TagProcess Improvement

Converting Data Into Insights: The Right Technology Alone is No Guarantee of Success

The fact that technology is playing an increasingly significant role in executing many traditional finance tasks while at the same time generating greater insights that drive business performance is irrefutable.

However, even though many organizations are significantly investing in advanced data and analytics technologies, majority of these investments are reportedly yielding disappointing returns.

This is often because they focus mostly on the implementation of new tools, and less on the processes and people. For instance, there is a widespread misconception that data analytics is a technology issue, and also about having the most data.

As a result, many organizations are ultimately spending large amounts of money on new technologies capable of mining and managing large datasets.

There is relatively little focus on generating actionable insights out of the data, and building a data-driven culture, which is the people aspect of analysis.

Data analytics is not purely a technology issue. Instead, it is a strategic business imperative that entails leveraging new technologies to analyze the data at your disposal, gain greater insight about your business, and guide effective strategy execution.

Furthermore, having the right data is more important than having the most data. Your organization might have the most data, but if you’re not analyzing that data and asking better questions to help you make better decisions, it counts for nothing.

Reconsider your approach to people, processes and technology

The success of any new technology greatly depends on the skills of the people using it. Additionally, you need to convince people to use the new technology or system, otherwise it will end up being another worthless investment.

Given digital transformation is here to stay, for any technology transformation to be a success, it’s imperative to have the right balance of people, IT and digital skills.

It’s not an issue of technology versus humans. It’s about striking the right balance between technology and people, with each other doing what they do best. In other words, establishing the right combination of people and technology.

For example, advanced data analytics technologies are, by far, better than humans at analyzing complex data streams. They can easily identify trends and patterns in real-time.

But, generating useful insights from the data all depends on human ability to ask the right key performance questions, and identify specific questions that existing tools and techniques are currently not able to answer.

Rather than hastily acquiring new data and tools, start by reviewing current data analytics tools, systems and related applications. This helps identify existing capabilities including tangible opportunities for improvement.

It’s not about how much the business has invested or is willing to invest in data analytics capabilities; it’s about how the business is leveraging existing tools, data and insights it currently has to drive business growth, and where necessary, blending traditional BI tools with new emerging data analytics tools.

That’s why it’s critical to build a clear understanding of which new technologies will be most beneficial to your business.

Technology alone will not fix broken or outdated processes. Many businesses are spending significant amounts of money on new tools, only to find out later that it’s not the existing tool that is at fault but rather the process itself.

Take data management process as an example, mostly at larger, more complex organizations. Achieving a single view of the truth is repeatedly challenging. This is often because data is often confined in silos, inconsistently defined or locked behind access controls.

A centralized data governance model is the missing link. There are too many fragmented ERP systems. Data is spread across the business, and it’s difficult to identify all data projects and how they are systematized across the business.

In such cases, even if you acquire the right data analytics tools, the fact that you have a weak data governance model as well as a non-integrated systems infrastructure can act as a stumbling block to generating reliable and useful decision-support insights.

To fix the faltering data management process, you need to establish a data governance model that is flexible across the business and provides a centralized view of enterprise data – that is, the data the organization owns and how it is being managed and used across the business.

This is key to breaking down internal silos, achieving a single view of the truth, and building trust in your data to enable effective analytics and decision making.

Is your organization spending more time collecting and organizing data than analyzing it?

Have you put in place robust data governance and ownership processes required to achieve a single version of the truth?

Are you attracting and retaining the right data analytics talent and skills necessary to drive data exploration, experimentation and decision making?

Reimagining Business Processes in an Era of Cognitive Technologies

For years, the focus of many organizations has been on standardizing and automating existing business processes to achieve significant gains in efficiencies.

Within the office of finance, mundane transactional processes such as order-to-cash, procure-to-pay and record-to-report have been the epitome of standardization and automation.

As a result, a number of finance and accounting professionals have had their jobs taken over by automation or machines.

Compared to humans, machines are best at handling repetitive tasks, analyzing enormous data sets, and handling cases with usual modus operandi. On the other hand, humans are best at resolving cases that are complex, requiring application of critical thinking and problem solving capabilities, listening skills, and empathy.

In spite of the job losses of the past as a result of standardization and automation, we are continuing to witness a plethora of new technologies come to the fore and play a vital role in adapting operating models and driving business transformation.

For example, modern technologies such as cloud computing, RPA, advanced analytics, artificial intelligence, and machine learning are transforming the finance function and progressively enabling finance and accounting professionals create and deliver value across the organization.

Sadly, because of these technological advances, many finance people have embraced the false gospel that we are in the era of men-versus-machines.

They are of the incorrect view that machines have arrived to oust humans from the workplace. As a result, they are constantly fighting to protect their turf and are hamstrung by old habits.

