What does the word ‘transformation’ mean to you? According to MerrianWebster.com, a transformation in the literal sense means “a complete or major change in someone’s or something’s appearance, form, etc.”
We touched on financial transformations back in November, outlining how these exercises can, well, transform your company. So we were interested when we stumbled upon the piece below.
Not surprisingly, according to a recent article on CFO.com, many large corporations are engaging in ‘financial transformations’. In fact, a recent CEB survey found “finance leaders at 81 percent of 264 large companies said they were engaged in major finance redesign initiatives.”
That’s all well and good, as long as these ‘transformations’ deliver. And it appears that they aren’t. In a more focused study, “only 27 percent reaped the qualitative and quantitative benefits outlined in their business case and sustained a majority of the cost savings for two years post-implementation.” And that’s not good news for anyone.
The usage of catch phrases such as ‘transformation projects’, and others, isn’t sitting well in some circles. It’s hard to nail down exactly what they mean. And harder to explain exactly what it is you are trying to achieve.
CEB managing director Tim Raiswell states, “We don’t like the term…we use it because most finance professionals were trained to use it. Consultants, like the Big Four, use it readily.”
It’s easy to lean heavily on catch phrases and buzz words. But as a CFO, you want to make sure that, if you engage in a ‘financial transformation” for your organization, you are going to see real benefits and measurable result two or three years down the line.
In the article mentioned above, CEB used its research on finance transformations to narrow down five mistakes that CFOs commonly make.
We’re going to look at the top three.
1. Focusing too much on finance costs as a percentage of sales.
According to the CEB, finance professionals rely too heavily on what they’ve learned is “industry standard”, and not stepping back to consider if this oft repeated “industry standard” really reflects their company. For example: CEB heard over and over that finance-department operations should cost about 1 percent of company revenue. When they asked where this figure came from, Raiswell reports, “They said it’s an industry standard and that they heard it from consulting firm A or accounting firm B or benchmarking firm C.”
But, as he points out, “Isn’t it flawed to think that a very complex piece of your service organization like finance should be configured around a simple cost benchmark?” says Raiswell.
Raiswell’s advice? “Finance should view itself less as a cost center and more of a profit center.” Its his opinion that finance guides business decisions. “If you want to lead a balanced transformation initiative that [creates] a finance organization configured to support the business where it needs support, you need to look beyond costs.”
2. Concentrating too much on customer satisfaction.
Wait. What? Aren’t we supposed to have our customers top if mind? Sure. But often “customers possess only some of the information necessary to know what they want and need, while the product or service provider possesses the rest.”
Raiswell goes on to caution that if finance spends too much time focused on, and judging itself by, customer satisfaction, it “may never actually get to what the customer needs.”
He adds, “In a world where finance resources are finite, you can’t provide the same level of services to each business unit.” Instead, concentrate your best service on fast-growth units or those with the most growth potential.
3. Thinking transformation is a one-time thing.
Thinking in finite terms when it comes to financial transformations is dangerous. Since your financial strategy is, or should be, built around your business strategy, the reality is that it will be – or should be – ever changing. Raiswell uses one example of a company working on heavy acquisition 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.
Don’t have a culture that works with the concept that “creating value is a finite project.”
You can read more about Raiswell’s theories about ‘finite thinking’, as well as find a few more ‘transformation mistakes’ CFOs should avoid, by having a look at the entire article.
It’s very good food for thought, as we all work towards making 2014 a stellar year.