LET’S STICK TOGETHER FINANCE CAN PLAY A VALUABLE ROLE IN HELPING ALIGN DIFFERENT DEPARTMENTS BY MARK PICKERING

2 NOV 2012. Stick together: Reduce friction and miscommunication between departments.

In many organisations the functional silo is alive and well. A common view is finance does not provide information required by sales and is trying to prevent sales from selling by vetoing deals or attempting to reduce entertainment budgets.

Members of the finance department can also be critical of the sales team, especially when the rest of the organisation is tightening its belt and sales people seem to be blowing significant money on entertainment expenses, have little accountability for how they spend their time and are perceived to believe cost reduction does not relate to them.

Of course, such conflicts are not limited to finance and sales. They often occur between sales and production regarding availability of product, and between research and development and production in relation to the manufacturability of newly designed products.

The finance department is not only a participant in some interdivisional conflicts, but often an important player in some of the activities that can be the glue to integrate divisions or functions within a company. In a difficult economic environment the balance of power often moves to finance given a need to reduce costs and increase accountability.

Root causes of interdivisional conflict within an organisation can include: Different subcultures and mental maps for success Group dynamics Inconsistent and incomplete information Performance measures that seek to maximise the performance of one function, not the company as a whole Poor communication

A corporate culture reflects the common beliefs and values of an organisation and defines acceptable behaviour and what is required for success. Most companies have many subcultures confined within separate functional units. This is not surprising as people within a division are often more like each other than those in other divisions.

In finance many are likely to have similar educational backgrounds, with accounting degrees and professional qualifications, strong analytical skills and propensity for working with numbers. They usually have a strong focus on cost management and profit. Unstated perceived rules for success might include avoiding excessive risks and/or the need to tightly manage costs, leading to a pessimistic focus on what can go wrong and worst case scenarios.

Likewise, sales people tend to be similar in background and outlook, but very different to finance personnel. From a personality perspective they are usually more optimistic, prefer dealing with people to numbers and may believe satisfying the customer at any cost is critical to success, any sale is better than no sale and/or it is necessary to spend money to make money.

Such a fundamental difference in views can cause conflict. For example, sales might think finance is a support function while sales brings in the revenue that pays finance salaries. Not infrequently, finance appears to sales staff to be deliberately making their role more difficult. Indeed, sales staff can be seen by finance to be spendthrifts with little accountability who paint an overly rosy picture of conditions and potential sales.

To be successful, any organisation requires a balance in these respective attributes. Many companies that failed during the global financial crisis were dominated by sales and marketing people and did not have the financial rigour or devil’s advocate of a healthy finance department. On the other hand, how successful would organisations be if they relied on finance people to generate the company’s sales? Most accounting and finance professionals would not be comfortable cold calling, having to cope with rejection and establishing the networking required to generate sales, particularly in the current tough selling environment.

People in work groups often form strong bonds while developing adversarial relationships with other groups inside or outside the organisation. Nothing brings a group together like a common enemy. How often have you heard other departments in an organisation referred to as the dark side? Needless to say, members of each department consider their own units as good and others as evil.

Such differences in culture and normal group dynamics result in departmental members trying to operate autonomously and cite the subsequent lack of interdivisional co-ordination as further evidence of the incompetence or maliciousness of other departments.

In some organisations performance measures and compensation policies make things worse. They often gauge and reward departments and their members on measures that optimise a single function and negatively impact on others, or on the organisation as a whole.

For example, sales departments and staff are frequently rewarded on gross sales or gross margin generated on sales, with little or no emphasis on other costs generated throughout the company. This can result in increased sales of underpriced (and therefore easy to sell) products, heavily discounted products or giving away services or products in order to gain a sale. Sales to poor credit risks can be seen as at best a break‑even bet or at worst potential lost sales commission, whereas for the organisation as a whole, if a customer doesn’t pay a large loss may result.

Often different departments operate on incomplete, inconsistent or out-of-date information. For example, a sales department may not be aware of the costs of additional deliveries promised in order to make a sale, or stock availability records accessed by sales staff in placing an order may not be updated to reflect true levels. In some cases friction between functions results as much from arguments about different versions of what is supposed to be the same information as from decisions to be made. Some organisations have addressed this through the implementation of enterprise resource planning software and data warehouses for a single view of information.

Of note also is the fact that different departments are often in different locations and members seldom meet face-to-face. Finance and sales staff rarely visit the factory, warehouse or delivery areas of an organisation. This has become even more challenging with the rise of shared services, while outsourcing has resulted in functions being located vast distances from one another, sometimes in different countries. Downsizing has eliminated many long-serving middle managers who might have had cross-functional knowledge and informal relationships across the company.

Email can make communication even more problematic, as recipients cannot see the facial expressions or hear the tone of voice of a sender that, along with the different language often used across functions, can cause conflict where no offence was meant. Even worse, hastily compiled emails are often copied to all and sundry, including the CEO, and can turn a simple misunderstanding into open warfare.

Work on and communicate organisational goals and culture. This provides a guide for the actions of departments. While subcultures will remain, an umbrella culture of how people treat each other needs to be defined and appropriate behaviour reinforced. These steps need to be driven by senior management and supported by finance and other departments. Identifying a competitor as a common enemy can be effective in bringing departments together.

Understand and accept people in other departments are different. In most conflicts people on both sides are generally doing what they think is right. Try to understand why people act as they do before reacting.

Understand and question the mental models of all divisions. Mental models are often deep-seated beliefs that are not easily changed. Finance professionals generally bring some very good analytical skills that can be used to model the value drivers of a business and test the mental models throughout the company, but it is crucial to involve all key stakeholders.

Seek to develop a view of finance as a value-adding department. Although finance departments are generally trying to move in this direction, unfortunately the function can still be perceived as an overhead or meddling traffic cop. While control is an important role of finance, substantial value can be added by working with departments to help them solve their problems. For example, this may include helping build a business case as opposed to trying to knock one down.

Help develop performance measures to improve organisational performance. For example, sales could be measured by the profitability of revenue as opposed to gross revenue. Finance staff often have skills in activity-based costing and balanced scorecard development to support these activities.

Produce cross‑functional information. This can include a whole-of-organisation view of the profitability of customers. Finance often has the skills to pull this information together, but it is important to ensure it is shared with decision-makers.

Understand the business and issues in business units. Some organisations have dual reporting roles where a finance representative sits in another function. This can develop a real understanding of the issues in the unit. However, the finance representative is frequently seen as a spy and mistrusted, and if the person is successful they are often treated by finance as having gone native.

Ensure the coordination role of planning, budgeting and forecasting is understood. These processes are often managed by the finance department and are important for common understanding and coordinating departments, but it is not uncommon for them to be run as win/lose games.

Communicate regularly with other departments. When an issue arises, don’t send an email. Pick up the phone or walk around and talk to the appropriate person.

Mark Pickering is a principal of management consultancy Pickering Byrnes.

This article is from the November 2012 issue of INTHEBLACK magazine.

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