How to do a Finance Transformation Programme Properly- Myths Dispelled
The finance function within the company’s strategy to manage through the expected recovery needs a more flexible, cost efficient finance organisation. Many finance organisations are comprised of inefficient, manually intensive processes, disparate systems and data structures that are not integrated. Kothari Partners can help you with:
Align your Finance organisation structure and processes with the business strategy;
Gain insight into the relative performance of your finance function as compared to your peers and identify performance gaps;
Eliminate and/or simplify complex structures, processes and technology;
Standardise and integrate systems and leverage enabling technologies in corporate performance management;
Reduce the cost of your Finance function;
Align Finance skills and responsibilities to stakeholder needs;
Minimise non-value add activities to improve focus on business analysis and support;
Adopt a performance scorecard linked to value drivers and tied to staff accountability and compensation programmes;
Leverage shared services to deliver routine, high volume transaction processing with economies of scale and analyse outsourcing solutions;
Incorporate change management activities into every phase of a transformation programme;
Realise synergies from the management of legal entities; and
Improve the operational performance of your treasury and tax function.
Achieve a successful finance transformation:
Key lessons learned through Kothari Partners client engagement include:
Conduct envisioning sessions—Assist leadership with designing a target or future state for the finance function.
Develop a blueprint—create a comprehensive roadmap that depicts how the future state will be achieved.
Conduct risk assessment—develop a risk-based approach to identify areas where more process standardisation is needed.
Change management—Design a targeted change management framework campaign that will prepare the organisation to adopt these significant changes.
Performance management—Define measures of success in order to measure and report against progress. Implement required monitoring and reporting processes for tracking achievement of objectives.
Organisation design and transition—Define transition and target state organisational structures. Outline key roles and capabilities needed to support transition and target organisations.
Establish finance PMO—appoint finance PMO who will provide oversight and guidance on initiatives and help to integrate all finance-related initiatives.
Evaluate BI environment—Architect the data management and BI infrastructure, giving consideration to desired data governance and reporting/analytical capabilities.
Develop and implement financial processes—Define and implement core financial processes to support the defined end-state objectives, giving consideration to the company’s environment and industry best practices.
Design and implement integrated information systems— Design and implement financial information systems that are flexible and resilient to changing operational strategy.
The Roadmap
Transformation change is by its nature iterative. Although its phases overlap and interact, sequence does matter. Furthermore, you can also learn from the experiences of path-breaking companies that have preceded you. So a general road map may help managers plot their course or identify missed turnings that may be slowing progress.
Step 1- Directional setting
The goal of step 1, which can last anything from two to twelve months, is to kindle an urgent need for change within an organisation and to articulate a new sense of direction.
The best efforts involve thought leaders throughout a company (both to build support and to tap the experience of multiple constituencies) in an objective assessment of the competitive environment, the organisation's current capabilities, and the outlook for its future. Whether the outcome is called a new vision, a mission, a strategic framework, or something else, what is crucial is that it states the rationale for change and defines broad performance and organisational objectives.
Key activities in this phase include:
Analysing both marketplace and organisation to highlight the need for change, the barriers to be overcome, and the potential payoff.
Structuring workshops and other forums to help first the leadership group and then the rest of the organisation reach a common vision and begin to identify the actions required to make the vision a reality.
Examining the experience of other companies undergoing change to help build courage and conviction—and to develop insights about how the organisation could evolve.
Step 2- Process design
The goal of step 2 is to translate the change vision into a much more specific set of performance objectives and to design processes that involve all three axes of change in order to engage the organisation in achieving these goals. Senior managers almost always underestimate the importance of this structured planning phase. But it is essential if the change program is not to degenerate into a hodgepodge of well-intentioned individual initiatives.
Key activities in this step include:
Creating a change organisation. Few companies have succeeded without creating a special group or groups to drive their change effort. Many variations exist, "steering committees," "change teams," and "core teams" among them. The common requirement is that the group must include well-respected line and staff executives each with the depth of personal commitment to risk their careers in order to ensure a successful outcome. Their role is to help line managers focus their change efforts and to provide a forum for objective discussions of progress and lessons learned. They may also help provide centrally sponsored support for process design, facilitation, and the like.
