Business Intelligence - Making Finance Function

BNFL is a company that has never been far from the sharp edge of controversy. Even so, for much of its history it has been successful commercially and made sound profits.

A 1990s restructuring at BNFL’s UK group came about as a result of the privatisation of the electricity supply industry in the UK, which resulted in growing pressure on BNFL to significantly reduce its costs. Susan Jee, now public-private partnerships manager for the whole of BNFL, was head of finance for the Magnox Business Group at the time. The board of directors at BNFL UK group had set a target of removing £100m from its cost base of £500m over a five-year period from April 1994. “To many companies a 20% cut over this timeframe may not sound like a particularly stretching target,” Jee says. “But given the regulatory and safety considerations which are absolutely paramount to everything we do, this was a massive undertaking.”

Hence it was recognised that the quickest way to begin the process of driving down costs was to get people throughout the group to buy-in to the cost-efficiency message.

To achieve this, the senior management of the UK group articulated a change vision: “A change in management style and organisational structure to concentrate UK group resources on the areas, activities and processes which deliver value and satisfaction to customers and contribute to corporate objectives, while eliminating those that do not.”

Two key components of this were the restructuring of the UK group and the careful crafting of a clear set of corporate values to guide the change implementation.

As Jee recalls: “It was recognised that to successfully implement change it would require behavioural change throughout the group and the values that we believe in and, most importantly, live by on a day-to-day basis would help to overcome the natural fear of change and … the barriers that we knew we would face along the way. In fact the ability to implement the new values were so important that it was one of the key criteria for selecting the future structure of the group. The senior directors spent a lot of time on content and wording of the value statements and it was devolved through the group for testing and comment. Within finance we ran sessions to think about behaviours that we wanted to see and those that we didn’t want to see.”

The final value statement was:

– We will all lead by example to encourage behaviour which:

– is trusting

– is consistent with what we say

– generates the confidence to ask why, to admit mistakes and to say ‘I don’t know’.

– We will create an environment where everyone knows where they fit in, is able willing and trusted to perform and can fulfill their potential.

– We will work together in teams to achieve agreed goals.

– We are outward looking and face the realities in the world in which we operate:

– safety will not be compromised.

– Customers are important:

– public and political acceptance must be achieved.

What made the whole exercise more fraught was that BNFL’s history was studded with failed change initiatives. Jee believes that this was partly because there had not been a consistent process of thinking through the change programme, and not enough time had been spent getting senior management to communicate consistent messages.

To restructure the UK group into seven units, it went through a major activity analysis programme that would impact most employees, including the finance function.

The first part of the activity analysis involved the whole of the UK group board of directors, with facilitative help, going through a process of identifying the broad, high-level organisational structure that they wanted to create and the sort of behaviours and competencies they required from the business unit directors.

They did this by analysing the high-level activities of the group and classifying them according to various templates, each of which determined a version of the new organisational structure, supported by desired skills and attributes. These were then debated and tested and a structure chosen and a more detailed role and person specification for the business unit directors constructed.

Once the business unit directors had been chosen they, as a team, went through a similar exercise for their business unit structure and senior unit staff.

However, this is where the role of finance staff faced the first major change. The most senior finance staff member within the unit would now be known as a business and finance manager, and whereas previously they might have had responsibility for one aspect of finance for the group as a whole – for example, financial accounting – this person was now being told that in order to support the business unit, they would be responsible not only for this but also for management accounting, investment appraisal and business planning.

As Jee explains: “This was a major change, as previously financial accounting was done by one person, management accounting was the responsibility of someone else and investment appraisal was under somebody else’s control. Business planning was outside finance completely. Now the finance and business managers were told these were all to be integrated and fall under their control.”

To construct the new finance structure within the unit these managers then had to go through the same process of activity analysis as above.

However, remembering the cost reduction imperative that had initiated the change process, they had to first define the activities and their resource requirements for today and then create a vision for the activities which would answer the question: ‘What will be needed in terms of systems and skills to undertake these activities better, faster and with less effort in 3-5 years’ time?’ They then had to come up with a robust implementation plan, which kept the customers’ needs and the value statement firmly at the forefront.

The second stage of the activity analysis devolution focused on driving this down to team level. Within the finance department, this was undertaken as part of a series of workshops conducted to secure buy-in to change within the department itself. As Jee recalls: “for finance, we wanted to identify how to group activities together in the most efficient and effective way”.

An important workshop module focused on how the finance staff wanted to be perceived as a function.

“Generally, they felt that we weren’t valued that highly by the business, so this module asked questions like: ‘To improve the business’ perception of the finance function what should it look like, what should it feel like and what should it sound like?’ This was all quite new to accountants who, due to being results driven, aren’t used to thinking about how work feels or sounds. As part of developing this attitude groups thought up titles, pictures and songs to help describe what they were about and how they wanted to be perceived,”Jee says.

Creating a customer-focused finance function meant assigning staff to business units. This had a dramatic impact throughout the units, not least on their directors. As Jee says: “Many of these directors had never had an accountant working for them before. They had always had to rely on this big central service who always wanted to know, ‘why do you want this or that?'” In addition, the accountants had previously rarely had the opportunity to go out into the businesses and directly contribute to the wider strategic and tactical issues. The senior finance staff were now a part of the management team.

To maintain networks within finance and to share best practice the group set up a forum for business and finance managers. As Jee says, “with devolution there’s always a risk of walls going up between units and we wanted to avoid that.”

Virtually all of the group’s 70 finance staff found themselves having significant contact with customers. Under the old structure, only team managers would deal with customers, but as Jee says: “The more people do this, the more they want to interact with other parts of the business. Basically, finance staff are getting drawn more and more into the business in wider roles than just providing numbers.”

VALUE CREATION: A FEW WORDS FROM THE FOREWORD

“The strengths of this report’s recommendations are that not only can you read about the techniques available, you can see who has used them and what success was achieved. Finance directors who want to improve their contribution to their company’s success but are not sure where to start, should read this Report to get new ideas and stimulation. Alternatively, if you have a broad idea of where you want to focus but need more detail, use the Report as a reference document to dip into and make sure you are on the right track. The finance function ensures control and governance, and uses that sound base to facilitate the delivery of value. This Report is invaluable to all finance directors wanting to focus their efforts on adding value.”

John Coombe, CFO, GlaxoSmithKline

CHAPTER HEADINGS

1. The finance function in the new millennium
2. The value-adding finance function
3. Driving finance change
4. Shareholder value and capital markets
5. New skills requirements for the finance function
6. Managing and reporting balanced performance measures
7. Adding value to the finance function with IT
8. Creating a shared financial services centre
9. Outsourcing finance operations
10. Conclusion: a view of the future

Case studies cover Burger King, Hertfordshire County Council, HP Bulmer, DHL, British Airways, and others.