change
Attitude to change
Despite cost implications organisations are driving through change
and launching new change initiatives
Charities and change – what you are saying
Not sure we have gone far enough”
“Long overdue”
“Governance structures create slow responses”
“Demand is increasing and resources are decreasing”
“Much more needs to be done”
“THIS IS THE MOST CHALLENGING TIME OF MY CAREER” – charity FD
Where do we want to be?
THE FUTURE
Skills
Roles in organisation
Resources
Processes
Systems
Integration / delegation
VISION OBSTACLES ENABLERS TACTICS/ STRATEGY
Responsibility for controls
What will we look
like in future?
Common Barriers to Change
• No vision • Conflicting
performance measures
• Functional/”Silo” structure
ORGANISATIONAL
• Loss of power • Fear • Comfort with status
quo • Skill deficiency
INDIVIDUAL • Old guard new
guard • Prior failures • Lack of innovative
spirit
CULTURAL
What successful transformations share
Assess the organisation's present situation rigorously
Identify the current state of capabilities as well as problems,
Explicitly identify the underlying mind-sets that must change for
the transformation to succeed
Strong leadership and maintaining energy for change among
employees are two principles of success that reinforce each other
when executed well.
Success
rate
Leaders ensure frontline staff feel a sense of ownership 70%
Frontline employees take the initiative to drive transformation 71%
Both principles are used 79%
Source: Mckinsey transformation survey 2010
Source: Mckinsey transformation survey 2010
Focus on strengths opportunities and problems
Source: Mckinsey transformation survey 2010
Three-quarters of the respondents whose organisations broke down their
change process into clearly defined smaller initiatives and whose
transformations were “extremely successful” say that staff members were
entirely or very able to participate in shaping those change initiatives
Staff contributions
Break down silos
Silo mentality to functions rather
than process
Consider end to end process
Horizontal linkages in process acknowledged
but silos dominate
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Budgeting & forecasting
Monitoring & evaluation
Income management
Successful process redesign requires a shift from Functional to Process view
Very few of us naturally embrace change
• We may want a
change because we
are in an
uncomfortable
position
• Does this lead to
lasting and
sustainable change?
People issues as important as organisational issues
Consider both organisational and personal transitions
As a generality the primary obstacles to successful change in organisations include resistance to change and inadequate team skills.
Neglecting the impact of personal transitions may very likely result in the failure of an organisation’s change effort.
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Manage the present Create the future
Boxes - Boxes - Boxes
Selectively abandon the past
Lasting change
Need For
Change
Clear
Shared
Vision
Board &
Management
Commitment &
Behaviour
People
Involvement
Supporting
Systems &
Processes
Performance
Measures =
LASTING
CHANGE
X = No Action
X = No
Decisions
X = No Role
Models
X = No
Ownership
X = No
Systemic
Solutions
X = No Results
= LASTING
CHANGE
Uninformed
Optimism
Loss of momentum
and Denial
Confusion, Dismay, Anger
Bargaining
Despair
Pessimism Overriding aims
Hopeful Realism
Acceptance
Informed Optimism
Initiative Completion
Continuous
Improvement
There is a predictable drop-off in performance due to the implementation of change and new processes / systems and structures. This is often a natural reaction to major change. The aim is to proactively manage the change.
Making it work – the valley of despair
Pesh Framjee
Head of Not for Profits
Crowe Clark Whitehill
10 Salisbury Square
London EC4Y 8EH
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email to [email protected]
Or visit our website www.croweclarkwhitehill.co.uk (Sectors: Not for Profit)
Further information
Acknowledgement: The Strategic Finance Framework is adapted from ‘The Evolving Role of Finance: charting a strategic course for the future’ produced by the Economic Intelligence Unit and Arthur Andersen. I am grateful to past colleagues, at Arthur Andersen and Deloitte, who have carried out research and produced invaluable material that I have used in this presentation.