Transforming a Finance Function
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Transcript of Transforming a Finance Function
SomersConsult ©FintanSomers2015
Tripod PartnersConsulting ⋅ Advisory ⋅ Training
TransformingaFinanceFunc0onAprac00oner’sview
SomersConsult
DAVEWALLACE:[email protected] m:+971505516885
FINTANSOMERS:[email protected]:+971503314583;+447720239011
Tripod PartnersConsulting ⋅ Advisory ⋅ Training
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TransformingaFinanceFunc=onAprac==oner’sview
Thispresenta0onisbasedonaseriesofar0cles,wriLenbyFintanSomers,thatwerepublishedintheCFOMiddleEastmagazinein2015and2016.PleasecontactFintanSomersorDaveWallace(contactdetailsbelow)formoreinforma0onaboutourcustomisedservices.
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1. Introduc0on 42. It’sallaboutobjec0ves 63. TheneedforastrongEnterpriseFinancialManagementCulture 84. Notechnology“MagicBullet” 115. Putyourpeoplefrontandcentreofthechangeprogram 146. TheTeamEffec0venessdiagnos0c 167. TheFinanceFunc0onEffec0venessdiagnos0c 208. TheTechnology-effec0venessdiagnos0c:RemembertheQBCrule! 239. Percep0onisReality 2610. Lookingoutaswellasin… 2811. Prac0cebeingaleader 3012. Execu0onisthething… 3213. Theartofgegngthingsdone(thepoli0caldimension) 34
Contents
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OverthepasttwentyyearsIhaveservedinavarietyofinterna0onalCFOroleswithtwolargemul0na0onalbanksandabankintheMiddleEast.Allofmyassignmentshaveinvolvedimprovingbusinessprofitabilityandmanyhavenecessitatedtransformingthefinancefunc0onintoamoreeffec0vesupporttoolforthebusiness.WhatIhaveohenfoundisthatbusinessesthatarenotfiringonallcylindersorareincapableofrespondingquicklytoanexternalshockhaveafinancefunc0onthatneedsimprovements;tofixthebusinessitisohennecessarytofixthefinancefunc0ontoagreaterorlesserextent.So,inthisseriesofar0clesIwillbediscussinghowtobuildaneffec0vefinancefunc0on.
TheseriesisaimedatCEOsandmanagementteamswhoneedsomeguidanceastotheac0onstheyshouldexpecttoseefromtheirCFOtoaddresstheirfrustra0onswithperceiveddeficienciesinthefinancefunc0on.Ofcourse,itisalsoaimedatCFOsandfinanceteamsthatareonthereceivingendofnega0vityfromtheirbusinessandwhocouldbenefitfromprac0calguidanceonhowtomakethingsbeLer.However,perhapsthemostimportantaudienceisthosewhothinkthatnochangeisrequired.Thistypeofcomplacencyisarecipeforfailureandlossofedge-whichiswhyallwell-run
func0onsincorporateconstantchangeintotheiropera0ngmodel.Iamabigfanofthe“onlytheparanoidsurvive”schoolofthought.Havingdevelopedandexecutedseveralfinancefunc0ontransforma0onsacrossarangeofbusinessesandinterna0onalloca0ons,Ihavebeenstruckbythesimilarityofthechallengesfacedbyunder-performingfinancefunc0onsand,forthatmaLer,under-performingbusinesses.
WhetherbasedintheMiddleEast,theUK,theUS,La0nAmericaorEurope,Ihavefoundthatunder-performerssharemanyofthesameorsimilarcharacteris0cs.InthisseriesIwilldescribethesecharacteris0cs.Ihavealsofoundthattheopera0ngmodelforaneffec0vefinancefunc0onispreLystandard.Ihavetransformedseveralfinancefunc0onsusingafairlysimpleopera0ngmodelthatIwillsharewithyouoverthecourseofthisseries.
1:Introduc=on
SinglecountryFinanceteam:Argen3na.
Financeteamsin4countries:USA,Peru,Colombia,Venezuela.
SinglecountryFinanceteam:Qatar.
FinanceteammembersinUK,HongKong,Singapore,USA.
FinanceTeammembersin9countries:Switzerland,Luxembourg,Monaco,Gibraltar,ChannelIslands,USA,UK,Uruguay,Brazil.
Financeteamin2UKloca3ons.
Financeteamsin3UKloca3ons.
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Overtheyears,Ihavedevelopedanumberoftoolsandprocessesfordesigningandimplemen0ngsuccessfultransforma0onalchange.Thesetoolsandprocessescanalsobeappliedtotransforma0onofotherfunc0onsthatsharemanyofthechallengesoffinance,forexample,RiskandHRFunc0ons.Thesetoolsandprocessesarenot,inthemselves,enormouslycomplexbutassemblingallofthecomponentsandexecu0ngthemcleanlycansome0mesbechallengingandstressful.So,let’sstartatthebeginning-whatisthepointofitall?Whataretheobjec0vesoftheCFO?Clearlycommunicated,theseobjec0veswillformthebasisformuchofwhatthefinanceteamdoes.Theyalso,tosomeextent,dictatethepersonalityoftheteam.
1. Weareintherela0onshipsbusiness,suppor0ngtheseniormanagementteam.
2. Weareinthebuildingprofitabilitybusiness:wearenotjustscorekeepers,weinfluenceoutcomes.
3. Weareintheline-of-defensebusinessagainstunsustainableornon-compliantplansorac0ons.Again,weinfluenceoutcomes.
SupporttheCEOandtheExecu0veTeam…
Theobjec0veIuseis:
…inbuildingasustainableand
profitablebusiness…
…inamannercompliantwiththepoliciesand
interestsofthebusiness.
Ihaveseenpeopleendlesslydebatethistypeofmissionstatement.Inmyopinion,youshouldn’twasteyour0me.Anditdoescorrelatefairlycloselywiththepithystraplineforthefinancefunc0onofLloydsBankingGroupduringmy0methere…
“Putinsightandcontrolattheheartofawinningbusiness”
… Icouldn’thaveputitbeLermyself!
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Oneofthebiggestcontributorstopoorbusinessperformanceisalackofagreementofobjec0vesandpriori0esamongpeopleinthebusiness.So,it’snotsurprisingthatthefirstport-of-callImakewhenlookingatapoorlyperformingBusinessorFinance(orother)Func0onisOBJECTIVES.Allleaders,includingCFOs,needtospendalotof0meondevelopingobjec0ves,communica0ngthesetotheteamandgegngbuy-infromtheteam.Ifyoudon’ttelltheteamthattheyneedto“takethecastleonthehill”and/oriftheydon’tagreetodoit,thendon’tbesurprisedifyoudon’ttakethecastleonthehill!Andtheproblem,ofcourse,isthatitisnotsimplyaques0onofcommunica0ngtheoverallobjec0veandexpec0ngtheteamtogetonwithit.Tobesuccessfulintheoverallobjec0ve,“takethecastleonthehill”,youneedtotranslateitintoarangeofsub-objec0ves,organisa0on,processesandbehaviourssothatyou,astheleader,andtheteam,haveareasonableprobabilityofsuccess.Wewilltalkabouthowtodothatinfuturear0cles.Butfornow,let’slookattheFinanceFunc0onequivalentofthe“takethecastleonthehill”objec0ve:
SupporttheCEOandtheExecuDveTeaminbuildingasustainableandprofitablebusinessinamannercompliantwiththepoliciesandinterestsofthebusiness.
Returning,inaliLlemoredetail,tothethreecorelevelsoffocusthatIiden0fiedearlier:
1.“rela=onships”2.“buildingprofitability”3.“lineofdefense”
1.SupporttheCEOandExecu=veTeam:Nowyouwillheartheexpression“Business
Partnering”usedalotasatargetobjec0vefortheCFOandFinanceFunc0on.Inmyopinionweneedtobeverycarefulintheuseofthisterm.Partnershipimpliessomeformofequalityintermsofgenera0ngoutcomes.Ihavebeenonthereceivingendofenoughabusefrompoorlyperformingbusinessheadstounderstandthedifferencebetweenourrespec0veroles.TheBusinessistheBusiness;FinanceisFinance;theydeliver;wesupport.Itisimportanttobeclearonthisdis0nc0on.
2.BuildSustainableandProfitableBusiness:Manybusinessleaders,includingsomeofthemostsuccessful,effec0veandethicalleadersIhaveworkedwith,havebeenpreparedand/ortemptedtocashinsomefutureprofittolookgoodinthepresent.Thisisapar0culartempta0onwhenfinancialperformanceisunderpressure.TheCFOandtheFinanceteamhavegotaclearresponsibilitytosetthe“moraltone”surroundingthesegngandachievementoffinancialoutcomessothatprofitabilityissustainable.Thisisnotaneasytask;lifeandbusinessdecisionsandoutcomesarenotalwaysasimplemaLerof“Yes”or“No”.Business,likelife,isanego0a0on.3.Compliantwithpoliciesandinterestsofthebusiness:Thisisnotjustaboutlegalandregulatory
Ar=cle2:It’sallaboutobjec=ves
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IhaveseenFinancepeoplebackawayfromengagingwithandinfluencingpolicydecisionsinthebusiness-onthebasisthatnolawswerebeingbroken-butwhichdecisionswereclearlyworthyatleastofdebate.So,insummary,thetop-levelobjec0veoftheCFOmeansthatheorsheisintherela0onshipmanagementbusiness,inthebuildingprofitsbusinessandisakeylineofdefenseforshareholderstoensurethatthefutureisnotcashedintomakethepresentlookgood.Forshareholdervalueisaboutsustainabilitynotthequickbuck.Unfortunately,asrecenthistoryhasshown,manyCFOseitherdonotengagein,or
compliance;itisalsoaboutthespiritofwhatisrightfortheshareholder.
lose,thesustainabilitydebatewiththeirCEOandleadershipteamcolleagues.Allofwhichillustratesjusthowdifficultthejobis!
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Igotmyagenda!
