Adam Gates, Head of Odgers Connect, explains how organisations can overcome the common challenges of implementing large-scale transformation within their finance function
Very rarely is finance the first port of call for an organisation’s transformation agenda. For many senior executives, the notion of transformation is more closely associated with customer experience, improving sales or some form of e-commerce development. What’s more, ‘change’ is unfamiliar territory for what is by nature a cautious area of the business.
It means that finance transformations can suffer from a lack of senior leadership buy-in and from internal resistance. However, for those organisations that prioritise finance as a business-critical enabler, the benefits can be extraordinary. Business insights leading to more accurate forecasting, clearer decision making and effective risk mitigation are just some of the outcomes of transforming a finance function from what traditionally covered events from the past, into the lynchpin of how the organisation drives itself into the future.
However, a finance transformation is not without its hurdles. These are some of the common challenges organisations face and how they can overcome them:
- Don’t transform in isolation
Organisations need to start by working with the wider business to build a vision of what the future finance function will look like. This means securing buy-in from other functions to ensure that the transformation is wholly supported from the outset. Explaining the value-add to the rest of the business is the quickest way of securing cross-functional support and alignment.
If an organisation fails to do this, functions closely aligned with finance, such as IT and sales, will quickly come into conflict with any of the changes being implemented. For example, an analytics project that requires data analysis from the sales team is unlikely to materialise if the sales team don’t have the capabilities to provide that data.
Importantly, whether it’s increasing market share, business growth or driving efficiency, a finance transformation should align with the organisation’s overarching strategy and demonstrate how it will help bring that to bear.
- Communicate how tasks and responsibilities will change
Finance transformation is often driven by the desire to bring about resourcing efficiencies; the ‘freeing up’ of employees so that they can conduct more strategic and insight-led tasks. A noble pursuit for any finance function but one that means the traditional reporting tasks are often distributed to other areas of the organisation.
The unannounced off-loading of reporting and clerical tasks to other teams is not going to be met with enthusiasm. Business leaders need to have a clear public and agreed approach for what they are going to do with this work. A clear communications strategy that explains the rationale behind workload changes is critical.
- Build a picture of the skills required by the future finance function
Given that most finance transformations aim to dramatically change the work that is carried out in the function, an organisation should not assume that its current employees are going to be able to perform the tasks in the future roles.
Organisations with a classic finance function will be very ‘numbers oriented’; with individuals skilled in reporting and making sure everything ‘adds up’. These individuals may not have the investment or business forecasting skillsets required for what will become an insights-led finance function.
When mapping out the future finance function, training and upskilling of current team members or even a workforce reorganisation, needs to be a consideration. During the planning stage, a workforce assessment will be necessary to ascertain whether the current organisational structure can effectively transition to the future state.
- Secure senior leadership buy-in
Prepare the senior leadership and finance management team to go on the transformation journey. They are not a group of people who regularly go through change so the team directing the transformation need to educate and coach them to be managers of change, not just managers of work. Facilitation is critical here to ensure all are on board with the direction of travel.
Organisations need to ensure that the senior leadership group communicates and champions the programme from the top and throughout management levels. Junior team members are too distant to relate to the CFO and other senior leaders and therefore managers need to communicate the ‘why’ and ‘how’ through robust change management discipline so that the plans cascade from top to bottom.
If an organisation doesn’t have the senior leadership on-board, its workforce won’t be engaged and employees won’t see a reason for carrying out the transformation. The project meets resistance as employees are asked to carry out tasks they don’t understand, morale can drop and ‘change-fatigue’ can set in.
- Don’t let technology take over
With finance transformations often being driven by the desire for efficiency gains and the reduction of manual work, it is very easy for business leaders to become consumed by the technology that will achieve this. However, senior leaders must ensure the focus on technology does not come at the cost of managing people and culture. It is far more important to change mind-sets and secure buy-in from stakeholders than to implement a shiny new platform.
Organisations that get this wrong often find that the technology engulfs the transformation journey, drawing it out to the extent that there is often little money or energy left to complete the project.
There are many different technologies on the market, so the big challenge for CFOs managing a transformation project is ascertaining whether it is ‘fit for purpose’ and coinciding these with the longer-term needs of the business. A strong relationship with the CIO is crucial in achieving this.
Finance transformation requires a clear vision of where the function is now and where it will be in the future. It means engaging the senior leadership team and managing the evolution of skillsets and mind-sets. If this happens, then the result is a business that has a true capability to make forward-thinking decisions, is more able to predict market events and is more resilient.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
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