The sins of organizational complexity
Jean-Marie says: ‘Complexity management is a critical component for operational efficiency’
According to TriFinance research, six out of ten middle managers rate the complexity of their work as 'very high'. 'We noticed he role of managers has become more complex than ever,' Jean-Marie Bequevort says. 'Our primary goal, however, is to simplify. In the end, a large majority of problems is due to a complicated scaffolding of processes, controls and systems that prevents people from actually doing their work.'
As an Expert Practice Leader within the CFO Services business unit, Jean-Marie Bequevort advises corporate clients on issues related to the analysis and improvement of finance organizations, processes, and controls. In 2018, Jean-Marie conducted a nation-wide survey aiming to capture and evaluate the key axes of organizational complexity and inefficiencies.
Interview by Dirk van Bastelaere
You have been leading CFO Services’ Complexity Reduction expert practice since 2013. Can you shed some light on the origins and purpose of the practice?
Jean-Marie Bequevort: ‘I started to work in consulting in 2013. After doing several projects at large corporate companies, it became apparent that complexity was at the core of a majority of our assignments. We noticed the role of managers had become more complex than ever, due to factors like an increase in external regulations, the emergence of new technologies, the endless waves of mergers and acquisitions, and the management of a more diverse workforce. Especially for back-office and administrative functions, we noticed a lot of the challenges are due to unmanaged complexity. We turned that experience into an expert practice with a strong focus on helping finance managers to simplify their organization and their processes, and controls.’
How does the expert practice Complexity Reduction fit into the CFO Services portfolio?
Jean-Marie Bequevort: ‘Since last year, we have significantly expanded our capabilities in functional areas like procurement, supply chain, financial close and consolidation, and credit management. Essentially, Complexity reduction is the practice that focuses on managing the risks and reducing the inefficiencies that appear at the intersection of all those functions.
You mentioned complexity 'being at the core of a majority of your assignments.' Can you tell us what kind of issues you solve for clients?
Jean-Marie Bequevort: ‘We usually partner with finance or operations managers who are facing efficiency problems in their own department. A typical case is for instance a shared services manager struggling with team motivation and productivity because of poor discipline and cooperation across several departments. Supplier invoices are being paid late because the warehouse department has not issued the goods receipts in time, purchasing has not issued purchase properly or invoices aren't dispatched timely to the Finance and Administration department.
‘That’s when we come in and try to look at the operating performance with facts and figures. We listen to all stakeholders, trying to understand everybody’s point of view. We then bring them together to build a common view and eventually an agreement on the root causes of the problem and on potential improvements.’
Good debt and bad debtIs there a specific methodology you use? Jean-Marie Bequevort
: ‘Our analytical methodology is based on a set of dimensions that we believe are the main factors affecting productivity and operational performance in a given process. Our primary goal is to simplify
. In the end, a large majority of the problems is due to a complicated scaffolding of processes, controls, systems etc…that prevents people to actually do their work. Our focus is to remove the scaffolding and get back to basics. In the interview with The Ready's Aaron Dignan, we talked about organizational debt and path dependence, meaning that choices made and policies developed no longer serve the organization. Like old systems just sitting there become technical debt, an organization's legacy can turn into organizational debt. You now mention a "complicated scaffolding of processes, controls, systems etc" at the root of the problems you have to solve. Is that what you basically do: have companies write off organizational debt to start anew, opening up possibilities for growth and innovation?Jean-Marie Bequevort
: ‘First of all, complexity is not always a bad thing. As companies grow, they must expand into new markets, employ more people, and introduce new products and services. They become more complex, but that complexity brings growth. That’s the good debt! You could compare it to an investment to fund a great project.
‘On the other hand, there is the bad complexity that cripples a company’s performance
. I am talking about things like duplication of roles, unclear responsibilities or the myriad of internal controls that alienate middle-managers and employees in most organizations from their work. This is that kind of complexity or organizational debt that we want to reduce.’
