Learn How Your Finance Department Can Inspire Growth

Almost all departments within all companies have an untapped 'cognitive surplus'. A 'cognitive surplus' is the difference between the specific tasks an employee is assigned to do and what they actually are capable of doing - the actual versus the potential work.

It seems obvious, but to tap into it the 'Cognitive Surplus' can make a huge difference.

Companies such as 3M, Dell and Google have all implemented what is called '20% time' or 'innovation time' - one day of their working week, dedicated to whatever projects they like... provided it benefits the company in some way.

Does it pay off?

One might wonder: Does it pay off? Well, at Google this has resulted in successful projects such as Gmail, Google News and AdSense, and according to ex-employee, Marissa Mayer, as many as half of Google innovations are a result of '20% time'.

But, while this approach might be considered something market leaders can utilise, many finance departments perceive they barely have the time to complete all the necessary work at present, never mind crafting new and innovative ideas, supporting procedures that aid business growth.

Yet finance departments really do need this 'innovation time'.

In this slow and sometimes contracting economy, the next two years will be critical for businesses. It will fall largely on finance departments to walk the thin line between productive spending and managing a dwindling pool of resources. Additionally, with a host of new financial regulations coming into place in this two-year period, financial departments will be instrumental in helping businesses to remain compliant without losing their current standing.

This extra pressure and workload will make it difficult for finance to inspire new talent whilst holding on to the employees they already have. Finance professionals require stimulating challenges without being overloaded with extra work - they need '20% time' to effectively tap-in to their expertise, and not have their time consumed by lengthy, repetitive tasks - that can be automated.

How to make time for tapping into 'Cognitive Surplus' in the finance department

One way in which businesses can help free up some of their finance department's time to complete tasks, is by automating the tedious and time-consuming tasks that turn prospective talent off finance work. Reconciliation is one such set of tasks that finance professionals find particularly tiresome and time consuming. Fortunately it is now possible to automate account reconciliation, processing hundreds of thousands of transactions in just minutes rather than hours or potentially days.

While significantly reducing reconciliation errors, automation also frees up large chunks of time that could be dedicated to maintaining compliance, providing strategic insight in this tough economy.

How to Evaluate Your Finance Department

Nobody knows your business better than you do. After all, you are the CEO. You know what the engineers do; you know what the production managers do; and nobody understands the sales process better than you. You know who is carrying their weight and who isn't. That is, unless we're talking about the finance and accounting managers.

Most CEO's, especially in small and mid-size enterprises, come from operational or sales backgrounds. They have often gained some knowledge of finance and accounting through their careers, but only to the extent necessary. But as the CEO, they must make judgments about the performance and competence of the accountants as well as the operations and sales managers.

So, how does the diligent CEO evaluate the finance and accounting functions in his company? All too often, the CEO assigns a qualitative value based on the quantitative message. In other words, if the Controller delivers a positive, upbeat financial report, the CEO will have positive feelings toward the Controller. And if the Controller delivers a bleak message, the CEO will have a negative reaction to the person. Unfortunately, "shooting the messenger" is not at all uncommon.

The dangers inherent in this approach should be obvious. The Controller (or CFO, bookkeeper, whoever) may realize that in order to protect their career, they need to make the numbers look better than they really are, or they need to draw attention away from negative matters and focus on positive matters. This raises the probability that important issues won't get the attention they deserve. It also raises the probability that good people will be lost for the wrong reasons.

The CEO's of large public companies have a big advantage when it comes to evaluating the performance of the finance department. They have the audit committee of the board of directors, the auditors, the SEC, Wall Street analyst and public shareholders giving them feedback. In smaller businesses, however, CEO's need to develop their own methods and processes for evaluating the performance of their financial managers.

Here are a few suggestions for the small business CEO:

Timely and Accurate Financial Reports

Chances are that at some point in your career, you have been advised that you should insist on "timely and accurate" financial reports from your accounting group. Unfortunately, you are probably a very good judge of what is timely, but you may not be nearly as good a judge of what is accurate. Certainly, you don't have the time to test the recording of transactions and to verify the accuracy of reports, but there are some things that you can and should do. 

• Insist that financial reports include comparisons over a number of periods. This will allow you to judge the consistency of recording and reporting transactions.
• Make sure that all anomalies are explained.
• Recurring expenses such as rents and utilities should be reported in the appropriate period. An explanation that - "there are two rents in April because we paid May early" - is unacceptable. The May rent should be reported as a May expense.
• Occasionally, ask to be reminded about the company's policies for recording revenues, capitalizing costs, etc.

Beyond Monthly Financial Reports

You should expect to get information from your accounting and finance groups on a daily basis, not just when monthly financial reports are due. Some good examples are: 

• Daily cash balance reports.
• Accounts receivable collection updates.
• Cash flow forecasts (cash requirements)
• Significant or unusual transactions.

Consistent Work Habits

We've all known people who took it easy for weeks, then pulled an all-nighter to meet a deadline. Such inconsistent work habits are strong indicators that the individual is not attentive to processes. It also sharply raises the probability of errors in the frantic last-minute activities.

Willingness to Be Controversial

As the CEO, you need to make it very clear to the finance/accounting managers that you expect frank and honest information and that they will not be victims of "shoot the messenger" thinking. Once that assurance is given, your financial managers should be an integral part of your company's management team. They should not be reluctant to express their opinions and concerns to you or to other department leaders.

Involving Finance in Six Sigma Initiatives at the Right Time

Additionally, they would be the best people to put in figures benefits accrued as a result of improvements. They can help coordinate activities across departments that may even be in varied geographical locations. The finance department can prove to be best business partner for successful deployment of such projects.

The Finance Team as a Business Partner

Six Sigma projects help reduce the operational cost based on strategic decisions made from specific data. The finance team is in a better situation to assess the financial implications of any changes in relation to the organization's bottom line.

Finance is often seen as bookkeepers, auditors, etc. However, it is easier for them to utilize software to measure improvements and resulting financial benefits. This data can also be used for further improvements that come as a part of continual improvement initiatives of the company.

The involvement of the finance team has to be right at start of the project. They can assist the Six Sigma team in the selection of projects. They can locate those projects that may have the greatest impact on the financial objectives and ensure that problems that need immediate attention are taken up on priority basis.

They can also keep the project pipeline full.

Once projects are selected, finance team members and process owners can decide how benefits should be calculated upon implementation of the project.

Similarly, after project implementation, they can also put in place control mechanisms to ensure that results are achieved according to set standards. If there is a variation or deviation, it may show up when review is undertaken.

With the Six Sigma team, the finance department can determine the reasons for lack of performance. Even after process ownership is transferred to the process owners, the finance team can keep track of the KPIs that are improved and their impact on the bottom line.

Benefits of Involving Finance

• Integrity of results: A very important benefit achieved with the involvement of the finance team is integrity of results.

If the project team is calculating benefits, there is the possibility to give in to the temptation to record potential benefits instead of the real ones.

This may not point out the drawbacks, and will not help the Six Sigma team to ensure that necessary efforts are directed towards achieving improvements in KPIs.

Standard calculation: They can insist and develop a standard system for calculation of results.

This makes the results comparable and also ensures that efforts are directed towards achieving targets.

Recording incorrect benefits: If process owners fail to consider processes outside the project scope, the benefits calculation may be incorrect and will not show the true picture.

Audited results and accountability: Like any other finance function, project benefits are also subject to audits.

Budgeting: The improved process can then be embedded into the next budget so that the improved KPIs become as permanent as possible.

Finance department participation should be right from the start to the end of the project, which will help project implementations to be successful.