CFO

Your Digital Resolution for 2017

Is your company ready to absorb what you're going to throw at it this year - more customers, higher sales, lofty revenue targets, and elevated customer service expectations?

Embracing a "digital" mindset will not only help through the tools it brings - better analytics, big data, mobile, and cX (customer experience) tools - but can transform an entire company's culture to be more customer-centric and better able to execute quickly and accurately.

Middle market companies want to understand how to evolve into this new paradigm and avoid the cost, disruption, and risk of jumping in all at once. To that end, here are three simple things you can do in 2017 to get your team ready for digital transformation:

1. Focus on creating a culture of execution

Why

A organisational culture that is not built for speed or set up for continuous improvement will impede the successful delivery of digital projects,
— Kapil Bagga, GROW-Strategy.com

Digital is all about execution - constantly improving how you serve your external and internal customers and constantly innovating, implementing, and iterating. Achieving small execution victories will build a culture that prioritizes action and will serve as an example for long-time employees about the value this mindset brings.

Just as importantly, an execution culture knows how to fail small and move on. This is difficult for historically risk-averse environments and takes strong leadership to change.

How

  • Execute a project in Q1. Pick a project, a small project. Assign it to someone. Ask them to create a plan. Assign a team. Meet for status weekly. Make sure it's adopted by the business. Simple!
  • Do at least one technology project. No matter what industry you are in, software will be a major driver of your capacity to execute over the long-haul. Bring in the right people to help decide on the project, choose how to do it, and manage it through to execution.
    • Simpler projects can include reorganizing your inventory, improving how people are quoting, or rolling out a new sales tool to your staff.
    • If the business is ready, extend yourselves by touching a large system and more people - inventory control, time and expense tracking, order management, or even a full-blown ERP or CRM project.
  • The goal should be to get someone in your company to plan and execute a project, to improve one very specific area or solve a specific problem, and to prove to your people that not only can changes make things better for them, they can be done with little disruption and be led by people you have.

2. Start a mentoring program

Why

Digital requires collaboration towards the goal of total company achievement. Succeed together on small things that mean something big for the company. This means everyone in your organization needs to support each other and be vested in one another's success. Mentoring relationships send a strong message about how you intend to grow people internally, allow them to develop over time, and how your most experienced people need to invest in the next generation. The best encourage open and honest dialogue without fear of retribution. They also serve as arguably the strongest way to retain and grow young talent.

(C) 2016 Ronan Consulting Group, LLC

How

  • Start small - assign one or two junior staff members to experienced staff who have the mentality of a mentor
  • Create a simple list of topics you expect them to work on (avoid developing a complex framework of expectations). Examples could include career counseling, identifying key skills to develop, helping them network within the company, or exposing them to more of the marketplace. They could even include 360-degree elements with the younger staff member expected to teach the experienced staff member something specific.
  • Set aside budget for them to go to lunch occasionally 
  • Meet with both every 6 months to see how it's going. Don't ask for a formal report - just make sure they are talking about important topics for both the company and the junior staff personally. Contrary to popular theory, I do NOT advocate measuring the program off the bat. Evaluate it qualitatively first, then move towards a more structured program later on.

3. Start planning your digital IT function

Why

Effective digital tools require a number of foundational capabilities - a strong ERP/CRM and enterprise systems platform; a level of consistency with your business processes, and baseline technology skills throughout the organization. The odds are, you have some deferred maintenance in these areas. You may not be able to dive in right now, but you can plan the specific steps to prepare your organization to get there over the next 12-18 months.

For example, a central piece of your analytics strategy will be analytics. In their 2016 Tech Trends report, Deloitte called out "information acquisition and curation" and "information delivery" as two key elements of an analytics program. These items require strong underlying enterprise systems, disciplined processes, and well-established integration between your systems. These are all items you can work on now before you make the investment to dive into the latest and greatest analytics tools.

