5 Key Insights into Transformational Change and Change Mgt

An excellent article was recently published on Linkedin by Niels Pflaeging, talking about 5 key insights into more constructive and robust alternatives to “change management” (or “planned change”) as you know it.

 

Insight 1: Change is not a journey – it is “constant flipping”.

  • “Profound transformation never takes more than 2 years – independent if it’s about an organisation with 20 people, or 200,000.”
  • “Change is line adding milk to coffee.”
  • “Profound change means sequenced flipping the system from Now to New – right here, right now. A thousand times or more.”

 

Insight 2: There is no such thing as “resistance to change”, only “smart response to dumb method”.

  • “People don’t resist change.”
  • “The more resistance to change you observe, the likelier it is that your methods suck.”

 

Insight 3: The problem is in the system, almost always.

  • “Change done well does not produce losers, only consequences.”
  • “What we interpret as as a resistance to change is an intelligent response to inconsistencies between the organisational model and the desired state.”

 

Insight 4: Organisational change is socially dense – the technical side is (almost) trivial.

  • ” Relationship is everything, method is secondary”
  • “Method must always be appropriately complex, and social.”

 

Insight 5: There is no such thing as transformation – instead, every-thing’s an intervention.

  • “Constant flipping is the only thing there is in change.”
  • “Instead of change management, we should practice the craft of change as exercising constructive irritation.”

 

 

To read the full article, click here (it will open in a new browser).

Cost Savings vs Cost Efficiency

We recently engaged in discussion on the Financial System News (FSN) discussion on “Role of Finance in Organisation Cost Control“.  Our response to a question posed on the role and accountability of the CFO in cost cutting:

 

Unfortunately, too many businesses that have not focused on running an efficient business end up in the “cost cutting” group when times get tough. For us, the emphasis should move from cost cutting to cost efficiency.

 

Where FP&A and CFO add value is by shifting the conversation to the latter. Any spreadsheet monkey can cut out 5% etc costs from a cost centre or P&L line item, but real business insight tells you the current and future value that that cost adds to your business.

 

Cutting cost to maintain profitability can backfire if efficient costs are removed, robbing a business of ready-to-go support infrastructure when markets recover. This current market fixation on always growing profits is outdated and does not recognise the economic turmoil being experienced globally. Perhaps a stable business delivering robust dividends should be achievement enough at this time? Remember, cost efficiency can sometimes actually require costs to be added. Improving Returns on Capital Employed requires ongoing investment, not just in products but in all of the enabling infrastructure.

 

Cost efficiency is a business-wide responsibility, but the CFO and FP&A team can add real value by using their business partnering skills to help educate and support the non-finance areas of the business in the understanding and daily approach to managing their costs efficiency. They can also add value by presenting cost benchmarking analysis to the business (both internal and external): providing a credible reference on how much things cost allows the business operator to know how far adrift they are from a sensible cost efficiency measure, giving them shared ownership of the problem and a shared benefit from engaging in cost efficiency improvements. Finance risks being seen as an ivory tower with no business insight if it simply issues reduction targets without engaging with the business on an operational level.

 

A more commercial approach to ‘cost saving initiatives’ should always leave a business ready to respond to changes in their competitive environment. For example, when winter’s coming a bear fattens up before hibernating. A skinny bear will die during winter. How many businesses leave themselves spread too thin, unable to adequately service their customers?

 

Cutting their workforce based on a spreadsheet calculation in challenging times can be a false economy. Their core business product or service may still ‘work’, but most customers want more than a cheap price. When a business’s overall value proposition falls short of customer expectations, customers will switch to a competitor. Cutting too many costs can leave a business exposed to poor service levels, increased product failures or lacking in timely after-sales service. Again, focus should be on cost efficiency in the broader sense, not just cost savings.

 

Businesses that look after their workforce in tough times enjoy much higher staff engagement survey scores than the “fire & hire” companies. People will typically respond by working harder, servicing customers better and adding extra discretionary effort to everything that they do when markets eventually recover, a value that is worth far more than the P&L cost code to which they are accounted for.

 

Click here to go to the full Financial System News (FSN) discussion on “Role of Finance in Organisation Cost Control

Small Business Planning and Budgeting

Once your business is operational, it’s essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business and its finances on track.

 

Remember that planning and budgeting is not just an activity for big businesses. Unfortunately, many smaller businesses delay putting in place a robust plan or budget in the belief that the processes required are too difficult, or that they know enough about their business not to need one. For some, the first time a plan is pulled together is when they go looking for external finance and can’t get one without a business plan. For others, the original plans pulled together are not updated or actively used in the day to day running of the business.