Although there are always casualties as a result of implementing new technologies or solutions, the simple truth is that machines are not taking over the world, nor are they removing the need for humans in the workplace.

Instead, these new tools are augmenting human capabilities and collaborating with us to achieve productivity gains that have previously not been possible. Further, the emergence of modern technologies is also creating completely new roles and new opportunities up and down the organization’s value chain.

Given robotics and automation are here to stay, it’s imperative for business leaders to let go of this woefully misguided view of men-versus-machines, and embrace the modern era in which humans and machines collaborate to drive business performance.

Instead of becoming stuck on the old way of doing things, making it difficult to envision things that might be, a completely different mindset is required.

The key to achieving the expected benefits from having humans and machines working closely together is laying the proper foundation and sending out a clear message across the organization to alleviate any fears.

Humans and machines should not be viewed as rivals fighting for each other’s jobs. Rather, they should be considered as close collaborators, each impelling the other to higher levels of performance.

Since machines are better at performing tedious or monotonous tasks, and people rarely find delight in fulfilling these tasks on a daily basis, in order to take advantage of human-machine augmentation, companies should discontinue training their teams to work like robots.

Management and leadership must conduct a resolute review of organizational processes, identify and determine which tasks humans do best, and those that are best suited to machines.

The ultimate goal is to have people focus less on low-visibility tasks and more on higher-value tasks, requiring their judgement, experience and expertise.

In determining which processes to change, there are certain elements to look out for in your business operations. These include repetition, replication, redundancy or a well-outlined process. A significant presence of these elements is a sign that tasks or processes are ripe for change.

But before you reinvent business processes, job descriptions, and business models, you need to make prudent decisions about how best to augment your existing employees. For example, they are needed to design, develop, train, and manage various new applications.

A large part of that effort requires experimentation or trial and error to determine what work should be done by humans, and what work would best be completed by a collaboration between humans and machines.

Replicating the best-in-class process of an industry leader no longer cuts it through. In today’s highly competitive environment, to compete, management and leadership must customize processes to the eccentricities of their own businesses. That’s why experimentation is key.

Additionally, to get buy-in from employees across the company, leadership should foster a culture that encourages experimentation and not discourage mistakes. Provide clear objectives and also clarify to employees that you are investing in new solutions to replace tedious tasks and make their day-to-day work more engaging.

Technology is only an enabler of step-level increases in performance. Don’t rush into human-machine augmentation without initially laying the proper foundation.

First, automate routine work and concentrate on developing the full potential of your employees; then they can begin to focus on human-machine augmentation.

Challenge of Finance Best Practices and What CFOs Should Do About It

The modern CFO is touted as the right hand man of the CEO, providing strategic and operational decision support. No longer is the CFO only responsible for preparing and interpreting financial statements based on historical accounting data, but also for taking a holistic view of business performance and helping the organization move forward.

Thanks to new technologies and improved business operating models, CFOs across industries have been able to transform finance into a value creation function. Further, finance leaders are overwhelmed with finance best practices advice from professional services firms, research analysts and consultants.

Finance leaders are advised to standardize ERP systems, adopt financial planning and analysis technologies and ditch spreadsheets, streamline budgeting processes and implement driver-based rolling forecasts, automate and accelerate financial close and reporting etc.

The list is endless, but does a complete reliance on best practices advice improve finance’s performance and value creation?

Best practices and benchmarks are meant to help business leaders assess the progress of their companies against “leading performers” as opposed to being aspirational ideals to be attained.

The challenge with viewing best practices as standards of excellence is that, their attainment might mistakenly be interpreted by business leaders that no further effort, experimentation or thought is required.

By their nature and application, best practices are transitory. Given today’s business world which is constantly changing – practices, processes, systems and operating models that have enabled us to drive business performance are no guarantee of future success.

CFOs therefore have to realign their functions if they are to keep pace with the demands of an increasingly dynamic marketplace. Always keep in mind that best practices are only beneficial as long as the circumstances in which they are established remain stable.

Unfortunately, volatility and uncertainty are the norm today.

As a finance leader, you should be weary of copying best practices from other businesses with little adaptation otherwise you risk stagnating creativity and commoditizing innovation across the organization.

Rather than continue to depend on the widely accepted best practices, CFOs need to adopt a new mindset, break old habits and promote a continuous improvement culture.

Many at items promising ideas never experience the light of the day because the culture management has created rewards success and punishes failure. Leave some slack for experimentation and encourge constructive failure.

Simply following a complete set of rules or principles will not, on its own, drive finance function effectiveness. Before jumping at the so called best practices, at least ask yourselves:

  • How are we doing what we are doing now?
  • Why are we doing what we are doing this way?
  • What would it look like if we didn’t do things this way?
  • Who expressed this is the best practice?
  • Why is it considered best practice?
  • Does the best practice work for our business?
  • Is the best practice still valid or outdated?
  • Under what circumstances was the best practice established?