How

  • Create a roadmap to get to the digital future you want. The right consultant will ensure the roadmap is aligned with your overall strategy and contains the foundational elements required to quickly evolve into a digital model.
  • In the little projects we discussed in point 1, make your people accountable not just for implementing, but for monitoring success and improving the systems once they are being used by the business; and second, focus on agile development - constantly rolling out small improvements that add up to something substantial over time
  • Start vetting vendors who may offer long-term relationships to help build your digital capabilities. Make sure they are selected in a way that aligns with your roadmap long-term 

Even if you are just starting to think about digital, that's still a huge step in the right direction. Commit to spending the next year setting the stage for digital and beginning to evolve the organization in that direction.

Tolerate small failures, learn as a team, and generate lots of new ideas. Learn the digital marketplace - webinars, conferences, vendor demos are all great, easy ways to do this.

And have fun. Digital capabilities are exciting - enjoy the journey!

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System Selection and the Future of Enterprise Software

Today's entry will be (uncharacteristically) brief because Gartner produced an excellent report on this topic that says much of what I want to convey about the future of enterprise tech.

Gartner's point of view on what they are calling "post modern ERP" can be found here. It is worth your time. (h/t to @John_Hoebler for bringing it to my attention) 

I fully agree with Gartner's view on this topic and it meshes with my experience in many of my full-lifecycle enterprise software implementations. For a few clients, the monolithic model has worked reasonably well, but for many - particularly in software, high-tech, services, and media - monolithic ERP has been a clumsy fit for substantial pieces of their business.

Now organizations have more options available to them. The enterprise software landscape is much more distributed than it used to be. The cloud has enabled many new, innovate enterprise tech companies to deliver products that are highly tailored to a single purpose or function (keeping in the spirit of the weather here in the Northeast, "snowflake systems", if you will). There are great solutions that now cover your most strategic functions. Some examples:

  • If you offer bundled services and the billing module of your ERP solution can't do the revenue recognition required, you can now use Zuora
  • If you have a customer service division that now needs to handle both products and services, there are options like Zendesk that can be used for all your call center operations regardless of the product or service that's stored behind the scenes in your inventory or order management systems.

Your ability to reduce the operational overhead of running these solutions - largely by hosting them in the cloud (usually public) - and turn your investment and people to more value-added activities like managing more integrated ecosystem of solutions and systems will be a greater determinant of your future success as an IT organization.

My point is this:

Software selection and project visioning is more important than ever for new ERP solutions as well as new software that supports any major business function.

New federated ERP models will force companies to carefully select the solutions to bring into their ecosytem based both on their fit to the business and their ability to seamlessly integrate with the core of the enterprise. My advice: don't short-change yourself on the selection process.

  • The decision on your systems will no longer be about the level of fit of every module of an ERP solution to your business processes and how much customization will be required. If it's a clumsy fit to order management but supports the rest of your business, try to find a better order management option.
  • Your should not automatically take a "no customization" route to your enterprise software implementation just because it creates IT complexity. If processes will be substantially sub-optimized by a clumsy process to fit an ERP platform, you should look to see if there is another solution available
  • More native integrations will be available and figuring out which systems and which cloud providers work best together will not be an important part of the selection process
  • Long-term TCO is no longer an adequate measure of a system's costs. If you are sub-optimizing business processes and making people's jobs more difficult to do, you are understating your TCO by ignoring the opportunity cost in these areas. (e.g. forcing data management responsibilities on a sales force because they are the entry point for customer master data)

Systems selection will be about the business goals you are trying to accomplish through ERP and how the systems will integrate with and support the best solutions for every other part of the business. It cannot, fundamentally, be just about the needs of the core area owning the implementation: it needs to also consider the relationship with the rest of the business and their systems.

Elegance used to be defined as the single solution or smallest set of solutions that can enable your business. Elegance now means the ecosystem of solutions that fit your business so well, they can truly help drive your strategy forward.

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Evaluating Your Finance Function

Does your finance function stack up to your scale?

One of the early functional areas that businesses outgrow is their finance function. The processes, systems and skills that are required to track, maintain and report on organizational finances as companies grow change dramatically. Think of finance as the core of your enterprise – not most critical, but certainly most foundational. Absent a strong finance foundation, it is very difficult to scale, grow and integrate your other functional areas and it makes your management of the business enormously more challenging and less discrete.

