Transforming Finance Functions:

Uncovering Uncontrolled Underperformance

 

Introduction

Every finance function underperforms.

The best know it is happening. The rest risk uncontrolled underperformance.

 

It’s not possible to be ‘the best imaginable’ at everything. Nor indeed should you strive to be. This is a standard both unattainable and undesirable. Finance has no more right than any other function to ignore cost versus quality trade-offs e.g. strict compliance versus best commercial interpretation. Finance directors have to identify carefully where the price of perfection is too high. Most importantly, they need an accurate fix on how their function measures up.

 

Even in well-run departments there’s typically room for improvement. Here you’ll find properly resourced change initiatives that will close important performance gaps. Other less than perfect performance is the product of a conscious decision – what is adequate. Why strive to close the books in two days rather than three when stakeholders are happy and the cost of improvement outweighs any benefit?

 

So congratulations to the well-run departments. They know their performance targets and how they measure up and are working to close any gaps. They’re under control.

 

But what of the remainder - the silent majority where the situation is not under control?

 

 

What is ‘uncontrolled underperformance’?

If any of the following conditions apply, it’s a fair indicator the Finance function is not controlling its underperformance:

“We don’t have performance objectives”	An acceptable level of Demand has not been has not been specified or agreed between Finance and the people it serves
“We don’t track how well the function is performing”	The Finance function’s performance is not monitored or measured effectively
“We know there’s an issue but are unwilling or unable to do anything”	Gaps in actual performance against what is required have been identified but have not been addressed by improvement initiatives or by an informed downgrading of the expected performance standard

 

How to assess problem situations

A first step we’ve found to work well is to look at uncontrolled underperformance in Finance from two perspectives:

• Demand – Are the customers of finance aware of the problem?
• Supply – Does the finance function acknowledge the problem?

Considering if each perspective highlights the barriers to change you might face in each situation. We’ve illustrated these with silhouette cases from our own experience.

Change is the remedy. But how do we move from three impasse positions to a place where all involved agree it’s time for change? Rocks have to be lifted.

 

 

Blissful ignorance

Or put another way, sleepwalking to disaster. No-one has spotted things aren’t running appropriately. It’s surprising how long this situation can be allowed to fester. We’ve seen a fast growth, ambitious, highly profitable business that would have failed to meet its payroll obligations without our intervention. It was running with negligible management information and scant regard to cash. Its accountant was focused on stat accounts compliance!

It would be hard to argue that this is an isolated case. Finance can be a difficult area to assess for non-financial people. Some of those that work in it are not above shrouding what they do in black art, voodoo and mystery as a convenient source of power. Some stakeholders remain clueless about what good looks like and what can reasonably be expected. This situation often persists until there’s a disaster. Then it leaps directly into the top quadrant – time for a change with all parties aware something must be done.

What can be done?

The challenge is to find someone to call time on the conspiracy of silence. Or else action only comes about through a problem. FDs need to be honest with themselves. Have the rocks not been lifted for some time? Stakeholders need to challenge and demand more. An independent assessment from both a supply and demand perspective is a sensible first step. There’s little risk or cost but plenty of upside:

• Warm feeling that the job is being done well
• Change agenda can motivate the finance team more than the status quo
• Improve working relations between Finance and its customers – true partnering

 

Frustration and denial

The bigger the business, the more sophisticated the stakeholders relying on Finance are likely to be. Once external funding is introduced, in particular private equity involvement, the stakes ratchet up a notch. Quite often an expectation gap emerges – what’s required vs what is being produced. Management information is the product that first comes under scrutiny.

 

Senior executives might not be getting the information and analysis they need to make decisions. Investors might be frustrated by a lack of focus on the really important metrics. Surprisingly, cash is frequently overlooked by accountants preoccupied with P&L reporting. Shortcomings in systems, structure, people or process could be behind the underperformance. Or indeed all four might be at fault. If the FD can’t or won’t make an accurate self-assessment then the path to improvement is blocked.

What should be done?

The first step has to be to get the finance team’s eyes opened to their shortcomings. What is demanded? What must be delivered? Where are the cost vs. quality trade-offs? What initiatives need to be set in train? Then the debate can shift to a sensible conversation about ‘right service’ and all the resourcing consequences that flow.

 

Deaf ears and empire

In this quadrant we could be dealing with enlightened FDs, a step or two ahead of the people they serve. They still have to take action but have some breathing space by being first to realise all is not well. We were recently brought in by a new CFO facing multiple claims on his time who needed a rapid assessment of the department he was taking over. In this case, he knew change was inevitable but needed to get cracking on the case to convince the rest of the Board of its merits. In this instance, recognition came fast but this is not always the way.

 

The FD’s challenge is often making the business case that connects with the non-finance community who are unaware of Finance’s issues. The starting point for these people is that Finance itself is an overhead cost centre which needs to be tightly controlled. What is the least we can get away with? So there’s a test of influence, persuasion and communication which doesn’t always play to the strengths of accountants.

 

There is another negative situation we should consider in this quadrant (although the risk also exists in ‘time for a change’). It’s that of the empire-builder. The over-specifier of systems, people and anything else they can spend on – finance as an industry in itself. Damage tends to be done when the wool is pulled over the eyes of the non-financial stakeholders. Finance keeps its headcount up and growing through projects of questionable value.

 

Time for change

Arriving at an agreement that things need to change is only the end of the beginning. It’s unlikely doing everything will be advisable or possible. So ruthless prioritisation becomes the order of the day. Look at proposed initiatives in the light of value to the business versus ease of execution. Be selective and realistic about the resources available. Are you going to add project responsibilities to line roles? Will change get sufficient focus over business as usual? Alternatively will the ball get dropped on the day to day stuff? What are the change skills at your disposal? What outside help do you need if any?

It’s fairly natural for ambition to outstrip ability but we’d urge anyone embarking on Finance change to under-promise and over-deliver.

 

Everymind specialises in helping Finance succeed. A full and frank assessment of the situation is our typical starting point. We’ll look at both demand and supply perspectives and work to an agreed scope. A comprehensive review across all dimensions is most efficient as there are always critical interrelationships between the dimensions shown in the diagram below:

 

For an initial discussion about assessing your Finance function contact Everymind’s Simon Hill e. simon.hill@everymind.co.uk m. 07808938213

 

 

 

 

t: 0870 2421987  |  e: enquiries@everymind.co.uk

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