8
WhenIjointheexecu0veteamofabusinessasCFOforthefirst0me,whetheritisahighperformingteamornot,IamveryawarethatIhaveafairlybriefhoneymoonperiodduringwhichIneedtoevaluatewheremyfunc0oncanaddmostvalueanddevelopacompellingprogramthatmakesadifferencetothebusiness.Thenthepressureisontodeliver.Some0mestheagendaisthrustuponyou,forexample,alocal,regionalorglobaleconomiccrisisorstresshasputprofitabilityand/orgrowthunderpressure.
Some0mesitislessobvious,forexample,whenthebusinessappearstobedoingwellbutislosingrela0veprofitability,posi0onand/orcompe00veness.
OhenthelaLersitua0oncoincideswithmanyonthemanagementteamthinkingthatthingsare“justfine”.Whateverthebusinessorenvironmentyouaredealingwith,itistheresponsibilityoftheCFOtoshinealightonandputmeasurementaroundthematerialopportuni0es,risks,weaknessesorstrengthsthatthemanagementteamshouldbefocusedon.Nobusinessisever“justfine”.Businessesneedtoan0cipateandhavetheflexibilitytoreacttosudden-shockorslow-burnchanges:thebusinessesthatloseoutareohentheonesthatcan’torwon’tdevelopanopera0ngmodelthatsupportsthisgoal.Inmyexperience,poorlyperformingbusinesses
andmanagementteamsdonotsupportandarenotsupportedbyaneffec0veEnterpriseFinancialManagementCulture.
Thecrea0onofthisneedsbusinessownershipandleadership.OfcourseFinancecanfacilitateandsupportitsdevelopment.Butunlesstheleadersinthebusinessreallygetbehinditandpushforittohappen,itwon’thappen.
3.EnterpriseFinancialManagementCulture
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Youcanrecogniseaneffec0veEnterpriseFinancialManagementCulturewheneverybodyfromtop-to-boLomoftheorganisa0on:1. understandsandownstheoverallfinancial
targetsandtheirroleinreachingthosetargets
2. understandsandexecutesthethingsthat
needtohappentoreachthetargets
3. islookingforward,an0cipa0ngproblemsandopportuni0esthatmightaffectfinancialperformance,takingac0ontofixormi0gatetheproblemsand/orexploittheopportuni0es
4. communicatesandmanagesproblemsandissuesbeforetheyhitthereportedresultsandopportuni0esbeforetheyaremissed
5. isfocusedoninfluencingandcommunica0ngkeyperformanceindicatorsthatdemonstratetrac0ononthethingsthatmaLer
6. understandsthelinkagebetweenpayandperformance(andthislinkagehastobeeffec0ve)
IcanpreLywellguaranteethatifyouseeapoorlyperformingorganisa0on,oneormoreofthesefactorsneedsimprovement.And,ofcourse,itstartswiththeleadershipteam.Iftheyfailonor
de-emphasiseoneormoreofthesefactorsthenitislikelythatthisfailorde-emphasisreplicatesallthewaydowntheorganisa0on.Theleadershipchallengeofcrea0nganeffec0veEnterpriseFinancialManagementCultureisajourneyratherthanades0na0on.Onereasonforthisisthatithashumancomplexity.Irrespec0veofthetoolsyouintroduce,thehumandimensioninvolvedindevelopingandmaintainingastrongEnterpriseFinancialManagementCulturecanbethemostchallenging,notleasttheriskthatalackoftransparencyaboutfinancialperformanceandaccountabilitysuitssomepeopleverynicely(andthiscanincludepreLyseniorpeople).Asecondreasonisthatitdependsonthelevelof
OwnsExecutes
An-cipates
Manages
Influences
Performs
maturityyoustartfrom:abusinessthathasbeenmanagedforyearswithaveryweakFinancialManagementCulture-onebossofminecharacteriseditas“drivingacarwhilstlookingintherear-viewmirror”-isunlikelytomaturetotakepartintheGrandPrixany0mesoon.IhavealsoobservedthatbusinesseswithdeficientEnterpriseFinancialManagementCulturewillohenmakealotofnoiseabouttheinadequaciesoftheFinanceFunc0on,theITFunc0on,theHRFunc0on,indeedeveryfunc0onexceptthepartsofthebusinessthathavetheresponsibilitytomakemoney!Some0mesthisisjus0fied,but,moreohenthannot,youfindthatthepeoplemakingthemostnoisearethepeoplemostunwillingtoacceptthattheysharetheleadershipresponsibilitytocreatethecultureandthattobesuccessfulyouneedtoinvestinthosefunc0onsthatcanassistindoingso.Communica0on,par0cularlyinlargerorganisa0ons,posesoneofthebiggestchallengesinensuringthatthevastmajorityofpeopleintheorganisa0onunderstandtheparttheyplayinfinancialoutcomes.IhavebeensurprisedathowohenIhavecomeacrosspeoplewhohaveworkedforyearsforabusinessyethaveliLleknowledgeabouthowthebusinessactuallymakesmoney!Whatisabsolutelycertainisthatyoucannotcreateaneffec0veEnterpriseFinancialManagementCultureifyoudonothaveaneffec0veFinance
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26
Suitssomepeople
Maturity
Leadership
Commun-ica9on
Failuretoinvest
Failuretoimplement
Weakfinancialmanagementculture-CausesTeamandothersupportfunc0ons.Andmany0mesIhaveseenhowunder-investmentinorpoorleadershipoftheFinanceFunc0onandothersupportfunc0onsisabigcontributortopoorbusinessperformance.Failuretoimplement,evenwheninvestmenthasbeenauthorised,isamuchmorecommonproblemthanmanypeoplearepreparedtoadmit.Inthenextseveralar0clesIwilllookatFinanceFunc0onLIFT,whichismymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on.
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Inthisar0cleIwanttopresenttheapproachIhavedevelopedoverthelast20yearsasCFOduringwhichIsuccessfullytransformedordevelopedseveralfinancefunc0onsinterna0onally.Icallmyopera0ngmodel“FinanceFunc0onLIFT”tocommunicatetheconceptofLIFT-ingperformance.Now,Ihaveseenmanyexamplesofpeoplepugngtheproverbial“cartbeforethehorse”inaLemp0ngtotransformfunc0ons,whetherFinanceorotherfunc0ons.WhatdoImeanbythis?Therearemanyvaria0onsonthistheme.Butthesinglecommonthemeistotryandleadwithatechnology“magicbullet”.Thisohenhappenswhenseniorleadersmakethedecisiontospendsignificantamountsofmoneyonatransforma0onalprogram.“Well,I’vegiven
youthebudget…whatmoredoyouwantfromme?”Well,leadership,actually.Spendingmoneyiseasy.Whatismoredifficultistodesignandexecuteatransforma0onalprogramthatalignsthewholeorganiza0onaroundnewobjec0ves,neworganiza0onaldesign,newprocessesandnewwaysofworking-withtechnologybeingacomponentenablertotheprogramratherthanthepointoftheprogram.Execu0ngchangeishard:peoplearebusy(some0mesworkingextremelylonghours);peoplefeelinsecure(ohenwithjus0fica0on,manypeople,includingseniorandmiddlemanagement,don’ttrusttheorganiza0onandseechangeasathreat);peoplearenotstupid(ifyoulietothemabouttheconsequencesofchangeforthem,theywillfindyouout);peopleneedtofeelengaged(imposingchangedoesn’twork).
Source:hLp://idiro.com/category/big-data-analy0cs/
4:Notechnology“MagicBullet”
Thismayseemobvious.ButIhavebeensurprisedathowohenpeople(andsome0mespreLyseniorpeople)thinkthatthereisa
Func%onEffec%veness
LIFT
TechnologyEffec%veness
LIFT
TeamEffec%veness
LIFT
technologicalmagicbulletfortheirwoesandthatalltheyhavetodoistospendenoughmoney.Thisbehavioris,ofcourse,ohenruthlesslyexploitedbythetechnologyindustry–neverknowinglyunder-sold.FinanceFunc0onLIFTisatransforma0onprogramthatcomprisesthreeinterlinkedac0onprograms.
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Good progress has been made in 12 months but a lot of work remains to be done…
1. Finance team
2. Efficient systems and processes
3. Management information
4. Preparation, presentation and agreement of plans
5. Financial models
6. Presentations of financial performance, investment required and strategies
7. Investment program
8. Statutory and regulatory reporting compliance
9. Stewardship
10. Swiss DB pension
11. Development, communication and agreement of strategy
! Lack of business partner and analytical skill-sets to support business with disproportionate headcount focused on basic control and reporting
! Severely deficient data management infrastructure supporting MI production and analysis; good availability data origination (but poorly documented & understood); inefficient legacy financial and management reporting systems
! Management information very rudimentary; limited or no analysis of financial performance of products, segments, geographies, responsibility and ratios and comparison of actuals with plans and forecasts.
! Limited engagement of finance with business leadership in preparation, presentation and agreement of business plans
! Rudimentary financial modeling with limited focus on KPI�s and performance tracking
! Limited capability for analysing, summarising and communicating with stakeholders.
! Financial reporting of investment program is adequate; Investment program management extremely rudimentary (because limited or no investment);.
! Good quality statutory and regulatory reporting disciplines (the minimum service level of a finance function), but inefficient because of poor systems.
! Good quality financial control of business entities
! Control of defined benefit pension scheme (in deficit) in need of major upgrade. No plan in place to address deficit.
! Limited in-house competence in development, communication and agreement of strategy
KPI Status January ! New organisation in place as of end December 2010. 4 to 5
further exits and 3 to 4 further new hires in progress.
! Upgraded Data management function and replaced legacy systems with Oracle Essbase platform. Development is ongoing and on track.
! Development is ongoing. Extensive development of new financial reporting products:
! Monthly financial performance reporting pack ! Weekly and monthly sales performance reporting ! Monthly performance by exec responsibility
! Fuller engagement by finance with front-office and business leadership; still some gaps in organisation; major improvement in tracking of performance against targets.
