Transforming a Finance Function

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Tripod PartnersConsulting ⋅ Advisory ⋅ Training

TransformingaFinanceFunc0onAprac00oner’sview

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DAVEWALLACE:[email protected] m:+971505516885

FINTANSOMERS:[email protected]:+971503314583;+447720239011


©FintanSomers2015 2

TransformingaFinanceFunc=onAprac==oner’sview

Thispresenta0onisbasedonaseriesofar0cles,wriLenbyFintanSomers,thatwerepublishedintheCFOMiddleEastmagazinein2015and2016.PleasecontactFintanSomersorDaveWallace(contactdetailsbelow)formoreinforma0onaboutourcustomisedservices.

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1.  Introduc0on 42.  It’sallaboutobjec0ves 63.  TheneedforastrongEnterpriseFinancialManagementCulture 84.  Notechnology“MagicBullet” 115.  Putyourpeoplefrontandcentreofthechangeprogram 146.  TheTeamEffec0venessdiagnos0c 167.  TheFinanceFunc0onEffec0venessdiagnos0c 208.  TheTechnology-effec0venessdiagnos0c:RemembertheQBCrule! 239.  Percep0onisReality 2610.  Lookingoutaswellasin… 2811.  Prac0cebeingaleader 3012.  Execu0onisthething… 3213.  Theartofgegngthingsdone(thepoli0caldimension) 34

Contents


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OverthepasttwentyyearsIhaveservedinavarietyofinterna0onalCFOroleswithtwolargemul0na0onalbanksandabankintheMiddleEast.Allofmyassignmentshaveinvolvedimprovingbusinessprofitabilityandmanyhavenecessitatedtransformingthefinancefunc0onintoamoreeffec0vesupporttoolforthebusiness.WhatIhaveohenfoundisthatbusinessesthatarenotfiringonallcylindersorareincapableofrespondingquicklytoanexternalshockhaveafinancefunc0onthatneedsimprovements;tofixthebusinessitisohennecessarytofixthefinancefunc0ontoagreaterorlesserextent.So,inthisseriesofar0clesIwillbediscussinghowtobuildaneffec0vefinancefunc0on.

TheseriesisaimedatCEOsandmanagementteamswhoneedsomeguidanceastotheac0onstheyshouldexpecttoseefromtheirCFOtoaddresstheirfrustra0onswithperceiveddeficienciesinthefinancefunc0on.Ofcourse,itisalsoaimedatCFOsandfinanceteamsthatareonthereceivingendofnega0vityfromtheirbusinessandwhocouldbenefitfromprac0calguidanceonhowtomakethingsbeLer.However,perhapsthemostimportantaudienceisthosewhothinkthatnochangeisrequired.Thistypeofcomplacencyisarecipeforfailureandlossofedge-whichiswhyallwell-run

func0onsincorporateconstantchangeintotheiropera0ngmodel.Iamabigfanofthe“onlytheparanoidsurvive”schoolofthought.Havingdevelopedandexecutedseveralfinancefunc0ontransforma0onsacrossarangeofbusinessesandinterna0onalloca0ons,Ihavebeenstruckbythesimilarityofthechallengesfacedbyunder-performingfinancefunc0onsand,forthatmaLer,under-performingbusinesses.

WhetherbasedintheMiddleEast,theUK,theUS,La0nAmericaorEurope,Ihavefoundthatunder-performerssharemanyofthesameorsimilarcharacteris0cs.InthisseriesIwilldescribethesecharacteris0cs.Ihavealsofoundthattheopera0ngmodelforaneffec0vefinancefunc0onispreLystandard.Ihavetransformedseveralfinancefunc0onsusingafairlysimpleopera0ngmodelthatIwillsharewithyouoverthecourseofthisseries.

1:Introduc=on

SinglecountryFinanceteam:Argen3na.

Financeteamsin4countries:USA,Peru,Colombia,Venezuela.

SinglecountryFinanceteam:Qatar.

FinanceteammembersinUK,HongKong,Singapore,USA.

FinanceTeammembersin9countries:Switzerland,Luxembourg,Monaco,Gibraltar,ChannelIslands,USA,UK,Uruguay,Brazil.

Financeteamin2UKloca3ons.

Financeteamsin3UKloca3ons.


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Overtheyears,Ihavedevelopedanumberoftoolsandprocessesfordesigningandimplemen0ngsuccessfultransforma0onalchange.Thesetoolsandprocessescanalsobeappliedtotransforma0onofotherfunc0onsthatsharemanyofthechallengesoffinance,forexample,RiskandHRFunc0ons.Thesetoolsandprocessesarenot,inthemselves,enormouslycomplexbutassemblingallofthecomponentsandexecu0ngthemcleanlycansome0mesbechallengingandstressful.So,let’sstartatthebeginning-whatisthepointofitall?Whataretheobjec0vesoftheCFO?Clearlycommunicated,theseobjec0veswillformthebasisformuchofwhatthefinanceteamdoes.Theyalso,tosomeextent,dictatethepersonalityoftheteam.

1.  Weareintherela0onshipsbusiness,suppor0ngtheseniormanagementteam.

2.  Weareinthebuildingprofitabilitybusiness:wearenotjustscorekeepers,weinfluenceoutcomes.

3.  Weareintheline-of-defensebusinessagainstunsustainableornon-compliantplansorac0ons.Again,weinfluenceoutcomes.

SupporttheCEOandtheExecu0veTeam…

Theobjec0veIuseis:

…inbuildingasustainableand

profitablebusiness…

…inamannercompliantwiththepoliciesand

interestsofthebusiness.

Ihaveseenpeopleendlesslydebatethistypeofmissionstatement.Inmyopinion,youshouldn’twasteyour0me.Anditdoescorrelatefairlycloselywiththepithystraplineforthefinancefunc0onofLloydsBankingGroupduringmy0methere…

“Putinsightandcontrolattheheartofawinningbusiness”

… Icouldn’thaveputitbeLermyself!


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Oneofthebiggestcontributorstopoorbusinessperformanceisalackofagreementofobjec0vesandpriori0esamongpeopleinthebusiness.So,it’snotsurprisingthatthefirstport-of-callImakewhenlookingatapoorlyperformingBusinessorFinance(orother)Func0onisOBJECTIVES.Allleaders,includingCFOs,needtospendalotof0meondevelopingobjec0ves,communica0ngthesetotheteamandgegngbuy-infromtheteam.Ifyoudon’ttelltheteamthattheyneedto“takethecastleonthehill”and/oriftheydon’tagreetodoit,thendon’tbesurprisedifyoudon’ttakethecastleonthehill!Andtheproblem,ofcourse,isthatitisnotsimplyaques0onofcommunica0ngtheoverallobjec0veandexpec0ngtheteamtogetonwithit.Tobesuccessfulintheoverallobjec0ve,“takethecastleonthehill”,youneedtotranslateitintoarangeofsub-objec0ves,organisa0on,processesandbehaviourssothatyou,astheleader,andtheteam,haveareasonableprobabilityofsuccess.Wewilltalkabouthowtodothatinfuturear0cles.Butfornow,let’slookattheFinanceFunc0onequivalentofthe“takethecastleonthehill”objec0ve:

SupporttheCEOandtheExecuDveTeaminbuildingasustainableandprofitablebusinessinamannercompliantwiththepoliciesandinterestsofthebusiness.

Returning,inaliLlemoredetail,tothethreecorelevelsoffocusthatIiden0fiedearlier:

1.“rela=onships”2.“buildingprofitability”3.“lineofdefense”

1.SupporttheCEOandExecu=veTeam:Nowyouwillheartheexpression“Business

Partnering”usedalotasatargetobjec0vefortheCFOandFinanceFunc0on.Inmyopinionweneedtobeverycarefulintheuseofthisterm.Partnershipimpliessomeformofequalityintermsofgenera0ngoutcomes.Ihavebeenonthereceivingendofenoughabusefrompoorlyperformingbusinessheadstounderstandthedifferencebetweenourrespec0veroles.TheBusinessistheBusiness;FinanceisFinance;theydeliver;wesupport.Itisimportanttobeclearonthisdis0nc0on.

2.BuildSustainableandProfitableBusiness:Manybusinessleaders,includingsomeofthemostsuccessful,effec0veandethicalleadersIhaveworkedwith,havebeenpreparedand/ortemptedtocashinsomefutureprofittolookgoodinthepresent.Thisisapar0culartempta0onwhenfinancialperformanceisunderpressure.TheCFOandtheFinanceteamhavegotaclearresponsibilitytosetthe“moraltone”surroundingthesegngandachievementoffinancialoutcomessothatprofitabilityissustainable.Thisisnotaneasytask;lifeandbusinessdecisionsandoutcomesarenotalwaysasimplemaLerof“Yes”or“No”.Business,likelife,isanego0a0on.3.Compliantwithpoliciesandinterestsofthebusiness:Thisisnotjustaboutlegalandregulatory

Ar=cle2:It’sallaboutobjec=ves

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IhaveseenFinancepeoplebackawayfromengagingwithandinfluencingpolicydecisionsinthebusiness-onthebasisthatnolawswerebeingbroken-butwhichdecisionswereclearlyworthyatleastofdebate.So,insummary,thetop-levelobjec0veoftheCFOmeansthatheorsheisintherela0onshipmanagementbusiness,inthebuildingprofitsbusinessandisakeylineofdefenseforshareholderstoensurethatthefutureisnotcashedintomakethepresentlookgood.Forshareholdervalueisaboutsustainabilitynotthequickbuck.Unfortunately,asrecenthistoryhasshown,manyCFOseitherdonotengagein,or

compliance;itisalsoaboutthespiritofwhatisrightfortheshareholder.

lose,thesustainabilitydebatewiththeirCEOandleadershipteamcolleagues.Allofwhichillustratesjusthowdifficultthejobis!


Igotmyagenda!

