Any finance director taking on a new role is likely to want to make changes to how the accounts or finance function is run, or perhaps its position in the wider business. But often FDs face situations where a more radical overhaul is needed, whether that’s due to internal failings, wider company management issues or external forces such as the national economy or disruption in a particular market. That was the situation faced by Nadim Ahmad, an interim FD who has recently worked at British Land and smart meter provider Smart DCC, when he joined a real estate business just before the global economic downturn hit.
“It suffered quite badly but having to do an element of restructuring led to looking at people, processes and systems, having to exit and close down operations in certain geographies, and that meant we had to look at how we operated,” he says. “Being able to react to that is funda - mental to the toolkit of a CFO or FD.” Often FDs find themselves having to tackle IT systems that are no longer fit for purpose; something that accounts for more than half of instances where organisations bring in interim FDs, according to research by Odgers Interim. This can be related to the accounting system but can also extend to other areas where a poor set-up is preventing the firm from operating effectively, says Valerie Knott, an experienced FD with a background in high-growth media and technology businesses, including private equity and listed firms.
“I had one example a few years ago where the call centre system they had put in just wasn’t able to handle the growth they were seeing and the number of calls,” she recalls. “So we then changed that system and integrated it with the back office. You have to look at the end-to-end process.” Her approach when she starts in any business is to look at the current system and assess how well it’s working, but also to think about the future requirements. “If the business is planning on scaling up, making acquisitions or going into other territories, those may be reasons for thinking about system changes,” she says. “Ease of use is another area; people want to be able to access software remotely. Overall, you’re looking at whether the system is fit for purpose and if not then working out where you need it to be.”
From an accounting perspective, the most important element is to ensure the business has access to accurate and timely information. “The FD will want to deep dive into legacy information, understand systems, processes and controls that are in place and satisfy themselves that the outputs are high quality,” says Adrian O’Connor, founding director of the Global Accounting Network. “They are ultimately responsible for the board packs, fiduciary health of the business and all compliance, so this is no small challenge.” Any proposed changes or new implementation will have to be agreed by the broader business, so FDs can find themselves making a business case for spending a considerable amount of money early in their new role. “Rectifying system issues can be time-consuming and expensive, so the FD will also need to convince the board that a budget needs to be allocated,” says O’Connor. “Some businesses will have the vision to see this as essential, while others will view finance as a back-office function and reject the idea of significant invest - ment. The FD may well have a battle on their hands.”
In some cases, the management team will be aware of the need for change, says Knott, but the FD will still need to produce a cost/benefit analysis. “It may be that the finance team are spending a lot of time doing workarounds when a system could do it better for them, or it’s taking them an inordinate amount of time to produce something that shouldn’t take that long,” she says. “You need to look at what it will cost and what the new systems will cost to run compared to what you’re currently operating on.” There are occasions, too, where such investment isn’t required at all, as the business already has the functionality it requires in existing software, which for one reason or another isn’t being used. “They just haven’t understood what they have purchased,” she adds. FDs can find themselves arriving with a remit to change processes and systems, and to put this into action. “An organisation is generally very good at saying they need to do something but they’re not very good at understanding the steps required, from a people, culture, systems and process perspective,” says Ahmad.
“A lot of executives think the finance systems need to change or there needs to be a modernisation programme but they fail to understand the impact of that enterprise-wide, in areas such as the control or risk environment.”
He advocates speaking to senior executives and other stakeholders to find out just what they are looking to achieve, and making sure everyone is in agreement. Eamonn Quinn, managing partner at Board Matters International, did just this when he implemented his first finance system some 27 years ago. “I initially sat down with the leadership team individually, with nothing more than an A4 pad and pen to gather their requirements,” he says. “Having carefully listened to each business leader, I sketched up based on their notes the reports they wanted, full formats, drill-down information and so on.
“Going back to the same leaders, I then asked them to confirm that was what they wanted; this is the crucial phase as it clarifies in the business leaders’ minds whether all the factors have been captured, and indeed this led to revisions. The result was a comprehensive management information system for which a spreadsheet was the exception rather than the rule, and a stable system that operated on the same platform for 10 years.”
Another scenario could be where the FD joins in the middle of a project, and has to try to bring it back on track. “It’s really useful to go back to the beginning and see the original business case,” he says. “You tend to find when a journey starts to hit complexity and problems they try to descope, and lose the original essence of what they were trying to achieve. Things are put in the ‘too difficult to fix’ bucket, and it’s in that bucket you will find the real nub of the organisational issues they were trying to fix.”