Managing complexity: Different actions for different cohorts
Recently, you conducted a survey that measured 'perceived complexity' in organizations. A striking result is that 60 percent of Belgian middle managers score the complexity of work in their organizations as 'very high'. The three main reasons they mention are: 1) too many reorganizations, 2) too many external regulations and 3) a portfolio of activities that is too diverse. Not surprisingly, we touch upon three dimensions of organizational complexity here: the organizational level, the political/judicial level and the business level. Can you elaborate on that?
Jean-Marie Bequevort: 'We wanted to know what causes people to experience their work environment as complex. We ran the survey nationwide through a representative panel of 1000 employees from the Belgium workforce. From there, we built a model to predict ‘perception’ of complexity in employees, using eight dimensions: Governance, Organizational Structure, Roles & Functions, Technology, Processes & Controls; Autonomy & Empowerment, Metrics & Reward, Leadership & Collaboration. The model gives us the opportunity to check if employees will perceive and experience their work environment as ‘complex’. If that is the case, we very often see a serious impact on job satisfaction, efficiency scores and an alienation from management.
‘Through our projects in various companies, we witnessed the negative impact of workplace complexity and how it prevents people from doing the best thing for their organizations. But, as most of our work is client-specific, I wanted to build a model to gauge and understand what drives complexity and how it affects people.
‘The results confirm our experience - which was also our working hypothesis - that complexity management is a critical component for operational efficiency with tentacles in most of the dimensions. Interestingly, the research also reveals that people’s perception differs depending on their tenure in the role, the level of their position, and how they interact with technology.
‘For example: constant reorganizations and new regulations have an impact on the work of people at all levels, white-collar workers, blue-collar workers and middle management, but the complexity of the organizational structure or the business activities only seems to affect white and blue collars, not middle management. We also see that technology impacts people differently depending on their age and exposure to it. That’s interesting, because it means that if you want to manage complexity, you need different actions for different cohorts of people in your organization, or at least a different way to initiate and implement the required change.’
You would think that one of the actions required to 'reduce' perceived complexity in employees who point towards the organization's structure is communication. But that would put even more pressure on line managers and middle managers
Jean-Marie Bequevort: ‘Honestly, an important driver of middle managers’ exhaustion is too much communication. There is this constant noise and distraction that fills the daily life of most employees. That is also something we read between the lines of this survey. I am always amazed by the proportion of the average middle manager's day that is spend dealing with emails and meetings. Intranets, chats, video conferences, town halls and team meetings are productivity killers for most organizations. I think we would be better off by communicating less, and instead focus on setting clear goals and creating accountability for the things that really matter.’
A majority of respondents pointed towards the large number of reorganizations that made their organization too complex
Jean-Marie Bequevort: ‘A lot has already been said about why transformation efforts do not deliver the expected results for a given company or a team. Main factors are misalignment at the top-level, lack of buy-in from the employees on the need for change, inadequate preparation, lack of incentives, poor tracking and execution, wrong skills, inadequate budget, just to name a few.…
‘Another, more pernicious observation, however, is that many managers appear to have the tendency to create unnecessary changes and over-complicate things. In finance for example, I see a lot of instances where people keep changing what they do, adding tick-boxes to forms, way beyond the point where they generate any value. I see a lot of instances where employees in more transactional roles spend time working on new ideas and projects at the expense of their core jobs. As if people think they must constantly add new things to be successful or look more competent. I believe a key element behind the survey results is a fatigue with these constant change “initiatives”...and the fact that most transformation initiatives seem to be about adding new things as opposed to subtracting or making work easier.'
Eliminate, Standardize, Centralize, Automate
February 28, you are hosting an event on ways to manage complexity in organizations. Can you give us a shortcut to your analysis and some of your solutions. One of your claims is that standardization and automation can improve the quality of work in general. That's quite a claim!
Jean-Marie Bequevort: ‘Overall, I believe the solution is the right balance between elimination, standardization, centralization, and automation.
