How to achieve organizational effectiveness

If we asked successful CEOs about the meaning of organizational effectiveness we would find different definitions but the most accurate one will be found inside the company and in the way it manages the current business environment.

Nowadays, apart from having a good business plan, all companies require an effective and efficient plan describing any single aspect the company has to take into account to achieve the organizational effectiveness. The project should be clear and should allow the assessment of the performance by comparing the KPIs most applicable to the organization.

The senior management leadership will allow the execution of both plans. The management style should flow top-down fostering a results-oriented organizational culture and the development to the execution capacity.

To know if the company has achieved the organizational effectiveness we must monitor if the current results are relevant for creating value and are coherent with the vision.

In the current economic environment all changes are very rapid which proves the responsiveness, utilization and adaptation to the emerging opportunities. With this regard, by knowing how to measure and adjust the action plan based on the perceived value for all the stakeholders is evident that the company will learn, as the vast majority of employees will be receptors and actors of the change that is required.

In my opinion this is the only way to manage the transformation, which is the result to achieve the organizational effectiveness. The organizational effectiveness is a direct result of the interaction of processes, system, risks, structure, culture, people, etc in a way the company is developed by putting in action some critical elements as follows:

·         The dynamic nature of short and long term objectives outlined in the strategic process

·         The focus on the customer

·         The alignment of goals, objectives, incentives, and people

·         The leadership of senior management impacting the results

·         The alignment of the talent to the critical positions to have the right people in the right roles

·         The assessment of the performance at all levels

·         Identify potential improvements and carry out those improvements

The action plan should include the intelligent management of all risks, innovation, take advantage of the big data, problem solving scenarios, continuous improvement and the adaptation of the activities leading to the strategic goal, as this is the only way to be better than the competitors  in the market place and in addition to achieve a superior performance.

The action of all the above elements implies a strong commitment from senior executives and other management levels to make things happen in the right moment and with the available talent. Just to remember an organization is simply a group of people, the human capital, so each person can contribute to the effectiveness by developing the talent and skills.

If the organization has capable and committed employees those employees should lead the more important activities so less capable employees are challenged and therefore prompted to leave their comfort zone creating a culture focused on accomplishment, results and rewards Needles s to say that the satisfaction at work, the motivation and the commitment have to be protected to shape the ideal organizational culture in a healthy manner.

Finally, just to indicate, that organizational effectiveness is simply the harmonic relationship between focus, alignment and results in all the functions which leads the organization to work successfully as a whole bringing the organization close to its vision.

Can finance department create value ? Yes, we can

 

Sometimes when a CFO takes charge of the finance department he/she is facing the boring task of being a simple tool for the company placed aside of the business and even to be considered the necessary bureaucracy to be run in parallel to the core business.

Although the above-mentioned scenario is changing very rapidly nowadays it is on the hands of the finance community to do a radical change and show that our department is really a profit center supporting the business potential.

In this post I intent to share some ideas which I consider are critical to cope with the so-called finance transformation.

Let me start with a simple statement:  which is more important “earn money” or “have money “?  Have money, no doubt.

We, as finance experts, know that earn money does not necessarily means we have money in the company. And when we decide to have it, we aim not to have money in excess (idle money) but having the minimum to run operations and get some additional debt capacity.

Within this process one of the most important goals would be to improve the image perceived from third parties about our performance to gain credibility. This would include our relationships with customers, suppliers, communication with internal customers, financial institutions etc.

A second goal is clearly to manage and reduce the finance charges and expenses. Here it is important to increase our negotiation power in front of our sources of funds, typically banks and other financial institutions. Create a balanced scorecard showing clearly our targets and measuring the deviations and achievements would be really helpful.

In terms of reducing administrative costs it is important to standardize and automate where possible finding areas of continuous improvements and being focused on what actually matters to support business and add value to the organization.

The finance team has to be motivated and proud to belong to this function. We need to foster mentoring and coaching and allow the reconciliation between our personal and professional life.

One aspect which normally is not taken into account is to determine our internal customer and how we need to manage our relationships. This is an important element for creating value. For example, we could help the sales function by offering alternatives to gain share of business in external customers. In other cases we can provide a quick valuation of the feasibility of a particular capital investment project. Receive a periodical feedback of our performance from our internal customers will allow us to find areas of improvement. Innovation is also a magical tool.

Too often, finance transformation initiatives either focus on creating efficiencies, for example, to reduce costs and remove non-core activities, or becoming more effective, for example, delivering more insightful analytics or providing better business intelligence. In my opinion, the effective and efficient are not mutually exclusive strategies.

