The typical organization today is led by decision makers who are “vertical” silo owners. The organizational chart, reinforced by traditional budgeting and yes, even forecasting methods, results in decision makers who are structurally encouraged to think only within their own departmental scope. All too often doing so without insight into or knowledge of what would create increased value for the customer or capture new markets who have unmet needs.
The paradox of today’s organizational silos is that finance doesn’t like them.
We know they limit the organization’s potential. However, in many situations it is our budget systems and general ledgers that reinforce and sustain silos.The most common solution to this quandary has been the development of matrixed and federated organizations, whereby project and/or product lines cross the functional budgetary borders. In fact, a recent Gallup survey (1) indicates that:
84% of organizations have some form of matrixed leadership or structure.
This adoption rate indicates that benefit has been obtained, but a McKinsey article (2) outlines many issues that have been root causes of complexity. It has not, in any case, been effective in resolving the key issue at hand: decision making and processes that contribute to funding massive amounts of waste and impede effective innovation.
Typically, the strategic planning process follows these financial control allocations. Once the highest priority strategic focuses are identified at the top level of the organization, we see several unproductive behaviors follow:
Each financial control center scurries to identify the top ways in which they will support the key initiatives –winding up with an untenable number of competing and often incompatible projects being funded across the various silos.
Departments find ways to justify how current work aligns to these strategies instead of stepping back and honestly assessing strategic impact and ability to create value for the customer.
Internal politics exist in every organization, and they are definitely amplified by budgetary systems. How does “getting along” and “not bucking the system” constrain thought leaders from expressing unpopular points of view or digging in to ask the right questions?
Does this happen in your organization?
Another aspect that can fight against a truly LEAN and Agile organization is a “Command and Control” financial discipline or finance department. This comptroller management style can prevent managers from leading effectively. When the finance function manages through the budget by enforcing rules, we are not helping our leaders build growth and innovation muscle.
In order to be clear about our business and understand what drives value,
We have to get horizontal in decision making and measuring value.
We need to clearly understand what our customers and prospective markets actually need and how they define and prioritize value components.
We need to transform both the accounting and decision processes to align with growth aspirations of the future versus historical general ledger paradigms of the past.
Growth occurs when managers are provided with critical insights and then allowed room to test, even fail, and learn to make decisions effectively.
(1) Gallup.com – research from 2016
(2) “Revisiting the Matrix Organization” by Micael Bazigos and Jim Harter, McKinsey & Company, 2016
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About the Author
Marita LaChapell
Marita's 30-year career brings a unique skill set as an experienced CFO / CPA with financial analysis expertise, Enterprise / Information Systems knowledge, and Lean Six Sigma Black Belt experience in transforming operations. Combined, this enables her to assist business owners in tackling their challenges and growing profitably. Through her expertise as a wealth advisor and personal financial specialist (CKA®, CLTC®) she can advise regarding the most impactful ways to utilize your and your company's wealth.
To learn more about her consulting practice and connect with Marita, view her profile or connect with her here.