Today we will examine three common challenges within your finance function. This is not intended to be an exhaustive list of every problem you may encounter. Instead, these are some of the most common issues that occur and, more importantly, the issues that are most visible to non-finance executives. The solutions may be simple, they may be wide ranging. But once you know where your challenges are, it becomes much easier to establish a clear path to resolving them.

1. Your business makes a lot of manual journal entries

Why it’s a problem

Manual journal entries are error-prone, are not recorded on a timely basis and do not provide adequate control over your books. Since most categories of journals should be automatically generated during the course of business, they often indicate underlying issues with your systems and processes.

Other forms of this problem

a) you have non-accountants submitting requests for journal entries; b) your accountants are doing a lot of offline calculation (probably in Excel) to generate the journal entries (revenue recognition and asset depreciation are common areas for this); c) when something doesn’t look right in the general ledger, it is hard to locate the backup documentation

Common manual journal entries:

Revenue recognition, asset depreciation, lease payments, payroll, purchasing accruals, inventory valuation, receivables backlog

How to diagnose

Look at your previous three months of manual journal entries. If the number of entries is relatively limited, then you probably do not have a major issue. If there are many entries for the same category, you have an isolated problem that you can probably address on its own. If the entries are spread across multiple categories or there is not a distinct pattern for why the entries are occurring, then you have a bigger issue to address.

Possible Solutions

For one, you should evaluate your chart of accounts and make sure it is structured appropriately for your business. Many companies start with a simple chart of accounts and then grow to the point where it no longer provides enough data or structure for accurate reporting. Then, evaluate the integration between the general ledger and your various sub-ledgers (receivables, payables, fixed assets, project accounting, inventory, etc.). If there is manual intervention required during the transfer of financial data between these systems and the GL, then you have a systems issue you need to address. Finally, evaluate your overall finance strategy. If the system is not able to generate the accounting entries you need, it’s probably time to start looking at alternatives.

2. Reporting takes a lot of time and some desirable reports aren’t possible

Why it’s a problem

Reporting and analytics should be your easiest, most accessible tool for managing your business. If you can’t review your key metrics on a regular-enough basis, your ability to effectively manage your business suffers. Lots of time generally equates to lots of effort which means lots of error-prone, manual work.

Other forms of this problem

Let’s briefly distinguish management reports from operational reports. Operational reports are used by your managers to execute the operations of the business on a day-to-day basis and are not what we are addressing here. Management reports are used by leadership to make decisions about how to run the business and these are what we are discussing here. If your set of monthly or quarterly reports is variable (i.e. the exact same reports are not generated every month/quarter/year), if your reports change in form or format based on monthly or quarterly activity, if your finance department needs more than a few days to close the books and generate reports, or if you want to see some new types of reporting but they cannot be generated with your systems or numbers, then you have a problem that should be addressed promptly.

Common problem areas

Profitability and margin reporting is a common pain point for growing businesses - it’s fairly complicated and requires highly structured underlying data. Budget-to-actual reporting tends to maturate later on for many businesses and forecasting is often cobbled together from several imperfect sources of data (note: forecasting usually matures faster in manufacturing environments while lagging in professional services). It is unusual for basic P&L and balance sheet reporting to be an issue – most businesses have this down pretty well. If you have issues with this type of reporting you should probably address them immediately. In addition to being your only true source for good numbers, it probably means something unpleasant lurks beneath the surface.

How to diagnose

Look at your management reporting and see how replicable it is. Talk to the accounting department about how and on what platform they generate these reports. Talk to an expert about what reporting you should, reasonably be able to generate for your type and size of business and ask your managers to put them together. If you can report on most of what should be required then you’re probably in good shape; otherwise it is likely you have some technology/talent/process issues to address.

Possible Solutions

Solving your reporting issues may or may not require changes to your software. Many business actually possess the necessary tools but need to resolve issues in underlying business processes or data structures. This is less expensive to fix and can often be executed in-house, although you probably need some basic outside guidance on structuring the project. If you do not have a strong reporting platform and your finance systems are very old, then you may need a multi-step roadmap to fix the underlying systems and processes before implementing a more robust reporting platform. The good news is this can be done along with better operational reporting and sometimes real analytics so you won’t be fixing just one problem – you’ll be setting yourself up for more exciting management tools as well.

