Session 2 - Lean Assessment of the Finance Organization

Lean Assessment of the
Finance Organization
Lean Finance Conference:
Session 2 Master Class Series

© Copyright 2011 Stephen G. Lynch, All Rights Reserved
About Today’s Facilitator
•  Stephen G. Lynch
•  Principal at CSC Consulting in Finance
Transformation and Shared Services
•  Focus on Finance Delivery Strategy,
Process Optimization and Organizational
Design
•  Served as a Public Accounting Auditor and
as a Corporate Controller
•  Publish the Global Finance 360 blog
(www.globalfinance360.com)
•  Live in Colorado, United States

Overview of the Master Class Series
v  The Value-Adding Finance
Organization
v  Lean Assessment of the Finance
Organization
v  Re-engineering the Finance
Organization
v  Transforming the Finance Professional

Goals for Workshop 2:
Lean Assessment of the Finance Organization
•  Define the Framework for Assessment
•  Understand the Fundamentals of Six Sigma
•  Understand the Use of Benchmarking in the
Assessment Phase
•  Understand an Organization’s Capacity for
Transformation
•  Prioritize Areas for Improvement
•  Identify the Common Obstacles in Lean Finance
Transformation

Defining the Levers of
Transformation

Defining the Levers of Transformation
•  Vision
•  Strategy
•  Corporate Governance
•  Organizational Structure
•  Processes
•  People & Competencies
•  Infrastructure (Technology, Applications & Data)
•  Culture

Product
Leadership
(Apple)
Operational
Excellence
(UPS)
Customer
Intimacy
(Nordstrom’s)
•  Companies must excel in one
discipline year-in and year-out
•  Companies must meet the
minimum thresholds in the other
disciplines
Minimum Threshold
World-class Finance Organizations Align with
Corporate Strategy

Transformation Lever: Governance
Governance focuses on the creation of policies and the continual
monitoring of their proper implementation by the appointed
governing bodies.
•  Included the rights and responsibilities of each person and
group in the organization
•  Typically an area that few finance organization perform well
•  Effective governance is crucial to maintaining control over
finance processes
•  Governance should exist for both organizational constructs (e.g.
Shared Services) as well as processes (e.g. Procure-to-Pay)

Transformation Lever: Organizational Structure
The organizational structure of the finance organization should be
consistent with the overall vision and strategy of the corporation.
•  Structure should follow the corporate and financial strategy
•  Structure should follow primary information flows in the
organization
•  Highly decentralized => Finance resources report up
through the Strategic Business Unit (SBU)
•  Highly centralized => Finance resources report to a central
Finance group
•  In transformation, the structure can be changed relatively
quickly but will not be effective unless the other transformation
levers accompany the change

Transformation Lever: Processes
Processes are the primary mechanism through which work gets
done and focuses on the sequential routing of tasks and activities.
Processes that differentiate in the market should be enabled by
technology. Commoditized processes should generally fit the
technology to improve standardization.
•  Leading companies view processes holistically, regardless of
functional divisions (e.g. Procurement vs. Finance)
•  Process redesign must be accompanied by the other
transformational levers, such as governance and technology.
•  Metrics should be developed to monitor the effectiveness and
efficiency of processes as part of the governance program

Transformation Lever: People & Competencies
People and competencies are must align with the vision and
strategy of the organization.
•  Organizational competencies should be assessed to determine
current skill levels
•  Personal and departmental goals for competencies should be
created and monitored
•  Gaps should be identified to form the basis of both
organizational and personal development plans

Transformation Lever: Infrastructure
(Technology, Applications & Data)
Process design and technology enablement should occur together
since technology and application capabilities can drive
standardization and efficiency in the organization.
•  Understand the architecture of the hardware, software and the
underlying data
•  Determine the systems in which data is stored
•  Determine the number of instances of each application
•  Understand the master data structure for key areas such as
customer, vendor and inventory records
•  Level of data commonality between in-scope entities

Transformation Lever: Culture
The values and beliefs that are shared across the organization as
well as the style of the organization’s leaders and the behaviors
they model.
• Culture can either be a driving force or an impediment in corporate
transformation efforts
• Very little of culture is written in an employee manual; most of
culture has to be observed
• Culture, as a soft lever of organizational change, can be very
difficult to manage and typically occurs over a longer time-frame
than the hard levers of change such as process and technology
redesign

Finance Transformation
with Six Sigma

Introduction to Six Sigma
“Every defect is a treasure – if the company can
uncover its cause and work to prevent it across the
corporation.”
Kiichiro Toyoda, Founder of Toyota

What is Six Sigma?
•  Originally developed by Motorola in 1986 to improve
manufacturing processes
•  A performance goal, representing 3.4 defects for every million
opportunities
•  Focuses on improving processes by identifying and removing
defects.
•  A disciplined, fact-based approach to managing a business and
its processes that incorporates specific financial goals such as
cost reduction or profit maximization
•  The use of Six Sigma has expanded to processes beyond
manufacturing.

Who Uses Six Sigma?

