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Health checkHow can a Finance professional lead change in an organisation?
From their unique position in an organisation, those leading the Finance function, gain a great insight into the business as a whole – may be even more than any other single executive. Most executives are focused on the issues in their own function, trying to improve their team’s contribution to the whole. Unfortunately some finance professionals also fall into this trap and concentrate only on improving the internal workings of the finance and accounting functions. The more enlightened finance professional seeks to make a wider contribution to the organisation. However, this presents a challenge as many readers of Eli Goldratt’s book “The Goal” know only too well.
After reading the book, the finance professional, to whom the concepts of Theory of Constraints (TOC) make perfect sense, seeks to get others to read it or at least to discuss the ideas. This can immediately trigger resistance from colleagues because it seems that solutions are being proposed by a person who does not understand the complexity faced by – say – operations.
If you examine the content of The Goal you will find more than 100 pages are devoted to describe the problem BEFORE posing the solution. The finance professional needs to learn from this if they want to be the catalyst or lead the start of the change process.
How can the finance professional start the process?
You can start to get consensus that there is a problem by using some aspects of Throughput Accounting. It is not necessary in the first instance to change the way of reporting and to challenge all the decisions that use traditional cost accounting as a base – such as:
- Return on investment (in equipment and facilities) decisions
- Decisions to buy in or outsource components
- Decisions on the viability of certain Products / Services
The principles of Throughput Accounting – summarised as the focus on the effect on Throughput (as defined in TOC) as more important than cost – can be applied to many issues so that colleagues understand and come to accept that the system has a problem.
For example, many times a less than satisfactory due date performance – say 65% - becomes the norm – and it is difficult to get acceptance that this is a real problem because “that’s the way it is in our business and we still win orders and survive!”. Using the principles of Throughput Accounting you can easily put a value to this % and start to make it more meaningful. Using a Throughput Money Days [for the UK - Throughput Pound Days, for the USA Throughput Dollar Days] calculation you can show the impact of the deferred Throughput by not being on time.
The calculation multiplies the Throughput of each item (order or the order line) that is late by the number of days it is late. This is therefore a measure not only of time but of value and also focuses on the undesirable effect rather than – say 65% - the orders we did perform on. This approach starts to build focus on the problem and can open up the debate.
For more ideas on how to use Throughput Accounting principles to start to lead the change in your organisation contact us.
