key: cord-0057209-juuskmdx
authors: van Oijen, Pieter; Verbeeten, Frank
title: What Agility Means for the Finance Function
date: 2020-07-20
journal: Control Manag Rev
DOI: 10.1007/s12176-020-0116-4
sha: 99c9336d1f4543b05ffbbd3ab953df87201b6ce8
doc_id: 57209
cord_uid: juuskmdx

nan

The term "agility" denotes the ability to move quickly and easily. In the context of organizations, it refers to the ability to react to opportunities and threats in an effective way. Or, as Gartner (2006) defines it, the ability of an organization to sense environmental change and respond efficiently and effectively to that change. Agility is on the agenda of virtually all organizations nowadays, whether they are profit or non-profit in nature. In many organizations, agility is pursued explicitly by launching agile transformation programs. In others, improving the agility of the organization is somewhat more implicitly addressed through change programs that focus on the implementation of "lean", on creating sustained continuous improvement, or on improving customer experience and creating a customer-centric culture.

The increased focus on organizational agility can be explained by the fast pace of environmental change that organizations are confronted with. This puts an additional premium on the ability to sense and respond efficiently and effectively as an organization, either in terms of benefits to be reaped at the expense of competitors or simply to survive and avoid becoming irrelevant. On the back of technological and digital advancement, customer value delivery needs to be improved continuously. Today's quality (meaning functionality and performance) and today's efficiency (meaning the cost to produce or deliver) of goods and services will likely no longer be sufficient in the near future. This creates the need for organizations to consistently work on new products and services, on enhancing the functionality and performance of existing products and services, and on improving cost levels. Simultaneously, transparency levels have increased significantly, allowing customers and end-users to compare prices and quality among suppliers and providers and to obtain insights into cost levels. And, for basic transactions, the expectation nowadays is that they are fast and flawless and that they are available at very low or no costs at all (Denning 2018).

This transformation of the way of working -and with that the transformation of organizations and the business functions within them -has become more and more feasible over the last decade. Changing the way of working impacts essential elements such as the daily work routines, the organizational design, and performance management. But, above all, it often requires a significant change of mindset in the organization, moving away from an internal orientation and incremental thinking to a value-delivery and growth mindset. This directly links to the culture of an organization, which explains why many established organizations struggle to make significant progress towards agility in a two to three year time horizon.

The finance function can play a significant role in the continuous effort of a company to improve its agility. At the same time, agility will have implications on the finance function itself. Below, we present a comprehensive framework for agility based on the view of Denning (2018) and use it as a basis to discuss where and how finance fits in, zooming in on the implications for the finance functions itself. What makes the finance organization agile?

The concept of agility in business environments originates from a group of software developers who were dissatisfied with the approach of creating software that was prevalent at the time. Nowadays, agility has become an oftenused term that is used in connection with a multitude of concepts and methods. This includes the organization of daily work (scrum, sprints, backlogs, huddles, KanBan), management methods and tools (Lean Six Sigma, Objectives & Key Results, OGSM), and organizational design (Spotify squadification, Holacracy, self-organization). Denning (2018) refers to three laws to describe when an organization has truly embraced agility. In our opinion, these laws cover the essence of an agile organization. Rephrasing them from three laws to three characteristics, they imply: 1. a very strong orientation of the whole organization towards delivering more value to customers, 2. getting work done in short cycles by small cross-functional autonomous teams, and 3. the whole organization operating as an interactive network.

The purpose, the vision, and the strategies of an agile finance function need to be based on value creation.

Delivering more value to customers

• Client interaction and feedback • End-to-end value delivery mindset and recognition of employees' contribution • "North Star" for purpose, vision, and strategies based on value delivery • Customer value leading to way of organizing 

These characteristics affect the finance function in two ways: On the one hand, finance will be affected as it supports the business, and on the other hand, it will be affected in its proper operations (see also table 1) .

As modern environments require a very strong orientation towards delivering more value to customers, the whole organization must reflect this customer centricity. In an agile organization, employees at all levels are therefore extremely dedicated towards customer value delivery. Client interaction is actively sought in order to obtain feedback on existing products and services as well as on new designs and potential improvements. Orientation towards clients and value delivery in an agile organization is not limited to those in the organization who directly deal with clients or who are crucial in the process of creating and delivering products and services to customers and end-users. It is an ultimate raison d' être for the entire organization. Everything and everyone in the organization needs to become dedicated to generating customer value. This implies that functions, roles, and processes are organized in the way that is optimal for client value delivery and must no longer be based on hierarchy, legacy, or self-interest. Of course, this implies the rigorous elimination of anything that does not contribute to customer value.

Translating the purpose and vision of delivering more value to customers ("North Star") and the strategies of the whole organization to the context of the finance function provides guidance for priority setting and meaning to work. This is needed because finance staff may find it difficult to directly link their activities to the organization-wide vision or objectives. The clients of the finance function are often internal clients. They require support and back office functions. In addition, a significant part of the strategic priorities of the organization may involve activities that are largely outside the scope of the finance function. By creating a finance function purpose and vision and by formulating strategies that are based on value delivery and that focus on areas where finance can have an impact, a value creation mindset is stimulated among finance staff and clarity is provided about their contribution.

Another consequence of the organization's orientation towards delivering value to customers means that finance will be called upon to deliver its part in continuous improvement and focus on value added, for example, by reducing the costs of the finance function. Continuous improvement within finance will focus upon the quality and efficiency of finance processes. Amongst others, this may mean implementing Robotic Process Automation (RPA) to achieve flawless and low-cost transaction processing. Additionally, "Everything and everyone in the organization needs to become dedicated to generating customer value. " Summary • Agile organizations show three main characteristics in their general orientation, in their way of working, and in their internal collaboration.