! New financial model developed and in-house resource trained; improved but still insufficient competence in modeling KPI�s
! Improvement of this limited because of gaps in organisation. Key person dependency on FD. Gaps now closing because of new hires. Expect to be green by end H12010
! New hire of BP Cost Management and HR is outstanding. Modelling of OD and linkage to KPI’s to be improved.
! New Essbase platform used to replace legacy Commander system; processes streamlined. Development on track
! Good quality financial control of business entities.
! Governance completely overhauled with new representation from IPB Exco. New finance committee established. Performance reporting improved.
! Improvement of this limited because of gaps in organisation. Key person dependency on FD.
Status December
Anac&onprogrambasedonaninterac-veprocessthatengagesandempowersthewholeteamtofixeffec-venessissues.
Func-onEffec-veness
LIFT
TeamEffec-veness
LIFT
TechnologyEffec-veness
LIFT
Anac&onprogramtorealiseshorttermandlongertermimprovementinproduc-vityandMI.
IRB SAPdata set
Daily Reporting Units data
Monthly Reporting Units data
Interface processes
Data warehouse (client data)
Monthly reporting processes
Monthly reporting data set
Daily Reporting Units financial
reporting
Monthly Reporting Units financial
reporting
Daily Reporting Units direct non-
DW
Monthly Reporting Units direct non- DW
General ledger control framework
Upstream non-financial data quality controls Upstream financial data quality controls
Change controls
Reconciliation controls
IRB MI OLAP Strategic data
set
IRB Mrepcontrol and reporting
data setReconciliation
controlsReconciliation
controls
Income tracker (including FTP)
FX Roll-up
Enhanced data origination and management with
linkage to top level data set
Efficient Data Management system with financial reconciliation controls
Reengineered, more efficient
finance processes
Improved accountability, systems and processes for
data management in business
units
Amended financial extracts with financial integrity and change controls
New calculators to generate data not
available in transaction systems
Note: clean-up of upstream non-financial data quality does not form part of CIPHER
Anac&onprogrambasedonatop-downevalua-onoffunc-onoutput,competencyandorganisa-ondesign.
14
• Origination • Various origination processes (i.e. manual inputs to Excel)
• Transmission • Different formats, including hard copies
• Consolidation • Data Manipulation (macros, copy, paste, etc) • Excel Links - Difficult to Audit for Errors • Difficult to alter or update • Manual Currency translation
• Reconciliation • Manual Reconciliation(too many Excel files) • Paper Intensive • Time Consuming
• Output • Paper Intensive • Time Consuming • Limited to existing data in various Excel files
• Analysis • Not Flexible • Manually Intensive • Duplication of analysis with non-centralized numbers • Passive analysis and reporting
• Origination • Streamline/Automate the processes for data inflows
• Transmission • Standard formats - electronic
• Consolidation • Automatic uploads of data • Data integrity - Calculation Built in Database • Easy maintenance and database administration • Automatic Currency Translation
• Reconciliation • Automatic Reconciliation • Paperless environment • Easy/Instant Reconciliation
• Output • Paperless - Templates • Automated - Analytic Applications in Excel • Easy integration of Cubes of information
• Analysis • Rapid, Flexible Reporting - Intuitive Data Navigation • Automated - Calculation built in Database • Centralized numbers for all • Dynamic analysis and reporting (charts, easy ad-hoc reporting, etc)
Current/Old Environment Planned Environment
5
On a monthly basis, all Front office teams receive data including:
! KPIs results against targets
! Income performance against target and 2009 results
All information is provided at Team and RM level with graphical analysis and trends.
Additional KPIs information is provided at account level.
3. Monthly MI Reporting
! ROA performance
! Product and asset analysis
Finance!Team!)!Overall.vision.&.strategy!
Business!Partnership.&!"Insight!
"Influence!"Control!"Efficient!
Business!Control! working.together.with.the!businesses!
Data.Mgt.&! Regulatory!
Produc8on! Technology!
Mission:.Support.the.EXCO.of.CBQ.in.building.a.profitable.and.sustainable.business.in.a.manner.compliant.with.the.policies.and.interests.of.the.Group!
!
Generic objectives:
1. Build and maintain a finance team and operating model with the skills needed to fulfill the core objective. 2. Develop and maintain efficient systems and processes that support all financial, management, regulatory, taxation and other
reporting requirements under the control of the Finance function. 3. Develop management information systems that permits reporting of trends on key financial performance drivers and outcomes
including but not limited to products, segments, geographies, responsibility and ratios and comparison of actual with plans and forecasts. 4. Support the development, communication and agreement of strategy. 5. Lead the preparation, presentation and agreement of plans; develop financial models that permit modeling under varying assumptions
about external environment and key performance drivers. 6. Develop presentations of the financial performance, investment required and strategies of the business to a variety of key
stakeholders and investors including but not limited to: MD, Exco and staff of IPB; Divisional and Group; and, if appropriate, local regulators
7. Develop the investment, funding and capital programs required to support the execution of business strategy including, where appropriate, business and financial cases.
8. Statutory and regulatory reporting compliance in Qatar 9. Assure appropriate stewardship of the Group’s financial resources and reputation in the development of the business
!
Vision:.Become.a.World.Class.Finance.team!!
Business!partnership!
One.multi)skilled.team.......................Analytics!Development!!!!!!!!!!!!!need!
Cycle!
Financial.&!Infrastructure..................Reporting!
solu8on!!!!!!!!!!!!!!!!!!!!!!!!!!!solu8on!
“FinanceFunc-onLIFT” Threeinterac-ngprograms
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Inlaterar0clesIwillgointomoredetailonthecomponents,thedesignandtheinter-linkagebetweeneachprogramandprovidesomeguidanceonsuccessfulexecu0on.Inconversa0onaboutLIFTwithanITspecialisthesaidtome:“Thisisthetradi0onalPeople,Process,Technologyapproach”(andyouknowhewasreallysaying,“Sowhat’sthebigdeal?”).Imakenoapologiesforrepackagingtradi0on:aheralltherearenotmanytrulyoriginal“new”ideasinthefieldofmanagingabusiness.It’sallpackaging.Buttherealbigdealis:ifpeopleunderstandallofthistheory,whydoyourepeatedlyseethetechnologypartofatransforma0onprogramtakingoverandbecomingthepointoftheprogramratherasubsidiaryenablerandtheprogramfailingorunder-delivering?Whydoesthishappen?I’lldiscussinmoredetailsomereasonswhythishappensinthenextar0cle.But,fornow,astoryIhaveseenplayedoutseveral0mesisasfollows:1. everybodyagreesthatchangeneedsto
happen;
2. businessleadershipfailstotakeownershipindefiningwhatneedstohappen;
3. externalspendisbudgetedandis“intheprogram”,sotheITfunc0onfillstheleadershipgap;
4. theprogramisbadlydefinedandresourced,focusedtoomuchonmanagingexternalspend;
5. ITmanagestoimplementthetechnology
(andspendthebudget)butchangesrequiredofusersareinsufficientlydefinedorimplemented;and,
6. thebenefitsarenotrealized-thetechnologyremainsunder-usedornotusedatall.
Whatisall-importantforthesuccessofchange
programsisadequacyofprogramdefini0onfollowedbyalignmentofresourcesandac0onstoimplementit.FinanceFunc0onLIFTplacesaccountabilityforleading,definingandexecu0ngtheprogramclearlyandunambiguouslyinthehandsoftheFinanceteamwithalotoffocusongegngtheteamitselftodefineandexecutethechangesrequiredtobemoreeffec0vearoundthethreedimensionsImen0onedearlier.TechnologyInvestment,whilegenerallyanimportantpartoftheprogram,isprogrammedsoastodeliverquick-winswithoutcompromisinglongertermobjec0ves.Inotherwords,thetechnologyisacomponent-ratherthanthepoint-oftheprogram.But,perhapsthesinglemostimportantaspectofFinanceFunc0onLIFTistheincorpora0onofchangemanagementandconstantchangeintotheDNAoftheFinanceTeam.Thisacknowledgesthatthepathtogreatnessisajourneyratherthanades0na0on.
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Inmypreviousar0cle“Notechnologymagicbullet”Iaskedtheques0on:“…whydoyourepeatedlyseethetechnologypartofatransforma0onprogramtakingoverandbecomingthepointoftheprogramratherthanasubsidiaryenabler,withtheresultthattheprogramfailsorunder-delivers?”Oneanswertothisques0onisthatmanypeopleareuncomfortablewithleadingandmanagingchangeintheworkplace.Thismayseemtobeastrangestatement.Aherallpeoplehavetomanagemajorchangeintheirlivesoutsideofwork(births,marriages,divorce,death,etc).Whywouldn’ttheybecomfortablewithchangeatwork?I’llgointothisques0onlaterinthisar0cle.Asecondansweristhatpeopleareuncomfortabledealingwiththehumandimensionsofmanagingchange,whichareohenthemorecomplex,difficultandmessypartsofthechangeprocess.Ithinkyou’llagreethatagreatnewITsystemmanagedbyadysfunc0onalteamisnotasuccessfuloutcome.Weneedtofixtheteamfirst;butforvariousreasons,andperhapsunsurprisingly,peoplecanbereluctanttoopenthispar0cular“canofworms”.OhenaLen0onisdivertedtothetechnologyaspectsofthechangeprogramwhilerefusingtoacknowledgethattechnology,alone,maynotsolvetheperformanceproblems.Athirdanswertotheques0onisthatmanyoftheteam,some0mesincludingthemanagement,donotunderstandwhatisrequiredtoliWthe
5:Putyourpeoplefrontandcentreofthechangeprogram
performanceoftheteambeyondwhatitcurrentlyis.Theirvisionofwhat“couldbe”isconstrainedbytheirvisionof“whatisandwhathasbeen”.Unlesstheteamknowsandagreeswheretheyaregoing,howaretheytodefinethetechnologyandothercomponentsrequiredtogetthere?
FinanceFunc=onLIFT,mymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on,isdesignedtoaddresstheseissues:1. TheFunc=onEffec=venessac0onprogram
redefinesthevisionforthefunc0on,transla0nggapsbetweennowandthefuturecondi0onintoawell-definedac0onplanthatformsthebasisofanewteamcharter.