‘Elimination clearly refers to what I said on the tendency for people to add things. An obvious starting point is to get rid of low-value activities and time-wasters in the organization. Look for example at how many people need to review and sign off on small purchases; how many financial reports are produced to analyze the same topic; how many people are involved in the processing and validation of supplier invoices; how many in the reconciliation of figures between two internal IT systems, etc. If you can shed a few of those tasks, you’ll create bandwidth for more meaningful work.
‘At the level of the organization’s structure, creating a larger span of control is another relevant form of complexity elimination. While working at Dell 10 years ago, I recall the leadership going through such an exercise. Instead of one finance manager having 5 direct reports — each with three people reporting to them — the exercise was to eliminate the middle layer and have 15 people report to the manager. I did like the consequence. The structure and our way of working became a lot simpler. In addition, my direct leader had less time to micromanage, so we all felt more empowered and accountable.
‘Standardization and centralization should go hand in hand. For the efficient execution of transactional processes in companies, Shared Service Centers are a common configuration to consider. However, if historically the main driver was to generate cost savings with the relocation of work in low-cost countries, I recommend finance and operations managers to consider the centralization of work as an enabler for better management controls and cross-functional collaboration. As we discussed earlier, in The changing face of Shared Service Centers, a Shared Service Center can also be a platform to standardize work practices on a large scale. I was glad to see that, with that ambition in mind, a lot of companies from our client base have recently set up a Shared Service Center in Belgium.
‘Automation is the last addition to the tool box. New technologies (RPA’s, intelligent automation, etc.) are becoming available to further standardize work practices and automate repetitive tasks and controls. We will see some of those during the event with new technology platform such as Aico (standardization of record to report) and Mia (automation of credit and collection activities).’
Preparing for the next recession
CFO sentiment in Belgium has been sinking for more than a year now. Finance executives face an unstable business environment, with major uncertainties like Brexit or USA-China trade wars. Cost control, cost cutting and efficiency have moved up on the CFO priority list. How important are the cost savings that can be realized through (business process) automation for finance? What should CFOs ask before they automate?
Jean-Marie Bequevort: ‘I read the CFO Global Business Outlook from Duke University. I guess the sentiment reflects the fact that some CFOs are progressively reconsidering their mid-term projections on earnings growth and capital spending.
‘I do not believe the automation of the financial administration processes will generate huge cost savings in the short term. Given the current technology level in automation, I see three reasons: (1) only a fraction of a given occupation can be entirely automated using current technology (2) low-skill and low-wage activities are the ones most susceptible to automation (3) staff reduction would have a negative impact in the early years because of severance payments and notice periods.
‘I will have probably a different opinion in 5 years from now. However, automation is definitely worth pursuing to increase work capacity, scale expenses, and allow employees to focus on work that generates higher value. But as I said earlier, it’s only one tool in the toolbox.
‘As to the threat of a potential recession, I believe a CFO’s priority should be to build capabilities around working capital management. Tightening up collection and supply chain operations will probably have a bigger effect on the financial health of a company. CFOs should build the capability to enforce payment terms, reduce safety stock, and improve production planning. I believe a lot of companies would not be ready to deal with a dramatic increase in non-payment.’
‘If you look at the latest payment barometer from Atradius in Western Europe, the proportion of past due B2B receivables in Western Europe increased to 41.8 percent in 2018. The average payment duration is now 56 days which represents an average delay of more than 25 days versus standard terms. Given the proportion of business done through credit terms, companies should modernize their billing and collection activity with electronic billing and software to automate and improve their dunning process. The same study highlights the fact that 53.8 percent of respondents said that invoices are paid faster when sent digitally.
‘To circle back to our complexity event, collection is a process significantly exposed to the sins of organizational complexity. The handling of customer disputes requires coordination between organizational silos like sales, finance, customer services, and logistics. CFOs should invest in technology that creates end-to-end transparency and facilitates the circulation of information between departments.'
Talent Wars reloaded
The Duke Survey also mentions hiring and retaining qualified employees as the most-cited concern among CFOs. How will that impact the performance of the finance function?
Jean-Marie Bequevort: ‘CFOs struggle to fill vacant positions because of a structural mismatch between existing and in-demand skills. Younger professionals do not want to work in transactional roles anymore and the previous generation of finance professionals has trouble keeping up with new technologies, neither are they motivated by more frequent interactions with the business.
