Finance Transformation

finance transformation case study

Sector: Trade Association representing foundations with assets under investment exceeding £2 billion

Concern:
Following a strategic review carried out by an independent body, and the continued growth and development of the Association, the Board had become increasingly concerned that it was not receiving financial information that was sufficient to enable it to make properly informed decisions or to discharge its responsibilities. Accordingly, the Board commissioned an external assessment of the financial management in order to consider recommendations for changes to roles and procedures designed to ensure the delivery of improved service and support more appropriate to the future needs of the organisation.

Background:
The Association had grown rapidly in terms of both income and membership. This enabled it to significantly expand its resource to provide increased support to independent charitable grant-making trusts and foundations in the UK through its policy and practice advisory role, and provision of events and networking opportunities. However, the finance function had failed to develop beyond its original book-keeping and administrative capability, and as the incumbent Head of Finance was planning to retire, he was not motivated to make change.

Challenge:
The Head of Finance was uncomfortable with the recommendations of the strategic review, and more so at the prospect of a more detailed assessment of the financial management. He and a key member of his staff had planned to retire later that year so the task needed to be handled with great sensitivity to ensure his continued support while a recommendation was prepared, and during the recruitment process for his replacement. The proposal also needed to reflect the lean resource available to support this change.

Solutions:
The approach adopted was to analyse the Current Operating Model and to compare this with the Target Operating Model (the Operating Model is a high level representation of how an enterprise is organised to deliver its strategy by reference to the key components – people, process and technology). The purpose was to understand the gap between the current and target state for each of the capabilities in order to realign the components and move towards a Target state. The review proposed an alternative structure for the finance function, as well as the development of “lean” and efficient processes, implementation of enabling technology, and changing the behaviours within the organisation to support the Finance function to engage with the stakeholders as a business partner.

The assessment confirmed that the Finance function was not aligned to support the strategic ambitions of the Association, and that planning had not been initiated to develop administration and management systems to support the new organisation. The review identified an organisation inadequately resourced to be able to deliver the future state requirements of the stakeholder group, manually intensive processes, and an accounting system that offered only limited functionality and that was not integrated with CRM. The finance function was originally created as a “scorekeeper” but had not been developed to reflect the changed strategic aims within the association.

The stakeholders had described a future state in which the finance function should act as a proactive strategic business partner and redefine itself as a service-oriented unit focused on providing stakeholders with value-adding, cost-effective services, aligned with the Strategic Plan.
The review proposed an alternative structure for the finance function, as well as the development of “lean” and efficient processes, implementation of enabling technology, and changing the behaviours within the organisation to support the Finance function to engage with the stakeholders as a business partner.

The proposal was to create capacity for the new Head of Finance to provide greater decision support capability by removing direct responsibility for some of the book-keeping and administrative tasks that were not adding value. This was to be achieved by one of two routes:

  1. Reorganise existing staff to create a resource pool to allow for delegation of lower level processing tasks, or
  2. Employ additional (part-time) staff to administer book-keeping

Process improvement was proposed to create a more lean finance function, with immediate focus on direct posting from source documents and the elimination of Expenditure Authorisation Forms, Receipts Summary Schedule, and BACS Summary Forms in order to reduce workload and create increased capacity for decision support. It was proposed that Accounting for Membership Income should be changed from a cash basis to a more meaningful, and generally accepted, accruals basis, and that management accounts should be produced on a monthly basis rather than quarterly.

Investment in enabling technology was proposed to create further efficiencies which would increase proportionately as membership and income generation increased.

It was pointed out that Finance Transformation efforts frequently achieve only limited success and that the causes for this vary, but often stem from the lack of an organisation-wide shared vision, under-investing in planning and resources, taking short-term rather than long-term approaches. Specific recommendations were made for the Head of Finance role as follows:

  1. The incumbent should not become trapped into spending excessive time assuring the baseline delivery of the role,
  2. The mind-set of the incoming Head of Finance should be more strategic than it is operational, and
  3. The organisation should supports the incumbent to operate “above the line”

Benefit:
The recommendations were accepted by the board of trustees, and the incumbent Head of Finance worked with the management team to ensure a smooth transition. The review was used to define the new role requirements, and most of the proposals have now been implemented.

Case Study: Steve Smith (Click here to see his profile).