 

To be fair, the work required to get a business moving and deal with customers and process and systems and suppliers and, and, and… can be overwhelming for a start-up business, but putting a plan and budget in place need not be as onerous as possibly thought.

 

The underlying principles are the same no matter what your business size.

  • Be realistic, do not over-inflate sales projections or resource efficiency.
  • Ensure that cash flow sits at the centre of your plans and budgets. Profit is secondary.
  • Plan to pay your creditors on time. Ensure that you have the resources to survive periods of low/no cash inflow.
  • Budgeting should be accurate. Ensure that the data used is correct and that any assumptions are sufficiently robust and risk-adjusted.
  • You will almost never achieve your budget.  It is a road map based on best efforts and should always be challenged and updated as real world events unfold.
  • Communicate your budget to the entire business.  Without understanding, agreement and buy-in it will be worthless.
  • Having no plan is planning to fail.

 

This guide (click here) outlines the advantages of business planning and budgeting and explains how to go about it. It suggests action points to help you manage your business’s financial position more effectively and ensure your plans are practical.

The Power of 1 – Improving Cash Flow

How many 1’s does it take to materially impact your business’s cash flow?

  • 1 customer?
  • 1 bank holiday?
  • 1 new product launch?
  • 1 new employee?
  • 1 more repeat of your budget cycle?
  • 1 day breach of your loan covenants?
  • 1 more prayer?

 

The answer is that there are 1000’s of 1’s that can impact financial performance. But what are they, and what are you doing about them?

 

The factors affecting the biggest and most complex businesses are often exactly the same as those impacting a smaller or start-up business.  What differentiates these two extremes is the ability to identify, react to and take the necessary actions in order to make the necessary change(s).

 

By no means a unique idea, it is nonetheless surprising how many businesses fail to think clearly about the primary drivers of profit and cash flow.  Take the test for yourself. Click here and input your business information into this simple cash flow calculator to find out for yourself where your biggest opportunity for cash growth lies. Ignore that the calculator is shown in $.  Enter your results in £, € or any other currency as the outcome will be the same.

 

As your business grows, other 1’s will emerge and the inter-relationships between them and the rest of your business will give you many hours for thought.  But start with the basics and build your business from there.

 

Note: Part of the test is being able to input the data.  If you don’t know the exact answers to these simple questions, contact sonar immediately! If you do know the answers but don’t have the tools or ability to effect change within the necessary time frame, then once again contact us for help before it’s too late.

Why CFOs should own Analytics

An interesting and relevant article for all FP&A functions, by Frank Friedman, CEO of Deloitte LLP:

 

In summary, “analytics can be a powerful tool to look ahead, helping answer such questions as:

  • What challenges will organisations face a few years out, and
  • what services might they need?
  • How should those services be priced?
  • What type of resources might be needed and where?
  • Where might the business be vulnerable if the data underlying certain assumptions change?”

 

Frank goes on to highlight that “the power of analytics depends heavily on several factors:

  • the quality and preciseness of the questions being asked;
  • the organisation’s ability to gather the data that can address those questions;
  • the integrity of the data gathered;
  • and the ability of users to draw insights from the data in an objective manner”

 

“Many CFOs area already using analytics to better understand where the business is strong and where it needs improvement, and how to allocate limited resources more effectively. Analytics empowers CFOs to exercise more centralised control of operational business decision making. As profit can fall between the operational cracks, analytics can be a game changer by leading to improved operational discipline.”

 

To read the full article, click here (it will open in a new browser).

How CFOs can own analytics

Deloitte has published an interesting ‘CFO Insights’ article titled “How CFOs Can Own Analytics”.

 

CFOs can strengthen ties throughout the business and expand influence outside core finance functions“.

 

CFOs should bridge the gap between strategic and operational decision making with analytics. That’s a fundamental change in roles: it’s the difference between “managing the business” – the big, upper level decisions, such as planning, budgeting, and forecasting, that are the CFO’s traditional responsibilities – and “running the business,” the day-to-day, or even minute-to-minute, operational decision making that typically resides outside the finance chief’s purview”.

 

“… the CFO can drive value outside finance’s core functions throughout the business”, including “procurement… business units … sales and marketing … supply chain … information technology…”, but  “…CFOs who want to lead analytics … have to show that they can deliver on the operational side“.

 

“Leading analytics to support operational decision-making demands a high-level commitment to shift the organisation from a historical perspective to a forward-looking perspective. It also requires a willingness to invest in a small group of talented people who can help you determine and implement the analytics capabilities you’re going to need.”

 

Click here to read the full Deloitte paper (opens in a new browser window).