Quantifying specific performance objectives. Broad statements ("lead the industry in customer satisfaction") need to be translated into the kind of measurable performance-improvement target ("reduce product development cycles from twelve months to two") that individuals or cross-functional teams can tackle. This task of translation is a central responsibility of the change leadership team.
Mapping objectives to organisation units. It is often useful to create a "map" of an entire organisation that links performance objectives to the groups of people (departments, teams, positions, or cross-functional process groups) that can most directly affect them. This map can also be used to help decide which projects to launch first.
Designing performance-improvement approaches. Working from its organisational "map" and its assessment of the problems and opportunities each unit faces, a change team can design the proper mix of problem-solving techniques to address such questions as: Which units need a tailored analytic exercise? Which need training? What new information must be supplied? Which core processes must be overhauled?
Step 3- Performance improvement
In step 3, the "transformation triangle" comes into full play. Efforts along all three axes, planned in phase 2, are now launched to begin improving performance.
Top down. Ongoing initiatives to build awareness and capability in support of the change process might include intensive communication efforts, training sessions, and management forums for sharing expertise and best practices in implementing the new change vision.
Bottom up. Starting with localised pilots to debug the methodology designed in step 2 and then rolling out the program through the rest of the organisation, teams set about evaluating current versus desired performance and developing plans to close the gap.
Core process redesign. Cross-functional teams tackle one or more of the core processes that senior managers identify as needing fundamental redesign.
Proper sequencing of bottom-up and core process initiatives requires careful planning. In some cases, it is best to start with the former, even if core process redesign is contemplated, because front-line teams may yield insights about current processes. In others, the structural shortcomings of the current work process are so apparent that a fundamental redesign makes more sense than trying to improve the current system.
The timing of step 3 is usually a function of the size and complexity of the organisation and the amount of resources supporting the process. In general, a unit of 20 to 50 people can go through one cycle of problem solving or work design in two to four months. However, multiple cycles may be needed as units attack increasingly complex or ambitious targets. Core process redesign efforts may take anywhere from six months to two years for full implementation, though substantial results can be realised in the first year.
Significant time is required both from the change team and from senior management to harness the "chaos" of the many initiatives which inevitably get under way. Special care is needed to make sure efforts are matched to the performance needs of each unit rather than sweeping across the system in broad waves of "one size fits all" activity.
Step 4- Realignment
Performance-improvement efforts inevitably bring to light the size and shape of organisational barriers. They also help clarify how an organisation must evolve to institutionalise or "lock in" the new capabilities that have begun to develop. Here the leadership role is to identify the needed changes systematically and take the required actions to socialise/ institutionalise them.
Structure. Line and staff roles will be redefined as managers become more focused on adding value (and less on controlling), and clearer on the role they must play to keep change going. Elements of many traditional staff functions (such as planning, hiring, training, and purchasing) will often be absorbed into line-based teams. Autonomous, self-managing teams will be created, as individuals master multiple skills and roles. Layers will be removed as self-management takes hold.
Systems. Information systems will be redesigned as the information available to the front line changes dramatically and as teams better define their own information needs. These new systems will give a much clearer view of how a team's performance contributes to the whole, and will have a strong focus on customer-oriented value. Compensation systems are usually restructured at this point too. Broad-based profit-sharing approaches often give way to much more focused incentives, such as pay-for-knowledge and gainsharing.
Staff. A much clearer definition of the types of people and skills required will be developed through the performance improvement efforts. Hiring and promotion requirements, as well as the balance between technical and managerial skills, will be redefined.
Step 5- Bag all Quick Wins
Businesses understand the need to stay competitive by developing new products and services. Embracing innovation by taking a collaborative approach to solving problems – from the leadership ranks – to the shop floor – can help you transform your business.
The decision to embark upon a business transformation project, such as shared services, can be disruptive. The “change resistors” will be on the lookout for ways to delay a project – and delay is the enemy of successful shared services programs as well as being a distraction for the business. Delays inevitably drive cost and negatively impact the level of engagement of senior management. For this reason, it is important to recognise delaying tactics and agree an approach to tackle them as they occur, in order to sustain the program vision, momentum and delivery.
Here are some examples of negative responses, popular myths and objections I have often encountered:
“We can’t standardise process”Many successful business services organisations have achieved single process on single systems and local differences are actually negligible.
