Teach your finance colleagues buried in an Industrial Revolution Era of financial management and resourcing that there is a better way.
It is too antiquated for today’s business environment.
The IT approach to building software and managing the organization has changed dramatically in the last decade. With the increased use of an Agile approach across IT organizations, moving from an assembly-line, waterfall-based framework for building software to an iterative and rapid development, test and launch approach, the connections between IT and finance are becoming ever more strained. Why is this the case?
The new IT environment
Recently we had a PMO leader explain that the entire IT organization was reoriented around Agile methodology. It has transcended from development to all areas of IT, including how the organization manages itself. Resources are tracked not annually or quarterly or even around projects, but rather in a rapid-fire fashion around “user stories” and “epics” that deliver increasing capabilities which are easily launched into the cloud. In that environment, things move fast and the IT organization is able to remain remarkably nimble around reallocating resources towards those activities that are driving the most value.
How does the Finance organization fit into this?
Along comes the finance organization with its annual budget planning process. This same PMO leader told us that finance’s approach to budgeting “feels like the waterfall approach” that has been abandoned a while back by IT. Finance is driving planning under a financial model that was developed to serve financial management and reporting needs based on stock market and public investor norms from the early 19th century. Annual reports. Annual budgets. Quarterly updates. None of that makes sense when you are running an IT engine that is living on a weekly or bi-weekly basis, moving resources and executing new technology. The entire market structure and framework around finance is actually hindering business agility and causes us to invest resources in activities that in some cases should have been abandoned and reallocated far sooner, because it’s “in the budget” which won’t be changing for another 12 months.
How can IT influence financial management?
As IT leadership is increasingly being asked to “be more strategic,” gaining a seat in the executive suite to infuse technology throughout the organization for strategic imperatives, the IT leaders should give feedback to finance that it too must change its ways. Financial management should be decoupled from financial reporting. The waterfall, 1920s approach to financial management still endures today (albeit with systems for more accuracy into the same reporting frameworks) needs to be fundamentally torn down and re-thought. There is no reason with today’s technology that finance needs to stick to old-style, slow, entrenched, and rigid approaches towards how the resources in the business are managed.
3 considerations to take away:
- Agile management requires agile finance. How can finance reorganize itself to align with the new management paradigms that are changing the organization?
- Can finance decouple reporting activities from their planning and management? If they need quarterly financial reports for public reporting requirements, does that mean the resources also have to be planned and committed as such, or can it be reengineered into an Agile financial plan?
- Does finance understand Agile? (gulp) If you suspect not, bring them to the Sprint planning session and to the morning stand-up to see how it works.