The financial controller and CFO’s toolkit lean practices to transform your finance team

k kChapter 7: Lean Reporting—Informatively Chapter 9: A Lean Annual Planning Process—Ten Working Chapter 11: Effective Leadership, Growing Chapter 12: Quick Annual Reporting: Within 15 W

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The Financial Controller and

CFO’s Toolkit

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The Financial

Controller and CFO’s Toolkit

Lean Practices to Transform

Your Finance Team

Third Edition

DAVID PARMENTER

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Copyright © 2016 by David Parmenter All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

The second edition of this book was published in 2011 under the title Winning CFOs:

Implementing and Applying Better Practices The first edition was published in 2007

under the title Pareto’s 80/20 Rule for Corporate Accountants.

Published simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the

1976 United States Copyright Act, without either the prior written permission of thePublisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978)750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests tothe Publisher for permission should be addressed to the Permissions Department, JohnWiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201)748-6008, or online at http://www.wiley.com/go/permissions

Limit of Liability/Disclaimer of Warranty: While the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warrantieswith respect to the accuracy or completeness of the contents of this book andspecifically disclaim any implied warranties of merchantability or fitness for aparticular purpose No warranty may be created or extended by sales representatives

or written sales materials The advice and strategies contained herein may not besuitable for your situation You should consult with a professional where appropriate

Neither the publisher nor author shall be liable for any loss of profit or any othercommercial damages, including but not limited to special, incidental, consequential, orother damages

For general information on our other products and services or for technical support,please contact our Customer Care Department within the United States at (800)762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002

Wiley publishes in a variety of print and electronic formats and by print-on-demand

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Library of Congress Cataloging-in-Publication Data is available:

ISBN 978-1-119-28654-7 (Hardcover)ISBN 978-1-119-29131-2 (ePDF)ISBN 978-1-119-29132-9 (ePub)Cover Design: Wiley

Cover Image: © Kamaga/iStockphotoPrinted in the United States of America

PART II: TO BE COMPLETED BEFORE THE NEXT MONTH-END

Chapter 3: Rapid Month-End Reporting: By Working Day

PART III: TECHNOLOGIES TO ADOPT

PART IV: PROGRESS YOU NEED TO MAKE WITHIN THE NEXT SIX MONTHS

Chapter 5: Reduce Accounts Payable Volumes

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Chapter 7: Lean Reporting—Informatively

Chapter 9: A Lean Annual Planning Process—Ten Working

Chapter 11: Effective Leadership, Growing

Chapter 12: Quick Annual Reporting: Within 15 Working

PART V: HOW FINANCE TEAMS CAN HELP THEIR ORGANIZATIONS GET FUTURE READY

Chapter 16: Implementing Quarterly Rolling Forecasting

Chapter 17: Finding Your Organization’s Operational

PART VI: AREAS WHERE COSTLY MISTAKES CAN BE MADE

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Chapter 22: The Hidden Costs of Reorganizations

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About the Author

David Parmenter is an international writer and speaker who is known

for his engaging presentations and practical and informative books

His workshops have created substantial change in many attendees’

organizations David is a leading expert on lean finance team practices, rollingforecasting and planning, and the development of winning key performanceindicators (KPIs) His work on KPIs is recognized internationally as a break-through in understanding how to make performance measures work Hehas delivered interactive workshops in 31 countries over the last 20 years

David has worked for Ernst & Young, BP Oil Ltd., Arthur Andersen, and waterhouseCoopers, and is a fellow of the Institute of Chartered Accountants

Price-in England and Wales He is a regular writer for professional and busPrice-inessjournals

This book is a follow-on from Pareto’s 80/20 Rule for Corporate Accountants and Winning CFOs—Implementing and Applying Better Practices He is also the author of Key Performance Indicators: Developing, Implementing and Using

Winning KPIs, Key Performance Indicators for Government and Non Profit Agencies:

Implementing Winning KPIs, and The Leading-Edge Manager’s Guide to Success

(all from Wiley)

David Parmenter can be contacted via parmenter@waymark.co.nz or on+64 4 499 0007 His website, www.davidparmenter.com, contains manywhite papers, articles, and freeware that will be useful to readers to implementchange