2. TheTeamEffec=venessac0onprogramteasesouttheissuesthatateammightbefacingaroundGoals,Roles,ProcessesandValuesandputsresolu0onoftheseissuesfrontandcentreoftheprogramdesign.
3. TheTechnologyEffec=venessac0onprogramlooksattechnologyplanninginthecontextoftheneedsandpriori0esdefinedbytheTeamandFunc0onEffec0venessprograms.
Func%onEffec%veness
LIFT
TechnologyEffec%veness
LIFT
TeamEffec%veness
LIFT
IhavefoundthatcarefulincrementalITinvestmentthatdeliversastageddeliveryofimprovedFunc0onandTeamEffec0veness(lowhangingfruit,sotospeak)ismoreeffec0vethan“bigbang”technologyimplementa0on.Whowantsatechnicalsuccessbutaprac0calfailure?
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“Well,iftheuserscan’torwon’tusewhatwe’veinstalled,that’stheirproblem!”Ohen,itcanalsocostmuchless.So,let’sreturntotheques0onofwhymanypeopleareuncomfortablemanagingchangeatwork,despitethefactthattheymanagelotsofchangeintheirdailylives.Ithinkthemainreasonisthateithertheyarenotaskedto,ortheyaretoldnotto,ini0ateandmanagechange.AMcDonald’sburgercookisnotpaidtobecrea0ve;heorsheispaidtopresentastandardproductinastandardmannerwithstandardingredientscookedinastandardwayandwithagreatagtude.ManyFinancejobsarelikethis.Theyarenotpaidtomakeoutcomesmoreeffec0ve;theyarepaidtodeliverastandardoutcomeinastandardmannertoastandardverybusy0metable(though,onoccasionIhavetoadmitsomeoftheMcDonald’s“greatagtude”maybemissing!).Therealityisthatrisk-aversionistrainedintomanypeopleaspartoftheirworkand,inthecaseofFinancepeople,riskaversionforcertainrolesisanactualpre-requisiteandapersonalitycharacteris0cofpeoplewhodocertainjobs.TheresultisthatmanyFinancemanagerswhocomeupthroughthesystemareadeptatadministeringstandardprocessesratherthandevelopingandexecu0ngchange.
Anotherreasonwhymanypeopledonotembracechangeistheneedfor“boot-strapping”.Thismeanscon0nuingtodoyourdayjobwhile,atthesame0me,developingandexecu0ngthechangeprogram.Allchangeprogramsrequirethis,toagreaterorlesserextent.However,ifweassumethatthereisnotawholelotofidleresourcelyingaround,thenthechangeprogramwillnecessitaterealloca0onofalotofpeople’sorsomekeypeople’s“busy0me”tosomethingelse.Andalotofpeoplearenotforthcomingondoingthis.Finallyandunfortunately,inmyexperience,fearanddistrustis,toagreaterorlesserextent,anever-presentfactorinthebusinessworld.“What
“IfIdon’tfollowprocedureIcouldgetfired.”“I’mafinancepersonnotaprojectmanager!”“We’reallsobusyandnowtheywanttoloadmoreworkonus!”“I’mhappywithwhatI’mdoingIdon’tseewhyIneedtochange.“
willthismeanforme?”isacommonfirstreac0onwhenpeopleareconfrontedwiththeneedforchange.Thisisohenfollowedbyapassiveorac0verejec0onofthechangeprogramunlessyouworkhardtogettrustandbuy-in.AmodernFinanceFunc0onisacomplexmixofhighlyproduc0vestandardprocessandad-hocimprovisa0on.FortheCFOandteamtobesuccessful,constantchange(recognized,forexample,intheJapanesebusinessesphilosophyknowasKaizen)needstobeincludedinthetargetopera0ngmodel.Iwillalsolookatthisinmoredetailinfuturear0cles.So,theconclusionisthattogettothetargettransforma0onalopera0ngmodel,youhavetoputyourpeoplefrontandcentreofthechangeprogram.Inthenextar0cle,let’sstartbydescribingtheTeamEffec0venessprograminmoredetail.
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Thisseriesofar0cleslooksatFinanceFunc0onTransforma0onfromthepointofviewoftheprac00oner:howdoIdefineandexecutetransforma0on?FinanceFunc0onLIFT,mymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on,combinesthreeinterlinkedeffec0venessprograms:FuncDon,TeamandTechnology.Thisar0clelooksatoneofthesethreeprograms:DevelopingTeamEffec0veness.Some0meagoIwasinvitedtopar0cipateasapoten0alchangeleaderinaGlobalLeadershipandPerformance(LEAP)programthatShellOilwasrollingoutacrosstheGroup.OnepartoftheprogramdesignwasaveryusefulTeamEffec0venessQues0onnaire.Ihavesubsequentlyusedthisques0onnaireinseveralsuccessfulFinanceFunc0ontransforma0onassignmentsthatIhavecompletedaroundtheWorld,mostrecentlyinQatar.WhatIlikeabouttheques0onnaireisitssimplicity.Myexperienceisthatteamsrespondveryposi0velywhengiventheopportunitytoself-diagnoserisksandissuesimpac0ngtheireffec0venessandtodevelopsolu0ons.Igenerally“spring”theques0onnaireontheteamaspartofthelaunchworkshopoftheChangeProgram.Responsesareanonymous(toassurehonesty)butIgenerallyaLempttodifferen0atebetweenManagerandStaffresponses.Thephilosophyunderpinningtheques0onnaireisthat…
Tobesuccessful,teamsneedtobeveryclearontheGOALSofthegame,theROLESofthevariousplayersinthegame,thePROCESSESusedbytheteamandtheplayerstoachievethegoals,andthequalityoftheRELATIONSHIPS(includingthebehavioursandvaluesoftheteam).Greatteamsalsotakeownershipoftheireffec0venessandworkconsistentlytoimproveeffec0veness;managementbecomestheservantoftheteam.
6:TheTeamEffec=venessdiagnos=c
1.Goals:whatweshoulddoorneedtodo
2.Roles:howweorganiseourselvestodoit
3.Processes:howweachieveourgoalsandhowweensurethatiftheplanisn’tworkingwechangetheplan
4.Rela?onships:thebehavioursandvaluesthatkeepustogetherandfocused
Teameffec?venessisaboutsharedgoals,organisa?on,opera?onandbehavioursandvalues…
Goals
Roles
Rela?on-shipsProcesses
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Hereistheques0onnaire:
1. Goals• OurGoalsareclear
• OurGoalsarestretchingbutachievable
• Everyoneiscommi5edtoteamgoals
2.Roles• Wemaximumtheuseofresources
• Weareorganisedforachievementofgoals
• Everyoneisclearonresponsibili;es/tasks
• Leadershipresponsibili:esareclear
3.Processes• Teamprocessesarewelldesignedand
understood
• Problemsolvinganddecisionmakingprocessesareappropriate
• Decisiontakingreflectscompetenciesandneedforinvolvementofindividuals
• Conflictintheteamisconfrontedconstruc:vely
• Timeistakentoimproveteamprocesses
4.Rela;onships• Flexibility,crea:vityandcrea:onofposi:ve
energyisencouraged
• Thereissensi:vitytotheneedsofothers
• Thereistrustandopennessinteaminterac:on
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Oncetheteamhascompletedandreturnedtheques0onnaire,wecompiletheresultsandprovidefeedbacktotheminasubsequentTeamEffec0venessworkshop.Atthisworkshoptheteamischallengedtodevelopsolu0onsforimprovingeffec0veness.TheworkshopisalsousedasanopportunitytointroducesomeoftheFunc0onandTechnologyeffec0venessproposalsaspart-orwhole-solu0onstotheteam’sdiagnosisofwhatneedstohappentobecomemoreeffec0ve.Empoweringconceptssuchastheself-managedteamandmanagementasbeingtheservantoftheteamohencomeasabigsurprisetoteammembers.Ohentheyareshockedorsurprisedathowconsistentlypeoplefeelaboutissuesandsolu0ons.Teammanagerscanbeshockedatthedifferencebetweentheirpercep0onandtheirstaff’spercep0onofhowthingsare(andsome0mesthatmanagementisabiggerpartoftheproblemthantheythinkorarepreparedtoadmit).Butevenwithwell-managedteams,Ihavefoundthattheques0onnaireandworkshopisausefultoolforimprovingteamperformance.Func0ontransforma0ongenerallyinvolvesrevisedteamgoalsandobjec0ves,changestooracompletelynewopera0ngmodeland
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Average"Response" Minimum"Target"Response"
ClearGoals
StretchingbutachievableGoals
Everyoneiscommi7ed
Maxuseofresources
Organisedforachievement
Everyoneisclearonresponsibili>esandtasks
Clearleadershipresponsibili>es
Welldesignedandunderstoodteamprocesses
Appropriateproblemsolvinganddecisionmakingprocesses
Involvementandcompetenciesindecisionmaking
Conflictconfrontedconstruc>vely
Timetakentoimproveteamprocesses
Flexibility,crea>vityandcrea>onofposi>veenergyencouraged
Sensi>vitytotheneedsofothers
Trust&opennessinteaminterac>on
Howbaditcanbe*:thecloseryouaretozerotheharderitistohitthetarget…
*actualfeedbackfromoneoftheteamsIworkedwith
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organisa0ondesign,andchangestotechnology.TheTeamEffec0venessprogram’soverallobjec0veistogettheteamtotakeownershipofthechangeprograminitsen0rety,flushingoutandresolvingtheobstaclestosuccessfulexecu0on.Theteamendsupowningtheresponsibilityforimplemen0ngtheteam,technologyandfunc0oneffec0venesssolu0onsiden0fiedintheprogramdesignandbytheteamitself.Thisconsiderablyenhancesthelikelihoodofsuccessfulexecu0on.But,mostimportantlyinmyexperience,itenrichesandenergisestheteamandtheindividualswithintheteam.
