Is the drive for efficiency actually making Finance any better?

By Andy Burrows

In the generally accepted paradigm for the Finance function, where Finance is an overhead that needs to be kept down and reduced constantly, efficiency is often the name of the game.

And the ways we get efficiency are normally through simplification, standardisation and automation.

Those three words were the mantra of a Finance Transformation programme I once knew. And it’s a great mantra!

We don’t want to be adding layer upon layer of complexity. We don’t need to have multiple ways of doing exactly the same thing. And why would we do something manually when a computer can do it for us?

But…

We need to be careful. There is such a thing as oversimplification. And even as we shave more costs out of the P&L through simplification-driven efficiency, there can be bigger negative impact on overall performance.

Let me explain…

Why Simple Wins… But Not All The Time

In her book, Why Simple Wins, Lisa Bodell talks about what she calls, “internal mindset bias”. This is where we become so internally focused that we forget to think about the customer experience. And this can lead to unintentional complexity.

The example she gives is when she wanted to use reward miles to book flights for a family holiday. The booking itself was fairly straightforward. But during the process, Lisa wanted to get the seating sorting out, so that her kids would be guaranteed to sit next to their parents. Not unreasonable. I’ve done exactly the same thing.

She was told, however, that she had to phone a separate department on a different number to talk about seat reservations.

She phoned that number, sat on hold for ages, discovered she’d been told to phone the wrong department, was given another number, sat on hold for ages again… only to be told that she had to phone back nearer the time of travel, because they couldn’t do seat reservations that early!

She says, “By separating the tasks, airline managers can make sure that the departments are performing the individual tasks as efficiently as possible. What suffers is the customer experience.” (p30)

And if customer experience suffers, so does customer retention. And that leads to higher customer acquisition costs.

It really does pay to make sure your customers are treated well.

In all probability, the customer acquisition costs are higher than the efficiency saving.

Simple for Whom?

Moving on from that, Lisa Bodell gives an example closer to home:

“An accounting department has a system in place to process expense reports. Is the system set up to simplify the experience of those submitting their expenses, or is it set up so that the accounting department can process the reports most efficiently? You know the answer. All too often, we design our processes with our needs in mind rather than the needs of those we’re trying to serve.” (pp30-31)

If we’re honest in Finance, that’s not far wrong, is it?

In our drive for efficiency, using “simplification, standardisation, automation” as our core values, we often make things more complex for our customers – people working in our business.

And that leads me to suggest that, whenever we have an efficiency, simplification or standardisation, proposal, we ought to ask one simple question:

Simple for whom?

Remembering Our Purpose

I guess what that question is really getting at is that we should shed our “internal mindset bias” and remember why we do what we do.

For the airline, they should have remembered that they were serving customers, and that customers want and expect certain things – to deal with one person/department who can help them with everything they need regarding their flights.

For Finance, we should remember that we are serving the business. Part of the way we do that is by helping it to manage its performance. But another important part is by not letting our particular responsibilities (e.g. transaction processing or regulatory reporting) get in the way of our non-Finance colleagues doing their own value-adding activities.

I’ve written a number of articles, reminding Finance people about the purpose of Finance, and the purposes of the different things we get involved in – budgeting, strategic planning, reporting, analysis, projects, internal control, business partnering, and even the less sexy bits.

What those articles have taught me is that remembering the purpose of what we’re doing makes a difference. It makes a difference to what we do, and the way we do it.

And it should make a difference to the way we set ourselves up to operate.

Cheapest Isn’t Always Best

So, when we’re faced with a proposal to simplify, standardise or automate, we should be asking the question – is this best for the business?

But, you may say to me, “it’s always better for the business if we’re more efficient.”

My response would be, “more efficient in doing what?”

I’m absolutely all for being more efficient in effectively serving the business and driving business performance.

That word “effectively” is key.

What I’m saying is that we shouldn’t just be more efficient in performing a process. We shouldn’t just be cheaper as a Finance function.

We should be as cost effective as possible in effectively serving our purpose.

Effectiveness comes first. Who would want to be very efficient at being ineffective?!

And effectiveness is a measure of how well we fulfil our purpose and meet our objectives. I’ve spoken about this elsewhere as well.

This is an example of where cheapest is not always best. Once we are eroding our effectiveness by pursuing efficiency, we are eroding more value than we are creating.

Why do you use Uber when it’s not the cheapest option? Why do buy using the Amazon smartphone app when you could shop around and get your item cheaper?

Because it’s easy. Because those companies save your time. You subconsciously value your time more highly than the extra couple of dollars you may be paying.

Those companies are giving you something more.

And that’s my argument about Finance.

Finance Delivers Something More Than a Hit to the Bottom Line

Finance brings more into a business than just an additional cost.

The value of what we bring differs depending on what we do. For some of us it may be the quality of our advice and business acumen, which enables better decision making and strategic planning. For some of us it might be the reduction of risk through better controls. For some of us it may be giving back time for others in the business to spend on their own areas of value-add, through taking away activities that are not their expertise.

Examples Where Cheaper May Not Be the Best

So, let’s make this real with some examples. Everything is debatable, of course. I only said that we should ask the question, not that we’ll come to the same answer every time!

So:

• If we want to provide insight into the numbers to the business, should we offshore and outsource parts of reporting or accounting? Don’t those activities often help us to understand the numbers through our direct involvement in producing them? Perhaps those mundane reporting tasks build our knowledge better (and earlier) than having to ask someone to produce some analysis after the event?
• If we want to provide business-specific insight, why drive to standardise every report to the point where they only contain the common details?
• If we want our business colleagues to be able to spend more time on their areas of expertise, rather than on expense claims and invoices, why ask them to put the account codes on forms when we know them better ourselves (and we’re only going to query them if they’re not what we expect)? Why put our Help Desks offshore in a centre that doesn’t know our colleagues or our business, meaning they have to spend more time explaining what they want to query?
• Why do we ask cost centre managers to give us accruals every month, meaning they have to waste time learning Finance lingo? When we send them reports, do they know what to do with them? Do they need them at all? Or do we waste their time giving them the stuff giving them information you need accountancy training to understand?
• Creating shared services that support many entities in a group may sound efficient. But will that hamper our business partnering through loss of business alignment (because shared service employees become more aligned with their service centre than the businesses they’re serving)?

Conclusion

As Lisa Bodell points out in her book (pp24-25), we should strive to make our work as simple “as possible”. And that means asking, “simple for whom?” And it means that the best solution is not always the very cheapest or the most simple. It is possible to oversimplify.

It may be difficult to think of examples in abstract.

But, when you’re facing problems in Finance, or with the relationship between Finance and the business, it’s worth asking the question, “have we tried to make ourselves more efficient or simple by creating more complexity for the business?”

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