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Testimonials

What can you expect from this book? Why not read these

testimoni-als on David Parmenter’s previous edition of this book and on hisworkshops and key note addresses

Praise for the book “Winning CFOs” (the second edition)

Mr Parmenter has created yet another fine management reference tool with his

Winning CFOs book It reveals how a CFO can be a better manager, and run an

accounting and finance function that delivers world-class results Highly mended reading for the CFO who is committed to self-improvement Steven M.

recom-Bragg, author of Accounting Best Practices

In this timely book, David Parmenter provides CFOs and their finance colleagues with a number of practical guidelines that will enable them to spend less time on the basic accounting routines and more time adding value and becoming a valued business partner Jeremy Hope, author of Reinventing the CFO

The CFO can make a major contribution to value creation by the use of tion focusing on the critical value drivers in the business These practical tools and techniques will be invaluable to the busy CFO.

informa-Ken Lever, CFO, Xchanging plc

Praise for the “Lean Finance Team Processes” workshop

We attended David’s course on “Winning Finance Teams” and we have had instant success with our Flash report My Accounting team managed to get the flash report for November completed by 4.00pm on the second day The workshop gave us the tools and the mindset to achieve this result Ron Milne, General Manager Finance,

Enware Australia Pty Ltd

The three main highlights for me from attending David Parmenter’s “Winning CFO” were; David’s tight and punchy delivery style, access to soft copy templates to customise and implement in my organisation, and breakout sessions at the end of each

in the month-end process Kelly Simpson, Australian Financial Controller,

Har-courtsThese workshops are now available as recorded webinars, see www

davidparmenter.com for details

Praise for David Parmenter’s key note addresses

David Parmenter held a keynote speech and an in-depth session at our two main events (Copenhagen & Tampa, USA) He is a very inspiring speaker with some interesting topics on his agenda He delivers his messages in a controversial and humoristic way.

His session rated as number one among all speakers Maj Nedergaard, Research &

Campaign Manager, Targit

David Parmenter gave a key note address at our one-day Management ing Conference The audience gave him the highest ratings with comments such as

Account-“Best speaker ever, thoroughly enjoyed it.” Jess Vailima, Conference Coordinator,

New Zealand Institute of Chartered Accountants

The two presentations delivered at our annual conference were superb with a high degree of satisfaction from the attendees Not only were the sessions entertain- ing they contained profound messages The electronic templates that David provided attendees have been worth the attendee’s conference fee! Carolyn Campbell-Wood,

Chief Financial Officer, Australian Medicare Local Alliance

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Introduction

Iam convinced that corporate accountants, as professionals, want to leave

a legacy before they move on To be remembered they need to have made apermanent improvement to the organization

Many finance teams are merely processing machines, moving from onedeadline to the next, having too little time to invest in being a business partner

to budget holders and senior management

I know this from observation and my own personal experience

THE THIRD VERSION

This book is a third version, as it follows on from Pareto’s 80/20 Rule for

Corporate Accountants and Winning CFOs: Implementing and Applying Better Practices The book has been restructured to facilitate easier implementation

and is accompanied with a 100-page toolkit The reader can access, free

of charge, a PDF of the suggested templates, checklists and templates fromwww.davidparmenter.com/The_Financial_Controller_and_CFO’s_Toolkit

The better practices in this book are ignored at your peril, as they are based

on the wisdom and better practices of over 5,000 accountants whom I have metthrough delivering my workshops and webcasts around the world

I would like to add that few, if any, of these practices were used by me when Iwas a corporate accountant; thus senior management did not shed a tear when

I left the organization It is my mission to ensure CFOs, financial controllers, andmanagement accountants leave a legacy that remains long after they have leftthe organization

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David Parmenter Writer, Speaker, Facilitator Helping organizations measure, report, and improve performance

Waymark House, 20 John Street, Titahi Bay,New Zealand (+ 64 4) 499 0007parmenter@waymark.co.nz www.davidparmenter.com

15 September 2016Dear CFO and Financial Controller,

Invitation to leave a profound legacy in your organization

This book will cover the better practices that will have a profound impact onthe way your finance team functions and help you make a difference as a

leader and business partner Do you find yourself and your team locked

up in the past as historians, still trapped by the archaic annual planningprocess, constantly fighting fires, and unappreciated by the organization atlarge? If so, the panacea for you is here

