Finance Functions and ChangeSeptember 2012Pesh FramjeeHead of Not for Profits at Crowe Clark WhitehillBoard Member of the Institute of Risk ManagementSpecial Advisor to the Charity Finance Group (CFG) Audit | Tax | Advisory
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 questions1. 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 function1. Effective transaction processing2. Regular and timely management reports and accounts, effective variance analysis and strong interpretation and narrative3. Financial scenario planning4. 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 reviews5. 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 About About 15% 60 - 70%Effort available tosupport imperatives:“Business Partnering” About 15%
Must provide more value at lower overall cost Developing Supporting Performance Business Measurement Growth Frameworks Opportunities Understanding and Managing Facilitating Business Change Risk
Finance function of the Future “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 “How Will We Do Mission What We Do?”“What Will We Do Well?” Leverage informationCollect, analyse, process and technology using skilleddisseminate business employees operating ininformation for decision Strategic Shared an efficient organisationalmaking to support the Competencies Values structure, and improverequirements of the the processes that willorganisation in a manner that position finance as ais truly world class valued partner Finance professionals must redirect their core competencies to areas which have positive strategic impact.
How might you start1. Create a shared vision for finance2. Drive down transaction processing and reporting costs3. Provide leadership in the assessment and control of business risk4. Partner with senior management and operations5. 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 managementThe 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 excellentoperational and governance processes cannot beimplemented.Conversely, operational excellence may lower costs,improve quality, and reduce process and lead times; butwithout a strategy’s vision and guidance, a company isnot likely to enjoy sustainable success from itsoperational 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
What is the secret of the ants success?A culture of knowledge management:This is based on a unified common objective, a shared goalthat translates best as “the good of the colony”. Theyunderstand about stewardship.Outstanding knowledge sharing processes:Communicate really effectively and relevant knowledge is rapidlypassed around to whoever needs to know.
Knowledge to value Skilled Application of knowledge is how organisations add value Value Knowledge Skilled application Information Managing and understanding Data Translation
Start with what is needed to add value Ensure that data gathered is relevant and useful Value Knowledge What knowledge is needed? Information Who will transform the information, and how ? Data What Data needs to be captured
The Four Faces of FinanceStimulate behaviors Provide financialacross the Leading Edge leadership inorganisation to determining strategicachieve strategic and business directionfinancial objectives and align financial strategies Threshold Performance Finance CFO Function Focus Triangle Balance capabilities, Protect and preserve costs and service the assets of the levels to fulfill the organisation Finance function’s responsibilities Source: Deloitte
4 Faces - 5 Actions1. 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 models4. 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)
The Strategic FinanceFramework Improving Conducting value fundamental added business financial processes analysis Sharing knowledge Developing Managing organisation-wide business risks and performance opportunities measurement systems 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 1. How do I ensure the data the organisation relies on is accurate and providesControl the most useful information?Challenges 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 differentEfficiency stakeholders?Challenges 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 seePerformance themselves the way stakeholders do?Challenges 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 executionExecution across the enterprise?Challenges 8. How do I reduce costs while continuing to add value?Change and 9. How do we determine our key gaps?TransitionChallenges 10. Being “world class” in everything seems expensive and takes too long; where should we focus?
Evolving competencies – reflected in the team Strategic Partnering Focus •Broad Business Organisation SkillsSkill Development Performance Broad •Exemplary Business Skills Mindset Exemplary Leadership •Relationship Building Behaviours Leadership •Team Building •Facilitation and Systems Thinking •Strong Communication Relationship Building Behaviours Negotiation Skills Awareness Skills Building Team Facilitation and •Change Management Strong Negotiation Skills Analytical Business Process Communication Skills Foundation Analysis Change Management Technical Skills Customer Focus The right people, with the Risk Management Technology Transaction Awareness right skills, doing the right Processing jobs, in the right place, at Problem Solving the right time Career Progression
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. 34
How the crisis has impacted changeOrganisations have taken a good hard look at the business and have recognisedreal improvement opportunities to drive transformation
Attitude to changeDespite cost implications organisations are driving through changeand 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? SkillsWhat will we look Systemslike in future? Resources THE Processes FUTURE Integration / delegation Responsibility for controls Roles in organisationVISION TACTICS/ OBSTACLES ENABLERS STRATEGY
Common Barriers to Change CULTURAL • Old guard new INDIVIDUAL guard • Prior failures • Loss of power • Lack of innovative • Fear spirit • Comfort with status quo ORGANISATIONAL • Skill deficiency • No vision • Conflicting performance measures • Functional/”Silo” structure
What successful transformations share Assess the organisations 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 rateLeaders 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
Focus on strengths opportunities and problems Source: Mckinsey transformation survey 2010
Staff contributions 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 Source: Mckinsey transformation survey 2010
Break down silos I S F S F Income management e I e n i i r n r c n n v c v Monitoring & evaluation o a a i o i m c n n m c e e c e c e Budgeting & forecasting s e s e Silo mentality to Horizontal linkages in Consider end to end functions rather process acknowledged process than process but silos dominateSuccessful 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. 46
Boxes - Boxes - Boxes Manage the present Selectively abandon the past Create the future
Lasting change Board & Clear SupportingNeed For Management People Performance LASTING Shared Systems & =Change Commitment & Involvement Measures CHANGE Vision Processes Behaviour X = No Action No X = Decisions No Role X = Models No X = Ownership No X = Systemic Solutions X = No Results LASTING = CHANGE
Making it work – the valley of despair 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. Continuous Improvement Uninformed Optimism Initiative Completion Loss of momentum Informed Optimism and DenialConfusion, Dismay, Anger Acceptance Bargaining Hopeful Realism Pessimism Overriding aims Despair
Further informationPesh FramjeeHead of Not for ProfitsCrowe Clark Whitehill10 Salisbury SquareLondon EC4Y 8EHpesh.firstname.lastname@example.orgTo register for our seminars, free guidance notes and regular alerts send anemail to NonProfits@crowecw.co.ukOr visit our website www.croweclarkwhitehill.co.uk (Sectors: Not for Profit) 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.