What is the most effective management style ?

The best leader is the one who adopts the management style most suitable for each situation, each context, each person or group and for each organization.

From the beginning of my career and through all different roles I held in different organizations one of my priorities has always been to develop the best management style. I read a lot about the subject and I also learned a lot from all the people I had the opportunity to work with at all levels: senior management, team members and peers.

However the examples were really different and there was no pattern showing me the critical success factor as a leader.

I have seen different styles, from democratic to authoritarian in the beginning to directive, supportive, participative and goals-oriented in the last 10 years.

I have also seen that in the last years new management styles have emerged such as charismatic, transformational etc.

Leadership is really an endless source of study and analysis due to the important role played in the organization performance and in the achievement of the goals and results.

Assuming no person is identical, having different needs and motivations, that teams and persons also experience different phases of development and we are absorbed by constant changes, I believe the most correct, above all for me, management style is what Blanchard called situational management style or situational leadership. According to Blanchard the most effective leadership is the one which adapts to the team members in every situation, in other words, a management style suitable with the needs of the team.

The situational management style is based on keeping a balance between the two behaviors exerted by a leader to adapt to the level of development of his/her team members.

These behaviors are as follows:

1.    Managerial behavior, which defines the roles and tasks for the collaborators and also points out what, how and when they have to perform them monitoring the results.

2.    Supportive behavior, focused on the development of the team, fostering the participation in the decision making process, uniting, supporting and motivating the whole team.

As we believe in the people development and we also want to achieve good results in our management careers I think the key to match both interests is to apply a management style suitable in each context, each person and each situation, as I commented at the beginning of the post. Based on that, we, as leaders, have to pay attention to all what happens around us, detecting the changes, movements and emotions experienced by our collaborators and team members.

This adaptation of the management style to the each situation, as required, does not mean, to be a different person, nor losing your personal style, simply means to perform different roles led by the person in the role instead of being led by the environment, the organization or the others.

As a conclusion, the leader should never forget, whatever is his/her management style in each occasion, has to be supported by, what I call, the basic pillars of leadership: authenticity, integrity, coherence, humility, leading by example and foster new leaders.

Management by values

Management is about leading the organization to achieve its goals and objectives.  We can manage a system that could be administrative, technical, financial or commercial, which I could name as the formal system. This system follows rules and indicators very precise, which are also subject to other rules and quantified results. But it is also known that we also manage a non-formal system, which I could call the “human system”. This system is the base for the prior one and it is more difficult to be quantified or measured.

The human system is defined by the persons, their rationality, emotions, freedom, intellectual capital, emotional intelligence and above all their values. You can have the right skills to manage an organization but if we don’t manage properly the human system you are bound to fail.

Without the optimization and proper management of the human you cannot get good results in the technical. Neither the machines nor money or computers work on their own. Behind there is always a person.

In the management by values some elements stand out as follows:

·         It is a strategic and leadership management

·         Aim the values are alive in the organization as a result they are practiced by the persons

·         Allow the practice of values is productive. In other words, it will influence the profits that will be generated by the company

·         Have an impact in the transformation of the persons based on the change in attitude and conduct more than in the information and skills development

·         Foster change management to fill the gap between the present and the future as pointed out by the strategic vision

·         The persons, with their values, are the permanent base of the organization as they create a positive environment for the work

·         The values are the heart of the human system in the company, so if it works, the rest of aspects from administrative to technical will function correctly

The senior management of an organization could fail due to economic reasons, for an internal financial crisis, market loss, competition or for the tax regulations. But behind all these processes, controllable or uncontrollable, there are always the wise or mistake choice of the persons leading the organizational system, their knowledge, attitudes and values, which could impact for a change.

Management by values is actually self-management, self-motivation, self-leadership and self-responsibility, to act, not only by the commands, but aiming to achieve our own best and making sure also the best for the company.

The core of the management by values is to convert the organization in an integrated system of values that can be achieved not only for a declaration of principles related to the strategic planning but for a construction process, that normally takes time, derived from the senior management decision to give the values a real support in the organizational development and focused on the critical aspects of the company such as technical, finance, production, sales, service and quality etc.

As a conclusion I would say that knowledge and information are the new name of capital: a company is worth what the knowledge and values of the employees are worth. The knowledge and values embodied by the persons is the most productive resource of the organization.

Leading by example: challenging coherence

The most difficult situation of someone who has the responsibility to be in charge of a team, as a leader, responsible o director, is to maintain aligned and coherent behaviors with the expectations of the observers for the daily performance.

In many occasions we have listened the expression “we lead by example”, but maybe we did not go deeper in the scope and sense this expression has for the organizational culture and for the management processes of the organization.

To be an example also means there is a fact that has to be followed or rejected and therefore those being an example must comply with some characteristics. I would like to stress the difference between setting an example and being an example as the conceptual implications are very relevant since set is a presentation of the ideal which must be done in reference of something whereas be refers to the actions that have to be imitated, replicated or followed by other members in the organization.

The example, in terms of behavior, is a conscious and deliberate action that intents to be followed and based on that we could question the validity of a leadership where the example is not derived from a personal and profound conviction to reinforce the action but to the contrary it could become a mask of incoherence and therefore it does not show the reality of the real meaning of the proposed action.  In other words, the leadership must go beyond  the example and have to include the possibility of the mistake as the leadership is neither to be an example nor to set an example but transforming by example, with the possibility that management becomes a new experience for all the members of the team.

Leadership is a necessary component in the processes of transformation and the example is an option which is available to be taken, improved or changed in a way the results meet the expectations and the goals of the organization.

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”.