This book is written from the standpoint of an accountant and observer It is

a book that you need to read before you pass it down to your direct reports

Far too many CFOs have passed on the responsibility of keeping abreast of21st century lean finance team methods to their younger accounting staff

While the detail is the domain of the younger corporate accountants, tinuing learning is a duty that all of us need to shoulder

con-This book is designed to transform your contribution, increase your job isfaction and profile in the organization, and help you leave a legacy in everyorganization you work for Please, would you at least read the followingchapters:

sat-◾ Chapter 1 Getting Your Finance Team Future Ready

◾ Chapter 2 Leading and Selling the Change

◾ Chapter 10 Lean and Smarter Work Methods

◾ Chapter 11 Effective Leadership—Growing and Retaining Talent

◾ Chapter 16 Implementing Quarterly Rolling Forecasting andPlanning

◾ Chapters 17 Finding Your Organization’s Operational Critical SuccessFactors

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The PDF Toolkit ◾ xv

◾ Chapters 18 Getting Your KPIs to Work

◾ Chapter 20 Performance Bonus SchemesInvest 45 minutes of your time to make use of the support materials(webcasts, electronic templates) on www davidparmenter.com

I am hopeful that someday in the future we will meet, whether it is at acourse or over a coffee It is my fervent wish that you will be able to say, “Iused this book to make a difference.” It will mean that both you and I willhave left a legacy

Kind regards,David Parmenter

HOW TO USE THE BOOK

This book is divided into six parts and appendices Exhibit I.1 explains the pose of each section

pur-THE PDF TOOLKIT

With all my books there is a heavy focus on implementation The purpose is toprepare the route forward To second guess the problems the finance team willneed to address and set out the major tasks they will need to undertake Natu-rally, each implementation will reflect the organization’s culture, future-readystatus, and the level of commitment from the CFO and his or her direct reports

The PDF toolkit is to be read and used in conjunction with The Financial

Controller and CFO’s Toolkit—Lean Finance Teams’ Best Practices The location of

the templates is indicated in the relevant chapters

To support your implementing the strategies and best practices in this book,the following electronic media are available:

◾ Webcasts and recorded presentations (see www.davidparmenter.com/

webcasts) Some of these are free to everyone and some are accessed via athird party for a fee

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EXHIBIT I.1 Book Outline

Part I: Change—why the need and how to lead

Covers why there is a need to change and move away from the existing practices Includes how to sell change to management and staff and lead the change in the organization.

Far too often, change initiatives fail By following the leading thinkers in this space, John Kotter and Zaffron and Logan, you will

be successful in leading the change.

Part II: To be completed before the next month-end

How you can save days out of the month-end close process.

A fast month-end is the first step on the journey to adopting lean finance team practices.

Part III: Technologies

to adopt

Focuses on the technologies you need to implement to achieve efficiency and accuracy.

Removing the reliance on Excel spreadsheets that are unsuitable, in order to move forward with appropriate solutions.

Part IV: Progress you need to make within the next six months

Focuses on the areas where the finance team can score the easy goals in the next six months.

The better practices here,

if implemented, will free

up time so more strategic initiatives can be executed successfully.

Part V: How finance teams can help their organizations get future ready

Focuses on more wide-ranging changes, such as introducing winning key performance indicators and quarterly rolling planning, which will require a heavy investment of time from the finance team.

These modern initiatives will have a profound impact on your organization, with the finance team as the driver

The CFO’s involvement in these strategic issues will have an extensive positive effect on the organization

These templates, guidelines and diagrams will kick start the implementation process.

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Reporting History or Making It ◾ xvii

◾ A PDF download of the checklists, draft agendas, questionnaires, andworksheets referred to in the chapters are available from www.davidparmenter.com/The_Financial_Controller_and_CFO’s_Toolkit The website willrefer to a word from a specific page in this book that you need to use as apassword to access these free

◾ The electronic versions of all the templates and most of the report formats,featured in the book, can be purchased from www.davidparmenter.com

REPORTING HISTORY OR MAKING IT

The impact of the efficient and effective practices listed in the book will, if mented, make a major change to the nature of work performed by the account-ing team There will be a migration away from low-value processing activitiesinto the more value-added areas such as advisory, being a business partner withbudget holders, and implementing new systems

imple-As Exhibit I.2 shows, the change in focus should mean we are workingsmarter, not harder This change in workload will, over time, lead to the