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WhenIjointheexecu0veteamofabusinessasCFOforthefirst0me,whetheritisahighperformingteamornot,IamveryawarethatIhaveafairlybriefhoneymoonperiodduringwhichIneedtoevaluatewheremyfunc0oncanaddmostvalueanddevelopacompellingprogramthatmakesadifferencetothebusiness.Thenthepressureisontodeliver.Some0mestheagendaisthrustuponyou,forexample,alocal,regionalorglobaleconomiccrisisorstresshasputprofitabilityand/orgrowthunderpressure.

Some0mesitislessobvious,forexample,whenthebusinessappearstobedoingwellbutislosingrela0veprofitability,posi0onand/orcompe00veness.

OhenthelaLersitua0oncoincideswithmanyonthemanagementteamthinkingthatthingsare“justfine”.Whateverthebusinessorenvironmentyouaredealingwith,itistheresponsibilityoftheCFOtoshinealightonandputmeasurementaroundthematerialopportuni0es,risks,weaknessesorstrengthsthatthemanagementteamshouldbefocusedon.Nobusinessisever“justfine”.Businessesneedtoan0cipateandhavetheflexibilitytoreacttosudden-shockorslow-burnchanges:thebusinessesthatloseoutareohentheonesthatcan’torwon’tdevelopanopera0ngmodelthatsupportsthisgoal.Inmyexperience,poorlyperformingbusinesses

andmanagementteamsdonotsupportandarenotsupportedbyaneffec0veEnterpriseFinancialManagementCulture.

Thecrea0onofthisneedsbusinessownershipandleadership.OfcourseFinancecanfacilitateandsupportitsdevelopment.Butunlesstheleadersinthebusinessreallygetbehinditandpushforittohappen,itwon’thappen.

3.EnterpriseFinancialManagementCulture


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Youcanrecogniseaneffec0veEnterpriseFinancialManagementCulturewheneverybodyfromtop-to-boLomoftheorganisa0on:1.  understandsandownstheoverallfinancial

targetsandtheirroleinreachingthosetargets

2.  understandsandexecutesthethingsthat

needtohappentoreachthetargets

3.  islookingforward,an0cipa0ngproblemsandopportuni0esthatmightaffectfinancialperformance,takingac0ontofixormi0gatetheproblemsand/orexploittheopportuni0es

4.  communicatesandmanagesproblemsandissuesbeforetheyhitthereportedresultsandopportuni0esbeforetheyaremissed

5.  isfocusedoninfluencingandcommunica0ngkeyperformanceindicatorsthatdemonstratetrac0ononthethingsthatmaLer

6.  understandsthelinkagebetweenpayandperformance(andthislinkagehastobeeffec0ve)

IcanpreLywellguaranteethatifyouseeapoorlyperformingorganisa0on,oneormoreofthesefactorsneedsimprovement.And,ofcourse,itstartswiththeleadershipteam.Iftheyfailonor

de-emphasiseoneormoreofthesefactorsthenitislikelythatthisfailorde-emphasisreplicatesallthewaydowntheorganisa0on.Theleadershipchallengeofcrea0nganeffec0veEnterpriseFinancialManagementCultureisajourneyratherthanades0na0on.Onereasonforthisisthatithashumancomplexity.Irrespec0veofthetoolsyouintroduce,thehumandimensioninvolvedindevelopingandmaintainingastrongEnterpriseFinancialManagementCulturecanbethemostchallenging,notleasttheriskthatalackoftransparencyaboutfinancialperformanceandaccountabilitysuitssomepeopleverynicely(andthiscanincludepreLyseniorpeople).Asecondreasonisthatitdependsonthelevelof

OwnsExecutes

An-cipates

Manages

Influences

Performs

maturityyoustartfrom:abusinessthathasbeenmanagedforyearswithaveryweakFinancialManagementCulture-onebossofminecharacteriseditas“drivingacarwhilstlookingintherear-viewmirror”-isunlikelytomaturetotakepartintheGrandPrixany0mesoon.IhavealsoobservedthatbusinesseswithdeficientEnterpriseFinancialManagementCulturewillohenmakealotofnoiseabouttheinadequaciesoftheFinanceFunc0on,theITFunc0on,theHRFunc0on,indeedeveryfunc0onexceptthepartsofthebusinessthathavetheresponsibilitytomakemoney!Some0mesthisisjus0fied,but,moreohenthannot,youfindthatthepeoplemakingthemostnoisearethepeoplemostunwillingtoacceptthattheysharetheleadershipresponsibilitytocreatethecultureandthattobesuccessfulyouneedtoinvestinthosefunc0onsthatcanassistindoingso.Communica0on,par0cularlyinlargerorganisa0ons,posesoneofthebiggestchallengesinensuringthatthevastmajorityofpeopleintheorganisa0onunderstandtheparttheyplayinfinancialoutcomes.IhavebeensurprisedathowohenIhavecomeacrosspeoplewhohaveworkedforyearsforabusinessyethaveliLleknowledgeabouthowthebusinessactuallymakesmoney!Whatisabsolutelycertainisthatyoucannotcreateaneffec0veEnterpriseFinancialManagementCultureifyoudonothaveaneffec0veFinance

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Suitssomepeople

Maturity

Leadership

Commun-ica9on

Failuretoinvest

Failuretoimplement

Weakfinancialmanagementculture-CausesTeamandothersupportfunc0ons.Andmany0mesIhaveseenhowunder-investmentinorpoorleadershipoftheFinanceFunc0onandothersupportfunc0onsisabigcontributortopoorbusinessperformance.Failuretoimplement,evenwheninvestmenthasbeenauthorised,isamuchmorecommonproblemthanmanypeoplearepreparedtoadmit.Inthenextseveralar0clesIwilllookatFinanceFunc0onLIFT,whichismymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on.


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Inthisar0cleIwanttopresenttheapproachIhavedevelopedoverthelast20yearsasCFOduringwhichIsuccessfullytransformedordevelopedseveralfinancefunc0onsinterna0onally.Icallmyopera0ngmodel“FinanceFunc0onLIFT”tocommunicatetheconceptofLIFT-ingperformance.Now,Ihaveseenmanyexamplesofpeoplepugngtheproverbial“cartbeforethehorse”inaLemp0ngtotransformfunc0ons,whetherFinanceorotherfunc0ons.WhatdoImeanbythis?Therearemanyvaria0onsonthistheme.Butthesinglecommonthemeistotryandleadwithatechnology“magicbullet”.Thisohenhappenswhenseniorleadersmakethedecisiontospendsignificantamountsofmoneyonatransforma0onalprogram.“Well,I’vegiven

youthebudget…whatmoredoyouwantfromme?”Well,leadership,actually.Spendingmoneyiseasy.Whatismoredifficultistodesignandexecuteatransforma0onalprogramthatalignsthewholeorganiza0onaroundnewobjec0ves,neworganiza0onaldesign,newprocessesandnewwaysofworking-withtechnologybeingacomponentenablertotheprogramratherthanthepointoftheprogram.Execu0ngchangeishard:peoplearebusy(some0mesworkingextremelylonghours);peoplefeelinsecure(ohenwithjus0fica0on,manypeople,includingseniorandmiddlemanagement,don’ttrusttheorganiza0onandseechangeasathreat);peoplearenotstupid(ifyoulietothemabouttheconsequencesofchangeforthem,theywillfindyouout);peopleneedtofeelengaged(imposingchangedoesn’twork).

Source:hLp://idiro.com/category/big-data-analy0cs/

4:Notechnology“MagicBullet”

Thismayseemobvious.ButIhavebeensurprisedathowohenpeople(andsome0mespreLyseniorpeople)thinkthatthereisa

Func%onEffec%veness

LIFT

TechnologyEffec%veness

LIFT

TeamEffec%veness

LIFT

technologicalmagicbulletfortheirwoesandthatalltheyhavetodoistospendenoughmoney.Thisbehavioris,ofcourse,ohenruthlesslyexploitedbythetechnologyindustry–neverknowinglyunder-sold.FinanceFunc0onLIFTisatransforma0onprogramthatcomprisesthreeinterlinkedac0onprograms.


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Good progress has been made in 12 months but a lot of work remains to be done…

1. Finance team

2. Efficient systems and processes

3. Management information

4. Preparation, presentation and agreement of plans

5. Financial models

6. Presentations of financial performance, investment required and strategies

7. Investment program

8. Statutory and regulatory reporting compliance

9. Stewardship

10. Swiss DB pension

11. Development, communication and agreement of strategy

!  Lack of business partner and analytical skill-sets to support business with disproportionate headcount focused on basic control and reporting

!  Severely deficient data management infrastructure supporting MI production and analysis; good availability data origination (but poorly documented & understood); inefficient legacy financial and management reporting systems

!  Management information very rudimentary; limited or no analysis of financial performance of products, segments, geographies, responsibility and ratios and comparison of actuals with plans and forecasts.

!  Limited engagement of finance with business leadership in preparation, presentation and agreement of business plans

!  Rudimentary financial modeling with limited focus on KPI�s and performance tracking

!  Limited capability for analysing, summarising and communicating with stakeholders.

!  Financial reporting of investment program is adequate; Investment program management extremely rudimentary (because limited or no investment);.

!  Good quality statutory and regulatory reporting disciplines (the minimum service level of a finance function), but inefficient because of poor systems.

!  Good quality financial control of business entities

!  Control of defined benefit pension scheme (in deficit) in need of major upgrade. No plan in place to address deficit.

!  Limited in-house competence in development, communication and agreement of strategy

KPI Status January !  New organisation in place as of end December 2010. 4 to 5

further exits and 3 to 4 further new hires in progress.

!  Upgraded Data management function and replaced legacy systems with Oracle Essbase platform. Development is ongoing and on track.

!  Development is ongoing. Extensive development of new financial reporting products:

!  Monthly financial performance reporting pack !  Weekly and monthly sales performance reporting !  Monthly performance by exec responsibility

!  Fuller engagement by finance with front-office and business leadership; still some gaps in organisation; major improvement in tracking of performance against targets.

!  New financial model developed and in-house resource trained; improved but still insufficient competence in modeling KPI�s

!  Improvement of this limited because of gaps in organisation. Key person dependency on FD. Gaps now closing because of new hires. Expect to be green by end H12010

!  New hire of BP Cost Management and HR is outstanding. Modelling of OD and linkage to KPI’s to be improved.

