With finance departments continuing to focus on cutting costs and gaining efficiencies, many have embarked upon transformation projects, such as implementing shared service centres and outsourcing processes.
However, the majority of these projects do not deliver the expected benefits. Research by member-based advisory company CEB shows that 70 per cent of finance transformation projects fail, with the cost of a failed project averaging $13.2 million each year.
But an unsuccessful transformation project is more than just a waste of time and resources, and many companies do not recognise all the hidden costs associated with failing to change. “If all the finance team is doing is trying to put right mistakes that functional leadership has made, the team is underperforming relative to peers,” says Paul Dennis, senior director at CEB.
The legacy of failure can last many years, impacting on productivity and morale as well as the company’s ability to hire the best talent, he adds.
In a recent white paper, CEB identified a number of key mistakes that companies make when undertaking a finance transformation. These include focusing on cutting costs instead of on other factors, such as improving quality, and failing to understand the impact of the complexity of their businesses on finance costs.
All too often companies do not spend enough time identifying their real requirements before embarking on a transformation project
Adrian Ryan, principal at Adrian Ryan Associates and formerly head of finance transformation at Imperial Tobacco Group, offers some additional factors that may doom a project to failure. “We fear change, which results in senior management not being committed, either because they don’t want to change or because they didn’t appreciate the consequences of embarking on a change project,” he says.
Mr Ryan adds that inappropriate resourcing of a transformation programme is another stumbling block, resulting in insufficient funding, inadequate change management planning and a lack of input from external resources. A further pitfall is beginning a project without having a clear view of the desired end-point.
BSkyB is one company which has successfully completed a finance transformation project. In the last few years, the finance team has saved £15 million a year by implementing a number of initiatives, such as streamlining the corporate structure and leveraging a shared service centre.
“My view is that with transformation projects of any kind there are three parts that need to be considered – where are you now, where are you trying to get to and how you are going to get there,” says Rob Collie, BSkyB’s director of finance delivery and performance. He points out that, without a clear strategy at the outset, a finance team risks finding out later on that the problem it has fixed is not the real problem or that there is no clear agreement internally on the definition of success.
Fixing the right problem may sound obvious, but all too often companies do not spend enough time identifying their real requirements before embarking on a transformation project.
Mr Dennis cites the example of a company which automated its manual management reporting processes using software costing several million pounds, only to discover later that no one had been using the offending process in the first place. While the project did not add value, it did prompt demand within the business for finance to automate other processes. By this point, however, the finance team had already spent its technology budget.
Another mistake is to lose control of the scope of the project. Mr Dennis describes a company which was looking to obtain a “single version of the truth” in relation to its customers’ spending habits. “They started by thinking about all the types of data they could gather, rather than the decisions they could make using the data,” he says. “As a result, this went from being a simple project to one involving five different consultants, all pulling in different directions.”
With so many pitfalls to avoid, what can companies do to ensure the success of a transformation project? CEB research suggests that successful finance teams adopt a profit-centre mentality, measuring the value that finance services provide to internal customers and focusing on the highest-value services. This approach includes actions such as managing the expectations of business partners and aligning the finance strategy to the future state of the business.
Mr Collie believes that it is crucial to gain support for any initiative by capturing the imagination of people within the company. “Finance may not always be the most exciting topic, so you have to find a way to inspire people,” he says. “For example, if you say that you want to be in the second quartile of small to medium-sized FTSE 100 companies, you’re not going to get that attention.” BSkyB took a direct approach in communicating its own transformation project, stating at the outset its intention to become the best finance team in Britain.
Given that so many projects fail due to insufficient planning, the preparation stage is key. Mr Ryan says finance teams should spend as much as six months talking to experts in order to evaluate fully what the company is attempting to do. “This time should be spent on getting the leadership over any fear of change or fear of failure issues, and ensuring they are fully aware of what the change journey looks like and how long it will take,” he says.
Finally, companies should not regard a finance transformation project as a one-off undertaking. “Companies that operate at the top-quartile level have been doing this for 50-plus years and they’re still evolving,” Mr Ryan says. “Transformation doesn’t deliver in three to five years – all it can do is get you on track to a sustainable new way of working, which may be ten or fifteen years in the making.”