System implementation

Annual planning &

budgeting

System implementation, adoption of new lean processes

Rolling forecasting, planning and setting budgets

Month-end and annual reporting

Month-end and annual reporting

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Y/E

Month-end reporting

Added value time

Holidays (Hols)

Budget Budget

Year-end accounts (Y/E)

Added value time

Half

accounts

EXHIBIT I.3 The Year’s Workload of a Non-Lean Finance Team (Based on a June

year-end in the Northern Hemisphere)

formation of a smaller but more experienced accounting team and a betterwork–life balance

In many finance teams around the world, far too much time is spent inmonth-end reporting, the annual accounts, and the annual planning process,

as shown in Exhibit I.3 I call these three activities the trifecta of lost nities for the accounting team They leave so little time to add value

opportu-Exhibit I.4 shows how the year’s workload will change with shift awayfrom processing into more service delivery work (based on a June year-end inthe Northern Hemisphere) The key change is to radically reduce the time theaccounting team spends in the trifecta of lost opportunities

The better practices in this book will approximately double the amount of

“added value time” you and your team have

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Reporting History or Making It ◾ xix

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Month-end reporting (MER)

Added value time Holidays

Quarterly rolling planning

accounts

EXHIBIT I.4 The Year’s Workload of a Lean Finance Team (Based on a June

year-end in the Northern Hemisphere)

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Acknowledgments

Iwould like to acknowledge all those accountants who have shared their

better practices with me during workshops I have delivered around theworld This book is about their successes; I am merely the communicator

This book has been influenced by the great writers who have led mythinking I would especially like to acknowledge the late Jeremy Hope, who was

an invaluable mentor for over 10 years, and the finance teams whom I haveworked with

A big thank you to all those who have collaborated on this book and

my colleagues (Jennifer and Francesca) A special thanks goes to my wife,Jennifer, who proofread the original submission

To all of the abovementioned people and all the other people who have been

a direction in my life, I say thank you for providing me with the launching padfor the journey I am now on

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I

PART ONE

Change—Why the Need and How to Lead

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This book outlines how finance teams can help their organizations by

getting their team future ready By future ready, I mean a finance team

that is fast and light on its feet and able to react quickly to events as theyunfold A finance team that is nimble through utilizing world best practices,

◾ Fully embraced all the lean finance team practices?

◾ An annual planning process that helps their organization prepare for theunexpected?

◾ Successfully adopted the tried and tested leading-edge technologies able in the twenty-first century?

avail-A BURNING PLavail-ATFORM?

Many finance teams spend long frustrated hours working with antiquated,error-prone systems—and to make it worse, they follow procedures becausethey were carried out last month

Yes, indeed the platform is on fire, and we need to jump off right now Manyperformance management processes that I used during my brief time with BPOil, and helped support as a consultant for Ernst & Whinney, are well and trulybroken I am talking about key performance indicators (KPIs), the annual plan-ning process, forecasting, using outdated technology, and, to round it off, slowmonth-end and year-end reporting

These processes have not worked for years—and possibly never worked

The finance teams have presided over an annual planning process where agement and the board are told the lies they wanted to hear The finance teamshave issued reports that often end up in an executive’s briefcase, which, on theirthird return journey back to the office, are deemed as read

man-There are now significant performance gaps between what CFOs see asimportant and their current proficiency in that area In the 2015 IBM GlobalC-suite study,1CFOs were saying that the two most important areas for themwere “Identify and track new revenue growth opportunities” and “Developtalent in the finance organization” However, the biggest skill gap was with theintegration of information across the enterprise, as shown in Exhibit 1.1

REPORTING HISTORY OR MAKING IT

When Henry Ford said “You can have any color you like as long as it is black,”

the world of commerce was a simpler place The Ford company only had to work

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Reporting History or Making It ◾ 5

Provide input into enterprise strategy

Drive integration of information across the

enterprise

Optimize planning, budgeting, and

forecasting Develop talent in the finance organization

Identify and track new revenue growth

opportunities

Global C-Suite Study 2015 based on approximately 600 CFO interviews

out its production capacity in a year and it could then estimate sales, havingbacked out the expected movement in inventory

Large production runs, lengthy month-end processes, were the order of theday Charles Horngren’s “Cost Accounting: A Managerial Emphasis” and bookslike it were locked into detail and a view into costing, budgeting, and allocation

of overheads that is directly opposed to the lean movement

When I was studying commerce at Liverpool University I was taught well

to deliver services that Ford might have needed when building the model T Ford

The accounting profession has learned many bad habits:

Direct labor costs are variable

Treating direct labor costs as variable, yet we cannot go back to the Victorian times and hire staff on a daily basis.