!  New Essbase platform used to replace legacy Commander system; processes streamlined. Development on track

!  Good quality financial control of business entities.

!  Governance completely overhauled with new representation from IPB Exco. New finance committee established. Performance reporting improved.

!  Improvement of this limited because of gaps in organisation. Key person dependency on FD.

Status December

Anac&onprogrambasedonaninterac-veprocessthatengagesandempowersthewholeteamtofixeffec-venessissues.

Func-onEffec-veness

LIFT

TeamEffec-veness

LIFT

TechnologyEffec-veness

LIFT

Anac&onprogramtorealiseshorttermandlongertermimprovementinproduc-vityandMI.

IRB SAPdata set

Daily Reporting Units data

Monthly Reporting Units data

Interface processes

Data warehouse (client data)

Monthly reporting processes

Monthly reporting data set

Daily Reporting Units financial

reporting

Monthly Reporting Units financial

reporting

Daily Reporting Units direct non-

DW

Monthly Reporting Units direct non- DW

General ledger control framework

Upstream non-financial data quality controls Upstream financial data quality controls

Change controls

Reconciliation controls

IRB MI OLAP Strategic data

set

IRB Mrepcontrol and reporting

data setReconciliation

controlsReconciliation

controls

Income tracker (including FTP)

FX Roll-up

Enhanced data origination and management with

linkage to top level data set

Efficient Data Management system with financial reconciliation controls

Reengineered, more efficient

finance processes

Improved accountability, systems and processes for

data management in business

units

Amended financial extracts with financial integrity and change controls

New calculators to generate data not

available in transaction systems

Note: clean-up of upstream non-financial data quality does not form part of CIPHER

Anac&onprogrambasedonatop-downevalua-onoffunc-onoutput,competencyandorganisa-ondesign.

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• Origination • Various origination processes (i.e. manual inputs to Excel)

• Transmission • Different formats, including hard copies

• Consolidation • Data Manipulation (macros, copy, paste, etc) • Excel Links - Difficult to Audit for Errors • Difficult to alter or update • Manual Currency translation

• Reconciliation • Manual Reconciliation(too many Excel files) • Paper Intensive • Time Consuming

• Output • Paper Intensive • Time Consuming • Limited to existing data in various Excel files

• Analysis • Not Flexible • Manually Intensive • Duplication of analysis with non-centralized numbers • Passive analysis and reporting

• Origination • Streamline/Automate the processes for data inflows

• Transmission • Standard formats - electronic

• Consolidation • Automatic uploads of data • Data integrity - Calculation Built in Database • Easy maintenance and database administration • Automatic Currency Translation

• Reconciliation • Automatic Reconciliation • Paperless environment • Easy/Instant Reconciliation

• Output • Paperless - Templates • Automated - Analytic Applications in Excel • Easy integration of Cubes of information

• Analysis • Rapid, Flexible Reporting - Intuitive Data Navigation • Automated - Calculation built in Database • Centralized numbers for all • Dynamic analysis and reporting (charts, easy ad-hoc reporting, etc)

Current/Old Environment Planned Environment

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On a monthly basis, all Front office teams receive data including:

! KPIs results against targets

! Income performance against target and 2009 results

All information is provided at Team and RM level with graphical analysis and trends.

Additional KPIs information is provided at account level.

3. Monthly MI Reporting

! ROA performance

! Product and asset analysis

Finance!Team!)!Overall.vision.&.strategy!

Business!Partnership.&!"Insight!

"Influence!"Control!"Efficient!

Business!Control! working.together.with.the!businesses!

Data.Mgt.&! Regulatory!

Produc8on! Technology!

Mission:.Support.the.EXCO.of.CBQ.in.building.a.profitable.and.sustainable.business.in.a.manner.compliant.with.the.policies.and.interests.of.the.Group!

!

Generic objectives:

1. Build and maintain a finance team and operating model with the skills needed to fulfill the core objective. 2. Develop and maintain efficient systems and processes that support all financial, management, regulatory, taxation and other

reporting requirements under the control of the Finance function. 3. Develop management information systems that permits reporting of trends on key financial performance drivers and outcomes

including but not limited to products, segments, geographies, responsibility and ratios and comparison of actual with plans and forecasts. 4. Support the development, communication and agreement of strategy. 5. Lead the preparation, presentation and agreement of plans; develop financial models that permit modeling under varying assumptions

about external environment and key performance drivers. 6. Develop presentations of the financial performance, investment required and strategies of the business to a variety of key

stakeholders and investors including but not limited to: MD, Exco and staff of IPB; Divisional and Group; and, if appropriate, local regulators

7. Develop the investment, funding and capital programs required to support the execution of business strategy including, where appropriate, business and financial cases.

8. Statutory and regulatory reporting compliance in Qatar 9. Assure appropriate stewardship of the Group’s financial resources and reputation in the development of the business

!

Vision:.Become.a.World.Class.Finance.team!!

Business!partnership!

One.multi)skilled.team.......................Analytics!Development!!!!!!!!!!!!!need!

Cycle!

Financial.&!Infrastructure..................Reporting!

solu8on!!!!!!!!!!!!!!!!!!!!!!!!!!!solu8on!

“FinanceFunc-onLIFT” Threeinterac-ngprograms

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Inlaterar0clesIwillgointomoredetailonthecomponents,thedesignandtheinter-linkagebetweeneachprogramandprovidesomeguidanceonsuccessfulexecu0on.Inconversa0onaboutLIFTwithanITspecialisthesaidtome:“Thisisthetradi0onalPeople,Process,Technologyapproach”(andyouknowhewasreallysaying,“Sowhat’sthebigdeal?”).Imakenoapologiesforrepackagingtradi0on:aheralltherearenotmanytrulyoriginal“new”ideasinthefieldofmanagingabusiness.It’sallpackaging.Buttherealbigdealis:ifpeopleunderstandallofthistheory,whydoyourepeatedlyseethetechnologypartofatransforma0onprogramtakingoverandbecomingthepointoftheprogramratherasubsidiaryenablerandtheprogramfailingorunder-delivering?Whydoesthishappen?I’lldiscussinmoredetailsomereasonswhythishappensinthenextar0cle.But,fornow,astoryIhaveseenplayedoutseveral0mesisasfollows:1.  everybodyagreesthatchangeneedsto

happen;

2.  businessleadershipfailstotakeownershipindefiningwhatneedstohappen;

3.  externalspendisbudgetedandis“intheprogram”,sotheITfunc0onfillstheleadershipgap;

4.  theprogramisbadlydefinedandresourced,focusedtoomuchonmanagingexternalspend;

5.  ITmanagestoimplementthetechnology

(andspendthebudget)butchangesrequiredofusersareinsufficientlydefinedorimplemented;and,

6.  thebenefitsarenotrealized-thetechnologyremainsunder-usedornotusedatall.

Whatisall-importantforthesuccessofchange

programsisadequacyofprogramdefini0onfollowedbyalignmentofresourcesandac0onstoimplementit.FinanceFunc0onLIFTplacesaccountabilityforleading,definingandexecu0ngtheprogramclearlyandunambiguouslyinthehandsoftheFinanceteamwithalotoffocusongegngtheteamitselftodefineandexecutethechangesrequiredtobemoreeffec0vearoundthethreedimensionsImen0onedearlier.TechnologyInvestment,whilegenerallyanimportantpartoftheprogram,isprogrammedsoastodeliverquick-winswithoutcompromisinglongertermobjec0ves.Inotherwords,thetechnologyisacomponent-ratherthanthepoint-oftheprogram.But,perhapsthesinglemostimportantaspectofFinanceFunc0onLIFTistheincorpora0onofchangemanagementandconstantchangeintotheDNAoftheFinanceTeam.Thisacknowledgesthatthepathtogreatnessisajourneyratherthanades0na0on.


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Inmypreviousar0cle“Notechnologymagicbullet”Iaskedtheques0on:“…whydoyourepeatedlyseethetechnologypartofatransforma0onprogramtakingoverandbecomingthepointoftheprogramratherthanasubsidiaryenabler,withtheresultthattheprogramfailsorunder-delivers?”Oneanswertothisques0onisthatmanypeopleareuncomfortablewithleadingandmanagingchangeintheworkplace.Thismayseemtobeastrangestatement.Aherallpeoplehavetomanagemajorchangeintheirlivesoutsideofwork(births,marriages,divorce,death,etc).Whywouldn’ttheybecomfortablewithchangeatwork?I’llgointothisques0onlaterinthisar0cle.Asecondansweristhatpeopleareuncomfortabledealingwiththehumandimensionsofmanagingchange,whichareohenthemorecomplex,difficultandmessypartsofthechangeprocess.Ithinkyou’llagreethatagreatnewITsystemmanagedbyadysfunc0onalteamisnotasuccessfuloutcome.Weneedtofixtheteamfirst;butforvariousreasons,andperhapsunsurprisingly,peoplecanbereluctanttoopenthispar0cular“canofworms”.OhenaLen0onisdivertedtothetechnologyaspectsofthechangeprogramwhilerefusingtoacknowledgethattechnology,alone,maynotsolvetheperformanceproblems.Athirdanswertotheques0onisthatmanyoftheteam,some0mesincludingthemanagement,donotunderstandwhatisrequiredtoliWthe

5:Putyourpeoplefrontandcentreofthechangeprogram

performanceoftheteambeyondwhatitcurrentlyis.Theirvisionofwhat“couldbe”isconstrainedbytheirvisionof“whatisandwhathasbeen”.Unlesstheteamknowsandagreeswheretheyaregoing,howaretheytodefinethetechnologyandothercomponentsrequiredtogetthere?

FinanceFunc=onLIFT,mymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on,isdesignedtoaddresstheseissues:1.  TheFunc=onEffec=venessac0onprogram

redefinesthevisionforthefunc0on,transla0nggapsbetweennowandthefuturecondi0onintoawell-definedac0onplanthatformsthebasisofanewteamcharter.