Answering the above questions will help you validate the best practice and its potential to boost organizational performance.

Adopt ideas, processes, technologies, and skills that drive change and create value. There is no hard-and-fast playbook. In a culture of innovation, new ideas spring forth from all directions, especially from the unexpected sources.

Just because the organization’s existing structures, systems, skills and processes are driving performance today does not mean they will continue to do so in the future. The past is prologue but not necessarily precedent.

Finance leaders who continue to find comfort in implementing widely accepted best practices to secure competitive advantage or embrace “this is how we have always done it” approach in today’s increasingly uncertain world are not only squandering resources but also destroying value.

Automation: The Key to Reducing Your Financial Close & Reporting Period

Ask any finance person what is it that they like less about their job, chances are that they will tell you it is closing the books at period-end. Why is this the case? For many finance functions, the financial close period (month-end, quarter-end and year-end) is one of their most stressful seasons.

Emotions and tempers fly high. Team members put in long hours just to balance the books.

I have heard cases of teams knocking off after midnight for a couple of days and always ask myself why. Expressions such as “I am working late because it’s month-end, quarter-end or year-end” are starting to sound off like a cliché.

Are Finance teams swamped with work to such an extent that they are unable to complete their tasks within the normal working hours of the day or month? Maybe it’s tradition that must be preserved at all cost?

I am not trying to make myself a saint here. I too am a culprit. I have put in long hours at month-end or any other period-end close more than I can remember, and when I reflect back, most of the tasks that I put in the long hours for were mundane and not worthy of their time allocation.

In my experience, there are two main reasons why Finance teams find themselves working round-the-clock at the end of each financial close period – 1) Complacency and 2) Procrastination.

Complacency is the enemy of progress.

It is a common practice for humans to remain satisfied with the way things are and resist any meaningful change. Fear of the unknown makes us skeptical to embrace change.

What we forget is that not all change is bad. As much there is change associated with negative consequences, there is also a type of change associated with positive results.

Although technology has evolved over the years, it seems as if this new dawn is yet to reach the Finance function. In a number of companies, Finance has been very slow to adopt new enabling technologies in order to drive financial process efficiencies.

Take financial reporting as an example. Company stakeholders are increasingly demanding CFOs to deliver better and easy to understand performance information, more timely and credibly. Despite this need, Finance teams are still heavily reliant on manual extraction processes, and delivering stale information.

Finance people are spending a significant amount of time trying to manually consolidate company financial performance results.

So often Head Office teams patiently wait for subsidiary companies to send through their management packs for Group consolidation purposes and when they do reach the Head Office, they have not balanced and contain errors.

The Head Office team sends the management pack back to the subsidiary for rectification. If the latter is unable to rectify the errors, it automatically becomes the Head Office’s problem. This back-and-forth process results in unnecessary effort and time-wasting rework.

Love it or hate it, Excel is here to stay. Nonetheless, I believe there is a place for Excel and not all financial functions are easily performed with Excel. It is high time CFOs acknowledge the limitations of manual extraction processes and leverage financial consolidation software.

Automating consolidation functions results in reduced cycle times of discrete tasks, more accurate results at a lower cost, and also provides management with improved visibility and control, allowing for improved decision-making.

We Will Correct the Errors Later

Many at times procrastination has resulted in Finance teams working longer hours than they should. Accounting errors identified early in the month are not resolved immediately. Rather, the slogan is “We will correct the errors at month-end”.

When month-end comes, because of other issues at hand, these errors are easily forgotten and left to accumulate. What could have been resolved in one month ends up not getting resolved for another six months or so.

An example of this would be a clearing account that is not reconciled on a monthly basis. The balance is allowed to grow month-on-month until there is no more control and visibility of the account.

When the year-end comes, the external auditors want a precise explanation of the item movements within the account but nobody has a clue of when did the problem start and what exactly went wrong.

The auditors make note of a possible adjustment to the financial statements unless clarity is given.

Because the company is not prepared to write-off the adjustment to the income statement, the CFO reassigns resources to work on the clearing account, resulting in excessive time being spent trying to make sense of the historical items and movements.

It is therefore imperative that as soon as accounting errors are identified, these should be rectified in the same period identified.

Fast-Changing Environment Accelerating the Need for a Faster Close

In today’s fast-changing environment, companies need the ability to make better decisions and at a moment’s notice. Changes are happening must faster than before and because of this quickening pace of business, CFOs will forever be under immense pressure to shorten the time-frame of closing the company’s books and finalizing all financial reporting needs.