I don’t want to
participate (6%)
Everything is bad (44%)
Most things are bad (50%)
Actualfeedbackfromnon-managersofateamIworkedwith
TeamEffec)venessLIFT:Aninterac*veprocessthatengagesandempowersthewholeteamtofixeffec*venessissues…
Teameffec*venessques*onnaire
Feedbacktoteam
Developteamac*onplan
Managementteamreviewand
committoac*onplan
Planexecu*onprocessandac*ontracker
Thisisfollowedbyaworkshopduringwhichtheresultsarefedbacktotheteam…
ItislikelytohighlightareaswhichtheLeadershipTeamneedtocommittoimprove.
Itstartswithateameffec*venessques*onnaire...
…withthechallengetodevelopateamac*onplantoaddressiden*fiedteameffec*venessissues.
Thisisfollowedthedevelopmentofateamandleadershipac*ontrackerwithenhancedcommunica*onandaccountabilityfordelivery.
Ateameffec*veness“healthcheck”mayberepeatedaIeraperiodof18monthsto2years.
Team
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FinanceFunc0onLIFTistheopera0ngmodelIhaveusedoverthepast20yearstotransformorupgradeFinanceFunc0onsintheAmericas,EuropeandtheMiddleEast.Itisasimplemodelbasedondefiningandexecu0ngchangeobjec0vesacrossthreedimensions:Teameffec0veness,FuncDoneffec0venessandTechnologyeffec0veness.Underpinningallofthisisaheavyemphasisonteamengagement,empowermentandcommunica0on.Inmylastar0cleIprovidedanoverviewoftheapproachthatItaketodevelopingtheTeamEffec0venessProgram.Akeyinputtothisprocessisatop-downevalua0onofFunc0onEffec0veness.ThiswillgenerallyalsoincludeobtainingfeedbackfrommyExecu0veCommiLeecolleaguesandotherusersabouthowtheyperceivethefunc0on.Aherall,iftheteamdoesnotknowhoweffec0velythefunc0onisperceived,howaretheytogaugeteameffec0veness?But,Ihearyouthinking,howdoIjudgeFinanceFunc0oneffec0veness?Func0oneffec0venessisaboutleadership:definingthegoalsofthefunc0onandtransla0ngtheseintomeasurableobjec0vesandeffec0veprocessesforachievingtheseobjec0ves.It’sassimpleasthat.IdefinemysuccessasCFObydeliveryofasinglegoal:
7:TheFinanceFunc=onEffec=venessdiagnos=c
SupporttheCEOandtheExecu0veTeam…
…inbuildingasustainableand
profitablebusiness…
…inamannercompliantwiththepoliciesand
interestsofthebusiness.
TosupportthedeliveryoftheoverallgoalIuseninebuildingblockobjec0vesforFinanceFunc0onEffec0veness1. Communica=on:Developpresenta0onsof
thefinancialperformance,investment/fundingrequiredandstrategiesofthebusinessforavarietyofkeystakeholders.Assureinfluenceonoutcomesthrougheffec0vecommunica0on.
2. Strategy:Supportthedevelopment,communica0onandagreementofstrategy.
3. Team:Buildandmaintainafinanceteamwiththeskillsneededtofulfilthecorepurposeoftherole.
4. ModelingandPlans:Leadtheprepara0on,presenta0onandagreementofplans;developfinancialmodelsthatpermitmodelingundervaryingassump0onsaboutexternalenvironmentandkeyperformancedrivers.
5. SystemsandProcesses:Developandmaintainefficientsystemsandprocessesthatsupportallfinancial,management,regulatory,taxa0onandotherrepor0ngrequirementsunderthecontroloftheFinancefunc0on.
Strategy
Modeling&Plans
Commun
ica0on!
Team
Systems&Processes
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6. InvestmentandFunding:Developtheinvestmentandfundingprogramsrequiredtosupporttheexecu0onofbusinessstrategyincluding,whereappropriate,businessandfinancialcases.
7. Compliance:Statutoryandregulatoryrepor0ngcompliance.
8. ManagementInforma=on:Developmanagementinforma0onthatpermitsrepor0ngoftrendsonkeyfinancialperformance,driversandoutcomesincludingbutnotlimitedtoproducts,segments,geographies,responsibility,andra0osandcomparisonofactualwithplansandforecasts.
9. Stewardship:Assureappropriate
stewardshipoffinancialresourcesandreputa0oninthedevelopmentofthebusiness.
EachyearIdevelopandagreeworkprogramsforimprovingdeliveryagainsteachofthesekeyobjec0ves.Thetransforma0onprocessisbutthefirstofmanyfuture“constantchange”(Kaizen)programsthatputthefunc0ononthejourneytogreatness.
BeingaCFO:asinglecoreobjec3vesupportedby9keydeliverables…
StrategyModeling&
Plans
Investment&Funding
MI
Communica9on!
Team Systems&Processes
Compliance Stewardship
SupporttheCEOandtheExecu9veTeam…
…inbuildingasustainableand
profitablebusiness…
…inamannercompliantwiththepoliciesandinterests
ofthebusiness.
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Func%onEffec%venessLIFTjustlikeTeamEffec%venessstartswithsomeself-diagnosis…
Func&oneffec&veness
review
FeedbacktoCFO(andleadership
team)
Developleadershipteam
ac&onplan
IncorporateTeamandTechnologyeffec&veness
ac&ons
Planandpriori&seexecu&onprocessandac&ontracker
ThisisfollowedbyaworkshopduringwhichtheresultsarefedbacktotheCFO(andrestofleadershipteam)…
Otheritemsiden&fiedfromtheTeamandTechnologyworkstreamsareincorporatedintotheplan.
Itstartswithatop-downreviewofFunc&onEffec&veness...
…withthechallengetodevelopaleadershipteamac&onplantoaddressiden&fiedFunc&onEffec&venessissues.
Thisisfollowedbythedevelopmentofleadershipaccountabilityfordeliveryandweeklyprogresstracking.
Leadershipteamreviewsfunc&oneffec&venessannuallytorefinepriori&es.
CFO
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TheCEOandotherleadersintheorganizaDonarehavingtroubleunderstandingandimprovingperformancebecausetheydonothaveenoughactualorpredicDveinformaDon.DailyreporDngdoesnotexistandmonthlycloseisoVenlate(butmoreorlessaccurate).ThebusinessesgeneratealoadofunofficialmanagementinformaDonthattheyusetotracktheirperformanceandmakedecisionsbecausethereportsthatFinanceproducesaretoosummarizedandfocusjustonfinancialinformaDon.TheinformaDonproducedbythebusinessisinconsistentandnotreconciledtoFinancenumbers;theCEOisconfusedbythis.Thereisnoforwardviewotherthanthebudget(whichhappensonceperyear)andthebudgetspreparedbythebusinessesareaspiraDonalratherthandriver-based.TheFinancefuncDonisledbyaveryablecontrollerwhohasbeenwiththeorganizaDonforalongDmeandisperceivedasacapableandtrustedindividual.Becauseof“poorsystems”theFinanceteamgettheirjobdonethrough“heavyliVing”(longdaysandweekends)withaheavyemphasisonuseofspreadsheets…
Let'shavealookatatypicaltransforma0onchallenge:
…Icouldgoon.Soundsfamiliar?Ihaveseenallofthesesymptoms,andmore,insomeofthefunc0onsIhavetransformed.Andofcoursethistranslatesintoaweakfinancialmanagementculture,whichisadangertoanybusiness.SeemoreaboutthisinAr0cle3inthisseries.
8:TechnologyLIFT:remembertheQBCrule!
OwnsExecutes
An-cipates
Manages
Influences
Performs
Effec-vefinancialmanagementculture
OhentheCEOhasaskedtheFinanceandITpeoplewhatneedstohappentoimprovemaLersbuthasbeentold:“Iknowyouareunhappyandweagreethatthingscanbeimproved,butunlessyouinvest$XmillioninacompleteoverhaulofthecurrentITsystemsthenthereisliLlethatwecando.”TheCEOsays:“NowayamIspendingthatmuchonasystemthatdoesnotproducerevenue.”
...andnothingchanges.YoucanunderstandwheretheCEOiscomingfrom.ACEOIonceworkedfor,whenIaskedhimhowhepriori0sedinvestmentspend,answered:“IfollowtheQBCrule.”Iasked:“What’stheQBCrule?”andhesaid:
“Ifitain’tQuick,ifitain’tBigandifitain’tCheapthenyoureallyhavetoquesDonwhetheryoushouldspendthemoney.”
Thisphilosophyguidesmetothisday.Inalltransforma0onsyouhavetodeliversomething-anything,quickly,toestablishcredibility;itneedstobesomethingwithareasonablybigimpactwhencomparedtowhatothercolleaguesaredelivering;anditcannotcomeatacostthatallowsittobeshotdown.So,whatifyouhadansweredtheCEO’sques0onasfollows?“Ithinkwecanmakeamajorimprovementinbusinessimpact,producDvityandeffecDvenessofourFinanceFuncDonwitharelaDvelysmallamountofinvestment.Sure,foropDmalefficiencyitmaybenecessaryto
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doamajorsystemschange.ButletmemakeanimpactwitharelaDvelysmallamountofmoneysothatIearntherighttoaskformore.”AsageneralruleIhavefoundthatthisapproachgetsthetransforma0onprogramofftheground.MostCEO’swillgiveyouenoughrope!AndgenerallyifyoudeliverPhase1well,thenyouearntherighttoaskformoreinvestment.Phasingtheinvestmentiskey.
repor0nginforma0onabouttheperformanceofthebusinesses.Obviouslytheamountoftheinvestmentrequiredwilldependonthesizeandextentoftheprojectdefini0on.However,inPhase1,ItendtokeepthedevelopmentsmallerthanidealandverymuchfocusedonimprovingtheexperienceoftheCEOandmyfellowExecu0veCommiLeemembers.