2.  TheTeamEffec=venessac0onprogramteasesouttheissuesthatateammightbefacingaroundGoals,Roles,ProcessesandValuesandputsresolu0onoftheseissuesfrontandcentreoftheprogramdesign.

3.  TheTechnologyEffec=venessac0onprogramlooksattechnologyplanninginthecontextoftheneedsandpriori0esdefinedbytheTeamandFunc0onEffec0venessprograms.

Func%onEffec%veness

LIFT

TechnologyEffec%veness

LIFT

TeamEffec%veness

LIFT

IhavefoundthatcarefulincrementalITinvestmentthatdeliversastageddeliveryofimprovedFunc0onandTeamEffec0veness(lowhangingfruit,sotospeak)ismoreeffec0vethan“bigbang”technologyimplementa0on.Whowantsatechnicalsuccessbutaprac0calfailure?

SomersConsult





“Well,iftheuserscan’torwon’tusewhatwe’veinstalled,that’stheirproblem!”Ohen,itcanalsocostmuchless.So,let’sreturntotheques0onofwhymanypeopleareuncomfortablemanagingchangeatwork,despitethefactthattheymanagelotsofchangeintheirdailylives.Ithinkthemainreasonisthateithertheyarenotaskedto,ortheyaretoldnotto,ini0ateandmanagechange.AMcDonald’sburgercookisnotpaidtobecrea0ve;heorsheispaidtopresentastandardproductinastandardmannerwithstandardingredientscookedinastandardwayandwithagreatagtude.ManyFinancejobsarelikethis.Theyarenotpaidtomakeoutcomesmoreeffec0ve;theyarepaidtodeliverastandardoutcomeinastandardmannertoastandardverybusy0metable(though,onoccasionIhavetoadmitsomeoftheMcDonald’s“greatagtude”maybemissing!).Therealityisthatrisk-aversionistrainedintomanypeopleaspartoftheirworkand,inthecaseofFinancepeople,riskaversionforcertainrolesisanactualpre-requisiteandapersonalitycharacteris0cofpeoplewhodocertainjobs.TheresultisthatmanyFinancemanagerswhocomeupthroughthesystemareadeptatadministeringstandardprocessesratherthandevelopingandexecu0ngchange.

Anotherreasonwhymanypeopledonotembracechangeistheneedfor“boot-strapping”.Thismeanscon0nuingtodoyourdayjobwhile,atthesame0me,developingandexecu0ngthechangeprogram.Allchangeprogramsrequirethis,toagreaterorlesserextent.However,ifweassumethatthereisnotawholelotofidleresourcelyingaround,thenthechangeprogramwillnecessitaterealloca0onofalotofpeople’sorsomekeypeople’s“busy0me”tosomethingelse.Andalotofpeoplearenotforthcomingondoingthis.Finallyandunfortunately,inmyexperience,fearanddistrustis,toagreaterorlesserextent,anever-presentfactorinthebusinessworld.“What

“IfIdon’tfollowprocedureIcouldgetfired.”“I’mafinancepersonnotaprojectmanager!”“We’reallsobusyandnowtheywanttoloadmoreworkonus!”“I’mhappywithwhatI’mdoingIdon’tseewhyIneedtochange.“

willthismeanforme?”isacommonfirstreac0onwhenpeopleareconfrontedwiththeneedforchange.Thisisohenfollowedbyapassiveorac0verejec0onofthechangeprogramunlessyouworkhardtogettrustandbuy-in.AmodernFinanceFunc0onisacomplexmixofhighlyproduc0vestandardprocessandad-hocimprovisa0on.FortheCFOandteamtobesuccessful,constantchange(recognized,forexample,intheJapanesebusinessesphilosophyknowasKaizen)needstobeincludedinthetargetopera0ngmodel.Iwillalsolookatthisinmoredetailinfuturear0cles.So,theconclusionisthattogettothetargettransforma0onalopera0ngmodel,youhavetoputyourpeoplefrontandcentreofthechangeprogram.Inthenextar0cle,let’sstartbydescribingtheTeamEffec0venessprograminmoredetail.


16

Thisseriesofar0cleslooksatFinanceFunc0onTransforma0onfromthepointofviewoftheprac00oner:howdoIdefineandexecutetransforma0on?FinanceFunc0onLIFT,mymodelfordevelopingandexecu0ngFinanceFunc0ontransforma0on,combinesthreeinterlinkedeffec0venessprograms:FuncDon,TeamandTechnology.Thisar0clelooksatoneofthesethreeprograms:DevelopingTeamEffec0veness.Some0meagoIwasinvitedtopar0cipateasapoten0alchangeleaderinaGlobalLeadershipandPerformance(LEAP)programthatShellOilwasrollingoutacrosstheGroup.OnepartoftheprogramdesignwasaveryusefulTeamEffec0venessQues0onnaire.Ihavesubsequentlyusedthisques0onnaireinseveralsuccessfulFinanceFunc0ontransforma0onassignmentsthatIhavecompletedaroundtheWorld,mostrecentlyinQatar.WhatIlikeabouttheques0onnaireisitssimplicity.Myexperienceisthatteamsrespondveryposi0velywhengiventheopportunitytoself-diagnoserisksandissuesimpac0ngtheireffec0venessandtodevelopsolu0ons.Igenerally“spring”theques0onnaireontheteamaspartofthelaunchworkshopoftheChangeProgram.Responsesareanonymous(toassurehonesty)butIgenerallyaLempttodifferen0atebetweenManagerandStaffresponses.Thephilosophyunderpinningtheques0onnaireisthat…

Tobesuccessful,teamsneedtobeveryclearontheGOALSofthegame,theROLESofthevariousplayersinthegame,thePROCESSESusedbytheteamandtheplayerstoachievethegoals,andthequalityoftheRELATIONSHIPS(includingthebehavioursandvaluesoftheteam).Greatteamsalsotakeownershipoftheireffec0venessandworkconsistentlytoimproveeffec0veness;managementbecomestheservantoftheteam.

6:TheTeamEffec=venessdiagnos=c

1.Goals:whatweshoulddoorneedtodo

2.Roles:howweorganiseourselvestodoit

3.Processes:howweachieveourgoalsandhowweensurethatiftheplanisn’tworkingwechangetheplan

4.Rela?onships:thebehavioursandvaluesthatkeepustogetherandfocused

Teameffec?venessisaboutsharedgoals,organisa?on,opera?onandbehavioursandvalues…

Goals

Roles

Rela?on-shipsProcesses


17

Hereistheques0onnaire:

1.   Goals•  OurGoalsareclear

•  OurGoalsarestretchingbutachievable

•  Everyoneiscommi5edtoteamgoals

2.Roles•  Wemaximumtheuseofresources

•  Weareorganisedforachievementofgoals

•  Everyoneisclearonresponsibili;es/tasks

•  Leadershipresponsibili:esareclear

3.Processes•  Teamprocessesarewelldesignedand

understood

•  Problemsolvinganddecisionmakingprocessesareappropriate

•  Decisiontakingreflectscompetenciesandneedforinvolvementofindividuals

•  Conflictintheteamisconfrontedconstruc:vely

•  Timeistakentoimproveteamprocesses

4.Rela;onships•  Flexibility,crea:vityandcrea:onofposi:ve

energyisencouraged

•  Thereissensi:vitytotheneedsofothers

•  Thereistrustandopennessinteaminterac:on


18

Oncetheteamhascompletedandreturnedtheques0onnaire,wecompiletheresultsandprovidefeedbacktotheminasubsequentTeamEffec0venessworkshop.Atthisworkshoptheteamischallengedtodevelopsolu0onsforimprovingeffec0veness.TheworkshopisalsousedasanopportunitytointroducesomeoftheFunc0onandTechnologyeffec0venessproposalsaspart-orwhole-solu0onstotheteam’sdiagnosisofwhatneedstohappentobecomemoreeffec0ve.Empoweringconceptssuchastheself-managedteamandmanagementasbeingtheservantoftheteamohencomeasabigsurprisetoteammembers.Ohentheyareshockedorsurprisedathowconsistentlypeoplefeelaboutissuesandsolu0ons.Teammanagerscanbeshockedatthedifferencebetweentheirpercep0onandtheirstaff’spercep0onofhowthingsare(andsome0mesthatmanagementisabiggerpartoftheproblemthantheythinkorarepreparedtoadmit).Butevenwithwell-managedteams,Ihavefoundthattheques0onnaireandworkshopisausefultoolforimprovingteamperformance.Func0ontransforma0ongenerallyinvolvesrevisedteamgoalsandobjec0ves,changestooracompletelynewopera0ngmodeland

0""

1""

2""

3""

4""

5""1"

2"

3"

4"

5"

6"

7"

8"9"

10"

11"

12"

13"

14"

15"

Average"Response" Minimum"Target"Response"

ClearGoals

StretchingbutachievableGoals

Everyoneiscommi7ed

Maxuseofresources

Organisedforachievement

Everyoneisclearonresponsibili>esandtasks

Clearleadershipresponsibili>es

Welldesignedandunderstoodteamprocesses

Appropriateproblemsolvinganddecisionmakingprocesses

Involvementandcompetenciesindecisionmaking

Conflictconfrontedconstruc>vely

Timetakentoimproveteamprocesses

Flexibility,crea>vityandcrea>onofposi>veenergyencouraged

Sensi>vitytotheneedsofothers

Trust&opennessinteaminterac>on

Howbaditcanbe*:thecloseryouaretozerotheharderitistohitthetarget…

*actualfeedbackfromoneoftheteamsIworkedwith


19

organisa0ondesign,andchangestotechnology.TheTeamEffec0venessprogram’soverallobjec0veistogettheteamtotakeownershipofthechangeprograminitsen0rety,flushingoutandresolvingtheobstaclestosuccessfulexecu0on.Theteamendsupowningtheresponsibilityforimplemen0ngtheteam,technologyandfunc0oneffec0venesssolu0onsiden0fiedintheprogramdesignandbytheteamitself.Thisconsiderablyenhancesthelikelihoodofsuccessfulexecu0on.But,mostimportantlyinmyexperience,itenrichesandenergisestheteamandtheindividualswithintheteam.

