In many finance teams around the world, far too much time is spent in month-end reporting, the annual accounts, and the annual planning process, as shown in Exhibit I.3. I call these three activities the trifecta of lost opportunities for the accounting team. They leave so little time to add value.
EXHIBIT I.3 The Year's Workload of a Non-Lean Finance Team (Based on a June year-end in the Northern Hemisphere)
Exhibit I.4 shows how the year's workload will change with shift away from processing into more service delivery work (based on a June year-end in the Northern Hemisphere). The key change is to radically reduce the time the accounting team spends in the trifecta of lost opportunities.
EXHIBIT I.4 The Year's Workload of a Lean Finance Team (Based on a June year-end in the Northern Hemisphere)
The better practices in this book will approximately double the amount of “added value time” you and your team have.
Acknowledgments
I would like to acknowledge all those accountants who have shared their better practices with me during workshops I have delivered around the world. This book is about their successes; I am merely the communicator.
This book has been influenced by the great writers who have led my thinking. I would especially like to acknowledge the late Jeremy Hope, who was an invaluable mentor for over 10 years, and the finance teams whom I have worked with.
A big thank you to all those who have collaborated on this book and my colleagues (Jennifer and Francesca). A special thanks goes to my wife, Jennifer, who proofread the original submission.
To all of the abovementioned people and all the other people who have been a direction in my life, I say thank you for providing me with the launching pad for the journey I am now on.
Part I
Change – Why the Need and How to Lead
Chapter 1
Getting Your Finance Team Future Ready
OVERVIEW
Many finance teams are far from being future ready. They spend long, frustrated hours working with antiquated error-prone systems – and to make it worse, they follow procedures because they were carried out last month. This chapter will take a brief look at areas the finance team can focus on to become future ready. It also explores how the lean movement affects modern accounting, the importance of Peter Drucker's abandonment, and why we should take Steve Jobs' advice and challenge the status quo.
This book outlines how finance teams can help their organizations by getting their team future ready. By future ready, I mean a finance team that is fast and light on its feet and able to react quickly to events as they unfold. A finance team that is nimble through utilizing world best practices, and is an advanced adopter of leading-edge technologies. Finally, a future-ready finance team embraces modern people practices, abandons the ill-conceived management practices of the past, and is thus able to retain its talented staff.
Many finance teams are far from being future ready. How many finance teams today have:
● Fully embraced all the lean finance team practices?
● An annual planning process that helps their organization prepare for the unexpected?
● Successfully adopted the tried and tested leading-edge technologies available in the twenty-first century?
A BURNING PLATFORM?
Many finance teams spend long frustrated hours working with antiquated, error-prone systems – and to make it worse, they follow procedures because they were carried out last month.
Yes, indeed the platform is on fire, and we need to jump off right now. Many performance management processes that I used during my brief time with BP Oil, and helped support as a consultant for Ernst & Whinney, are well and truly broken. I am talking about key performance indicators (KPIs), the annual planning process, forecasting, using outdated technology, and, to round it off, slow month-end and year-end reporting.
These processes have not worked for years – and possibly never worked. The finance teams have presided over an annual planning process where management and the board are told the lies they wanted to hear. The finance teams have issued reports that often end up in an executive's briefcase, which, on their third return journey back to the office, are deemed as read.
There are now significant performance gaps between what CFOs see as important and their current proficiency in that area. In the 2015 IBM Global C-suite study,1 CFOs were saying that the two most important areas for them were “Identify and track new revenue growth opportunities” and “Develop talent in the finance organization”. However, the biggest skill gap was with the integration of information across the enterprise, as shown in Exhibit 1.1.
EXHIBIT 1.1 The biggest performance gaps in finance teams
Source: IBM Global C-Suite Study 2015 based on approximately 60 °CFO interviews.
REPORTING HISTORY OR MAKING IT
When Henry Ford said “You can have any color you like as long as it is black,” the world of commerce was a simpler place. The Ford company only had to work out its production capacity in a year and it could then estimate sales, having backed out the expected movement in inventory.
Large production runs, lengthy month-end processes, were the order of the day. Charles Horngren's “Cost Accounting: A Managerial Emphasis” and books like it were locked into detail and a view into costing, budgeting, and allocation of overheads that is directly opposed to the lean movement.
When I was studying commerce at Liverpool University I was taught well to deliver services that Ford might have needed when building the model T Ford. The accounting profession has learned many bad habits:
Maybe It Is Time for Therapy
Two hundred years ago, when the Napoleonic Wars were raging, the English Navy had a device for retribution. It was called the cat o' nine tails. The English Navy stopped using this multi-tailed whip a long, long time ago, so why do so many accountants pick up the cat o' nine tails and whip themselves time and time again?
If it is not the cat o' nine tails, it is shooting ourselves in the foot. This book is about stopping this self-inflicted punishment and changing our ways.
Escaping the Catch-22
Joseph Heller's iconic 1961 book, Catch 22,2 introduced a new term to popular culture. The Oxford English Dictionary defined “Catch 22” as “a situation or predicament characterized by absurdity or senselessness.”
I see many finance teams in this situation. The slow month-end reporting, the never ending annual planning process, and the long, drawn-out annual reporting cycle are both beautifully summed up by the above Catch 22 definition. How do we get out of this Catch 22? The finance team needs to create time for change, to have more time to act. Where do we find this time? We find it by aiming for these lean finance team benchmarks:
