Fred Hargrove, Director, MorganFranklin Consulting, explains why every transformation effort needs leaders, pacers, followers, and spectators to reach the finish line.
In business, as in life, transformation is a marathon—not a sprint. While the word “transformation” is generally applied to all operational improvement initiatives, business leaders tend to view finance transformation as the implementation of organization, process, and technology changes to dramatically increase the efficiency and effectiveness of the finance function.
By improving the efficiency of financial processes, organizations can boost data quality and reduce the cost to perform transaction processing and financial reporting. In turn, efficient transaction processing allows finance organizations to refocus resources on value-add activities like decision making and improving the control environment, resulting in a finance organization that is more aligned with and valuable to the business.
Business literature on finance transformation is abundant, but most focuses on the drivers of finance transformation (the “Why”), the results of finance transformation (the “What”), and the best practices to execute finance transformation (the “How”). Yet there is very little available that focuses on the people aspect of finance transformation (the “Who”).
Organizations embarking on finance transformation must give proper consideration to the people component. Like a marathon, finance transformation requires rigorous preparation and planning. During the course of the race, there will be leaders, pacers, followers, and spectators. All of these individuals play crucial roles in supporting an organization’s efforts to cross the finish line.
Preparation & Planning
Every marathon requires proper training, and before undertaking a finance transformation effort, companies need to prepare and plan.
Since most transformations span longer periods of time, organizations must empower strong program management teams during the early planning stages to establish integrated plans and transformation roadmaps. Depending on the forecasted timeline, organizations may consider hiring resources with deep program management expertise or augment internal resources with temporary outside support to control headcount and ongoing salary spend. External resources often provide objectivity and offer a voice that is not entrenched in previous ways of doing business. This external voice is not easily influenced by company politics and may be better suited to recommend the tough or unpopular viewpoints that true transformation may require.
Whether the program management function is sourced internally or externally, a central oversight structure must be in place to establish an integrated plan and transformation roadmap, clear measures of success, and mechanisms to monitor and execute initiatives in an integrated fashion. It is imperative that program management teams have broad organizational perspective in order to establish and manage integrated plans. These teams should monitor interdependencies between different groups within finance and highlight risks associated with deviations from the established plans. If the program management function is not elevated to the highest levels of the finance organization, it will fail to drive efficiencies across the silos that traditionally exist in most finance organizations.
Companies that attempt to execute finance transformation through a series of non-integrated, individually managed projects will experience significant delays and cost overruns. These setbacks result from siloed or departmental approaches to the finance function combined with a general lack of deep program management expertise. Taking time to outline integrated plans and establish program management teams up front will enable organizations to highlight interdepartmental dependencies and formalize methods for facilitating buy-in across departments.
Leaders & Pacers
In any change management plan, it is important to identify key stakeholders who are anticipated to be the transformation change agents.
Depending on level, these individuals will be the leaders, and they will set the tone and stress a sense of urgency for necessary changes. In addition, it is critical to identify key stakeholders who are expected to be the early adopters of the projected changes. These individuals are the pacers and they will promote the effort and serve as examples for other parts of the organization to follow.
Many companies struggle to keep management and staff engaged in supporting finance transformation efforts due to disjointed and limited change management activities. When undergoing system changes in conjunction with transformation efforts, budget constraints often drive companies to cut overall program costs. This risky approach can squeeze budget out of change management activities, directly impacting the staff’s level of engagement. By definition, a transformation effort is designed to dramatically change the way an organization performs. As such, change management is the last place organizations should look to close budgetary gaps.
Instead, management should insist on robust change management programs throughout the life of a transformation effort. At the outset, a tailored change management plan is needed that takes into account the nuances of an organization’s culture. The culture of an organization can either help or hinder transformation. For example, decentralized cultures may foster resistance to change by making it difficult to build consensus. The level of effort around change management will vary over the course of a transformation, but it is important to plan change management activities from the outset. At all significant change points, targeted change activities should be designed and deployed.
Followers & Spectators
While the leaders set the tone and pacers set the momentum, the followers help drive transformation efforts by taking on execution activities.
Throughout transformations, followers must remain motivated and stay on course. Companies often conduct transformations with only internal resources, placing incredible pressure on day-to-day delivery of finance operations. When internal staff is tasked with supporting both transformation efforts and day-to-day operations, the duration can drag out and cause transformation fatigue. This burnout occurs when the finance staff is asked to effectively deliver more than 100% productivity—working their day jobs while also moving forward on the transformation path. While this approach can last for a short period, it is not sustainable and often negatively impacts the quality of output for finance operations, causing delayed or suboptimized results. In addition, transformation fatigue can result in untimely turnover of essential resources needed for the future-state organization.
Management must realize that the overall cost of finance will likely increase during the implementation of finance transformation efforts. As transformation activities are delivered, companies will begin to realize benefits. However, there will likely be a period of time when the cost for finance increases rather than decreases. As transformation changes are adopted, companies encounter a certain degree of inefficiencies and may require additional resources beyond the needs of current-state operations. Often overlooked is the opportunity to backfill resources. It is important to fulfill the full-time equivalent (FTE) requirements for day-to-day operations that result from dedicating a finance organization’s best and brightest to transformation efforts. Setting realistic milestones and allowing management teams to stabilize operations by backfilling resources will keep momentum and motivation up as transformation efforts continue. Other approaches include tying incentive or retention awards to achievement of transformation milestones for critical resources.
Crossing the Finish Line
To truly transform, organizations must understand the people component as well as the shift in inherent risks and complexities.
As organizations move through the stages of transformation, finance executives need to focus on required organizational design and restructuring activities in order to anticipate sizing and necessary capabilities. These activities tend to be required over the life of a transformation—not just at a single point in time. If managed appropriately, organizations are more likely to efficiently manage changes to operational complexity and risks related to ongoing organizational structure changes.
During the transformation process, finance organizations will undergo a series of changes. These changes often improve efficiency, but they may also introduce different levels of complexity and risk. As organizations transform, they typically become less decentralized and subsequently increase outsourcing, resulting in hybrid organizations made up of internal and external resources performing finance tasks. The increased complexity of managing hybrid organizations is not always anticipated.
As organizations drive toward the target-state environment, balancing business value and inherent risks is critical. Capabilities must be adjusted to meet the objectives of transformation efforts, but success can be achieved if organizations focus on the people aspect by continuously monitoring engagement among leaders, pacers, followers, and spectators.