I don’t want to

participate (6%)

Everything is bad (44%)

Most things are bad (50%)

Actualfeedbackfromnon-managersofateamIworkedwith

TeamEffec)venessLIFT:Aninterac*veprocessthatengagesandempowersthewholeteamtofixeffec*venessissues…

Teameffec*venessques*onnaire

Feedbacktoteam

Developteamac*onplan

Managementteamreviewand

committoac*onplan

Planexecu*onprocessandac*ontracker

Thisisfollowedbyaworkshopduringwhichtheresultsarefedbacktotheteam…

ItislikelytohighlightareaswhichtheLeadershipTeamneedtocommittoimprove.

Itstartswithateameffec*venessques*onnaire...

…withthechallengetodevelopateamac*onplantoaddressiden*fiedteameffec*venessissues.

Thisisfollowedthedevelopmentofateamandleadershipac*ontrackerwithenhancedcommunica*onandaccountabilityfordelivery.

Ateameffec*veness“healthcheck”mayberepeatedaIeraperiodof18monthsto2years.

Team


20

FinanceFunc0onLIFTistheopera0ngmodelIhaveusedoverthepast20yearstotransformorupgradeFinanceFunc0onsintheAmericas,EuropeandtheMiddleEast.Itisasimplemodelbasedondefiningandexecu0ngchangeobjec0vesacrossthreedimensions:Teameffec0veness,FuncDoneffec0venessandTechnologyeffec0veness.Underpinningallofthisisaheavyemphasisonteamengagement,empowermentandcommunica0on.Inmylastar0cleIprovidedanoverviewoftheapproachthatItaketodevelopingtheTeamEffec0venessProgram.Akeyinputtothisprocessisatop-downevalua0onofFunc0onEffec0veness.ThiswillgenerallyalsoincludeobtainingfeedbackfrommyExecu0veCommiLeecolleaguesandotherusersabouthowtheyperceivethefunc0on.Aherall,iftheteamdoesnotknowhoweffec0velythefunc0onisperceived,howaretheytogaugeteameffec0veness?But,Ihearyouthinking,howdoIjudgeFinanceFunc0oneffec0veness?Func0oneffec0venessisaboutleadership:definingthegoalsofthefunc0onandtransla0ngtheseintomeasurableobjec0vesandeffec0veprocessesforachievingtheseobjec0ves.It’sassimpleasthat.IdefinemysuccessasCFObydeliveryofasinglegoal:

7:TheFinanceFunc=onEffec=venessdiagnos=c




…inamannercompliantwiththepoliciesand

interestsofthebusiness.

TosupportthedeliveryoftheoverallgoalIuseninebuildingblockobjec0vesforFinanceFunc0onEffec0veness1.   Communica=on:Developpresenta0onsof

thefinancialperformance,investment/fundingrequiredandstrategiesofthebusinessforavarietyofkeystakeholders.Assureinfluenceonoutcomesthrougheffec0vecommunica0on.

2.   Strategy:Supportthedevelopment,communica0onandagreementofstrategy.

3.   Team:Buildandmaintainafinanceteamwiththeskillsneededtofulfilthecorepurposeoftherole.

4.   ModelingandPlans:Leadtheprepara0on,presenta0onandagreementofplans;developfinancialmodelsthatpermitmodelingundervaryingassump0onsaboutexternalenvironmentandkeyperformancedrivers.

5.   SystemsandProcesses:Developandmaintainefficientsystemsandprocessesthatsupportallfinancial,management,regulatory,taxa0onandotherrepor0ngrequirementsunderthecontroloftheFinancefunc0on.

Strategy

Modeling&Plans

Commun

ica0on!

Team

Systems&Processes


21

6.   InvestmentandFunding:Developtheinvestmentandfundingprogramsrequiredtosupporttheexecu0onofbusinessstrategyincluding,whereappropriate,businessandfinancialcases.

7.   Compliance:Statutoryandregulatoryrepor0ngcompliance.

8.   ManagementInforma=on:Developmanagementinforma0onthatpermitsrepor0ngoftrendsonkeyfinancialperformance,driversandoutcomesincludingbutnotlimitedtoproducts,segments,geographies,responsibility,andra0osandcomparisonofactualwithplansandforecasts.

9.   Stewardship:Assureappropriate

stewardshipoffinancialresourcesandreputa0oninthedevelopmentofthebusiness.

EachyearIdevelopandagreeworkprogramsforimprovingdeliveryagainsteachofthesekeyobjec0ves.Thetransforma0onprocessisbutthefirstofmanyfuture“constantchange”(Kaizen)programsthatputthefunc0ononthejourneytogreatness.

BeingaCFO:asinglecoreobjec3vesupportedby9keydeliverables…

StrategyModeling&

Plans

Investment&Funding

MI

Communica9on!

Team Systems&Processes

Compliance Stewardship




…inamannercompliantwiththepoliciesandinterests

ofthebusiness.

SomersConsult





Func%onEffec%venessLIFTjustlikeTeamEffec%venessstartswithsomeself-diagnosis…

Func&oneffec&veness

review

FeedbacktoCFO(andleadership

team)

Developleadershipteam

ac&onplan

IncorporateTeamandTechnologyeffec&veness

ac&ons

Planandpriori&seexecu&onprocessandac&ontracker

ThisisfollowedbyaworkshopduringwhichtheresultsarefedbacktotheCFO(andrestofleadershipteam)…

Otheritemsiden&fiedfromtheTeamandTechnologyworkstreamsareincorporatedintotheplan.

Itstartswithatop-downreviewofFunc&onEffec&veness...

…withthechallengetodevelopaleadershipteamac&onplantoaddressiden&fiedFunc&onEffec&venessissues.

Thisisfollowedbythedevelopmentofleadershipaccountabilityfordeliveryandweeklyprogresstracking.

Leadershipteamreviewsfunc&oneffec&venessannuallytorefinepriori&es.

CFO


23

TheCEOandotherleadersintheorganizaDonarehavingtroubleunderstandingandimprovingperformancebecausetheydonothaveenoughactualorpredicDveinformaDon.DailyreporDngdoesnotexistandmonthlycloseisoVenlate(butmoreorlessaccurate).ThebusinessesgeneratealoadofunofficialmanagementinformaDonthattheyusetotracktheirperformanceandmakedecisionsbecausethereportsthatFinanceproducesaretoosummarizedandfocusjustonfinancialinformaDon.TheinformaDonproducedbythebusinessisinconsistentandnotreconciledtoFinancenumbers;theCEOisconfusedbythis.Thereisnoforwardviewotherthanthebudget(whichhappensonceperyear)andthebudgetspreparedbythebusinessesareaspiraDonalratherthandriver-based.TheFinancefuncDonisledbyaveryablecontrollerwhohasbeenwiththeorganizaDonforalongDmeandisperceivedasacapableandtrustedindividual.Becauseof“poorsystems”theFinanceteamgettheirjobdonethrough“heavyliVing”(longdaysandweekends)withaheavyemphasisonuseofspreadsheets…

Let'shavealookatatypicaltransforma0onchallenge:

…Icouldgoon.Soundsfamiliar?Ihaveseenallofthesesymptoms,andmore,insomeofthefunc0onsIhavetransformed.Andofcoursethistranslatesintoaweakfinancialmanagementculture,whichisadangertoanybusiness.SeemoreaboutthisinAr0cle3inthisseries.

8:TechnologyLIFT:remembertheQBCrule!

OwnsExecutes

An-cipates

Manages

Influences

Performs

Effec-vefinancialmanagementculture

OhentheCEOhasaskedtheFinanceandITpeoplewhatneedstohappentoimprovemaLersbuthasbeentold:“Iknowyouareunhappyandweagreethatthingscanbeimproved,butunlessyouinvest$XmillioninacompleteoverhaulofthecurrentITsystemsthenthereisliLlethatwecando.”TheCEOsays:“NowayamIspendingthatmuchonasystemthatdoesnotproducerevenue.”

...andnothingchanges.YoucanunderstandwheretheCEOiscomingfrom.ACEOIonceworkedfor,whenIaskedhimhowhepriori0sedinvestmentspend,answered:“IfollowtheQBCrule.”Iasked:“What’stheQBCrule?”andhesaid:

“Ifitain’tQuick,ifitain’tBigandifitain’tCheapthenyoureallyhavetoquesDonwhetheryoushouldspendthemoney.”

Thisphilosophyguidesmetothisday.Inalltransforma0onsyouhavetodeliversomething-anything,quickly,toestablishcredibility;itneedstobesomethingwithareasonablybigimpactwhencomparedtowhatothercolleaguesaredelivering;anditcannotcomeatacostthatallowsittobeshotdown.So,whatifyouhadansweredtheCEO’sques0onasfollows?“Ithinkwecanmakeamajorimprovementinbusinessimpact,producDvityandeffecDvenessofourFinanceFuncDonwitharelaDvelysmallamountofinvestment.Sure,foropDmalefficiencyitmaybenecessaryto


24

doamajorsystemschange.ButletmemakeanimpactwitharelaDvelysmallamountofmoneysothatIearntherighttoaskformore.”AsageneralruleIhavefoundthatthisapproachgetsthetransforma0onprogramofftheground.MostCEO’swillgiveyouenoughrope!AndgenerallyifyoudeliverPhase1well,thenyouearntherighttoaskformoreinvestment.Phasingtheinvestmentiskey.

repor0nginforma0onabouttheperformanceofthebusinesses.Obviouslytheamountoftheinvestmentrequiredwilldependonthesizeandextentoftheprojectdefini0on.However,inPhase1,ItendtokeepthedevelopmentsmallerthanidealandverymuchfocusedonimprovingtheexperienceoftheCEOandmyfellowExecu0veCommiLeemembers.