• Agility of the finance function will make a difference both for its support for business and for its own operations.

• Being aware of these characteristics and differences may help finance departments in becoming an agile part of an agile organization.

An agile finance function focuses on continuous improvement and the value it can add. management and technological tools such as Lean Six Sigma and process mining may help to structure finance processes to obtain an end-to-end perspective with a customer-oriented focus. In addition, process mining may help to identify potential areas of improvement. The time that RPA frees up in finance can be used to support the business and improve business processes, amongst others by using data analytics.

For agile organizations, it has to become a matter of course that work is done in small autonomous and cross-functional teams that perform their work in short cycles. Having an "agile" mindset is essential for them. Many organizations refer to "being agile" when their teams work in sprints with daily scrums, huddles and stand-ups (which are short daily meetings to keep the team informed, connected, and calibrated throughout the "game", reinforcing the "we" to keep everyone aware of the team's landscape and progress). It is, however, important to understand that without a sufficiently strong orientation towards customer value delivery there is no true agility. In that case, the adopted "agile" way of working is merely used to structure and synchronize the work.

Working in small teams facilitates frequent and honest communication among team members. Ease of communication will enable the team to quickly capitalize on the collective brain power, if provided that it consists of the right mix of experts. This contrasts with a "silo setting", where insights have to be shared in planned sessions and meetings, which increases response times and reduces the level of knowledge and information sharing. Working in small autonomous teams and using short cycles also creates a setting where team members are motivated and are able to make adjustments quickly on the basis of feedback and new insights.

The finance work force typically consists of a significant fraction of highskilled staff with clear analytical capabilities and a strong focus on career development. This provides ample room for self-organization. CFOs and Finance directors can contribute to agility by pushing themselves to delegate as much as possible and to move into a role where they provide direction, set expectations, and support the teams-for example by removing restrictions.

In the finance function, working in short cycles means working towards objectives in cycles of weeks or months rather than years. It means working with frequent check-ins, huddles, or other short face-to-face sessions to discuss progress, obstacles, and priorities for the upcoming days or week. There

Other useful frameworks or descriptions of the characteristics of an agile organization and the potential consequences for Finance can be found in CFOs and finance directors should delegate their authority to small, autonomous, crossfunctional teams where possible.

"Continuous improvement within finance will focus upon the quality and efficiency of finance processes. " are various tools and methodologies that are suitable, including Kanban. As the finance function is often burdened with ad-hoc requests for support, for instance, when data and information, ad-hoc calculations, or analyses are needed, transparency on where the resources are spent and what is being achieved in order to realize the ambition of true value delivery is important. The agile way of working needs to create this transparency.

Working autonomously in small teams on short-cycled team output seems to create the danger of working in isolation. To close the loop, the organization needs to operate as an interactive network. This starts with the organization as a whole having clear shared medium to long term goals. These goals need to be properly tied to the purpose, the vision, and the mission of the organization to align the general direction of the teams. Further alignment needs to be created during the work-cycles to ensure that the priorities and focus areas of teams are consistent and that interdependencies are identified and addressed. Such alignment needs to be explicitly built in, ideally through a goal realization methodology (for example, by adopting the Objectives & Key Results framework (OKR) which is used by Google, LinkedIn, Microsoft and Zalando). In addition, agility requires a high degree of transparency regarding who works on what, what is being targeted, and what is being achieved. Available technology can boost the creation of an interactive network within the organization by offering collaboration platforms, goal realization tracking, or feedback tools. Nevertheless, this third characteristic of an agile organization is a challenging one, especially for sizeable organizations, as it seeks to seamlessly connect decentralized working with organization wide progress.

Agility requires that employees provide each other with continuous feedback-either formally or informally-on their behavior, progress, and outcomes. In addition, it requires that performance is measured against crossfunctional business metrics and targets. As finance departments are generally responsible for measuring performance, they should design performance measurement systems that provide information on progress and success of certain initiatives. For example, performance management practices should be team-and group-based and linked to the overall goals of the organization rather than based upon individual performance measures within the silo.

As indicated before, the finance function should also have a clear mission and purpose linked to the overall mission and purpose. This purpose generally includes business acumen as well as objectivity, reliability, and integrity of provided information. In addition, the finance function should lead by example.

"Without a sufficiently strong orientation towards customer value delivery there is no true agility. "

Agile finance teams work in short cycles with frequent check-ins.

An agile finance function links its objectives to the organization's overall objectives.

This may mean that finance staff should stimulate taking calculated risks rather than solely act as the "no" function. While an important task of the finance function is to filter out excessively risky projects, an obvious "no" attitude may discourage the adoption and implementation of new ideas, in the finance function and elsewhere. This will harm the long term strategy of the firm.

There are many aspects and buzzwords regarding agility that we have not covered in this article. One of them is "fail fast and fail often!". However, the article provides a framework for discussing the role that finance as a function can play in supporting the business to become agile. It also provides a framework for looking at the consequences of agility for the finance function itself. As such, it brings out several attention points that CFOs, finance directors, and finance employees should be aware of when agility becomes more important for their organizations. Such a development is likely to affect not only the way of working in the finance functions but also the competences required from finance employees. Performance management practices must be adapted by agile finance functions.

"Finance staff should stimulate taking calculated risks rather than solely act as the 'no' function. "

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