In the second of a four-part series, Konica Minolta examines how bureaucracy is stifling innovation within the finance function and why a new operational model is needed to unleash human potential.
Nine trillion Dollars. According to research by Gary Hamel and Michele Zanini, this is the estimated cost to OECD countries of ‘bureaucratic drag’. That is equivalent to the annual output of the French, German and British economies combined.
Bureaucracy is the modus operandi of large organisations, erected on a rules-based centralised structure. Hamel and Zanini measure an organisation’s ‘bureaucratic mass’ by evaluating six key indicators: overhead (management layers), friction (compliance/process), insularity (internal over external), dis-empowerment (lack of autonomy, influence), conservatism (incremental growth, risk aversion) and mistrust (visibility, transparency).
The businesses founded on these principles are invariably the ones that struggle to digitise and transform their operations. Rita McGrath in the Harvard Business Review Management’s Three Eras: A Brief History writes about the post industrialisation periods of management: execution (to create scale), expertise (provision of advanced services), and empathy (creation of meaningful experiences).
We are living and working in the experiential era, one defined by the quality of the customer, employee or user experience. At the heart of this shift is a move away from viewing people as machines and numbers, and towards one that empowers and engages feelings. Great customer experiences start with happy employees, and improved productivity does too.
Why it’s time to bust bureaucracy in your finance department
According to Laurence Gonzales, writing in Everyday Survival: Why Smart People Do Stupid Things, “Bureaucracies force us to practice nonsense. And if you rehearse nonsense, you may one day find yourself the victim of it.”
So why is bureaucracy so damaging to the future success of the finance function?
Bureaucracy kills engagement. Autonomy and involvement are key components of an engaged finance team. Multiple layers of management naturally create distance between senior executives, workers and customers. A lack of employee empowerment and the imposing of change are additional factors behind the failure of finance transformation initiatives.
Bureaucracy is akin to driving with brakes on. Faced with fast-paced change and spiralling complexity, operational agility can help organisations accelerate finance decision making and empower people. Too often however, this agility is undermined by complex finance system approval processes and resources side-tracked to bureaucratic tasks: the preparation of finance reports, budgeting, financial close, transaction processing and the updating of disparate information silos.
Bureaucracy suffocates innovation. Progress is reliant on ideas. Innovative finance functions are open to new perspectives, encourage experimentation and make it easy to launch initiatives. By cherishing certainty and control, an aversion to risk becomes systemic and this environment crushes financial creativity.
As Gary Hamel explains: “The world is becoming more turbulent faster than organisations are becoming more resilient.” Emerging disruptive competitors are forcing traditional businesses to adapt on several fronts. Driven by market forces, today’s finance function must find the bandwidth to excel at each management phases; execution, expertise and empathy. This challenge is not made easier by internally focused roles and an overburdened customer-facing operation.
Most finance departments are turning to technology to take on the overwhelming burden of administrative tasks. But is this another example of where we cure the symptom, not the disease? Companies cannot cut their way to greatness. With technology affording some much-needed breathing space, is now the time to re-imagine what work could be and to unshackled human potential?
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