• Strategy
  • CFO.com | US

Five Reasons Why Your Finance Transformation Failed

You focused too much on finance costs and satisfying internal customers, thought of it as a finite project and relied too heavily on consultants.

“The business manager of the lower-performing business would probably say finance is providing terrible service, while the guy getting the top-tier service would probably say it’s the best finance organization in the world,” says Raiswell.

3. Thinking transformation is a one-time thing.
There may be a psychological need to see a transformation as a finite process, as in the case of a multi-year ERP system implementation that’s left everyone with migraines.

But there is a problem with that thinking. You don’t want to have a culture where creating value is a finite project, Raiswell advises. That takes away from business reality, which is that finance strategy should be built around business strategy. Say the company is being very acquisitive in European emerging markets. “You’d better have some pretty fluid accounting and financial-planning resources so you can build your vision around the reality of that change,” he says.

Again using the ERP example, if you manage to a “go-live” date you won’t extract as much value from that IT as you would hope, according to Raiswell. Organizations that extract more value from finance technology are those that keep engaging end users long after that.

“Keep investing in them by saying, ‘How long did it take you to log on this week? How long does it take to do this or that manual task? Is this system saving you time or costing you time, and if it’s costing you time, why?’ That kind of investigation is low-cost, because you can do it over email, and super-valuable because you uncover lots of ways to improve this thing you paid so many millions of dollars for.”

4. Creating “shadow” costs.
Let’s say part of your transformation is centralizing accounts payable in a shared service center for all global business units. It’s likely that some business leaders will want to keep running their own AP process. They believe they have control over their terms with suppliers and can thereby hold onto cash a little longer, and they don’t trust the shared-service organization to run AP as effectively.

“This is the kind of politics that usually comes with finance transformation,” Raiswell says.

Sure enough, after AP is centralized, there are some kinks in the first few months. Maybe some suppliers don’t get paid, and they call up the business-unit leaders, with whom they have longstanding relationships. A business leader says, “Wait a minute. We’re a $2 billion unit of a multinational corporation. Forget this, I’m going to hire my own accounts payable financial analyst.”

That’s a shadow cost. The corporate finance group thinks that for all intents and purposes it’s standardized AP and thereby saved money for every business unit, but meanwhile new costs are being incurred.

“It’s more commonly something like a budget analyst, who is capable of going a level or two deeper into a unit’s financial data,” says Raiswell. “Really, finance should be footing the bill for managing and training those people, rather than the unit doing its own thing and creating those costs.”

6 thoughts on “Five Reasons Why Your Finance Transformation Failed

    • I agree this is a very insightful article. I would like to offer a few comments for consideration.

      1) Whether it is finance initiatives, system implementations, or other major process improvement efforts, it seems like there are always big gaps on average between what is promised and what is realized. This is hardly a new phenomenon. I wonder if there has been any improvement on average over time or if we keep repeating the same mistakes?

      2) For many organizations sustaining an effort over the long haul is very difficult due to turnover in personnel, project fatigue, and changes in the business and management priorities. In my former role in internal auditing I served as an adviser and found in many cases if you didn’t get something in phase 1 you never got it.

      3) Any time I read articles of this type it reminds me of a quote from Machiavelli:
      “And let it be noted that there is no more delicate matter to take in hand, nor more dangerous to conduct, nor more doubtful in its success, than to set up as a leader in the introduction of changes. For he who innovates will have for his enemies all those who are well off under the existing order of things, and only the lukewarm supporters in those who might be better off under the new. This lukewarm temper arises partly from the fear of adversaries who have the laws on their side and partly from the incredulity of mankind, who will never admit the merit of anything new, until they have seen it proved by the event.”

      • Steven, excellent question, “Whether it is finance initiatives, system implementations, or other major process improvement efforts, it seems like there are always big gaps on average between what is promised and what is realized. This is hardly a new phenomenon. I wonder if there has been any improvement on average over time or if we keep repeating the same mistakes?”

        In a recent survey of 172 companies by Panorama, only about half (49%) of respondents said their IT systems delivered less than half of the projected benefits, and more than 1 in 3 (34%) said costs exceeded budget by at least 26%.

        Many Organizations typically don’t review and modify business processes to best align with core system functionality of their IT system. They end up putting good technology over bad process. Others engage in process improvement initiatives without first looking at the interaction between people, process, systems and IT, which is constantly changing in most organizations.

        Within many organizations, human capital is woefully underutilized. By empowering and engaging employees effectively before, during and after a transformation project is initiated, leadership can capitalize on more opportunities to innovate and drive performance improvements.

        The challenge for leadership is to design and implement a framework that effectively empowers and engages employees at every level of the organization before, during and after the organizational transformation.

        Such a framework might look like:

        1) Effective policy management (online policy library)
        2) Ongoing assessments (people, process, systems & technology)
        3) Performance Scorecards (hard & soft metrics)
        4) Event management and reporting (utilizing Failure Modes and Effects Analysis)
        5) Annual certifications to the Code of Conduct (reinforce core values)
        6) Enterprise data analytics (talent & workforce analytics, performance-based job descriptions)

  1. 12.02.2014

    David is right – “Finance is the forerunner of any organization, irrespective of its size. Finance drives the business plan forward and steers the organization towards its mission”.

  2. There are so many complex projects in the world which does not fail or if they fail there are very remote chances like rockets, airlines etc.

    Why this happens in the Business Transformation projects? Is that we don’t give the due diligence to the project, or is that the demands are more impractical, or we don’t hire the talented people for the projects..???

Discuss

Your email address will not be published. Required fields are marked *