Why We Should Change The Rhythm Of Business
There once was a Finance manager who met a fisherman. “Could you please tell me about your life and your work?”, asks the Finance manager. “Well, I am at sea for five months and then I am home for five months”, the fisherman responds. There is a long pause. Our Finance manager is thinking hard. Something is wrong; five plus five is only ten! ”So what are you doing in the two last months?” .
Yes, something is definitely wrong, but maybe more in the Finance manager’s head than with the fisherman’s work rhythm!
It is amazing to observe how the fiscal year totally dominates the rhythm in our management processes. It is equally amazing that so few question the practice. This happens even if January to December (or any other fiscal year period) is often a completely artificial construct from a business point of view. Business has its own life and its own rhythms. Even when there is a seasonality to it, as with winter sports or the ice-cream business, year-end divides the high (or low) season.
We know why: “It’s always been done like this”, or “Everybody else is doing it”. Another reason might have to do with the background of many Finance people working with performance management. They often have a statutory accounting history. Here, the fiscal year is not just less of an issue, it is a legal requirement. The problem arises when people bring their accounting background and mindset with them into business management. Decimals, precision, consolidation, reconciliation and repeatable structures no longer works very well when the focus is on a future with lots of dynamics and uncertainty and not on a past with none of it.
The problems
The myopic calendar focus can be stupid, or funny, or both. “Accordion” forecasting is a classic example. When the budget is made, we want to understand all of next year, twelve months ahead. But into next year, in the first quarter, nine months is enough, we can still see till year end. Then six months and then three months is enough, before we suddenly need to see twelve months ahead again (budget time…).
An annual resource allocation is also meaningless. You might have heard it before, the unthinkable parallel to a bank telling its customers “we’re only open for business and loan applications once a year, in the autumn”.
Resource allocation must be more continuous and dynamic. A key concept in Agile software development is ”continuous delivery” of new functionality. The big old projects were too big one-off batches, forcing users to decide on all system requirements up front. It’s the same in an annual budget. It is a too big batch, with too many decisions made too early.
The solutions
The solution is simple. Where possible and meaningful, we must organise our management processes on business- and event driven rhythms.
- Targets must have natural deadlines, short if urgent, longer if more complex. End of December should be the exception, not the rule
- Forecasting must be dynamic or rolling
- Resource allocation must be dynamic and not an annual stunt
- Performance evaluation must take place when work is completed
Possible and meaningful is important. Sometimes, we have no choice but to comply with fiscal or annual periods. Even when we have a choice, it might not make sense.
Going dynamic
Going dynamic is not just a Finance issue. It is just as relevant for HR. It is great to observe an increasing number of organisations going in this direction, including my own employer Statoil. For HR, it is about moving away from the annual stunts of setting goals and providing feedback/evaluating performance. This is being replaced with a much more continuous and natural rhythm, in the case of Statoil with no deadlines set for the process.