GenerallythefirsttechnologyinvestmentImakewhenleadingaFinanceFunc0ontransforma0onistorapidlycreateascalable,modern,efficientDataManagementEnvironmentforusebyFinanceandBusinessusersinanalysingand

ThereasonforthisisthatIwanttoimprovethepercep0onofFinanceandbuildcredibilitywitharegulardrip-feedofimprovementinMIandanaly0cs.

1.Agreetoplevelrepor-ng.Thissetsdatamanagementobjec-ves

2.Determinestrategicdatasettoallowthisrepor-ngtohappen

3.Developdatastructuresthatassureroll-uptostrategicdataset

4.Developdataorigina-onthatpopulatesthedatastructure

5.Runcontrolleddataorigina-on

6.Captureandstandardisethedata

7.Populatethestrategicdatasetfromwarehouseandothersources(plans,headcountetc)andreconciledtofinancialdataset

8.Generatetoplevelrepor-ngbasedonstrategicdatasetwithroll-upandroll-downandreconciledtofinancialdata

Roll-uptoStrategicDataSet

Repor-ng

StrategicDataSet

DataOrigina-on

Ihavefoundthatthebestwayofdoingthisistoimprovetheaccessibility,0melinessanddrill-downcapabilityofcurrentinforma0onasquicklyaspossible:getwhattheyalreadyhaveautomatedandreconciled,andruthlesslyreplacespreadsheetsusedinproduc0onwiththenewtechnology.ThiscreatesbandwidththatallowsFinancetomovetothenextphase,whichistoexpand

capabilityandtoimplementtheworkprogramscomingoutoftheFunc0on-effec0venessandTeam-effec0venessworkprograms.

SomersConsult





Thereareseveralchoicesoftechnologyavailable.ForexampleHyperion(nowOracle)Essbaseisanexcellenttechnologypla{ormtoaffecttransforma0on.Several0mesIhaverapidlydeployedEssbaseasatac0calsolu0oninPhase1whichhasthenevolveditintoastrategicsolu0oninsubsequentphasesoftheproject.Withtheadventofhighimpacttechnologieslikecloudandmobile,thesedaysyoucanalsoaffectthischangewithouttheneedtoprocurehardwareorinvolvealargeamountofITresource.Themobiledistribu0onofdataalsomakesthisevenmoreeffec0ve.Itiscri0calthatyouengagesuitablyqualifiedtechnicalsupport.Mypreferencehasbeentousedependable,externaltechnologypartnersthatspecializeintac0calandstrategicEssbasebuildswithshortdevelopment0me.TogiveyouanideaofthetypesofpartnersIhaveused:Qubix,basedintheUKbutwithofficesinterna0onally,supportedmeintheUKandSwitzerland(www.qubix.com)andIntelledata,basedinFloridabutwithofficesinterna0onally,supportedmeintheUS,Argen0naandacrossseveralotherLa0nAmericancountries(www.intelledata.com).IntheMiddleEastIwassupportedbyGBM(www.gbmme.com)withanIBMCognosimplementa0on.FinanceFunc0onLIFT’sapproachofphased

investmentmeetstheQBCrule.ButrememberthereisnosuchthingasaTechnologyMagicBullet(seeAr0cle4inthisseries).TheTeamandFunc0oneffec0venesspartsoftheprogramareatleastasimportantastheTechnologypart,notleastbeingtheneedtodeveloptechnologycompetenciesintheFinanceTeam.


26

Somereadershaveaskedme:WhatoutcomescanyouexpecttoseefromaFinanceFunc0ontransforma0on?Whatdoesitlooklike?Myanswerissimple:justas“Beautyisintheeyeofthebeholder”,aFinanceFunc0on(oranyotherfunc0onforthatmaLer)iseffec0veiftheCEOandothercolleaguesacrosstheorganisa0onjudgeittobeeffec0ve.Percep0onisreality.Andtowinthepercep0onbaLle,itisessen0altodeliverandover-deliverontheexpecta0onsofyourcustomers.Whyisthisimportant?Well,IhaveseenmanyFinanceprofessionalsstrugglebecausetheydonotplacesufficientemphasisonthemanagementofpercep0on.ToomanyFinanceprofessionalsemphasisethetechnicali0esofthefinancejob(whichisohentheircomfortzone),whilenotspendingenough0meandaLen0ononbusinessleadership(which,ohen,isnot).WhatmanyfinancepeoplefailtounderstandisthattheCFOjobisnotaboutlegngyourCEOandyourcolleaguessetyourobjec0ves,andyouthendeliveringonthem.Func0onleadershipisaboutsegngtheagendaforyourfunc0onsothatitcontributestothedevelopmentofstrategyandmaximizesitscontribu0ontotheexecu0onofthatstrategy.Thismeansthatyounego0atetheobjec0vesandpriori0es;youdonotsitaroundwai0ngfororders.Butwhatexpecta0onshouldyoudeliver?Inmyexperiencetheexpecta0onsthatmanybusiness

9:Percep=onisReality

leadershaveoftheirFinanceFunc0onareohenpreLylow.Andwhenyouaskyourcolleagueswhattheywant,theycanbechallengedtodescribeit,otherthantocomplainaboutwhatiswrongwiththecurrentset-up.Insuchasitua0on,thereisadangerthattheCFOwilldevelopatac0calprogramtofixarandomlistofcomplaints,ratherthandevelopaprogramthatcreatesaWorldClassFinanceFunc0on.

AsSteveJobssaid:“Alotof0mes,peopledon'tknowwhattheywantun0lyoushowittothem.”So,Itendtogoaheadandshowittothem!Overthepast20yearsorsoIhavesuccessfullytransformedFinanceFunc0onsintheAmericas,EuropeandtheMiddleEastusinganopera0ngmodelthatIdevelopedandcallFinanceFunc0onLIFT.ItassistsmeindiagnosingandfixingdeficienciesintheadequacyofTechnology,TeamandFunc0onDefini0on.MostoftheFinanceFunc0onsIhavetransformedhadunderperformed,notbecauseofpoormanagement,butbecauseofpoorleadership.Generally,theyhavenotbeen

deficientinthebasicserviceleveloffinancialandregulatoryrepor0ng,buttheyhaveunder-performed,ornotperformedatall,onthehighervalue-addedcomponentsoffunc0oneffec0veness.Inpreviousar0clesIhavewriLenaboutsomeoftheelementsofFinanceFunc0onLIFT.Oneveryimportantenablingac0oninFinanceFunc0onLIFTisthecrea0onofatopteamwiththecompetenciestodelivertheprogram.Withoutbeingtoospecificaboutthedetailsoftheorganiza0ondesign(whichwillbebigger,smaller,moreorlesscomplexdependingonthesizeandnatureofthebusiness),Ilooktodevelop4top-teamcompetencies:1.   Financial&RegulatoryRepor=ng:This

comprisesthebasicfinancialcontrolandrepor0ngservicelevelrequiredofallbusinesses.TheKPIforthiscompetencyis0mely,accurateandefficientproduc0onofreports.Itistheengineroomofthefunc0on.

2.   DataManagementandProcessImprovement:Thisdoeswhatitsaysonthe0n:itisthechangemanagementcompetencyandsupportsthedevelopmentofarollingprogramofconstantimprovement(Kaizen).ItsKPIismeasurableprocessimprovementanddatamanagementcapability.

3.   BusinessPerformanceImprovement:Thisisthecompetencythatdevelopseffec0ve

SomersConsult





rela0onshipswiththekeyprofitdriversofthebusinessandsupportsperformanceimprovementincludingsupportfordevelopmentandmodelingofstrategyandinvestmentandfundingprograms.Transla0onofcomplexityandcommunica0onisalsoakeyrole.

4.   PlanningandAnalysis:Thiscompetency

sitsatthecentreoftheabovethreeensuringthattheviewofthefutureisconsistentwiththeviewsofthepast;thatadhocanaly0csrequiredforperformanceimprovementareproduc0onisedandcontrolled;thatmanagementinforma0onproducedisstandardisedandproduc0onisedwhileensuringthattheoverallbusinessfocusesonthingsthatmaLer.

Ofcourse,theleadershipchallengeoftheCFOistomouldthesecompetenciesintoaneffec0veteam.Thiscansome0mesbeachallengegiventheverydifferentpersonali0esandprofessionalpriori0esofthepeoplewhoexcelintheseroles.

DataManagementandProcessImprovement

BusinessPerformance

Financial&RegulatoryRepor<ng

Leadershipteam:fourkeycompetenciesrequired

Planning&

Analysis


28

Inanearlierar0cleinthisseriesIsaidthat“Businessesneedtoan0cipateandhavetheflexibilitytoreacttosudden-shockorslow-burnchanges:thebusinessesthatloseoutareohentheonesthatcan’torwon’tdevelopanopera0ngmodelthatsupportsthisgoal.”IbelievethattheCFOneedstoplayacri0calroleinensuringthatthishappenseffec0vely.Weneedtospendalotofour0melookingout(atcompe0tors,markets,economicsandsoforth)aswellaslookingin(atfunc0oneffec0veness,financialmanagementculture,efficiency,compliance,andthemyriadotherthingswehavetoensurewegetright).Ifyouthinkaboutit,manyofushavespentvirtuallytheen0retyofourcareerssuppor0ngbusinessesthroughtough0mescauseddirectlyorindirectlybyeconomiccrises.Forexample,mycareerasCFOhasspannedbusinessesimpactedbythesovereigndebtcrisisofthe‘80s,theUKeconomiccrisisoftheearly‘90s,theAsianeconomiccrisisofthelate‘90s,theArgen0nadebtcrisisof2001,thecrazycreditexpansionintheUSandEuropeupto2007andtheensuingcrash–theimpactofwhichisongoingahermorethan8years(!).Myobserva0onovertheyearsisthatallofthesecrisesoriginatedfromtheburs0ngofcreditbubbles;andprogressiveglobalisa0onhasincreasedthelikelihoodofcreditbubblerisksinonecountryorregionbeingtransferredtoanother

Source:hLp://www.scoopnest.com/user/GregoireFavet/656079413029814273

10:Lookingoutaswellaslookingin…

countryorregion.Currently,forexample,manycommentatorsareexpressingconcernaboutthesustainabilityofChina’scredit-drivengrowth.WhyshouldtheCFOintheMiddleEastworryaboutthis?AherallChinaisvery,veryfaraway.So,ifyourbusinessis,say,sellingstuffinDubai,whyshouldyouworry?Iwasdiscussingthisrecentlywithanequityanalystandhesaidthat,forhispurposes,hefocussedpreLymuchen0relyontherela0ve

compe00veposi0oningofthecompaniesheevaluated(profitability,efficiency,marketshare,productinnova0onetc);hetendedtostayawayfromspecula0ngabouttheeffectofmacro-economicforces.Ofcoursethishaslogictoit:ifyouareanequityanalystorfundmanager,whoseobjec0veistopickastockthatwillbeattheaverageofanindex,thenbypickingthestrongestcompanyintheindex,yougettoyourgoal.