GenerallythefirsttechnologyinvestmentImakewhenleadingaFinanceFunc0ontransforma0onistorapidlycreateascalable,modern,efficientDataManagementEnvironmentforusebyFinanceandBusinessusersinanalysingand
ThereasonforthisisthatIwanttoimprovethepercep0onofFinanceandbuildcredibilitywitharegulardrip-feedofimprovementinMIandanaly0cs.
1.Agreetoplevelrepor-ng.Thissetsdatamanagementobjec-ves
2.Determinestrategicdatasettoallowthisrepor-ngtohappen
3.Developdatastructuresthatassureroll-uptostrategicdataset
4.Developdataorigina-onthatpopulatesthedatastructure
5.Runcontrolleddataorigina-on
6.Captureandstandardisethedata
7.Populatethestrategicdatasetfromwarehouseandothersources(plans,headcountetc)andreconciledtofinancialdataset
8.Generatetoplevelrepor-ngbasedonstrategicdatasetwithroll-upandroll-downandreconciledtofinancialdata
Roll-uptoStrategicDataSet
Repor-ng
StrategicDataSet
DataOrigina-on
Ihavefoundthatthebestwayofdoingthisistoimprovetheaccessibility,0melinessanddrill-downcapabilityofcurrentinforma0onasquicklyaspossible:getwhattheyalreadyhaveautomatedandreconciled,andruthlesslyreplacespreadsheetsusedinproduc0onwiththenewtechnology.ThiscreatesbandwidththatallowsFinancetomovetothenextphase,whichistoexpand
capabilityandtoimplementtheworkprogramscomingoutoftheFunc0on-effec0venessandTeam-effec0venessworkprograms.
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Thereareseveralchoicesoftechnologyavailable.ForexampleHyperion(nowOracle)Essbaseisanexcellenttechnologypla{ormtoaffecttransforma0on.Several0mesIhaverapidlydeployedEssbaseasatac0calsolu0oninPhase1whichhasthenevolveditintoastrategicsolu0oninsubsequentphasesoftheproject.Withtheadventofhighimpacttechnologieslikecloudandmobile,thesedaysyoucanalsoaffectthischangewithouttheneedtoprocurehardwareorinvolvealargeamountofITresource.Themobiledistribu0onofdataalsomakesthisevenmoreeffec0ve.Itiscri0calthatyouengagesuitablyqualifiedtechnicalsupport.Mypreferencehasbeentousedependable,externaltechnologypartnersthatspecializeintac0calandstrategicEssbasebuildswithshortdevelopment0me.TogiveyouanideaofthetypesofpartnersIhaveused:Qubix,basedintheUKbutwithofficesinterna0onally,supportedmeintheUKandSwitzerland(www.qubix.com)andIntelledata,basedinFloridabutwithofficesinterna0onally,supportedmeintheUS,Argen0naandacrossseveralotherLa0nAmericancountries(www.intelledata.com).IntheMiddleEastIwassupportedbyGBM(www.gbmme.com)withanIBMCognosimplementa0on.FinanceFunc0onLIFT’sapproachofphased
investmentmeetstheQBCrule.ButrememberthereisnosuchthingasaTechnologyMagicBullet(seeAr0cle4inthisseries).TheTeamandFunc0oneffec0venesspartsoftheprogramareatleastasimportantastheTechnologypart,notleastbeingtheneedtodeveloptechnologycompetenciesintheFinanceTeam.
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Somereadershaveaskedme:WhatoutcomescanyouexpecttoseefromaFinanceFunc0ontransforma0on?Whatdoesitlooklike?Myanswerissimple:justas“Beautyisintheeyeofthebeholder”,aFinanceFunc0on(oranyotherfunc0onforthatmaLer)iseffec0veiftheCEOandothercolleaguesacrosstheorganisa0onjudgeittobeeffec0ve.Percep0onisreality.Andtowinthepercep0onbaLle,itisessen0altodeliverandover-deliverontheexpecta0onsofyourcustomers.Whyisthisimportant?Well,IhaveseenmanyFinanceprofessionalsstrugglebecausetheydonotplacesufficientemphasisonthemanagementofpercep0on.ToomanyFinanceprofessionalsemphasisethetechnicali0esofthefinancejob(whichisohentheircomfortzone),whilenotspendingenough0meandaLen0ononbusinessleadership(which,ohen,isnot).WhatmanyfinancepeoplefailtounderstandisthattheCFOjobisnotaboutlegngyourCEOandyourcolleaguessetyourobjec0ves,andyouthendeliveringonthem.Func0onleadershipisaboutsegngtheagendaforyourfunc0onsothatitcontributestothedevelopmentofstrategyandmaximizesitscontribu0ontotheexecu0onofthatstrategy.Thismeansthatyounego0atetheobjec0vesandpriori0es;youdonotsitaroundwai0ngfororders.Butwhatexpecta0onshouldyoudeliver?Inmyexperiencetheexpecta0onsthatmanybusiness
9:Percep=onisReality
leadershaveoftheirFinanceFunc0onareohenpreLylow.Andwhenyouaskyourcolleagueswhattheywant,theycanbechallengedtodescribeit,otherthantocomplainaboutwhatiswrongwiththecurrentset-up.Insuchasitua0on,thereisadangerthattheCFOwilldevelopatac0calprogramtofixarandomlistofcomplaints,ratherthandevelopaprogramthatcreatesaWorldClassFinanceFunc0on.
AsSteveJobssaid:“Alotof0mes,peopledon'tknowwhattheywantun0lyoushowittothem.”So,Itendtogoaheadandshowittothem!Overthepast20yearsorsoIhavesuccessfullytransformedFinanceFunc0onsintheAmericas,EuropeandtheMiddleEastusinganopera0ngmodelthatIdevelopedandcallFinanceFunc0onLIFT.ItassistsmeindiagnosingandfixingdeficienciesintheadequacyofTechnology,TeamandFunc0onDefini0on.MostoftheFinanceFunc0onsIhavetransformedhadunderperformed,notbecauseofpoormanagement,butbecauseofpoorleadership.Generally,theyhavenotbeen
deficientinthebasicserviceleveloffinancialandregulatoryrepor0ng,buttheyhaveunder-performed,ornotperformedatall,onthehighervalue-addedcomponentsoffunc0oneffec0veness.Inpreviousar0clesIhavewriLenaboutsomeoftheelementsofFinanceFunc0onLIFT.Oneveryimportantenablingac0oninFinanceFunc0onLIFTisthecrea0onofatopteamwiththecompetenciestodelivertheprogram.Withoutbeingtoospecificaboutthedetailsoftheorganiza0ondesign(whichwillbebigger,smaller,moreorlesscomplexdependingonthesizeandnatureofthebusiness),Ilooktodevelop4top-teamcompetencies:1. Financial&RegulatoryRepor=ng:This
comprisesthebasicfinancialcontrolandrepor0ngservicelevelrequiredofallbusinesses.TheKPIforthiscompetencyis0mely,accurateandefficientproduc0onofreports.Itistheengineroomofthefunc0on.
2. DataManagementandProcessImprovement:Thisdoeswhatitsaysonthe0n:itisthechangemanagementcompetencyandsupportsthedevelopmentofarollingprogramofconstantimprovement(Kaizen).ItsKPIismeasurableprocessimprovementanddatamanagementcapability.
3. BusinessPerformanceImprovement:Thisisthecompetencythatdevelopseffec0ve
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rela0onshipswiththekeyprofitdriversofthebusinessandsupportsperformanceimprovementincludingsupportfordevelopmentandmodelingofstrategyandinvestmentandfundingprograms.Transla0onofcomplexityandcommunica0onisalsoakeyrole.
4. PlanningandAnalysis:Thiscompetency
sitsatthecentreoftheabovethreeensuringthattheviewofthefutureisconsistentwiththeviewsofthepast;thatadhocanaly0csrequiredforperformanceimprovementareproduc0onisedandcontrolled;thatmanagementinforma0onproducedisstandardisedandproduc0onisedwhileensuringthattheoverallbusinessfocusesonthingsthatmaLer.
Ofcourse,theleadershipchallengeoftheCFOistomouldthesecompetenciesintoaneffec0veteam.Thiscansome0mesbeachallengegiventheverydifferentpersonali0esandprofessionalpriori0esofthepeoplewhoexcelintheseroles.
DataManagementandProcessImprovement
BusinessPerformance
Financial&RegulatoryRepor<ng
Leadershipteam:fourkeycompetenciesrequired
Planning&
Analysis
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Inanearlierar0cleinthisseriesIsaidthat“Businessesneedtoan0cipateandhavetheflexibilitytoreacttosudden-shockorslow-burnchanges:thebusinessesthatloseoutareohentheonesthatcan’torwon’tdevelopanopera0ngmodelthatsupportsthisgoal.”IbelievethattheCFOneedstoplayacri0calroleinensuringthatthishappenseffec0vely.Weneedtospendalotofour0melookingout(atcompe0tors,markets,economicsandsoforth)aswellaslookingin(atfunc0oneffec0veness,financialmanagementculture,efficiency,compliance,andthemyriadotherthingswehavetoensurewegetright).Ifyouthinkaboutit,manyofushavespentvirtuallytheen0retyofourcareerssuppor0ngbusinessesthroughtough0mescauseddirectlyorindirectlybyeconomiccrises.Forexample,mycareerasCFOhasspannedbusinessesimpactedbythesovereigndebtcrisisofthe‘80s,theUKeconomiccrisisoftheearly‘90s,theAsianeconomiccrisisofthelate‘90s,theArgen0nadebtcrisisof2001,thecrazycreditexpansionintheUSandEuropeupto2007andtheensuingcrash–theimpactofwhichisongoingahermorethan8years(!).Myobserva0onovertheyearsisthatallofthesecrisesoriginatedfromtheburs0ngofcreditbubbles;andprogressiveglobalisa0onhasincreasedthelikelihoodofcreditbubblerisksinonecountryorregionbeingtransferredtoanother
Source:hLp://www.scoopnest.com/user/GregoireFavet/656079413029814273
10:Lookingoutaswellaslookingin…
countryorregion.Currently,forexample,manycommentatorsareexpressingconcernaboutthesustainabilityofChina’scredit-drivengrowth.WhyshouldtheCFOintheMiddleEastworryaboutthis?AherallChinaisvery,veryfaraway.So,ifyourbusinessis,say,sellingstuffinDubai,whyshouldyouworry?Iwasdiscussingthisrecentlywithanequityanalystandhesaidthat,forhispurposes,hefocussedpreLymuchen0relyontherela0ve
compe00veposi0oningofthecompaniesheevaluated(profitability,efficiency,marketshare,productinnova0onetc);hetendedtostayawayfromspecula0ngabouttheeffectofmacro-economicforces.Ofcoursethishaslogictoit:ifyouareanequityanalystorfundmanager,whoseobjec0veistopickastockthatwillbeattheaverageofanindex,thenbypickingthestrongestcompanyintheindex,yougettoyourgoal.