Finally I would like to stress that transformation objectives have to be designed to achieve both efficient and effective results. While some initiatives will be focused on effectiveness and  others towards efficiency both should be balanced in order for the global finance function to be properly transformed and with the aim of the value creation. Many of the current successful transformation strategies focus on increasing the overall effectiveness of the finance function reducing simultaneously costs and complexity. But these efficiency driven objectives are often posed by reducing the headcount, which is an error in my honest view. To the contrary this should be balanced against the potential value creation opportunities that could be generated by those people, for example, managing better the processes and volume of data in the reporting periods and changing the focus from data gathering to the analysis of information.

Management control and its impact on strategy and performance

To maintain a competitive position a company has to generate the information necessary to define and implement its organizational strategies. Strategy is the connection between company´s goals and objectives and the operational activities executed to achieve corporate performance and growth. In the current global environment it is indispensable to be sure that such connection exists.

In my view, strategy is the art of creating value. It provides the conceptual models, intellectual framework and governing ideas that allow the leaders of the company to identify opportunities for bringing value to customers and for delivering such value in terms of profit. Based on this, strategy is the way a company defines its business and put together the main two resources that really matter in the current economy: knowledge and relationships or in other words, the competencies of the organization and its customers.

The achievement of a strategy takes back in consideration the different management horizons. At strategic level, settles the goals and objectives in the long term elaborating the strategic plan. At the operational level, we can place the budgetary process which translates into practices the established goals and objectives in the short term by preparing the budget and operational plan.

The management control acts in both horizons. The management control allows the leaders to perform strategic analysis on issues such as, determining the core competencies and constraints from a cost-benefit perspective and assessing the positive and negative financial and non-financial factors of strategic and operational plans.

Within the organizations the performance measurement has been dominated by management control processes focused on control and then improvement. Performance measures goes beyond the boundaries of traditional management accounting and could be achieved by finance teams having better understanding of the operational activities of the business and building this understanding into the design of new control processes, linking the control systems with the business strategy and focusing on the external environment within the business operates, through a value chain based approach.

The strategy of the organization has to be appropriate for its resources and objectives. The process involves matching the company´s strategic advantages to the business environment the organization is facing. A critical objective for an overall strategy is to put the company into a position to conduct its mission effectively and efficiently. A good corporate strategy should integrate the organizational goals, policies and tactics into a whole and should be based in business realities. With this regard the performance measurement system should encourage the leaders to act in the best interest of the organization supporting the mission and competitive strategies of the company.

As a conclusion I can say that management control is a core business function and should exist as a separate discipline within management field.

How to build a world-class finance organization

The role of finance organization historically has focused on oversight and control and paying less attention to increasing the effectiveness of its operating divisions.

However there were a lot of dramatic changes in the business environment driving finance organizations to reevaluate this role. The increased competition emerging from a global market has put pressure on finance organization to find new ways to reduce administrative costs, add value and provide a competitive advantage. At the same time the advantages in information technology have made it possible for finance function to shift from a paper-driven, labor intensive clerical role, to newly consultative roles as strategist, analyst and business partner.

Based on the above, the question would be, how could we create the so-called world class finance organization? In this post I would like to share my view based on my extensive experience in the finance function.

A world class finance organization can be best defined in terms of the business outcomes it generates, for example, improved business analysis, innovative solutions to business problems, reduced operating costs and improved overall business performance. At this point it is important to stress the relevance of what I call the “shared vision”. This shared vision includes the mission, a vision for the future, core values, goals and strategies which will lead to make the finance organization a value creating, customer focused partner in business results.

To achieve this position it is indispensable to be focused on some critical success factors, goals and best practices that are instrumental to attain the vision and create value.

The critical success factors should include:

·         Leadership/culture

·         Organization/customers

·         Technology/processes

·         People/talent

The goals have to be clear and achievable, for example:

·         Make the financial management a priority across the organization

·         Redefine the role of finance function

·         Provide meaningful information for the decision making process

·         Build a team that delivers results

The best practices are more difficult to find but are critical to achieve the vision and excellence, just to mention:

·         Build a foundation of control and accountability

·         Use training to change the culture and engage line managers

·         Assess the finance organization´s current role in meeting the mission and objectives

·         Maximize the efficiency of the daily accounting activities

·         Organize finance to add value

·         Develop systems that support the partnership between finance and operations

·         Reengineer the processes in line with new technology

·         Translate financial data into meaningful information

·         Develop a finance team with the right mix of skills and competencies

·         Build a finance organization that attracts and retains talent

The conclusion is very straightforward, we can achieve the excellence in the finance function in our new challenging and demanding role but it is crucial the CFO mindset is changed and focused on facilitating the above-mentioned elements to support the “shared vision”.