When Is a Penny Better than a Million Dollars?

Given a choice between a million dollars and a penny doubled every day for 30 days, which would you choose? Of course, this is a trick question. A million dollars sounds tempting, but it is better to take the penny: doubled every day for 30 days, it yields over $5 million.

The same concept can be applied to process improvement. “Big bang” process improvement is tempting – promising quick, powerful change. But the best evidence suggests that small, disciplined changes are more effective in the long run.

We often see finance functions taking an episodic, “big bang” approach to finance process improvement – and we suspect it yields little in the way of lasting benefit. By contrast, we have seen that making process improvement everyone’s part-time job results in more efficient processes over the long-term.

Why is finance process improvement important now?

Developing leaner accounting and reporting processes is a priority for 42% of Controllers in 2012 according to a recent survey. The urgency to “go lean” is clear. Fragmented process and data standards are the main barrier to achieving finance objectives this year. Corporate Controllers and Heads of Accounting are under significant pressure from their CFOs to achieve the twin goals of 1) further reducing finance costs, and 2) providing business managers with faster and richer financial performance data. This is due, in part, to continued economic weakness that is forcing many corporations into a forensic examination of administrative costs.

Unlike previous recoveries where most companies allowed administrative costs to boomerang, this time companies are working to keep them low. Finance is expected to set an example for the broader company, but the company is placing greater demands on finance: at many companies, M&A and expansion into developing markets create more finance process and systems complexity. To respond to these increased demands without growing future costs, Controllers are turning to process improvement.

Failing to break the efficiency-effectiveness tradeoff

Despite significant recent investments in finance process improvement, CFOs and Controllers have been unable to break the efficiency-effectiveness tradeoff. In other words, finance process changes and recent staff reductions have led to problems in consolidation and reporting processes. These, in turn, drive overtime budgets and employee disengagement. The net result is that cycle time and FTE metrics for accounting processes have not improved, and some finance teams have had to compromise the quality of their product.

Given the importance of efficient core accounting processes, the Controllers’ Leadership Roundtable just launched an in-depth study on Redesigning Finance Processes for Greater Efficiency and Decision Agility. At this stage, we want to share a few of our early hypotheses on the topic:

1. Process efficiency is less important than process agility. Due to the increase in judgment-based accounting tasks and organizational complexity, processing work most effectively depends on productive, impromptu ideas being surfaced and enacted quickly. Without agility, process efficiency will limit corporate growth.
2. The next stage of improvement must go beyond “standardize-centralize-automate”. To reach the next stage of accounting process improvement, Controllers need to look beyond centralization and automation. As most routine tasks have been automated, departments are now left with tasks that require critical thinking skills and are highly judgment-based. Achieving efficiency in these higher-order tasks may require a non-traditional approach.
3. Process improvement requires a balanced, multi-faceted approach. Controllers must strike a balance between timeliness, cost, and accuracy to gain lasting improvement in end-to-end processes. A myopic view on cost containment alone will weaken accounting processes overall.

The Controllers’ Leadership Roundtable is interested in speaking with the membership on these issues. We need your feedback on these hypotheses and on the topic of improving finance and accounting processes. If you are interested in having a 30-minute conversation with our research team, please Contact the Research Team.

What We Are Doing for the Membership

Members of the Controllers’ Leadership Roundtable can review our related research on this topic today at www.CTLR.executiveboard.com

• Review Company Examples of Applying Lean Concepts to Finance Processes
• Learn How to Identify and Maximize Process Improvement Opportunities in Your Function
• View Complete Results of the 2012 Priorities for Controllers