Transferring operating costs to the balance sheet

Absorbing as many fixed costs into WIP and closing stock as possible, thereby transferring costs from the current period

to subsequent periods.

Wedded to complexity Installing one complex system after another (e.g.,

timesheets, work orders, detailed inventory tracking systems, and activity based costing).

for the P/L.

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teams pursue the perfect number Yet we are only required

to get to a true and fair number, and the “right” month-end number does not exist.

exercise with most of the finance team’s time in the first quarter being spent endlessly adjusting the month 12 number The final audited numbers often being within 5% of those reported at month 12 In other words, we have in reality come full circle.

Spreadsheet epidemic A spreadsheet for everything, and most certainly, multiple

versions of the truth.

Maintaining an annual planning process

Managing the annual planning process, believing that it must be of some use Each year, thinking that this time the annual planning process will be better, quicker, and easier than last year’s disaster.

Generating unread reports Generating reports that will not be read.

Reporting on a calendar month-end

Blindly following Julius Caesar’s calendar, rather than explore the many benefits of reporting with four- or five week months that end on the same day each month.

Maybe It Is Time for Therapy

Two hundred years ago, when the Napoleonic Wars were raging, the EnglishNavy had a device for retribution It was called the cat o’ nine tails The EnglishNavy stopped using this multi-tailed whip a long, long time ago, so why do somany accountants pick up the cat o’ nine tails and whip themselves time andtime again?

If it is not the cat o’ nine tails, it is shooting ourselves in the foot This book

is about stopping this self-inflicted punishment and changing our ways

Escaping the Catch-22

Joseph Heller’s iconic 1961 book, Catch 22,2introduced a new term to

popu-lar culture The Oxford English Dictionary defined “Catch 22” as “a situation or

predicament characterized by absurdity or senselessness.”

I see many finance teams in this situation The slow month-end reporting,the never ending annual planning process, and the long, drawn-out annualreporting cycle are both beautifully summed up by the above Catch 22 defini-tion How do we get out of this Catch 22? The finance team needs to create time

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for change, to have more time to act Where do we find this time? We find it byaiming for these lean finance team benchmarks:

Month-end accounts Fast month-end by day three or less (by next month-end);

reporting by the close of the first working day within 12 to

18 months and being able to report net profit intra-month (virtual reporting) inside of three years.

executives to a 15-working-day signed set of annual accounts.

rolling planning exercises Eventually, the annual plan will be dropped in favor of a quarterly rolling planning process.

Key performance indicators (KPIs)

Work with no more than 10 KPIs in the organization The other operational measures that are not key to operational performance should number less than 80 and be renamed (see the 10/80/10 rule in Chapter 18).

Excel ad hoc systems All spreadsheets over 100 rows are replaced with a robust

solution e.g., for forecasting using one of the modern planning and reporting tools.

Streamlining the chart of accounts

Having less than 50 account codes for profit and loss Any more is unnecessary and leads to miscoding.

anti-The significant increase in advisory time will lead to:

◾ Adding more value to the business units the finance team supports

◾ Selling and leading change, in particular with regard to new systems

◾ Leading the battle against waste as Jeremy Hope has suggested3

◾ Having time to adopt the profound lean practices such as Post-itreengineering, Scrum, Kanban, and action meetings

The end result will be participating in more rewarding work and a happy andmore fulfilled finance team

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System implementation

System implementation, adoption of new lean processes

Rolling forecasting, planning and setting budgets

Month-end and annual reporting

Month-end and annual reporting

Advisory

Advisory

Annual planning and budgeting

EXHIBIT 1.2 Lean versus a non-lean finance team

Background to the Lean Movement

The lean movement is largely credited as a Japanese process that was ble for the meteoric rise of the Japanese multinationals over the period 1960 to

responsi-2000 However, when you look at its origins, you see the influence of Americanwriters such as Edwards Deming Over the years, there have been many insti-tutes and consultancy methodologies that make up the lean movement as wesee it today

