How to succeed in introducing Financial Control

Learn Financial Control the smart way

The introduction of Financial Control aims to provide objective information for strategic management and decision-making.

But the behavior of the different actors in the company always clashes with the technical dimension of Financial Control tools. Control indicators are perceived by some managers as a limitation of their supervisory power over all services and a challenge to their decision-making authority. The manager himself can perceive Financial Control as a challenge to his monopoly on decision-making and his ability to govern the company.

The balance of power is questioned and the “generalist” manager may fear a loss of control over his “specialist” managers.

Miller and Chen (1) confirm this hypothesis by showing that the performance of a company makes its manager complacent and inert, threatening the development and continuation of the activity in the medium term. This lack of resilience in the face of uncertainties in the internal and external environment exposes the company to risks during periods of crisis.

“The leader’s imprint is everywhere. He controls everything and does not trust anyone else. He has formatted people to work his way and everyone accepts his working methods without discussion. The president governs everything like the army. Faced with the threat posed by the introduction of Financial Control, the manager developed a protective rejection by gradually distancing himself from the process.”
Nobre & Zawadzki

To successfully measure the effects of continuous improvement initiatives on the organization, Financial Control must achieve a new balance between the different existing operational power groups and management. The introduction of new methods aimed at costing and controlling work necessarily has a significant social impact. Indeed, in any change management, individuals have no interest in changing an efficient operation and taking the risk of questioning their own levels of skills or autonomy.

Nobre & Zawadzki (2) discuss the case of the introduction of Financial Control in an SME. Three unsuccessful attempts resulted in the resignation of two administrative and financial directors. The study shows that these failures are due to the paradoxical behaviors of the manager and his accountant who perceive the introduction of Financial Control as a threat. In this study, Nobre & Zawadzki discuss the use of three approaches for the introduction of Financial Control.

A first technical angle focusing on management tools.
A second angle focusing on support, training and routines to be deployed in the company.
A third angle favoring the human approach on the behavioral mechanisms of the protagonists in the implementation of control tools. And it is this third dimension that is particularly studied, as the resistance comes not from the base but from management, even though the initial request comes from the manager himself, often very versatile but not very specialized.

The study shows the ambiguity of the confrontation between the desire to structure a management process aimed at optimizing performance and the fear of questioning management and being stripped of its powers.

“The manager does not want to formalize his vision and delegate his powers, in order to maintain total decision-making autonomy.”
Kalika (3)

Examples of financial control tools for managers

Budgets: A budget is a plan that expresses the expected revenues and expenses of an organization for a given period of time. Budgets help managers to allocate resources, monitor performance, and evaluate results. Budgets can be prepared for different levels of the organization, such as departments, projects, or products.
Balanced scorecard: A balanced scorecard is a tool that measures the performance of an organization from four perspectives: financial, customer, internal process, and learning and growth. The balanced scorecard helps managers to align their strategic objectives with their operational activities, communicate their vision and goals, and monitor their progress.
Variance analysis: Variance analysis is a tool that compares the actual results of an organization with the planned or budgeted results. Variance analysis helps managers to identify the causes of deviations, take corrective actions, and improve performance. Variances can be calculated for different aspects of the organization, such as revenues, costs, volumes, or quality.
Benchmarking: Benchmarking is a tool that compares the performance of an organization with the performance of other organizations or industry standards. Benchmarking helps managers to identify best practices, learn from others, and enhance their competitiveness. Benchmarking can be applied to different processes, functions, or outcomes of the organization.

The challenges of introducing Financial Control

Introducing financial control in an organization is not an easy task. It faces several difficulties and obstacles, especially in small and medium-sized enterprises (SMEs). There are three main challenges of introducing financial control.

Resistance to change: One of the challenges of introducing financial control is the resistance to change from the different actors in the organization. The introduction of financial control tools can disrupt the existing working methods and routines, which are often perceived as too cumbersome, theoretical, or difficult to master. The teams may see these tools as additional work, without any benefit for efficiency, especially if the organization is already doing well financially. Moreover, the introduction of financial control can challenge the authority and autonomy of some managers, who may fear a loss of control over their operations or decision-making. The manager himself can perceive financial control as a threat to his vision and leadership.

Lack of involvement: Another challenge of introducing financial control is the lack of involvement from the stakeholders in the organization. The introduction of financial control requires the participation and collaboration of different actors, such as managers, employees, customers, suppliers, or shareholders. However, these actors may not be interested or motivated to engage in the financial control process. For instance, some operational indicators may be associated with financial control, such as cost reduction or waste elimination. These indicators may require the use of continuous improvement methods, such as Kaizen, which involve changing the working methods or processes of the teams. However, the teams may resist these changes and show a lack of interest in controlling their own working methods, which they have been using for several years. They may not accept that a non-operational controller could question their work or suggest improvements. As a result, the introduction of financial control fails to gain support or buy-in from the stakeholders.
Negative perception: A third challenge of introducing financial control is the negative perception that it may create among the employees in the organization. The introduction of financial control may be seen as a way to monitor or evaluate the performance of the employees, rather than to help them improve their work. This may create a sense of distrust or fear among the employees, who may feel that their work is being scrutinized or criticized by the controllers. Moreover, some aspects of financial control may be perceived as threatening by the employees, such as cost control or personnel management. These aspects may imply that the organization is looking for ways to reduce costs or staff, which may affect the job security or satisfaction of the employees.

