Shifting Finance from controlling to improving

The following was first published on the Harvard Business Review.

It’s difficult to get senior executives who have been successful managing a particular way to realize that they need to change their approach. Yet this is exactly the challenge facing leaders of the finance function who are asked to help their organization improve the way that work is done. As finance shifts its focus from controlling costs to advising managers on improvement activities, CFOs must change their thinking and behaviors.

Consider for example CFO Ric Magnuson of Group Health Cooperative, a nonprofit health care system in Seattle with 10,000 employees, who started out as a skeptic on the process improvement activities his company launched in 2008. He had not been exposed to the approach his company chose (“Lean”), and all the tools and concepts were new to him. “I didn’t get it. I saw a lot of money being spent. I was against it.” But along the way he switched from being a skeptic to being an advocate. He gives credit to mentors who helped him. “We had Orry Fiume (one of the founders of “Lean Accounting”) come in a couple times. (Lean Accounting redesigns a company’s performance measurement system so that it encourages continuous improvement.) I got a mentor (“Lean Sensei”) who became my shadow, 40% of their time through the first seven months, helping me through. Then I became an advocate. I had to throw out 25 years of learning. Getting the CFO on board is key. Now I know that.”

CFO Tim Olson of ThedaCare, a healthcare system in Wisconsin, went through a similar conversion. “Before I came to healthcare, I was at a manufacturing company and a trucking company. There it was all about the shareholder. It was about handling ups and downs in the economy, including laying off employees. The culture here at ThedaCare is different. People are treated with respect. I’ve learned to balance customers, quality and safety, people, and cost. Even though when I get up and talk, because it’s my role, I talk about finance, I’m always thinking about the impact on customers, quality and safety, and employees as well.”

How did the finance function at Group Health, ThedaCare and others make the transition from business policeman — focused on oversight, surveillance and compliance — to coach and adviser on improvement activities? In four main ways:

  1. Provide information managers and the front line can use. Most accounting information is prepared by finance for external use. Internally, finance typically facilitates centralized goal setting and then drives financial targets down into departmental plans and budgets. However, to support improvement, financial information needs to be presented in simple terms that everyone, especially frontline workers, can understand and use. For example, as described in the book Real Numbers, CFO Jean Cunningham revised the reporting at her manufacturing company, replacing accounting code words like “variances” and “ROI” with simple language so that everyone could participate in monthly reviews of operations. Finance became a coach and educator on the financial view of the organization and helped manage improvement activities.
  2. Balance the financial view with customer and employee views: While speaking for the financial (shareholder) view, finance should always keep the employee, customer, and quality views in mind. For example, at ThedaCare they use a triangle to think about the benefits of improvements. At the center is the customer. On the three points of the triangle are safety/quality, employee engagement, and financial stewardship. They try to impact all positively with any change they make.
  3. Streamline financial processes to focus on improvement. As I described in my last post “Stop Budgeting, Start Improving,” ThedaCare and Group Health eliminated their budgeting processes and replaced them with rolling quarterly reviews. Many other companies, such as Boeing and Parker Hannifin (a $12 billion manufacturer of motion and control technologies), have adopted similar approaches that reduce time spent on budgets (and other bookkeeping and accounting activities) and engage cross-functional teams in discussions of improvement activities. (For more on the Boeing and Parker Hannafin stories, you can see webinars at BMA, Inc.)
  4. Get help. Both Group Health and ThedaCare had advisers work with them who had been through a finance transformation. CFO Ric Magnuson had a personal coach working with him for seven months.

Having grown up with a mission of controlling the expenses of the organization, measuring performance, complying with regulations, and focusing the organization on shareholder value, CFOs need to unlearn command-and-control thinking before they can learn how to help lead improvement. They need to develop their ability to see the way to profit through improvement activities, not through manipulating financial quantities. The best way to do this is to get out of the stands — keeping score — and onto the playing field — helping improve operations.

Question: Have you seen CFOs and finance organizations shift their time and activities from controlling to improving operations?

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Categories: Continuous Improvement, Disciplines, Finance, Healthcare, Markets

Author:Brad Power

Brad is a consultant and researcher in process innovation. His current research is on sustaining attention to process management. He is currently conducting research with the Lean Enterprise Institute.

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2 Comments on “Shifting Finance from controlling to improving”

  1. Ron Webb
    May 11, 2012 at 12:45 pm #

    Brad, very thoughtful post. Your discussion around the need to unlearn the traditional “command and control” thinking that dominated yesterday’s Office of the CFO prompted me to have a conversation with APQC’s Senior Research Fellow, Mary Driscoll. She used to be the Editor of CFO magazine and ran CFO Research for many years. Here are some of the highlights of that conversation.

    Based on our own case-study research, the finance teams that truly excel at serving as partners to the business are those that have a “thick soup” culture that reinforces every single day what the role of finance is or should be. There are numerous change-management levers that CFOs can and should pull. These include: training and development programs, rotations though business operations, structural moves such as physically embedding financial analysts in operating units, and giving finance people titles such as “business manager,” instead of division controller. But one of the most important, we think, is to develop a clear charter that clarifies for everybody—in and outside finance—what role finance is expected to play in helping business decision-makers drive sustainable profitable growth at the right level of risk-taking.

    Here’s the finance charter from one of America’s most admired high-tech manufacturers: (1) maximize profits by providing effective analyses, influence, leadership, and control as business partners; (2) keep the company legal worldwide; (3) protect shareholders interests by safeguarding assets; (4) deliver world-class services and productivity; (5) develop effective leaders and partners through career opportunities that foster improved performance and professional growth and (5) (in large bold-face lettering) demonstrate the capability, mentality, and leadership to be effective partners, managers and contributors.

    Surely, you can roll out a new tool or change your budgeting procedure without a charter like this. But if truly want to evolve the culture and aspirations of your finance people over time, you need a charter and you need to invest in the change programs that will give it teeth.

  2. May 11, 2012 at 1:58 pm #

    I haven’t heard of a “thick soup” culture before, but I like the general idea. It’s hard to explain how a charter statement can drive behavior, but if it’s reinforced, I believe it does. The finance charter for one of America’s most admired high tech manufacturers wouldn’t work for me very well (2 and 3 could be combined, 4 sounds like a pleonasm or a platitude), but I imagine it has meaning and works for them.

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