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However,Iwouldarguethatthisapproachisnotsufficientifyouleadacompany.Ofcourseitmakessensetoaimtobethemostsustainablyprofitable,withstrongmarketshareandindustry-bea0ngefficiency.Butbusinessleadersalsoneedtotryandiden0fythemediumtermexisten0althreatsandopportuni0esthatmaybepresentedoutsideoftheirzoneofdirectcontrolandposi0on

theorganisa0ontorapidlyadjustinan0cipa0onoftheserisksandopportuni0es.Manymanagementteamsadoptaposi0onofdenialwhenfirstconfrontedwithanexternalproblemandareunpreparedtochangecoursesufficientlyrapidly.Ortheyaresimplyunprepared.IamremindedofthequipbyChuckPrince,thenCi0group’sCEO,whenaskedbytheFinancialTimesinJuly2007whetherCi0group’sriskappe0teforprivateequitydealsmightreducegiventheburgeoningsub-primecrisis.Hereplied

thatgloballiquiditywasenormousandonlyasignificantdisrup0veeventcouldcreatedifficultyintheleveragedbuyoutmarket."Aslongasthemusicisplaying,you'vegottogetupanddance,"hesaid."We'res0lldancing.”WhathewassayingwasthatCi0groupcouldnotbeseenastheonlyins0tu0ontocutbackonthatbusiness.NowIamnotgoingtospeculateaboutthepriceofoil.I’mnotsureanybodycansaywhereitsmediumtermpricewillstabilisewithanycertainty.HoweverwhatIcanspeculateaboutiswhetherbusinessesintheMiddleEasthaveadequatelystress-testedtheirmediumtermplansforvariousoilpricescenariosanddevelopedcon0ngencyplansforthem.Differentscenarioswillhavedifferentconsequences,necessita0ngdifferentbalancesheet,costandinvestmentposi0oning.ItisbeLertoprepareforascenarioinadvancethantowaitforittooccurandthenbeginthinkingaboutit.EvenifyourbusinessistosellstuffinDubai.So,backtotheChinaques0on:whyisitimportant?China’sbankingsystemhasgrownfromunder$3trilliontoover$34.5trillioninassetsoverthelast10years.Thereisnoprecedentinrecordedhistoryforthisrateofcreditexpansion.IndoingsoChinahassuckedinaverylargeshareoftheWorld’scommodityproduc0ontosupportthebiggestinvestmentandcommoditypriceboomofall0me

(oneofmanysta0s0cs:inthepastthreeyearsChinahasconsumedmorecementthantheUSusedinthepast100years).Manycommentatorsfeelthatthecreditbubblesuppor0ngthisgrowthmayburstandChinawillhavea“hardlanding”.Othercommentatorsfeelthata“soher”landingwillhappen.Whoeveryoubelieve,thereisalikelihoodthattheChinesedemandthatwasthereinthepast10yearsmaynotbethereinthefutureandthatthisislikelytohaveanimpactonmarketsandproducersintheMiddleEastandelsewhere,par0cularlyoil,gasandothercommodi0es.

Oh,onefinalword:inNovember2007,shortlyahertheinterviewwiththeFinancialTimes,ChuckPrinceresignedhisposi0onwithCi0.


30

MostoftheFinanceFunc0onsIhavetransformedhadunderperformed,notbecauseofpoormanagementbutbecauseofpoorleadership.IfyouwanttobecomeaCFO,thenyouneedtoaccumulatetheexperienceandtrainingtobeconsideredforthejob.Thismayseemself-evident.But,overtheyears,Ihavebeenstruckbythenumberofyoungandmid-levelfinanceprofessionalswhoaspiretobecomeCFO,yetstruggletodevelopandmaintainacareertrajectorythatqualifiesthemfortherole.Whetheryourambi0onistobeaCFOorsomethingelse,careermanagementwillimprovetheoddsofyourachievingyourcareergoals.Overthepastfewmonths,Ihavemetindividuallywithover200execu0vesofoneofthelargerbusinessesintheUAE.ThethemeofthisprogramwasCareerPlanningandManagement.Thepar0cipantsrangedfromveryseniorandlate-careerexecu0vestomorejuniorandearly-careermanagersandstaff,withabroadrangeofages,na0onali0esandprofessionalbackgrounds.Now,I’mnottalkingaboutplanningforthenextyearortwo;I’mtalkingaboutplanningthenext10to15yearsofyourprofessionallife.Thiscanseemlikeaverylong0meaway.But,asIpointedouttomypeople,10to15yearsisabout3to4jobs,ifweassume3to4yearsper

job.Soitmakessensetomakethesestepstherightstepstowardsanoutcomewedesire,thantohopethattherandomnessoflifeortherandomgenerosityofthebosswillachievethesameresult.

11:Prac=cebeingaleader

Iseecareerplanningasafour-stepprocess.Firstweneedtodefineourobjec=ve.Thismayseemstraigh{orward.Itisn’t.Andoneofthereasonsitisn’tisthatina10to15year0meframe,manypeople,par0cularlythoseintheearlystagesoftheircareer,strugglewithunderstandingthequalifica0onsrequiredfor

moreseniorjobs.Ihavecomeacrossmanypeoplewhothinkthatdefiningtheobjec0veissimplytonamethejob.Thisdoesn’twork.Weneedtovalidatetheobjec=ve,thesecondstepoftheprocess.Whatdoesthismean?Putsimply,avalidatedobjec0veisanobjec0vethatwehaveareasonableprobabilityofachievingifwefollowacourseofac0on.Itmeansthatweunderstandwhatisrequiredtobeacontenderforthejobandthatthegapbetweenwherewearenow,andwhereweneedtobe,islikelytobebridgeablegivenourcurrentage,levelandexperience.Thethirdstepintheprocessistodoagapanalysistoiden0fythedevelopmentneedstobeaseriouscontender.ThisrequiresthatwehaveapreLygoodunderstandingofthetargetjobandwhatweneedtoachievetobeacontender.Butitalsomeansthatweneedtobehonestaboutourcurrentcapabili0es.Finally,weneedtodeveloptheplantofilltheiden0fiedgaps.Andthisplanwillcomprisetwoelements:3to4jobs,plussometrainingcoursesandself-study.Tooohen,Financeprofessionalsplacetoomuchfocusonthetechnicali0esoftheprofessionandtooliLlefocusondevelopingthepeopleskillstoqualifyforthetopjob.ChiefExecu0vesspendthevastmajorityoftheir0meonhumanstuff:nego0a0ng,influencing,leading,communica0ng,hiring,firing…thejobisallabouthumaninterac0on.Theyneedpeoplearoundthem

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tosharethisload,whilstalsobringingspecialistskillstothetable.Trainingcourses,whileimportant,areobviouslymoreimportantearlierinourcareers.Aswegetmoresenior,moreandmoreofourprofessionaldevelopmentwillbeon-the-job.Iwouldsay,maybe,80%foramid-levelandseniorexecu0ve.Whichiswhythe3to4jobsweplanaresoimportant.Manypeopleunderes0matetheimportanceofself-study.Iseeitasalife0meendeavortoachieveprofessionalcredibilityatthemostseniorlevels.Ifwespeaklikeaccountantsandnotasbusinessleaders,wewillnotbecredible.CareerPlanningandManagementisanitera0veprocess:asweexecutetheplanandobtainmoreinforma0onandfeedback,weneedtore-evaluatetheobjec0ve,thegapandtheplan.Butthemostimportantthingaboutcareermanagementisac0onandmovement.Ifwewantaleadershiproleinthefuturethenthebestwayofbeginningthisjourneyistostartac0nglikealeadernow,inourcurrentroles.So,ifyouhavedefinedyourcurrentroleasbeingtomanage“whatis”,askyourself“whatcouldbe?”andnego0ateandimplementthischange.Thisisleadership.


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Iwasspeakingtoaseniorexecu0veofalargeUKfinancialins0tu0ontheotherdayandshetalkedaboutsomeofthefrustra0onherins0tu0onisexperiencinginexecu0ngchange.Now,ofcourse,someofthismaybeanissueofpercep0on.Aherall,ifyouareaChiefExecu0vetaskedwithdevelopingandimplemen0ngaverylargeandcomplexchangeprogram,thenthereisastronglikelihoodyouwillperceivefewthingsasbeingdeliveredquicklyenough.Ifpa0enceisavirtue,itdoesn’talwaysapplytoCEOs!But,pugngCEOpressuresandrelatedpercep0onstooneside,therealityisthatmanybusinesschangeprogramsrunintorealexecu0ondifficul0es.Whetheritisanewproduct,anewsystem,acorporatereorganiza0on,anacquisi0on,adivestmentorwhatever,manychangeprogramsdeliverwaylessthanexpecta0onsordon’tdeliveratall,notsomuchbecauseofafailureofstrategybutbecauseofafailuretoexecuteeffec0vely.WhyisthisandwhatarethethingsthattheCFOshouldconsidertobeLerensurereturnonchangeinvestment?Iuseasimpletop-teamdiagnos0ctobeginwith:1.Goals:Areweclearonthefinancialoutcomesthebusinessistodeliver?Andaretheseappropriate?Thepointhereisthattheoverall

Goals

Roles

Rela)on-shipsProcesses

12:Execu=onisthething…

changeprogramneedstobecontextualizedbyadesiredandsustainablefinancialoutcome.RecentlyIwasatapresenta0onbytheCEOofalargeglobalsohwarecompanywherehemadethispointtotheaudience:“Youcandressitupallyoulike,butthereasonIremainemployedisthe

boLomline….That’salltheBoardandShareholderscareabout.IfIamtosurviveIneedtogenerateacceptablenumbers.”OhenIhavefoundthatthefinancialpointoftheprogramislostand/orpoorlycommunicated.Gegngpeoplefocusedonandremindedofthefinancialoutcomesanddriversofthoseoutcomescanbetransforma0onaltoaprogramthat’snotworking.