•  Evaluate data to understand root cause of performance
•  Understand performance gaps with best-in-class companies
•  Evaluate possible priorities for transformation
•  Customer or stakeholder for each process
•  Steps in the process value chain
•  Parameters of each process (beginning and end)
•  Measure performance and cost metrics
•  Develop roadmap based on opportunities and key dependencies
•  Focus on Critical-to-Quality issues first (e.g. regulatory compliance)
Define
Measure
Analyze
Improve
aaa
•  Create relevant performance scorecard to monitor and control
•  Implement a procedure to capture data
•  Integrate scorecard metrics into personal performance plans
Control
Incorporating Six Sigma into Finance
Transformation

Critical Success Factors for Six Sigma
•  Understand what the customer requires
•  Translate the needs of the customer into specific and
measurable elements.
•  Of all requirements defined, understand which subset of
requirements is critical to quality.
•  Focus on reducing defects that impact customers’ operations

Understanding the
Current State

Information Gathering Techniques
•  Company documents
•  Interviews
•  Surveys
•  Questionnaires
•  Observations

Current State Overview
Current state reviews are based on both
quantitative and qualitative analysis
Quantitative Qualitative
• Baseline cost
accumulation
• Benchmarking
• Opportunity
identification
• Leadership
• Program Mgmt.
capabilities
• Existing initiatives
• Resources

Benchmarking: Determining How Does Your
Organization Compares to World-Class Companies
Performance /
Cost ???
Delivery
Effectiveness
Delivery
Cost
???

Benchmarking: A working definition
A measurement of the quality of an organization's policies,
products, services, programs, strategies, etc., and their
comparison with standard measurements, or similar
measurements of its peers.
The objectives of benchmarking are (1) to determine what
and where improvements are called for, (2) to analyze how
other organizations achieve their high performance levels,
and (3) to use this information to improve performance.
Source: Adopted from BusinessDictionary.com

Benchmarking is:
•  A useful tool for understanding the drivers of high
performance
•  A set of data points that are part of a
comprehensive evaluation of performance that
also includes qualitative measures
•  A search for ideas that can reach beyond your
own company or industry
•  A labor intensive process that requires training,
time and effort

•  Identify initiatives
•  Decide on scope of each initiative
•  Define steps in the process value chain
•  Baseline current cost and performance metrics
•  Collect relevant benchmark data
•  Compare baseline data to benchmark information
•  Understand performance gaps
•  Evaluate possible priorities for transformation
•  Develop roadmap based on opportunities and key dependencies
•  Focus on Critical-to-Quality issues first (e.g. regulatory compliance)
Define
Measure
Analyze
Improve
aaa
•  Create relevant performance scorecard to monitor and control
•  Implement a procedure to capture data
•  Integrate scorecard metrics into personal performance plans
Control
Overview of the Benchmarking Process

Types of Benchmarks
•  Performance/Effectiveness
benchmarks
•  Process/Efficiency benchmarks
•  Sometimes a benchmark can be both
(e.g. Accounts Payable invoice cycle
time)

Baseline Current Process Performance
It’s critical to capture existing performance to understand
where the major opportunities are and to show that the
savings promised are ultimately realized:
• Collect data on performance outcomes and cost by
process
• Watch out for “shadow resources” – pockets of
resources that are performing a specific function (e.g.
vendor invoice entry) but are labeled differently (e.g.
Operations Assistant)
• Existing performance and cost structure will be a key
part of the business case for change
• The information collected will be used to document
performance improvements and cost savings

The Benchmarking Process
•  Identify source of benchmark data to be used
•  Understand what costs go into the benchmark
data used (e.g. Are technology support costs
included in the process cost)
•  Compare baseline data to established
benchmarks
•  Identify key areas where there is a potential
opportunity for improvement

Sources of Benchmark Information
Library Database Internal Reviews
Internal Publications Professional Associations
Industry Publications Special Industry Reports
Functional Trade Publications Seminars
Industry Data Firms Industry Experts
University Sources Company Watches
Newspapers Advertisements
Newsletters Original Research
Customer Feedback Supplier Feedback
Telephone Surveys Inquiry Service
Networks World Wide Web
Source: Dr. Rick L. Edgeman, University of Idaho

Opportunity identification
Performance Gap Relative to Median and High-performing
Organizations
Process Cost gap ($ 000’s)
To Median
To High
Performing
General accounting & external reporting 547 868
Cash Disbursements 555 754
Payroll 345 513
Revenue Cycle 698 1,023
Treasury Management 23 56
Tax Management 143 245
Compliance and Administration 48 72
Total Gap 2,359 3,531

Copyright 2011 Stephen G. Lynch, All Rights Reserved
51.5
12
FTE’s per $1 Billion in Revenue Process Cost as a % of Revenue
.25
.08
Example of a Benchmark Analysis: Account to Report
(General Accounting, Cost Accounting, External Reporting)
23
.27

Challenges of Benchmarking in Opportunity
Identification
•  Benchmark data is a composite of a number of
companies for a particular activity
•  Numerous factors can impact the actual cost and
performance of a specific company
•  Benchmark is only one data point in the decision
process. Companies must look at transformation
holistically

