Saturday, December 07, 2013

Time to Clean the Shed!

Having worked with many organizations both nationally and internationally in the area of financial and asset management, one thing seems to tie so many organizations together – their hesitation to change.  Several years ago I addressed organizational change more from a systemic perspective.  However, systemic behavior is a culmination of behavior of each of its parts.

Although I have seen the same behavior through my decades of work with organizations, I somehow passed off the behavior as being native only to private organizations.  However a recent article broke this myth and demonstrated that all organizations fall into the same trap.  The article Long Live Spreadsheets by Kathleen Hoffelder examined the outcomes of a recent Price Waterhouse Coopers study on the ‘tool of choice’ in corporate tax departments.  

The joint study conducted by Price Waterhouse coopers and the Manufacturers Alliance for Productivity and Innovation surveyed 100 tax professionals in the area of their tools for managing and reporting on data.  Of the respondents, 60% said that they continue to rely on spreadsheets as a provisional tool in their tax departments.  Although 60% is a high number, what makes the response more interesting is that spreadsheets were used amid the use of more complex tax-technology tools.  The report goes on to demonstrate how many companies are using spreadsheets as significant data storage and reporting tools.   The study reported that nearly 70% of respondents from mid cap to large cap firms continue to use spreadsheets to perform ongoing legal-entity reconciliations.

Based on personal experience, I have found that private organizations rely on spreadsheets at least as much as public companies.  Although the technology exists to use specialized tools for reporting and the like, organizations continue with the gymnastics of ‘massaging’ data in spreadsheets.  I have personally experienced organizations that have and continue to swim in the sea of spreadsheets.  Not surprisingly to the point of keying and re-keying data when the facility of electronic data transfers exists!  The room for error in this environment is tremendous, in my opinion.

The article revealed that spreadsheets have become the ‘life support’ systems of many tax departments, and I would add accounting/finance departments.  Michael Burak, U.S. and Global Industrial Products Tax leader at PwC indicates “The use of spreadsheets is a reason why tax departments spend a significant amount of time gathering data instead of just analyzing data”.  Statements like these lead one to question if the problem is with the user or with the technology.  , the user doesn’t want to give up the old tools of their job, management likes the reports the ‘old way’ or the technology is simply not available. 

My experience suggests that the issue is two-fold and thereby begs a two pronged solution.   The primary basis is the user and management.  Management must look toward the information of reporting rather than the esthetics of reporting.  Insisting on higher demands on the analytics rather than the esthetics will drive line departments to add more value than ‘fluff’.  User departments must more fully explore the tools of their current methods and technology, provide analytics and secondarily to provide feedback to technology companies to produce the tools they need.  Todd Bixby, tax technology leader at PwC contends ‘Companies would be better served by streamlining the entire process with better data integration’.   My take away, organizations should look toward a more holistic approach to data, reporting and analytics.

Several years ago I wrote an article ‘So what, Now what’, looking at the need for reports to motivate decision makers to act.  It is in the quality, timeliness and intelligence of the report that drives decision making not the ‘esthetics.  Organizations are spending an inordinate amount of money on producing reports using highly labor intensive tools.  When instead they could repurpose that cost of keying and rekeying data to analytics – adding intelligence to the reporting!

Doing (the Right) Thing (Right)

With the plethora of changes in the US system (Affordable Care, Blizzard of regulatory changes) it is becoming increasingly difficult for organizations to navigate their way through the myriad of changes. If the pressure for compliance is not enough, the economic pressures of competitors and the demands of stakeholders have pushed many organizations beyond the boiling point. Regardless of the industry, organizations currently face increasingly strict operating environments.

It was the November 2013 article by Josh Hyatt Raising the Standard of Compliance that afforded me the glimpse of what large multi-national public companies are facing. Up to this point, I felt the rain of compliance requirements in medium sized single industry organizations. Trying to get my head around the, what appears to be, the dichotomy between business success and compliance. My initial perspective, like that of others was, ‘another thing that must be done’.

The Hyatt article reviewed data of 150 senior executives of organizations whose revenue was at least $100 million per year. The data revealed that 81% of respondents that the task of monitoring tax and employment related changes had become much more time consuming. Supported by deductive reasoning, 92% of these executives indicated that their budgetary cost of compliance will increase over the coming year.
For many, personally and corporately, the response to the compliance demands of external agencies are met with ‘we will simply pay the penalty’. Hovering under the guise of ‘wait and see’, for many is par for the course. However, when it rains it pours! The wait and see model may work for a time, but when the agency percolates to the top of some list for investigation, and the investigation yields fruit – it become a call to the wild for a feeding frenzy!

The roulette wheel of ‘wait and see’ is not a long term strategy for any organization. In the same vein, organizations are being pulled by many fires and the compliance fire may only be smoke at the current moment. Juggling one more external demand causes executives to ponder ‘ doing things right vs. doing the right thing’. Through the ebbs and flows of current economics has brought me to the very question many times.

Doing things right vs. doing the right thing may, be to the literary aficionado the power of the placement of an adjective; in business circles has led to tremendous debate. There appears to be no end to the commentary on this powerful phrase when an internet search returns an immediate 431,000 hits in little over 2 seconds. At the highest level, Peter Drucker says “Management is doing things right; leadership is doing the right things.”

Unpacking the statement, I guess, suggests that ‘the right things’ are tied to those things that bring ‘good’- however we choose to define good. While ‘thing right’ relates more to the how individual steps are made toward the fulfillment of the ‘right thing’. This notion is supported by John Tabita in Doing Things Right vs. Doing the Right Things, where he contends that this phrase is the difference between leadership and management.

Tabit builds on the notion that ‘doing the right thing’ relies on strategic thinking that is meant to build vision. While ‘doing things right’ is more of a tactical pursuit. Although Tabit continues the strategic vs tactical debate he never clearly makes the point that strategy and tactical response must be tightly coupled.
Probably the best article on addressing ‘doing the right thing vs doing things right’ was by David Anderson, Why “doing things right” should lead “doing the right thing”. Anderson begins with the neuro-psychological basis of ‘trust’. Trust in predictability and quality are the keys to enabling deferred commitment. When there is no trust and no underlying capability to make real options valuable, there is a tendency to compensate with early commitment and over-burdening of a system. When users cannot expect a consistent or quality deliverable, they question on the validity of the output to meet their needs. Regulatory systems provide the mechanism to instantiate ‘trust’ in the deliverable.

Although many organizations see regulatory issues as the ‘ball and chains’ they do create trust with the end user which will create the end result of user commitment. This is the first step in building a solid organization. Management must use the ‘doing the right thing’ to make the organization successful – Drucker and leadership.

"Doing things right" must lead "doing the right thing" to enable a virtuous cycle of continuous improvement. Management must stop trying to solve one challenge at a time but rather take a more holistic view toward achieving the best achievable cost advantage.