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However,Iwouldarguethatthisapproachisnotsufficientifyouleadacompany.Ofcourseitmakessensetoaimtobethemostsustainablyprofitable,withstrongmarketshareandindustry-bea0ngefficiency.Butbusinessleadersalsoneedtotryandiden0fythemediumtermexisten0althreatsandopportuni0esthatmaybepresentedoutsideoftheirzoneofdirectcontrolandposi0on
theorganisa0ontorapidlyadjustinan0cipa0onoftheserisksandopportuni0es.Manymanagementteamsadoptaposi0onofdenialwhenfirstconfrontedwithanexternalproblemandareunpreparedtochangecoursesufficientlyrapidly.Ortheyaresimplyunprepared.IamremindedofthequipbyChuckPrince,thenCi0group’sCEO,whenaskedbytheFinancialTimesinJuly2007whetherCi0group’sriskappe0teforprivateequitydealsmightreducegiventheburgeoningsub-primecrisis.Hereplied
thatgloballiquiditywasenormousandonlyasignificantdisrup0veeventcouldcreatedifficultyintheleveragedbuyoutmarket."Aslongasthemusicisplaying,you'vegottogetupanddance,"hesaid."We'res0lldancing.”WhathewassayingwasthatCi0groupcouldnotbeseenastheonlyins0tu0ontocutbackonthatbusiness.NowIamnotgoingtospeculateaboutthepriceofoil.I’mnotsureanybodycansaywhereitsmediumtermpricewillstabilisewithanycertainty.HoweverwhatIcanspeculateaboutiswhetherbusinessesintheMiddleEasthaveadequatelystress-testedtheirmediumtermplansforvariousoilpricescenariosanddevelopedcon0ngencyplansforthem.Differentscenarioswillhavedifferentconsequences,necessita0ngdifferentbalancesheet,costandinvestmentposi0oning.ItisbeLertoprepareforascenarioinadvancethantowaitforittooccurandthenbeginthinkingaboutit.EvenifyourbusinessistosellstuffinDubai.So,backtotheChinaques0on:whyisitimportant?China’sbankingsystemhasgrownfromunder$3trilliontoover$34.5trillioninassetsoverthelast10years.Thereisnoprecedentinrecordedhistoryforthisrateofcreditexpansion.IndoingsoChinahassuckedinaverylargeshareoftheWorld’scommodityproduc0ontosupportthebiggestinvestmentandcommoditypriceboomofall0me
(oneofmanysta0s0cs:inthepastthreeyearsChinahasconsumedmorecementthantheUSusedinthepast100years).Manycommentatorsfeelthatthecreditbubblesuppor0ngthisgrowthmayburstandChinawillhavea“hardlanding”.Othercommentatorsfeelthata“soher”landingwillhappen.Whoeveryoubelieve,thereisalikelihoodthattheChinesedemandthatwasthereinthepast10yearsmaynotbethereinthefutureandthatthisislikelytohaveanimpactonmarketsandproducersintheMiddleEastandelsewhere,par0cularlyoil,gasandothercommodi0es.
Oh,onefinalword:inNovember2007,shortlyahertheinterviewwiththeFinancialTimes,ChuckPrinceresignedhisposi0onwithCi0.
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MostoftheFinanceFunc0onsIhavetransformedhadunderperformed,notbecauseofpoormanagementbutbecauseofpoorleadership.IfyouwanttobecomeaCFO,thenyouneedtoaccumulatetheexperienceandtrainingtobeconsideredforthejob.Thismayseemself-evident.But,overtheyears,Ihavebeenstruckbythenumberofyoungandmid-levelfinanceprofessionalswhoaspiretobecomeCFO,yetstruggletodevelopandmaintainacareertrajectorythatqualifiesthemfortherole.Whetheryourambi0onistobeaCFOorsomethingelse,careermanagementwillimprovetheoddsofyourachievingyourcareergoals.Overthepastfewmonths,Ihavemetindividuallywithover200execu0vesofoneofthelargerbusinessesintheUAE.ThethemeofthisprogramwasCareerPlanningandManagement.Thepar0cipantsrangedfromveryseniorandlate-careerexecu0vestomorejuniorandearly-careermanagersandstaff,withabroadrangeofages,na0onali0esandprofessionalbackgrounds.Now,I’mnottalkingaboutplanningforthenextyearortwo;I’mtalkingaboutplanningthenext10to15yearsofyourprofessionallife.Thiscanseemlikeaverylong0meaway.But,asIpointedouttomypeople,10to15yearsisabout3to4jobs,ifweassume3to4yearsper
job.Soitmakessensetomakethesestepstherightstepstowardsanoutcomewedesire,thantohopethattherandomnessoflifeortherandomgenerosityofthebosswillachievethesameresult.
11:Prac=cebeingaleader
Iseecareerplanningasafour-stepprocess.Firstweneedtodefineourobjec=ve.Thismayseemstraigh{orward.Itisn’t.Andoneofthereasonsitisn’tisthatina10to15year0meframe,manypeople,par0cularlythoseintheearlystagesoftheircareer,strugglewithunderstandingthequalifica0onsrequiredfor
moreseniorjobs.Ihavecomeacrossmanypeoplewhothinkthatdefiningtheobjec0veissimplytonamethejob.Thisdoesn’twork.Weneedtovalidatetheobjec=ve,thesecondstepoftheprocess.Whatdoesthismean?Putsimply,avalidatedobjec0veisanobjec0vethatwehaveareasonableprobabilityofachievingifwefollowacourseofac0on.Itmeansthatweunderstandwhatisrequiredtobeacontenderforthejobandthatthegapbetweenwherewearenow,andwhereweneedtobe,islikelytobebridgeablegivenourcurrentage,levelandexperience.Thethirdstepintheprocessistodoagapanalysistoiden0fythedevelopmentneedstobeaseriouscontender.ThisrequiresthatwehaveapreLygoodunderstandingofthetargetjobandwhatweneedtoachievetobeacontender.Butitalsomeansthatweneedtobehonestaboutourcurrentcapabili0es.Finally,weneedtodeveloptheplantofilltheiden0fiedgaps.Andthisplanwillcomprisetwoelements:3to4jobs,plussometrainingcoursesandself-study.Tooohen,Financeprofessionalsplacetoomuchfocusonthetechnicali0esoftheprofessionandtooliLlefocusondevelopingthepeopleskillstoqualifyforthetopjob.ChiefExecu0vesspendthevastmajorityoftheir0meonhumanstuff:nego0a0ng,influencing,leading,communica0ng,hiring,firing…thejobisallabouthumaninterac0on.Theyneedpeoplearoundthem
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tosharethisload,whilstalsobringingspecialistskillstothetable.Trainingcourses,whileimportant,areobviouslymoreimportantearlierinourcareers.Aswegetmoresenior,moreandmoreofourprofessionaldevelopmentwillbeon-the-job.Iwouldsay,maybe,80%foramid-levelandseniorexecu0ve.Whichiswhythe3to4jobsweplanaresoimportant.Manypeopleunderes0matetheimportanceofself-study.Iseeitasalife0meendeavortoachieveprofessionalcredibilityatthemostseniorlevels.Ifwespeaklikeaccountantsandnotasbusinessleaders,wewillnotbecredible.CareerPlanningandManagementisanitera0veprocess:asweexecutetheplanandobtainmoreinforma0onandfeedback,weneedtore-evaluatetheobjec0ve,thegapandtheplan.Butthemostimportantthingaboutcareermanagementisac0onandmovement.Ifwewantaleadershiproleinthefuturethenthebestwayofbeginningthisjourneyistostartac0nglikealeadernow,inourcurrentroles.So,ifyouhavedefinedyourcurrentroleasbeingtomanage“whatis”,askyourself“whatcouldbe?”andnego0ateandimplementthischange.Thisisleadership.
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Iwasspeakingtoaseniorexecu0veofalargeUKfinancialins0tu0ontheotherdayandshetalkedaboutsomeofthefrustra0onherins0tu0onisexperiencinginexecu0ngchange.Now,ofcourse,someofthismaybeanissueofpercep0on.Aherall,ifyouareaChiefExecu0vetaskedwithdevelopingandimplemen0ngaverylargeandcomplexchangeprogram,thenthereisastronglikelihoodyouwillperceivefewthingsasbeingdeliveredquicklyenough.Ifpa0enceisavirtue,itdoesn’talwaysapplytoCEOs!But,pugngCEOpressuresandrelatedpercep0onstooneside,therealityisthatmanybusinesschangeprogramsrunintorealexecu0ondifficul0es.Whetheritisanewproduct,anewsystem,acorporatereorganiza0on,anacquisi0on,adivestmentorwhatever,manychangeprogramsdeliverwaylessthanexpecta0onsordon’tdeliveratall,notsomuchbecauseofafailureofstrategybutbecauseofafailuretoexecuteeffec0vely.WhyisthisandwhatarethethingsthattheCFOshouldconsidertobeLerensurereturnonchangeinvestment?Iuseasimpletop-teamdiagnos0ctobeginwith:1.Goals:Areweclearonthefinancialoutcomesthebusinessistodeliver?Andaretheseappropriate?Thepointhereisthattheoverall
Goals
Roles
Rela)on-shipsProcesses
12:Execu=onisthething…
changeprogramneedstobecontextualizedbyadesiredandsustainablefinancialoutcome.RecentlyIwasatapresenta0onbytheCEOofalargeglobalsohwarecompanywherehemadethispointtotheaudience:“Youcandressitupallyoulike,butthereasonIremainemployedisthe
boLomline….That’salltheBoardandShareholderscareabout.IfIamtosurviveIneedtogenerateacceptablenumbers.”OhenIhavefoundthatthefinancialpointoftheprogramislostand/orpoorlycommunicated.Gegngpeoplefocusedonandremindedofthefinancialoutcomesanddriversofthoseoutcomescanbetransforma0onaltoaprogramthat’snotworking.