Common problems with benchmarking projects
•  Process owners are not sufficiently involved in the
process or deliberately hid resources
•  Stakeholders are not sufficiently informed about the
nature and benefits of the program and thus are less
likely to support the program
•  Process have been poorly defined
•  Poorly defined scope
•  Project is too large for the time and resources allotted
•  Team members aren’t sufficiently trained

Critical Success Factors for Benchmarking
•  Senior Management support
•  Training for the benchmarking team
•  Clear process definition
•  Clearly defined scope
•  Information technology systems that can provide
appropriate data
•  Sufficient resources, including time, personnel
and budget

Assess the
Organization’s Capacity
for Transformation

Assess organizational readiness for the proposed
transformation project
•  Leadership capabilities. An organization should
have experienced leaders to drive a transformation effort. This is
true not just at the senior management ranks but at all levels of the
organization.
•  Program management capabilities.
Comprised of the leadership and management capabilities of staff
as well as the tools and templates used to drive the program.
•  Existing initiatives that consume
organizational resources. A company must
realistically assess ongoing initiatives relative to organizational
capacity.
•  Staff available for the transformation
program. There must be enough people dedicated to the
program to ensure it stays on track. Some of these must be fully
dedicated to the program with their regular job backfilled.

Leadership Capabilities
•  Understanding the role of
leadership in transformation
•  Characteristics of admired
leaders
–  Honesty (88%)
–  Forward looking (71%)
–  Competent (66%)
–  Inspiring (65%)
–  Fair-minded (42%)
Source: Kouzes and Posner, The Leadership Challenge, 2002

Program Management Capabilities
•  Leadership with experience to handle
the size and complexity of proposed
initiatives
•  Tools and templates to promote
standardization and efficiency across
projects
•  Schedule management
•  Human resource management
•  Risk management
•  Issue management

Program Management Readiness Quiz
•  Our organization successfully completes more than 70% of its projects
•  Our project portfolio s always aligned with our business goals and
objectives
•  Our senior managers know the business value and status of all active
projects
•  Our managers visibly support our enterprise-wide project management
process
•  Our managers have the skills to deliver business value from projects
•  Our project managers are achieving their professional development
goals
•  Our managers proactively address the training needs of their project
teams
Source: James P. Lewis, The Project Manager’s Desk Reference, 1999

Existing Initiatives
Existing Initiatives
Human Resource
Consumption
•  Staff committed to
regular operations
•  Staff committed to
existing project-
based initiatives
Leadership
Consumption
•  Number and
complexity of
initiatives that tie
up organizational
leadership
Budget
Consumption
•  Level of budget
consumed by
existing initiatives
•  Availability of
budget for new
initiatives

Staff and Skills Availability
•  Projects must include the right skills, not just
warm bodies
•  Leading companies backfill key positions so that
assigned staff can focus on the initiative
•  Annual performance reviews should incorporate
role on projects. If the project is long enough, the
Project Manager should conduct the annual
review.

Workshop Exercise
•  Review the Organizational Change Management
Assessment handout

Obstacles in Lean
Finance Transformation

Summary of Obstacles
•  Lack of vision
•  Inadequate leadership
•  Lack of governance
•  Political influence from powerful stakeholders
•  Funding
•  Technology enablement
•  Organizational resistance

Case Study:
Proctor & Gamble
benchmarking

Proctor & Gamble benchmarking
•  Multi-national consumer products company
•  Focus of benchmark was on product packaging
•  The team selected eight key processes to study and
made four site visits to companies they identified as
best-in-class
•  After 9 months, the team realized they weren’t
achieving the goals of the benchmark project

Proctor & Gamble challenges
•  The topic was too broad
•  The project team was not focused because they
were studying too many measures and their
corresponding operations
•  The best-in-class companies were chosen
because of their reputation rather than
demonstrated performance.
Source: Benchmarking for Best Practices, Bogan/
English, 1994

Proctor & Gamble lessons learned
•  Clearly focus on the project. Clearly define scope and limit
size
•  Look outside your own industry for important operating
lessons
•  Focus on observable systems, practices and procedures.
Don’t obsess over minutiae.
•  Many best practices require thoughtful analysis of how
they can be applied to the process under review.
Source: Benchmarking for Best Practices, Bogan/
English, 1994

Ques0ons

Stephen G. Lynch
Contact Information:
Office: +1.719.481.2599
Toll-free (North America): 1.800.216.2512
On the Web: www.globalfinance360.com
www.stephenglynch.com
Email: steve@globalfinance360.com

Lean Finance Conference:
Session 2 Master Class Series
Lean Assessment of the
Finance Organization

Session 2 - Lean Assessment of the Finance Organization

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (16)

Ähnlich wie Session 2 - Lean Assessment of the Finance Organization

Ähnlich wie Session 2 - Lean Assessment of the Finance Organization (20)

Session 2 - Lean Assessment of the Finance Organization