‘The majority of surveys made by professional services companies point to a shortage for roles that require problem solving, analytical, and digital skills. There is certainly a need for better training programs to develop those skills. The irony of the situation, however, is that the current talent shortage might accelerate the adoption of automation and the use of robotics, not to replace people but because there aren’t enough to fill vacancies!’
Why should young people even consider finance as a career?
Jean-Marie Bequevort: ‘If your professional interests reside in the world of business, I believe companies will always need finance professionals to help them manage their money! The function is currently in high demand and the career path is broad with tracks in corporate finance, investment banking, and many more. So, I see that as a safe professional bet. Of course, to appreciate a career in finance, you need to like numbers, facts, and the rigor of analysis.
‘I consider it to be one of the few functions where you get the opportunity to cover all aspects of a business, you have to work with everyone who make a contribution to the financial health of the company. It provides the chance to tackle a wide range of problems, from technical financial management matters, to investor relationship, to strategic business issues. Depending on what fits your professional aspiration, you can choose to become a specialist and focus on matters such as tax, international standards, or complex treasury matters. Alternatively, you can choose to be a generalist with a focus on business and operational issues.
‘It's an intellectually stimulating field. Some people might say it is boring and repetitive, but as one of my previous managers once told me "a job is always what you make of it”.’
Beyond Finance: strategy, decision-making, analytical capabilities
How important are the traditional finance roles in this age of strategy and digital transformation? What are the key areas the finance team should focus on to optimize corporate performance?
Jean-Marie Bequevort: ’Traditional financial duties remain very important as they are the foundation of the rest. The quality of transactional processes such as account receivables, accounts payable, payroll, general finance and administration, fixed assets are primordial to satisfy corporate reporting and compliance requirements. It’s only when those areas are in control that CFOs get a mandate to go beyond finance. According to recent studies, more than 40 percent of CFOs spend most of their time on non-finance topics such as strategic leadership, performance management, big data, shareholder activists, just to name a few. This may be true for senior leadership but my opinion is that a very large proportion of finance professionals in most organizations are still spending the majority of their workdays on activities such as financial administration, budgeting, treasury etc.
‘As routine processes become more automated, the focus will evolve towards activities related to decision-making and scenario planning. For example, a larger part of finance will have to use data and analytics to assist in strategy and operations, from the financial modeling of make-or-buy manufacturing decisions to the optimization of sales and pricing initiatives. The build-up of stronger business analytical capabilities is probably a realistic focus for finance in the next few years. So, the main efforts in finance will shift from input-oriented activities (recording of results) to output-oriented activities (interpretation of results).
‘The impact for corporate results could be significant. A.T Kearney and the University of Melbourne worked on an analytics impact index revealing that companies at the lowest stage of analytical maturity have about 60 percent lower profits than those at the highest stage’.
Digital as a driver for reshoring
How do you think the Finance function will evolve in the next five years?
Jean-Marie Bequevort:’I believe the finance function will continue to focus on the acquisition, management, and allocation of funds to run a business. It has played that role since the emergence of commerce and the double entry bookkeeping system. Nothing will change on that front in the foreseeable future.
‘The way it is done will of course evolve in the next few years, mainly due to the fact that decisions will have to be made faster on a higher volume of informations and data. Technology will play a bigger role and finance professionals will have to become more tech-savvy to exercise their professional judgment and controls.
‘A large change will be in the operating model financial administration activities run on. A specific example that ties back to our complexity management toolkit is that the shift to more digital might rebalance the mix between the set-up of Shared Service Centers and the use of third-party providers (BPO). Digital could very well drive work from offshore back to onshore. The headcount-based business model of large BPO providers doesn’t work well with the logic of automation.
‘I suspect companies and CFO’s might get frustrated when BPO providers are reluctant to automate tasks, as automation reduces their revenues. Unless the model changes, companies will feel that they could move that work back in-house, eventually automating it more quickly.’