2.Roles:Areweclearontheaccountabilityforthevariouscomponentsandprerequisitesfordeliveringthefinancialoutcomes?Ihavebeensurprisedathowmany0mesIhaveobservedopaqueaccountabilityforgegngthingsdone.Andoneofthereasonsforthisisthatitcanbedifficulttogetpeople(andevenveryseniorpeople)toputtheirhanduptoleadapartofaprogramthathasaverytransparentoutcomeandwhichcouldtake3to4yearsoftheirlives.Manymanagers,par0cularlythosethatarepoorleaders,actasadragonexecu0on.Theyprefertosecretethemselvesinanoversightorgovernanceroleratherthaninactuallyleadingthechange.Thisgivesthempowerwithoutaccountabilityandthispowercansome0mesbemisused.3.Processes:Doweallunderstandwhatneedstohappenforthefinancialoutcomestobeachieved?AndI’mnottalkingabout“movethisnumberby10%”,orwhatever.Theques0onis“whatdriversofperformanceneedtomoveforthis“10%”tohappen?”TooohenIhaveseentheso-called“strategy”orgoalbeingatop-downaspira0onaltargetwithliLleornovalida0onastoachievability.Ifyoucannotnaildownthedriversofthenumbersyoucannotnaildownwhoisperformingandwhoisnot.4.Finally:Whataretherela=onshipslikeinthetopteam?Iknowonethingforcertain:unlessthetopteamactseffec0velyasateamwewillnotdeliver
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top-classfinancialperformanceandwewillnotexecutewell.AndIamnotreferringtowheretopteamrela0onshipsaredysfunc0onal(andthisisamorecommonproblemthanmanypeoplearepreparedtoadmit),itcansimplybeaques0onofpeopletryingtodotherightthingintheir“silo”without“joined-up”orconnectedthinkingandac0on.Inmyexperiencebusinesseswithexecu0ondifficul0esfailorneedimprovementononeormoreofthesekeyques0onsandtheresul0ngweaknessesarereplicatedandamplifieddownthroughtheorganiza0on.Nowmanyfinanceprofessionalsreadingthismayreacttoitbysaying:
“SurelyitisthejoboftheCEOratherthantheCFOtoenterintothisparDcularminefield?”
TowhichIreply…
“AcriDcalpartoftheCFO’sroleistoadviseandsupporttheCEOonthemaaerofsecuringfinancialoutcomessothattheCEOandtheteam’sperformanceisacceptabletokeystakeholders.TodothiseffecDvelyyouneedtowalkintheCEO’sshoesand,asoneofthevery
fewmembersoftheleadershipteamwiththebreadthofviewoftheCEO,weareoVenthebest-placedresourcetosuggestimprovementstoleadershipteamalignmentwherefinancialoutcomesareconcerned.”
Thisisleadership.
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Allofuswhohaveoperatedatseniorlevelinbusiness,whetherasCFOorinotherroles,cometorealisethatbusinessleadershiphasasignificantpoli0caldimension.Differentpeopleontheteamhavedifferentpriori0esandagendas.Thenego0a0onoftheseis,necessarily,apoli0calprocessofgiveandtakebetweenthemembersofthetopteam.Andthereisalwaysthepossibilityofpersonalagendasinfluencingthenego0a0on.Inmyexperience,thedynamicsandchallengesposedbyorganisa0onpoli0csdifferdependingonwhetherthebusinessisdoingwellorbadly.Whenbusinessisbuoyantandtheteamisfocusedonbuildingsustainableprofit,thechallengefortheCFOisohentodowithkeepingpeople’sfeetontheground,reigninginirra0onalexuberanceorop0mism,keepingtheteamfocusedonthestrategyandonthecompe00onandotherrisks,andavoidingdecisionsandac0onsthatwillresultinthebusinessnotbeingabletosuccessfullynavigateanexternalshock.Thiscanbedifficult.AfriendofminewasfiredfromhisjobasCFOofaprivatecompanypriortothecrashof2008becausehisentrepreneurbossthoughthewas“notaggressiveenough”intheareasofdebt-financedgrowthandspecula0veinvestment.Interes0nglythebusinesswentbustsoonaherthecrash.IliketothinkthathadthisentrepreneurlistenedtohisCFO’scounselhemights0llbeinbusiness.And,ofcourse,manyCFOs,unlikemyfriend,
13:Theartofgedngthingsdone
bendtothewillofthebusinessinthe“good0mes”whichmakesnaviga0ngthroughthebad0mesdifficultorevenimpossible.
Inego0atedoneofthelastsub-primeassetsales*toLehmanBrothersbeforetheycrashedin2008.WhenIanalysedthesaleformyBoardreport,IcouldnotunderstandwhyLehmanhadpaidsomuchforthepor{olio.BecauseeventhoughImadeabooklossonthesale,thethrough-the-cyclelossfromthepor{oliowasseveral0mesthebookloss.Iconcludedatthe0methatLehmanmusthavehadthemeansforelimina0ngthisriskfromtheirbalancesheet.Aherall,nosensibleperson,holdingthepor{oliotomaturity,wouldhavepaidwhattheyhadpaid.“Investmentbankermagic”so-to-speak?
Ofcoursetherewasnomagic**.ItsubsequentlytranspiredthatLehmanhadbeenaccumula0ngilliquidandover-valuedassetsonitsBalanceSheetforyears(includingmyliLlepor{olio)andthatitwasaPonzischemeofsorts,supportedbypooraccoun0ngstandardsandpoorregula0on.Wherewastheirfinanceandriskdirec0onwhileallthiswashappening?However,inthenormalcourseofevents,itiswhenthebusinessentersadistressedstatethatthepoli0caltemperaturerisesandthechallengefortheCFOincreases.Thisishumannature.Stressedtopteamswillohenseeanincreaseinavoidancebehaviour,poorercommunica0on,aggressiveandbullyingbehaviour,fac0onalsplits…Thelistgoeson.Strongleadershipisrequiredtomaintainteamcohesionandeffec0veness.Thisisnoteasywhenpeoplearefacedwithmakingextremelydifficultdecisionsand,ohen,fearfortheirandtheirfamilies’futures.IhavebeenCFOinseveraldistressedsitua0onsandthehumandimensionofthechallengecanbemoredifficultthanthetechnical.Howdoyougetentrepreneurialbusinesspeopletocuttheirlosses?Howdoyoupersuadebusinessleadersthattheinvestmentstheyhavesponsoredandloveareimpairedandunlikelytomakeareturn?Howdoyoudoallthisandsurvivethepoli0cs?Certainly,inmycareerasCFO,Ihavebeenonthe
*See:hLps://www.moodys.com/research/Moodys-assigns-defini0ve-ra0ngs-to-five-classes-of-ABS-issued--PR_132106).**See:hLps://www.moodys.com/research/Moodys-downgrades-UK-consumer-loan-backed-notes-issued-by-Consumer--PR_191833
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receivingendof“robust”poli0csasIworkedtogettheteamtoacknowledgesomereallydifficultreali0esandtheneedfordifficultdecisions.
Some0mesitworked.Some0mesitdidn’twork.Alotdependsonwhetheryouhaveseniorpoli0calbacking.LastmonthIwasinterestedtoreadaleLerfromCyrusMistry,thenowformerChairmanofvenerableIndianpubliccompanyTataGroup,tohisfellowdirectors.HewrotetheleLerinresponsetohisdismissal,whichhebelieveswasunfair,andhisreplacement,onaninterimbasis,byhispredecessorRatanTata.IntheleLerhestatesthathewas“wriDngthisleaertotheBoardtoemphasisethetotallackofcorporategovernanceandtopointoutthefailureonthepartofthedirectorstodischargethefiduciarydutyowedtostakeholdersofTataSonsandofthegroupcompanies.”Sta0ngthat,“Allof
thisdoesnotaugurwellforthefutureoftheGroup”,hefollowswithseveralexamplesofwhathebelievesisevidenceoffinancialandgovernancechallengesfacedbyTata,includingaggressiveaccoun0ngandfailuretobookimpairmentofassets.MrTata’sresponseincludedastatementthat,“ThedecisiontochangetheleadershipofTataSonswasawell-consideredandseriousoneforitsBoardMembers.Thisdifficultdecision,madeaVercarefulandthoughduldeliberaDon,isonetheboardbelieveswasabsolutelynecessaryforthefuturesuccessoftheTataGroup."Iamnotgoingtojudgewhoisrightorwronginwhatisclearlyacomplexanddifficultsitua0on,otherthantosuggestthatfortheseniorleadershipofanimportantpubliccompanytohavesuchapublicandacrimoniousexchangeisprobablynotforthebest.IfMrMistry’sallega0onsaretruethentheTataGroupwillrequireaconsiderablenumberofdifficultdecisionstobeimplemented.Somebodyonceadvisedmethat,“Poli0csistheartofgegngthingsdone”.Butwhatthingsgetdoneareanindica0onofwhetheritis“Good”poli0cs,workingintheinterestsoftheshareholders,or“Bad”poli0cs,workinginmanagement’sself-interest.Wewillsee.Ul0mately,thisisthechallengepresentedbythepoli0caldimension.
RatanTata,TataGroup,TataSonschairman,CyrusMistry,TataSons,(ex)-CEO.SourceTheIndianExpress