The lean movement has been part of workshops for more than 20 years, butlean accounting has been a much more recent phenomenon lead by a series ofthinkers and dates back to roughly 2004 The key players include:

◾ Jeremy Hope4

◾ Brian Maskell5

◾ Jean Cunningham6

◾ Frances Kennedy7

Although most corporate accountants are aware of the revolution of lean

and its positive impact on private, government, and nonprofit sectors, few haverealized the profound impact it has on the accounting function The pioneers

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of lean accounting have now blazed a pathway that all corporate accountantsneed to walk along

Indeed, the lean accounting movement has been gaining momentum

around the world Thus, it will not be long before CEOs start asking questionsabout this hot topic It is imperative that corporate accountants, sooner ratherthan later, understand the concepts of lean accounting and its implications fortheir finance team and organization

In fact, the movement has progressed to such an extent that there is now

an annual lean accounting summit, which can be found easily on the Internet

Lean Is About Eliminating the Eight Wastes

In lean there are eight types of waste These wastes are seen within the wholeorganization and within the accounting function I have outlined the eightwastes below:

1. Over-production: Having long

production runs that produce more product than the current customers’

immediate demand This is done to reduce downtime.

Our reports are too large and go into too much detail.

2. Waiting: Production operators waiting

because a machine has gone down or

a component is not available.

The processing of batches of AP or AR transactions where these batches wait for hours or days before processing Also the month-end, year-end, annual planning processes have too much waiting time.

3. Transportation: Moving materials

around the factory Buying raw materials and components from distant suppliers.

The finance team is always shuffling information around team members.

4. Extra processing: Processes that

appear productive but are unimportant to the customer Painting and finishing components that are not seen Designing additional features into a product that the customers do not use (e.g., the many features in Excel that are heralded each upgrade but in reality hardly used).

The chart of accounts, the month-end, year-end, annual planning processes all have extra processing within them.

(continued)

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5. Excess inventory: Having materials,

components, work-in-process, and finished goods levels above the immediate need.

The way we have transferred this period’s sunk costs into next period production costs has created a blowout in inventory.

6. Waste of motion: Having to search for

tools, parts, or forms.

The finance function needs a make-over in time and motion We all need to know where everything is filed and be disciplined

8. Unused employee creativity:

Employee ideas having to jump over many obstacles before adoption.

Based on Toyota, we would need to have 10 innovations implemented per team member per year within the finance function.

“Most businesses processes are 90% waste and 10% value-addedwork.”

in the USA exceeded all Toyota expectations with its acceptance of the ToyotaWay To understand the Toyota principles one needs to read Jeffrey Liker’s book

The Toyota Way He has broken them down into four categories as set out in

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Importance of Abandonment ◾ 11

Problem Solving

(Continuous Improvement & Learning)

The 4 Ps of

“The Toyota Way”

People & Partners

(Respect, Challenge, & Grow Them)

admitt-at large, we had made a mistake The longer the reladmitt-ationship goes on we holdonto the hope that it will come right and we can always then say to our family,

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“I told you so.” In reality this does not happen If I was to go into a reader’sgarage, what would I find? Maybe an exercise machine that started off life ingreat excitement as we envisaged a leaner self After a couple of weeks in thelounge it started its inexorable journey to the garage, there to rest under thedust cover for a day in the future when we would use it again so we could say

“I told you so.”

In the world of commerce this trait is equally damaging We will hold ontosystems, keep going with projects, keep writing that report that nobody readsbecause to remove it would mean a loss of face Let’s get over it

Management guru Peter Drucker,8whom I consider to be the Leonardo da

Vinci of management, frequently used the word abandonment I think it is one of

the top 10 gifts Drucker gave us all He said, “Don’t tell me what you’re doing,tell me what you’ve stopped doing.” He frequently said that abandonment is thekey to innovation He left some rather telling statements

If leaders are unable to abandon yesterday, they simply will not be able to create tomorrow.