Systems and processes, though, arenot the only potential headache facing an incoming FD. Andrew Court is an experienced CFO and says it is often necessary to improve the quality, or broaden the skillset, of the people in the accounting function. “Most organisations have probably got enough people to cope with the basics, so to report numbers looking backwards and ensure compliance with tax and other reporting, but what the business really needs to make good decisions is timely information,” he says. “That means you need finance people who understand the business and can interpret those numbers and allow the business partner in the organisation to make good planning decisions.” He suggests assessing the capabilities of the finance team based on the business requirements and looking to address any gaps, either through moving people from one role into another, investing in training or potentially bringing in new members. Steve Orr, regional managing director at Hays, recalls building up a UK credit control team and setting up a procurement division while in an FD role at the recruitment firm. “You want to be able to create a real sense of leadership among your team and help them visualise the goals you are trying to achieve,” he says. “Creating a close working team who are able to trust each other, and trust you, will allow you to identify your rising stars.”
Bringing in people from outside may not always be the answer, however. Stephen Wells, an experienced CFO and FD, says there can be a tendency for firms to hire people to deal with a problem rather than tackling the underlying issue. “That means you bring new people in who don’t solve the problem, and they recruit more people in to solve the problem,” he says. “Organisations have to focus on the problem that they have and make sure that action is taken. Very often you want to realign the team so there’s the best fit of these differentskills against what needs to be done.” In some cases, it may simply be a case of motivating a disillusioned team which has grown frustrated, he adds, possibly as a result of feeling undervalued by former FDs. Whatever its nature, any attempt to transform a company’s finance function requires specific skills, says Paul Smith, head of the financial services practice at Odgers Interim.
“They need strong communication and stakeholder skills as they will likely have to deal with more than just technical issues,” he says. “It is up to the finance director to deal with any morale issues and restore the team’s internal profile.” A strong technical background and the ability to work with other functions, such as HR around people requirements, are also vital, he adds. Court, meanwhile, advises FDs to pick their moment before embarking on any major project. “There’s a heavy lifting early on when you need to do a critical evaluation of what is working and what isn’t, and then try to turn it around as quickly as you can without breaking anything,” he says. “But if you try to change everything overnight you can make things worse.
You’ll also have the annual audit cycle, so if you’re going to make big changes there are times of the year when it’s easier than others.” Being able to successfully transform a finance or accounting function can also be good for an FD’s career. “Finance directors who have come into a new role to direct change such as the implementation of new software, recruiting a new team or motivating an underperforming one have a particularly good platform to go on to either progress internally or take this experience elsewhere,” says Orr. O’Connor suggests that those who have such experience on their CVs can carve out a new career as a change management expert. “Many of our finance transformation candidates have been FDs who ‘fell into’ transformation programmes, found they had a talent for it and enjoyed the variety,” he says. “And we see candidates who have gained exposure to transformation programmes, then used this back in their ‘day job’ of FD to help drive improvements across the business. If you are an FD who can show that you have led large-scale transformations, but also have stuck within finance and led whole finance functions, you will be very attractive to businesses that are constantly undergoing change.”
Matthew Rideout, ICAEW director of business Conversations I have with FDs and CFOs suggest many are involved, directly or indirectly, with a finance transformation programme. Transformation implies big changes and a finance function that is unrecognisable once the transformation process is complete. However, less ambitious programmes that are evolutionary and based on continuous improvement sometimes get the transformation badge. Transformation is achieved by developing and changing the factors by which activities are achieved. Factors include people, leadership, systems, processes, policies, organisational structure, culture and power and politics. Successful transformation will depend on active CFO and FD support with strong programme management that sets out clear plans and priorities, a target operating model and an integrated approach to improving each factor.
Trends in transformation include the impact of advances in information technology, big data and analytics. These have the potential to accelerate the pace and scope in the finance function through robotic process automation. Other trends include organisations moving to global business service centres. The main challenge for transformation is making the business case and getting the investment in the first place – this is no mean feat. Cost savings are often the starting point but for the level of investment required may not be enough. Benefits in terms of efficiency, timeliness and improved analysis for decision-making need to be brought into the equation. Even when the business case stacks up it may still not be as attractive as other business opportunities such as investing in a new ecommerce platform. These themes will be covered at ICAEW’s CFO Conference in November on how to adapt expert insight and thought leadership into effective business strategy. Designed for senior finance professionals, speakers will include Alan Stewart, CFO of Tesco, and David Thomas, group CEO of Barratt Developments.