Finance Transformation Gone Wrong - Inadequate Technology Investment

Note: Today's post is part of an ongoing series that looks at various pitfalls in finance transformation and what can be done to avoid them.

Many of the challenges in finance transformation, such as lack of senior management support or the lack of stakeholder engagement, must be overcome in order to have an effective transformation program. Technology support is one of those areas that isn't black and white.

I say this because I honestly believe that because there are opportunities to engage in continuous improvement without large expenditures in technology, but I know from experience that companies with significant transformation programs are committed to technology investments that support the transformation strategy.

I once had a client that was developing a shared service center in the Far East to handled a number of countries in that region.  The center would handled a number of transactional processes, such as accounts payable, customer invoicing, fixed assets and general accounting.  Overall it was a successful implementation that met it's goals.  One challenge, however, is that various countries such as Japan require that certain documents like vendor invoices be retained in country.  A scanning and workflow package would have worked very nicely to get the information to the SSC while retaining the original documents in the country.  Unfortunately, this particular client was spending millions to get the SSC in place but wouldn't spring for the relevant technology to scan and route documents.  Instead, they chose to have their people fax the invoices to the SSC.  Yes it worked, but it created an inefficiency in the process when the transformation effort should have been focused on optimizing processes across the value chain.

This is one small example.  Other companies consolidate processes but still operate off of multiple ERP systems.  This isn't insurmountable, and there can still be real benefits to consolidation and shared services without the perfect, one instance, global ERP platform.  But there's no denying that it helps.  So don't stop improving and transforming in ways that don't require large technology investments, but be realistic about what you can achieve over the long-term without a comprehensive strategy of IT enablement that supports the transformation vision.

Aligning IT investments with Finance priorities

It's no secret that technology plays a key role in the achievement of high performance in the Finance organization.  Technology is a strong tool in creating standard and efficient processes, and in driving cost out of those processes.  What may be a secret, at least to some people, is how technology investments in the Finance organization are prioritized, funded and monitored. 

I'm currently reading IT Savvyby Peter Weill and Jeanne Ross.  (By the way, it's an excellent read and I highly recommend it.)  In the book they discuss the BT Group, a global telecommunications company and how BT approaches IT funding.  According to the authors there are three areas of focus:

1. Establish clear priorities and criteria for IT investments,
2. Develop a transparent process for assessing potential projects and allocating resources, and
3. Monitor the impact of prior investment decisions

This is a useful framework for a company's Finance organization to use when evaluating IT investments.  Unfortunately, while most of my clients would agree with the framework, my experience tells me that many organizations find the execution of this model difficult.

Nothing happens in a vacuum, and Finance must be part of a broader governance structure that evaluates potential IT investments.  However, Finance must develop a position on its strategy and the technology required to implement that strategy.  Finance should be bringing their investment priorities to the IT governance committee(s).  In order to do that, Finance needs a clear vision of their IT priorities, and that can only come about if Finance has a strong and clear vision about its role in the organization and how it delivers value to the operating units.

Developing transparency in an organization is usually difficult.  However, it's important for all stakeholders of Finance to understand how decisions are made.  That means understanding the vision and how technology supports that vision, but it also means establishing criteria that objectively analyzes the advantages and disadvantages of a particular technology investment.  Every proposed initiative should have a business case that clear details the reason for the initiative, the anticipated investments and future cash flows, as well as the risks and assumptions of the initiative.  The criteria should be openly communicated so that everyone is approaching IT investments from the same perspective.

Perhaps more than the other two areas, the ability to monitor and accurately assess the value of IT investments is an area that companies struggle with.  In large part it's because these companies haven't made it a priority to formally assess returns on IT investments.  The smart companies have put a governance structure in place to monitor these investments and determine to what extent they have fulfilled the promises of the business case.  Learnings from this analysis create a feedback loop for future IT investments and the business cases that support them.

Every Finance organization should take the lead on developing a perspective around the technology investments required to execute on its strategy.  Working in a partnership with the IT group, Finance can ensure that its perspective on IT investments is properly represented, funded and monitored.

Six Costly Cloud Mistakes

By now Cloud computing has become a common term and many organizations are looking at how this new delivery model can transform their organization and cut costs.  However, the shift to Cloud computing is not without risks.  Jeff Muscarella, the Executive Vice President of the IT division at NPI, a spend-management consultancy, has outlined six mistakes that could cost a company.  The article is published at CFO.com.

Here are the six mistakes outlined in the article:

1. Not taking full account of financial commitments on existing hardware.

2. Not factoring in your unique requirements when signing up for a cloud service.

3. Signing an agreement that doesn't account for seasonal or variable demands.

4. Assuming you can move your apps to the cloud for free.

5. Assuming an incumbent vendor's new cloud offering is best for you.

6. Getting locked in to a cloud solution.

Click here to read the full article Six Costly Cloud Mistakes

CFOs Not Completely Happy With IT Investments

CFO magazine has published a survey asking CFOs about their technology investments.  Over the past year, the percent surveyed are less satisfied with their investments and their ability to quantify the ROI.  While there can be a number of reasons for the dissatisfaction, my experience points to various factors.

1. Unrealistic expectations: In an effort to get projects approved, forecasts of expected savings or productivity enhancements can be overstated.  It's not that people are outright lying, mind you, it's because many of the assumptions are at the optimistic end of the spectrum.  That's why it's so important to really challenge the assumptions as the project is making its way through the approval process.
2. Cost overruns: A logical consequence of unrealistic expectations is that many project plans are based on the most optimistic scenarios.  As we all know, real life isn't perfect.  Project plans and the associated staffing models must take into consideration possible contingencies.
3. Failure to identiy risk: A well thought out project plan will identiy likely risks and develop a mitigation plan to minimize the impact of those risks.  If risk isn't assessed and mitigated, the project is bound to be derailed.
4. Believing that technology alone will solve problems:  A company is begging for problems if their strategy is to implement technology and wait for the promised benefits.  What typically happens is that there will be a conflict between the technology and the organization's processes.  When that happens it is tempting to modify the software instead of modifying the organization's behavior.  Most of the time what is needed is to change the behavior.  A technology implementation is often an opportune time to review the organization's process and staffing model and make changes that drive inefficiencies out of the process and maximize the impact of the new software.
5. Embedding change in the organization's culture: Even when companies make an effort to reengineer processes and drive efficiency, they too often fall back into the old way of doing things.  It takes a concerted effort to maintain the momentum and embed the change in the organization.
6. Executive Support: To a very large extent the success or failure of a project, as measured by the decrease in costs, the increase in productivity, or both, depends on executive support.  People aren't easily fooled and they can tell when someone is or is not serious about change in an organization.  It is the Executive Sponsor's responsibility to get in front of people and persuasively make the case for change. 

It may not be possible to implement new technology and guarantee all of the benefits promised in the business case, but when expectations are realistic, projects are properly planned and staffed, risk is identified and mitigated, change is embedded in the organization and executives visibly support the proposed changes, a project has a much higher chance of producing positive change in an organization.