3. You don’t really trust your numbers

question_dkblue.png

Why it’s a problem

I probably don’t need to elaborate on this one

Other forms of this problem

a) If you have questions for the accounting department after reviewing your monthly/quarterly/semi-annual reports, the answer is frequently an adjustment in the ledger and reissuance of the reports that is required. b) It is not uncommon for your summary financials and the expected numbers from each department to not match up (inventory levels don’t seem in the ballpark of what your warehouse manager expects; PO accruals don’t seem to match what the purchasing manager thinks they bought this month, etc.). c) Your outside accountants have a hard time figuring out your numbers each period from the materials you provide.

Common problem areas

This could happen anywhere in the business, but start by looking at areas that a) have an offline process and toolset; b) Have a high monthly volume of transactions; or 3) Have the most people touching the transactions

How to diagnose

Have departments sign-off on the final accounting numbers for each period. If you currently only “close the books” annually or semi-annually, begin to move towards monthly or quarterly close cycles. Although they will be more frequent, they will also be less work and it will be much easier to perform a root cause analysis on any issues you find. After doing this, then start to see how many discrepancies you have on a regular basis.

Possible Solutions

This is more than likely going to start with a systems solution. The hardest part of performing root cause analysis on questionable numbers is finding all the data you need to back it up. The transactions for those numbers are the result of a process somewhere in your business and having a platform for that process that integrates with your finance systems will make your numbers more reliable, generate them with less effort, and cut overhead.

Closing Guidance

One thing to note on finance systems in general: the number of technology solutions available, level of automation that is now considered “normal,” and leading practices that have emerged over the past 4-6 years have substantially changed the expectations of a “corporate” finance department. The next tier of possibilities for your business are more exciting than anything in the recent past – real, insightful analytics, understanding customer profitability based on social media data, operational and sales automation. These are all tools that can dramatically improve how your business grows and can allow your best people to add more value than ever before. Start by improving your core finance operations and then understand how you can begin taking advantage of the new technology available to your business.

Have you encountered any other major problem areas in your finance area? Post them in the comments!

It’s always valuable to get a new perspective on your finance function and Ronan Consulting Group is here to help. Contact us today at info@ronanconsultinggroup.com or (203) 313-9480 to talk about what challenges you are facing in your business and understand what your assessment, diagnosis and improvement options are. 

 

 

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Three ways to think differently in 2015, Part 1 of 3: Strategic Reactions

Happy new year and welcome to our first blog entry!

This week I will look at three new ways of thinking about something you will undoubtedly spend time and money on this year: technology.

  1. Strategic reactions: Exception handling as a means of driving strategy – 1/6/15
  2. “Enabling” vs. “Driving”: The issue with treating technology as an “enabler” – 1/8/15
  3. Technology and talent: Improving the experience of work through every technology project – 1/9/15

Strategic reactions: Exception handling as a means of driving strategy

The way the discourse around technology operations unfolds is always similar: you can either spend money reacting to problems (IT Operator) or growing the business (Strategic Driver). The problem with this reductive conversation is it understates three realities:

  • Even if you're driving strategy, you will still need to react to issues;
  • Technology will probably drive the implementation of your strategy whether it's incidental or intentional; and
  • Most businesses do not bifurcate responsibility for technology operations and technology strategy.

It is unlikely you have the luxury of technology that runs itself without any exceptions and therefore be allowed to fanatically pursue all your strategic goals. On the other side, you will necessarily need to engage in a technology project over the next 12 months to either keep up or to "enable"/“drive” strategic business improvements (more on this on Thursday). The question is how do you do execute the latter while managing the former?

Framework: Visualizing Reactions and Strategy

A more constructive conversation, in my mind, is one of tradeoffs that recognizes the strategic potential of any solution. Consultants sometimes use "process maturity" analysis to help executives understand where on the scale of reactive to strategic their technology decisions fall. This approach is that it implies a binary relationship between solving problems and driving strategy. This does not reflect the reality of how technology, which is now pervasive in every direction of your business, needs to work. You will have more issues to deal with in the next 12 months than you will have projects to drive: this is a guarantee. Great executives will make this work for their strategy. 