Without systematic and purposeful abandonment, an organization will be taken by events It will squander its best resources on things it should never have been doing or should no longer do As a result, it will lack the resources needed to exploit the opportunities that arise.

over-In finance, many processes are followed, year-in and year-out, because “it’sthe way things have always been done.” When staff question, “Why do we dothis?” the CFO or financial controller will often answer, “There must be a rea-son; so please do it.” In order for the better practices in this book to work, theremust be an adoption of:

◾ An abandonment of processes and procedures that are broken

◾ A letting go of the past

◾ A commitment to challenge the rules of the past

An organization that embraced Peter Drucker’s abandonment earmarkedthe first Monday of every month for “abandonment meetings at every man-agement level.” Each session targets a different area, so that over the course

of a year, everything is given the once-over This process would work well inthe finance team, except we should meet once a week to discuss at least twoabandonments

Every organization I have come across should have an abandonment KPImeasuring the number of abandonments that have been made around theorganization last week Teams that were no embracing the concept would soonwant to get the CEO’s attention and acclaim by embracing the concept

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The Importance of Challenging the Status Quo ◾ 13

The act of abandonment gives a tremendous sense of relief to the financeteam, for it stops the past from haunting the future It takes courage and con-viction from the CFO Knowing when to abandon and having the courage to do

so are important leadership attributes

I have included in the electronic media a book review of Elizabeth Haas

Edersheim’s The Definitive Drucker.9Read the book for more on abandonmentand his other great advice I consider this book one of the top 10 managementbooks I have read I hope, like me, you will become a follower of the greatPeter Drucker

THE IMPORTANCE OF CHALLENGING THE STATUS QUO

Far too often, we have accepted antiquated and anti-lean practices within thecorporate accounting repertoire as the status quo If the medical professionused our approach, it would probably still be using leeches (Well, actually, Iunderstand that leeches are still used in special cases.) The medical professionhas breakthrough conferences on a regular basis, and all the practicingsurgeons in that field attend and adopt the new procedure This should bethe corporate finance model The problem with corporate finance is that the

“surgeon,” the CFO, is often too busy to attend, caught in the aforementionedCatch-22

In an interview, called “The Lost Interview,” Steve Jobs was asked, “As a22-year-old worth $10 million, and a 25-year-old worth $100 million, how didyou get your business acumen?” He said that over time, he realized that mostbusiness was pretty straightforward He talked about when Apple had its first

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computerized manufacturing plant for the Apple II and the accountant sentSteve Jobs his first standard costing report Jobs asked, “Why do we have a stan-dard cost and not an actual cost?” The response was, “That is the way it’s done.”

He soon realized that the reason was the accounting system could not record

an actual cost quick enough When that was fixed, standard costing reportsvanished

In business, Jobs believed that few in management thought deeply aboutwhy things were done He came up with this quote I want to share with you

I believe this quote should be on every wall and in front of every work station inthe finance team work area

“Your time is limited, so don’t waste it living someone else’s life Don’t be

trapped into living with the results of other people’s thinking Don’t let the noise of others’ opinions drown your own inner voice.”

—Steve Jobs

PDF DOWNLOAD

To assist the finance team on the journey, templates, checklists, andbook reviews have been provided The reader can access, free of charge, aPDF of the following material from www.davidparmenter.com/The_Financial_

Controller_and_CFO’s_Toolkit

The templates include:

◾ A book review of Elizabeth Haas Edersheim’s The Definitive Drucker

◾ The Toyota 14 management principles

◾ My analysis of Drucker’s top 10 gifts

3 Jeremy Hope, “Reinventing the CFO: How Financial Managers Can Transform

Their Roles and Add Greater Value,” Harvard Business Press (2006).

4 Ibid

5 Frances Kennedy with Brian Maskell, “Why Do We Need Lean Accounting

and How Does It Work?” Journal of Corporate Accounting & Finance

(March/April 2007)

6 Jean Cunningham, “The Lean vs Standard Costing Accounting

Conundrum,” Finance & Management Faculty Journal, ICAEW (June 2012).

7 Kennedy and Maskell

8 To understand Peter Drucker’s work, read Elizabeth Haas Edersheim, The

Definitive Drucker: Challenges for Tomorrow’s Executives—Final Advice from the Father of Modern Management (New York: McGraw-Hill, 2006).

9 Ibid

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