The importance of knowledge management in the Finance transformation

Over the last 6 years I have been involved in Finance transformation projects related to BPO activities, Shared Service Centre implementation and Migrations & Transitions to stabilize existing Centers of Excellence. The companies where I worked, in different countries, are well known and successful which took the decision to follow this strategic transformation to standardize processes, gain efficiency, reducing operating costs and above all to enhance the value of the finance function as partner of the decision making and future pillar to achieve a sustainable competitive advantage. The companies act in highly competitive markets with a fierce competition and with clear pressure from shareholders and stakeholders.

This movement in my career was guided for my approach to get a continuous learning and to understand the two sides of the story. I have an extensive experience as Finance Director so my view from the customer perspective was clear in terms of requirements and improvements. Hence I was looking for gaining experience from the supplier perspective to achieve what I call “the whole egg”.

During this period the word Finance Transformation was very common in all meetings regardless the level of the attendees. Every one mentioned this for different activities. The first question I tried to answer was: What do we gain with a Finance Transformation project?

Well, from all my experience in the above mentioned companies and projects, the summary would be as follows:

·         Need of less investment of time and resources in all the operational and control processes

·         Improve of the quality of the information for the decision making process

·         Increase in the specialization of the finance resources

·         Finance becomes a business partner

·         Finance organization can be focused in value added and strategic activities

·         To achieve synergies it is necessary to be focused on the delivery of standardized  services and the consolidation while you balance the local and business units needs

The main focus of all the transformation projects is similar in my opinion, apart from the core achievements, the companies would need to be focused in being a learning organization and leverage the knowledge, so I would say to excel in the knowledge management.

A learning organization is skilled in creating, acquiring and transferring knowledge. In other words, a learning organization improves a company´s ability to react to, to adapt to, and capitalize on changes in its internal and external situation. All the projects commented above have a common core element, the knowledge transfer.

In my opinion the learning organization need practices and mechanisms which will:

·         Capture what is happening in the business environment

·         Enable those who receive the information to relate it to what others are observing and to analyze it in the light of the company´s previous knowledge

·         Document both information and analysis and make them available to others at the company and also for subsequent use

·         Measure the organization´s rate and level of learning in order to ensure that gains have in fact being made

Probably all the above elements could be considered as part of the knowledge management. I would say knowledge is information combined with experience, interpretation and reflection. Hence knowledge management could be the systematic process for the purpose of collecting and controlling the resources of the employees and abilities just as a company controls its inventories, raw materials and other physical resources.

At this point of the post, I would like to mention other critical element, the information. There are several reasons why we are nowadays talking increasingly about the strategic importance of the information. The technology has given us new possibilities while also forcing us to seek competitive advantage in ways less easily imitated that close physical proximity to customers. What companies can do is to create structures around people, places for interaction in combination with procedures and stored data.

Based on my above mentioned experience a company searching a conscious policy of knowledge management has to ask itself a very simple question: What do we want the knowledge for? The assets of a company run for profit are worth the present value of the effects on expected streams of future payments. When a company makes an investment in a data warehouse it does so in anticipation of improving its profits, meaning, of lowering costs and/or increasing revenues. How do we describe the link between expenditure and benefit? In other words, before we spend our money we should try to agree on why we are doing it.

My observation is the focus is on the structure surrounding people and data. But what tools, what infrastructure is provided for people? What incentives are offered to encourage them to contribute their knowledge? Are successful stories published which show the value of sharing knowledge? The formula should include data, people and structure. The companies should work on its strategy to create something unique and difficult to imitate. As you can imagine this is not supposed to be easy but this is part of the top management role.

I would like to finalize this post commenting on the other critical element, the systems. In my opinion the underlying cause of change is the shift of focus towards core competencies at the heart of the processes and away from the process flows themselves. Based on this the change imposes new requirements on company information systems. I have seen this directly. So, what should be the requirements of these systems? My observation is the systems should provide new languages, categories to identify and measure the company´s competencies and skills. In addition the new applications should emphasize the problem solving and presentation rather than results and transactions. With this regard I have seen different reengineering projects but this traditional view is usually taken to mean gathering traditional company information in newer, cheaper or simpler ways so that it can be made available more rapidly to more people. But if the companies are to be focused on core competencies these are normally based on learning and experience therefore the traditional data warehouse solutions have little to offer in my view. The challenge here is to build up information systems which see that company employees share both their information and their experience and which help them to do so.

As a summary I would like to say as I have seen in my journey so far the systems support the processes, transactional processes, integrated logistics where applicable and work flows. However the challenge, in my opinion, is to achieve systems which support competencies, for example, conversation and learning at work, networks for connecting people, structures to interchange of experience and communication building.

The journey is still in place so hope to see the new developments and how companies are adapting the finance transformation projects to the new demands of the environment, the challenges in the markets where the companies operate and the underlying need for the finance function to be seen as a value driver and the necessary business partner.