I am a proponent of speaking in terms of gradients rather than discrete scales. There are necessary tradeoffs you will need to make, sometimes prioritizing strategy and sometimes prioritizing operations. That’s ok. Is it possible to make some of those operating decisions also drive strategy, either in the short or the long term? Frequently you will find they can.

So rather than a straight-line or x/y axis maturity matrix, I prefer this visual: 

  • Dark blue represents basic operations, or “running the trains on time.” This makes your business work pretty well without substantially improving underlying functions 
  • Light blue represents incremental improvements that will either add up to something significant when combined with future improvements or will make it easier to do something big in the future. This can include adding functionality or reducing complexity.
  • Orange changes the game. This represents fixing a problem in a manner that transforms another function and allows you to achieve a strategic imperative.
Blog 1.6.15 Reaction Strategy Gradient.png

Example

As an example, let’s take a seemingly minor problem that may arise for many companies this year: 

Your accounts receivable (AR) department receives a payment from a customer but it’s missing an invoice number. They go to apply the payment against an invoice and find there are two records for similarly named customers, each with open invoices. What should they do?

For simplicity’s sake, let’s say there are five issues this raises (in reality there are more):

a)    Immediate functional problem: cannot apply the cash
b)    Future functional problem: this will happen again in AR if the customer record issue is not resolved
c)    Operational problem: the operational efficiency of all processes associated with duplicate customer data will suffer inefficiency and potentially ineffectiveness
d)    Cross-functional problem: if these records exist in other systems (e.g. CRM, order management, etc.) then upstream processes will be affected
e)    Strategic problem: Meaningful customer analytics are severely compromised or not possible

First, you will need to figure out which invoice to apply the payment to, solving problem (a). This will probably require the AR department to contact the customer and do a little research. This is simple operations for them now. They’re going to do this anyway, regardless of our conversation. But now the question is how to address (b), (c), (d) and (e).

Pure dark blue: Combine the customer records into one, consolidate the invoices to that single customer, and resolve any data conflicts that arise (e.g. duplicate invoices, multiple shipping sites, missing DUNS numbers, etc.). This addresses (b).

Dark blue moving to light blue: Consolidate the master records for this customer and then, thinking this may be an issue for other customers as well, run reports and figure out if there were other records this applied to. This address (b) more thoroughly, begins to address (c), and makes solving (d) easier and, therefore, more realistic.

Purer light blue: Look at other systems that use that data like your CRM systems to see if the same issue needs to be resolved there. This will address (c) and make it possible to address the rest of (d).

Light Blue moving to orange: Create a customer data management responsibility where someone in the business is responsible for proactively monitoring customer data, resolving issues, and over time working with a technology partner to automate duplicate identification, merges, etc. This address (b) and (c) completely and may substantially address (d) although this will also introduce some new process complexity that will need to be analyzed.

Orange: Implement a data management solution that can manage the customer data across all functions. This will improve the sales team’s ability to accurately identify and track leads, allow integration between social media and customer transactions, provide efficient lead-to-order-to-invoice-to-cash conversion, and serve as the foundation for great customer-based analytics. Odds are, customer-based marketing and spending analytics are on your strategic radar. This will address (e) and, in doing so, drive new ways of thinking, analysis and decision into all customer-related business operations. 

As you can tell, there are unlimited variations of each of these approaches and they all have different complexity, levels of effort, costs, and time horizons. But as an executive you need to make sure the business operates at all, operates at least reasonably efficiently and reasonably well, all while furthering your strategic goals. Maybe you do all of the dark blue things now because they are low effort and low cost, but begin the process of planning and prioritizing a project to address the orange potential.

The main point is, you’re reacting to an issue in a manner that furthers your strategy and demonstrating to the business, through step-wise improvements, that bigger investments in previously ignored, seemingly commoditized areas can result in game-changing improvement.

You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.

Up Thursday: Moving from an “enabler” mindset to a “driver” mindset for technology decisions. A.k.a. Making Technology Investments Matter.

 

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