Several years ago I had a learning experience that stuck with me and influenced my thinking about culture creation in a business. It was a simple experience, yet indicative of what could be done when employees embrace a particular cultural model.
As a corporate financial controller visiting one of our manufacturing sites to attend a Business Planning meeting, I was climbing a stairway to attend the meeting on the 1st floor. I had my briefcase in one hand and a coffee in the other. Not very smart!
A production operator was descending the stairs and stopped me. He said: “excuse me sir, I want to let you know that it is an unsafe practice to climb a stairway carrying objects in both hands. You should at least have one hand on the stairway railing as you climb the stairway. If you need to have an object in each hand, you are required to take the elevator to the 1st floor”.
Wow! This gentleman was very polite. It felt like an everyday type on experience. How would I react? Thankfully, rather than getting defensive, I understood the context of his advice, thanked him, and agreed to follow his instructions.
As I reflected on this experience, many thoughts went through my mind:
- The organization likely embraced safety as a priority.
- People were trained on the right behaviors and were prepared to speak up.
- There was a trust level that said, “I have your back” and “you have my back”.
- There was collaboration between leaders and the broader staff.
So what has this got to do with Finance? It could be Everything or Nothing!
Well, I am a finance guy, and I started to ask myself a question: “How could you create a Financial Culture at a Manufacturing Site and engage the broader employee pool to strengthen financial performance?”
Since becoming an independent consultant in 2015, I have started to work with manufacturing organizations to tailor and implement Financial Culture Solutions. Here are a few learning points from my experience that can help you, as a site head or financial controller.
Learning #1: Educate Leaders and Managers on the Fundamentals of Finance
More often than not, engineers and scientists fill the leadership ranks, not accountants (other than in finance). Culture change starts at the top. The leadership team, production and functional managers and certainly 1st line managers may not understand the fundamentals of finance e.g basic principles of cash flow, the meaning and relevance of income statements and balance sheets, and how their business decisions impact the financial results.
Learning #2: Turn the Financials “Upside/Down”
What is really “financially” important at your manufacturing site. For example:
- What is the Cost of Quality at the Site? How much is it costing the site to “not get it right the first time? Enormous dollars are invested in managing operational deviations and having the quality and engineering infrastructure in place to fix the problems. Expose the financial truths and use as a catalyst to improve performance.
- Understand the relationship between Revenue, Gross Margin and Profit and apply the 80/20 Rule. Quite often, 20% of the products (and customers) contribute 80% of the value to the business. Am I making the right production and inventory decisions to support my most important customers and products?
- Understand your Cost Structure. Where do I consume my resources? Are there large pools of spending that could be a target area for cost savings e.g raw material sourcing and pricing opportunities, energy management, the trade off to overtime spending, product losses and levels of inventory?
- How can I optimize Capacity Utilization? What is unused capacity costing me? Can I reduce my Utilization Variance by growing revenue, managing deviations, better campaign strategy, or all of these? A highly utilized site is typically an efficient site.
Learning #3: Establish Accountability
There needs to be a business plan that aligns with corporate strategy. The business plan (normally for quarterly and annual cycles) needs to address revenue expectations, capital spending, resource needs, gross margin, inventory levels and the overall return on capital invested.
Now here is what is important. Set some high level goals as a site leader, but encourage the business leaders and managers to own their segments of the plan. Too often, ownership is at the very top and with the financial department. The financial department can help manage the process and consolidate the plan. Then, report relevant financial metrics and have leaders and managers, in collaboration with finance, explain the results and appropriate interventions.
Learning #4: Love your Management Accountant.
If you are fortunate enough to have a management accountant at your site, integrate him or her into the business. This starts with recruiting someone with a strong business acumen, someone with a curious mind, someone who will challenge managers and leaders. If production managers have cross functional teams, include your management accountant on their teams. Have him or her function as a business partner to educate on finances, help with plans and forecasts, and conduct financial analysis for key business decisions.
Learning #5 It’s a Journey, not a Destination.
As you push financial understanding deeper into the organization, leverage the power of everyone at the site. Use key financial data to educate, set expectations and engage that larger pool of staff to be part of the financial solutions for the site. Then recognize and reward the right behaviors. You are on your way to building a financial culture and improving your financial results and remember it’s a journey, not a destination.