Regulators, rating agencies, investors and other stakeholders are increasingly scrutinizing company financial results, at the same time asking to receive this information sooner than later. This leaves little room for financial close and reporting processes that require an overabundance of patience or are lacking in clarity and precision.

Despite dramatic improvements in financial technology over the years, why then are CFOs reluctant to upgrade their company’s current systems? Are they dealing with competing priorities? Is it because they view investment in new financial software as a cost rather than an enabler of business performance?

In order to become effective business partners, the office of Finance needs to abandon its “wait-and-see” approach, become more proactive and invest in tools that help accelerate the financial close process and advance the CFO’s role, making it more and more strategic.

Automation is not meant to oust employees. Instead, automating routine financial processes shortens the period-end close and enables Finance to get involved in high-level tasks such as interpreting and analyzing data, generating insights, managing emerging risks and driving strategy execution.

For example, by investing in e-procurement software instead of relying on a highly manual, paper-driven P2P process, CFOs are able to monitor the company’s cash flow position in real time and take advantage of early-discount opportunities.

As the pace of business change continues to accelerate, Finance has to keep up, take a real-time overview of the entire close process, and address the areas that need improvement.

By incorporating technologies, streamlining processes, and reassigning employees, Finance can build a better-documented, more efficient and accurate financial close.

Getting Started On The Lean Journey

Lean management has been with us for so many years and organizations that have successfully embraced it have achieved superior business performance and competitive edge over their rivals.

Predominantly used in manufacturing, today, Lean is being adopted across all industries such as healthcare, financial services, construction, tourism, government, customer service, software and insurance. Performance focused leaders have realized that all work is process, and because all value is delivered as a result of a process, Lean should be applied to all industries.

Lean is all about reducing or eliminating waste whilst simultaneously maximizing value. In order to realise maximum value from Lean methods and tools, a Lean culture needs to be fostered. Thus the message of Lean and its benefits must be communicated to each and every employee at each level of the organization. This will also ensure total buy-in from the top to the bottom of the organization.

You might be asking yourself, “Why should we become Lean?” Lean helps employees move away from a singular focus of doing their work to a dual focus of doing their work and also become motivated to perform their work even better on a daily basis. Also, Lean helps to streamline your organization, engage your employees and achieve competitive advantage over competitors. Cost savings realized from the streamlining of the organization reflect directly in the bottom line.

It is important to note that Lean is so much more than cost reduction, it is a business strategy decided upon by senior management. Lean is not just another round of traditional cost cutting with headcount reduction as the primary focus. Instead, Lean thinking is about having a balanced assessment of the organization’s processes and the people involved in the processes and simultaneously achieving both improved bottom line results and employee growth.

Lean aims to improve the ratio of good cost to bad. Every organization, whether private or public, incurs two types of costs. Value adding costs (good costs) and non-value adding costs (bad costs). Value adding costs are to be encouraged if they bring competitive advantage and enhanced service.

On the contrary, costs that are incurred but don’t end up providing value to customers are waste. You therefore need to establish what is it that your customers perceive as value and ensure that your products or services are of value before striving to perform better. Quoting the words of Peter Drucker, the famous management guru, “There is nothing so useless as doing efficiently that which should not be done at all.”

To successfully realise value from Lean, it is important to note the following:

  • The whole purpose of all Lean activity is to improve the overall performance of the organization. It is important to clearly define what your organization is trying to achieve. Think about the purpose of your product or service range. You also need to deeply understand and appreciate your customers’ spoken and unspoken needs.
  • Your organization is a system of integrated and dependent elements working together to accomplish your defined purpose. Lean focuses on total system improvement as opposed to making changes in isolation. Making changes without an appreciation of the organization as a system often leads to unintended consequences.
  • Most of the processes within the organization are not value-adding from the customer’s perspective. There is a lot of waste, variation and overburden involved. Lean analyses existing processes, reorganizes them and builds a smooth workflow.
  • Lean is a journey without an absolute destination point. Because there are always opportunities for improvement, Lean is never fully implemented. In reality all waste cannot be removed, it is a goal to aspire to. Employees should persistently strive to improve the performance of their work on a daily basis.
  • People are the true engines of Lean. To continuously improve your organization, you need to grow people, empower them and engage their collective intelligence. When engagement levels are high, turnover is low, and this leads to higher productivity as there is less time spent training people to become competent in their job roles. People must know what is expected of them, have the resources to perform their jobs well, be appreciated, have input into improving their own work area and get the opportunity to work on what they are qualified to do.

Lean systems are designed to make normally invisible small problems and non-conformances visible. The core purpose of Lean is to surface problems and opportunities for improvement. Together, Lean and other enterprise performance management methodologies such as strategy maps, scorecards, KPIs, activity based cost management, driver-based forecasting and enterprise risk management can be used to reduce waste, drive business performance and create a competitive advantage.

 

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