“The central actor in financial control is unambiguously the manager and not the controller. I want to help controllers earn their rightful place in the accounting profession, that is to say that of true ‘Business Partners’ who act at the interface of operations and economic decision-making at a level that changes business operations.”
Jan Williams (2004)

How to overcome these challenges

To overcome these challenges and successfully introduce financial control in an organization, especially in SMEs, it is important to adopt a holistic and human approach that considers not only the technical aspects but also the social and behavioral aspects of financial control. Some possible strategies are:

Communicate clearly and transparently: Communication is key to introducing financial control in an organization. It is essential to communicate clearly and transparently about the objectives, benefits, and expectations of financial control to all the actors involved. Communication should be frequent and consistent throughout the introduction process, using various channels and formats, such as meetings, newsletters, reports, or feedback sessions. Communication should also be tailored to suit different audiences and needs, using simple and accessible language and avoiding jargon or technical terms without explanation.
Involve and empower: Involvement and empowerment are crucial to introducing financial control in an organization. It is important to involve and empower all the stakeholders in the design and implementation of financial control tools and techniques. Involvement means soliciting input and feedback from different actors on their needs, preferences, or suggestions for improving financial control. Empowerment means giving autonomy and responsibility to different actors on how they use or apply financial control tools and techniques in their work. Involvement and empowerment can increase motivation, commitment, and ownership of financial control among the stakeholders.
Educate and train: Education and training are vital to introducing financial control in an organization. It is important to educate and train all the actors on the concepts, methods, and benefits of financial control. Education and training should be provided in a timely and appropriate manner, using various methods and resources, such as workshops, courses, manuals, or online platforms. Education and training should also be adapted to different levels of knowledge and skills, using practical and relevant examples and cases. Education and training can enhance understanding, competence, and confidence of financial control among the actors.
Support and reward: Support and reward are important to introducing financial control in an organization. It is important to support and reward all the actors for their efforts and achievements in financial control. Support means providing guidance, feedback, or assistance to different actors on how to use or improve financial control tools and techniques. Reward means recognizing, appreciating, or incentivizing different actors for their performance or contribution to financial control. Support and reward can foster trust, satisfaction, and loyalty of financial control among the stakeholders.

Conclusion

Financial control is a valuable process that can help an organization to improve its financial performance and achieve its strategic goals. However, introducing financial control in an organization is not a simple task. It faces several difficulties and obstacles, especially in SMEs, such as resistance to change, lack of involvement, or negative perception.

To overcome these challenges and successfully introduce financial control in an organization, it is important to adopt a holistic and human approach that considers not only the technical aspects but also the social and behavioral aspects of financial control.

Some possible strategies are communicating clearly and transparently, involving and empowering, educating and training, and supporting and rewarding all the actors involved in financial control. By following these strategies, an organization can create a positive and productive culture of financial control that can benefit both the organization and its stakeholders.

Assess your current financial situation and identify your strengths and weaknesses.
Set realistic and measurable financial objectives and track your progress regularly.
Create a budget and stick to it. Monitor your income and expenses and adjust accordingly.
Implement internal controls and policies to prevent fraud, errors, and inefficiencies.
Use financial tools and software to automate and simplify your financial processes.
Seek professional advice and guidance from experts when needed.

By following these steps, you will be able to achieve financial control and enjoy its benefits. You will be able to make better decisions, optimize your resources, and increase your profitability. You will also be able to face any challenges or opportunities that may arise in the future.

In summary, Balancing power, overcoming challenges, and cultivating success

Introduction of Financial Control aims to provide objective information for strategic management and decision-making.
The clash between company actors’ behavior and technical dimension of Financial Control tools is evident.
Control indicators challenge managers’ supervisory power and decision-making authority.
Manager’s autonomy and company governance can be threatened by Financial Control.
Power balance concerns arise, as “generalist” managers fear losing control over “specialist” managers.
Lack of resilience to internal and external uncertainties exposes the company to crisis risks.
Managers’ protective rejection due to Financial Control threat demonstrated.
Successful measurement of improvement initiatives requires balance in operational power groups.
New costing and control methods have significant social impact, facing resistance to change.
Three approaches for Financial Control introduction discussed: technical, support, human.
Ambiguity exists between structuring management process and fear of power loss.
Various financial control tools for managers mentioned: budgets, balanced scorecard, variance analysis, benchmarking.
Challenges in introducing Financial Control are resistance to change, lack of involvement, negative perception.
Overcoming challenges requires a holistic, human-centric approach.
Strategies for success: clear communication, involvement and empowerment, education and training, support and reward.
Financial Control aids financial performance and strategic goals, but faces obstacles.
A comprehensive approach can create a positive culture of financial control benefiting all stakeholders.

“Financial control is not a substitute for change, but a means of managing it.”
Anthony Stafford Beer

References