Why Finance Has No Incentives for Process Improvements and How To Change It

Holly Lyke-Ho-Gland's picture

APQC recently chatted with Gabriel Zubizarreta on the challenges of process improvement in finance departments and why leveraging change is about culture.
Gabe will be leading the breakout session, Leveraging Change for Process Improvement, at APQC’s 2016 Process improvement Conference Oct. 3-7

You can connect with Gabe on Twitter @BetterClose or LinkedIn at Silicon Valley Accountants company page

 Q.  Accounting and finance departments have earned a stereotype for having significant room for improvement when managing change and embracing process improvement. Why is finance slow to embrace process improvement?

There are multiple issues at play here. First, we need to acknowledge that there are many accountants and finance departments that do embrace process improvement and they have done some excellent work in that regard. 

At the same time, there are significant structural disincentives to change. The deadline-driven nature of the accounting close makes implementing changes risky. If a change goes well, typically the rewards are small, but if a change goes badly and impedes or delays the close, the consequences for the accountant championing the change can be severe.  When you consider that up to 70 percent of process improvement projects fall short of expectations and/or go significantly over budget, it makes total sense for accounting departments to be risk averse.

In the past, many process improvement initiatives have focused on the “big bang” such as the implementation of a new ERP system or other significant automation. Even if this kind of big bang improvement is successful at first, underlying conditions will change, requiring that processes will need to continue changing or they will become outdated.

And there is one more thing to consider. Since the implementation of Sarbanes-Oxley, companies have added layers of controls. Often, these controls are implemented in a way that becomes inflexible and resistant to change. We understand that compliance is crucial, but it can’t be the sole focus. Companies need to implement compliance and agility; controls and continuous improvement. Finding the balance is not easy, but it is crucial if companies are to thrive as conditions change.

Q.  In your experience, what are some practical approaches that people in other departments can do to work with finance to foster collaboration for process improvements?

It really starts with communication. In many instances the operating and finance department simply don’t talk with each other. As a result, they don’t know or understand each other’s needs and priorities. At one of our clients, the accounting and operating departments sat down and talked to each other and reached some agreements. The operating department agreed to submit their information by a specific date, and the accounting department was able to commit to getting numbers back to them by a specific date.

Ongoing communications is crucial as businesses change, innovate, and respond to changing conditions. In many cases accounting departments are not made aware of impending changes or unusual transactions until late in the cycle. Instead, operating departments need to involve the finance department early in the process, and finance departments need to be open to supporting changes that the business needs to remain innovative and thrive.

Q.  What are ways people can identify ‘quick wins’ for process improvements in finance?

Every situation is different, and we are generally hesitant to prescribe before a diagnosis.  We have found that many organizations don’t have basic information about their close process. How many people are involved? How many manual activities? How many spreadsheets? How many activities are due each day? How many key controls do you have? If you can’t see it, you can’t measure it, and you can’t improve it. 

So frequently, we recommend that companies create a good, comprehensive check list as their first step. Once you have a solid check list, you can identify bottlenecks, look for items that can be done before month end, and determine which tasks and processes will give you the biggest payback from improvement.

Q.  Can you give some examples of accounting teams that have transformed into cultures which embrace continuous improvement?

As we mentioned earlier, there are many accounting teams that have done wonderful work on improving their close and other processes, both among our clients and companies that aren’t our clients. We have talked to and learned from these companies. Among our clients we have seen continuous improvement cultures develop at large, multinational companies such as Invacare and Coca-Cola Bottling Co. and at smaller companies such as Jergens Manufacturing.  In every case we have seen a small group begin the process, have some success, and then others join in. 

For example, at Invacare, the process started over five years ago with a small group at corporate. Over the years, the culture has taken hold worldwide. One of the interesting things about Invacare is that their processes were never “bad”. They had a relatively efficient close, but they saw that it could be even better, even smoother, and even more efficient.

Q.  What is the number 1 thing cultures that embrace continuous change in finance have in common?

There are a number of things. The one that comes to mind is that process improvement is not mandated from above, but a part of the culture all the way through the organization. In every case, the ideas for process improvement come from the people doing the work. Not from top management, not from outside consultants, but from the people doing the work. Over time the trust in these teams has grown, and the momentum has become sustainable

Q.  If you were to give one piece of advice to someone or a company that wants to try and get their finance department to embrace change, what would it be?

Actually, I will give two pieces of advice.  First, get yourself and your team educated on process improvement, teamwork, and communication. Then, just start. Don’t wait for the proverbial “right time”. Now is the right time! Start small with low risk, low disruption improvements. As you have success, the momentum will grow, and new groups will join.

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