“We have too many statutory differences to consolidate processes” When investigated, these differences are often myth or a matter of interpretation. Business services organisations can manage the majority of local needs with common process.
“Unions and works councils will kill it” We have not found a market where this type of intervention has prevented an organisation successfully establishing a shared service centre.
‘Management will resist it” This can be true and programme teams should expect that certain individuals will not buy into the new organisational structures and processes.
“Shared service centres don’t deliver the expected benefits” There are some horror stories, but the evidence strongly suggests that many meet and often exceed benefits targets.
Step 6- Change management through embedding and growing
Companies too often focus only on the part of the organisation they’re creating, and treat the creation of business services as if it were a carve out of activities, as opposed to a reorganisation of support functions.
Part of the remit of the program team should involve supporting the transformation of the new functional towers (for example, finance and IT), by designing not just what goes, but also redesigning what remains. New skills and capabilities will be required in the business units that no longer need to manage transactional functions. With reduced numbers, managers will no longer have the same people management responsibilities or need to approve transactional operational tasks.
Instead there will be an opportunity to invest more time in commercial, forward-looking discussions and actions. This often results in the need to train or replace certain personnel who may not be suited to these new roles.
It is also important to recognise that there is no transfer of accountability with the creation of business services. Rather, senior management are electing to source certain activities in a different way and therefore need to be able to take confidence from:
Their inclusion in the creation of the vision of business services and their respective functional tower
The professional approach to governance and service management for the new business services organisation which creates confidence in performance.
Failure to address these issues often results in “shadow organisations” emerging outside business services – where people in the “old” location, not trusting the new system, begin duplicating the work of the service centre or performing additional control work within their own function. The result is a fall in service levels and a waste of resources.
Words of wisdom:
Multi-function business transformation offers an opportunity for organisations to become leaner, more efficient operations. The journey from an organisation’s unique start point to the creation of business services will require so many aspects of the business to change that it should, and will, be high profile. There is no escaping the pressure this places on programme teams to get it right first time in order to meet expectations.
Stakeholder engagement and seeking the voice of the customer, process and business must not be underestimated.
Transformation can vary in both structure and scope. It may involve outsourcing, shared service centres, captives or combination. It may involve one business function, such as finance, or look to transform several functions bringing consistency to the target operating model and technology across the organisation.
I am often asked, “Which areas are the most important to get right?”
In my experience, of the 6 steps outlined above are excellent steps to consider. You cannot prioritise or just pick one from the list. There could be also be more steps required, covering IT or even Blockchain, again not to overwhelm the reader, I kept it short and sweet. Note that the very reason these programmes are tough is that you have to deliver every aspect very well, if not perfectly, from the outset, and they are all interconnected. If any aspect fails, it will impact the rest and reduce the business impact. So you have been warned.
Yet the growing number of successfully delivered transformation programs demonstrates what can be achieved with the appropriate vision, investment and necessary engagement from all levels of an organisation. These are exciting and satisfying programs to work on, and we have been lucky to work with progressive, ambitious clients, who are ready to anticipate and manage the challenges of business transformation to reap the considerable rewards.
At Kothari Partners, we have worked with various clients across industries and locations to consider how transforming their business services can bring them both cost reductions and performance improvement – improvement in the support they give, and in the wider business as a result of that support.
Our approach is to help our clients really understand their current situation, identify the value and decide on the scope, vision and set of strategies for what they could achieve from business transformation. We help them plan their implementation, and support them as they deliver and implement the change, so it is properly and permanently embedded in their organisation. Our aim is that our clients can deliver high quality work to their organisation, generate real efficiencies and free up time to support better business decisions.
When working with us you can expect to see:
Corporate governance practices will become routine in your business. Your people will embrace a framework or rules, relationships, processes and systems that are embedded across your business. These mechanisms will encourage your business to maximise its full potential.
People will share a passion for excellence. People need ideals that give meaning to their actions. Your staff will understand how their role and tasks contributes to the overall purpose and strategy of your business.
Processes that will support your clients and your business better. Processes will support the activities of your staff. Your people, processes and systems are inextricably linked and processes will become mutually reinforcing.
Systems will be designed to meet ALL your requirements. Your business systems will be designed to work coherently they will be sustainable, efficient and resilient.