2.Roles:Areweclearontheaccountabilityforthevariouscomponentsandprerequisitesfordeliveringthefinancialoutcomes?Ihavebeensurprisedathowmany0mesIhaveobservedopaqueaccountabilityforgegngthingsdone.Andoneofthereasonsforthisisthatitcanbedifficulttogetpeople(andevenveryseniorpeople)toputtheirhanduptoleadapartofaprogramthathasaverytransparentoutcomeandwhichcouldtake3to4yearsoftheirlives.Manymanagers,par0cularlythosethatarepoorleaders,actasadragonexecu0on.Theyprefertosecretethemselvesinanoversightorgovernanceroleratherthaninactuallyleadingthechange.Thisgivesthempowerwithoutaccountabilityandthispowercansome0mesbemisused.3.Processes:Doweallunderstandwhatneedstohappenforthefinancialoutcomestobeachieved?AndI’mnottalkingabout“movethisnumberby10%”,orwhatever.Theques0onis“whatdriversofperformanceneedtomoveforthis“10%”tohappen?”TooohenIhaveseentheso-called“strategy”orgoalbeingatop-downaspira0onaltargetwithliLleornovalida0onastoachievability.Ifyoucannotnaildownthedriversofthenumbersyoucannotnaildownwhoisperformingandwhoisnot.4.Finally:Whataretherela=onshipslikeinthetopteam?Iknowonethingforcertain:unlessthetopteamactseffec0velyasateamwewillnotdeliver

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top-classfinancialperformanceandwewillnotexecutewell.AndIamnotreferringtowheretopteamrela0onshipsaredysfunc0onal(andthisisamorecommonproblemthanmanypeoplearepreparedtoadmit),itcansimplybeaques0onofpeopletryingtodotherightthingintheir“silo”without“joined-up”orconnectedthinkingandac0on.Inmyexperiencebusinesseswithexecu0ondifficul0esfailorneedimprovementononeormoreofthesekeyques0onsandtheresul0ngweaknessesarereplicatedandamplifieddownthroughtheorganiza0on.Nowmanyfinanceprofessionalsreadingthismayreacttoitbysaying:

“SurelyitisthejoboftheCEOratherthantheCFOtoenterintothisparDcularminefield?”

TowhichIreply…

“AcriDcalpartoftheCFO’sroleistoadviseandsupporttheCEOonthemaaerofsecuringfinancialoutcomessothattheCEOandtheteam’sperformanceisacceptabletokeystakeholders.TodothiseffecDvelyyouneedtowalkintheCEO’sshoesand,asoneofthevery

fewmembersoftheleadershipteamwiththebreadthofviewoftheCEO,weareoVenthebest-placedresourcetosuggestimprovementstoleadershipteamalignmentwherefinancialoutcomesareconcerned.”

Thisisleadership.


34

Allofuswhohaveoperatedatseniorlevelinbusiness,whetherasCFOorinotherroles,cometorealisethatbusinessleadershiphasasignificantpoli0caldimension.Differentpeopleontheteamhavedifferentpriori0esandagendas.Thenego0a0onoftheseis,necessarily,apoli0calprocessofgiveandtakebetweenthemembersofthetopteam.Andthereisalwaysthepossibilityofpersonalagendasinfluencingthenego0a0on.Inmyexperience,thedynamicsandchallengesposedbyorganisa0onpoli0csdifferdependingonwhetherthebusinessisdoingwellorbadly.Whenbusinessisbuoyantandtheteamisfocusedonbuildingsustainableprofit,thechallengefortheCFOisohentodowithkeepingpeople’sfeetontheground,reigninginirra0onalexuberanceorop0mism,keepingtheteamfocusedonthestrategyandonthecompe00onandotherrisks,andavoidingdecisionsandac0onsthatwillresultinthebusinessnotbeingabletosuccessfullynavigateanexternalshock.Thiscanbedifficult.AfriendofminewasfiredfromhisjobasCFOofaprivatecompanypriortothecrashof2008becausehisentrepreneurbossthoughthewas“notaggressiveenough”intheareasofdebt-financedgrowthandspecula0veinvestment.Interes0nglythebusinesswentbustsoonaherthecrash.IliketothinkthathadthisentrepreneurlistenedtohisCFO’scounselhemights0llbeinbusiness.And,ofcourse,manyCFOs,unlikemyfriend,

13:Theartofgedngthingsdone

bendtothewillofthebusinessinthe“good0mes”whichmakesnaviga0ngthroughthebad0mesdifficultorevenimpossible.

Inego0atedoneofthelastsub-primeassetsales*toLehmanBrothersbeforetheycrashedin2008.WhenIanalysedthesaleformyBoardreport,IcouldnotunderstandwhyLehmanhadpaidsomuchforthepor{olio.BecauseeventhoughImadeabooklossonthesale,thethrough-the-cyclelossfromthepor{oliowasseveral0mesthebookloss.Iconcludedatthe0methatLehmanmusthavehadthemeansforelimina0ngthisriskfromtheirbalancesheet.Aherall,nosensibleperson,holdingthepor{oliotomaturity,wouldhavepaidwhattheyhadpaid.“Investmentbankermagic”so-to-speak?

Ofcoursetherewasnomagic**.ItsubsequentlytranspiredthatLehmanhadbeenaccumula0ngilliquidandover-valuedassetsonitsBalanceSheetforyears(includingmyliLlepor{olio)andthatitwasaPonzischemeofsorts,supportedbypooraccoun0ngstandardsandpoorregula0on.Wherewastheirfinanceandriskdirec0onwhileallthiswashappening?However,inthenormalcourseofevents,itiswhenthebusinessentersadistressedstatethatthepoli0caltemperaturerisesandthechallengefortheCFOincreases.Thisishumannature.Stressedtopteamswillohenseeanincreaseinavoidancebehaviour,poorercommunica0on,aggressiveandbullyingbehaviour,fac0onalsplits…Thelistgoeson.Strongleadershipisrequiredtomaintainteamcohesionandeffec0veness.Thisisnoteasywhenpeoplearefacedwithmakingextremelydifficultdecisionsand,ohen,fearfortheirandtheirfamilies’futures.IhavebeenCFOinseveraldistressedsitua0onsandthehumandimensionofthechallengecanbemoredifficultthanthetechnical.Howdoyougetentrepreneurialbusinesspeopletocuttheirlosses?Howdoyoupersuadebusinessleadersthattheinvestmentstheyhavesponsoredandloveareimpairedandunlikelytomakeareturn?Howdoyoudoallthisandsurvivethepoli0cs?Certainly,inmycareerasCFO,Ihavebeenonthe

*See:hLps://www.moodys.com/research/Moodys-assigns-defini0ve-ra0ngs-to-five-classes-of-ABS-issued--PR_132106).**See:hLps://www.moodys.com/research/Moodys-downgrades-UK-consumer-loan-backed-notes-issued-by-Consumer--PR_191833

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receivingendof“robust”poli0csasIworkedtogettheteamtoacknowledgesomereallydifficultreali0esandtheneedfordifficultdecisions.

Some0mesitworked.Some0mesitdidn’twork.Alotdependsonwhetheryouhaveseniorpoli0calbacking.LastmonthIwasinterestedtoreadaleLerfromCyrusMistry,thenowformerChairmanofvenerableIndianpubliccompanyTataGroup,tohisfellowdirectors.HewrotetheleLerinresponsetohisdismissal,whichhebelieveswasunfair,andhisreplacement,onaninterimbasis,byhispredecessorRatanTata.IntheleLerhestatesthathewas“wriDngthisleaertotheBoardtoemphasisethetotallackofcorporategovernanceandtopointoutthefailureonthepartofthedirectorstodischargethefiduciarydutyowedtostakeholdersofTataSonsandofthegroupcompanies.”Sta0ngthat,“Allof

thisdoesnotaugurwellforthefutureoftheGroup”,hefollowswithseveralexamplesofwhathebelievesisevidenceoffinancialandgovernancechallengesfacedbyTata,includingaggressiveaccoun0ngandfailuretobookimpairmentofassets.MrTata’sresponseincludedastatementthat,“ThedecisiontochangetheleadershipofTataSonswasawell-consideredandseriousoneforitsBoardMembers.Thisdifficultdecision,madeaVercarefulandthoughduldeliberaDon,isonetheboardbelieveswasabsolutelynecessaryforthefuturesuccessoftheTataGroup."Iamnotgoingtojudgewhoisrightorwronginwhatisclearlyacomplexanddifficultsitua0on,otherthantosuggestthatfortheseniorleadershipofanimportantpubliccompanytohavesuchapublicandacrimoniousexchangeisprobablynotforthebest.IfMrMistry’sallega0onsaretruethentheTataGroupwillrequireaconsiderablenumberofdifficultdecisionstobeimplemented.Somebodyonceadvisedmethat,“Poli0csistheartofgegngthingsdone”.Butwhatthingsgetdoneareanindica0onofwhetheritis“Good”poli0cs,workingintheinterestsoftheshareholders,or“Bad”poli0cs,workinginmanagement’sself-interest.Wewillsee.Ul0mately,thisisthechallengepresentedbythepoli0caldimension.

RatanTata,TataGroup,TataSonschairman,CyrusMistry,TataSons,(ex)-CEO.SourceTheIndianExpress

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