EY - Building a better working environment
Less than a decade ago, ” and when they did it was typically focused on maximizing shareholder value.
Today a company’s declaration that it has a purpose beyond profit is eagerly trumpeted in response to growing demands:
- From employees for work that is meaningful
- From customers for brands that inspire
- From society for companies to be responsible
This change is also driven by an increase in global uncertainty and volatility — which has significantly altered how companies see themselves and their future.
“The human story as it’s unfolding now is a bit of a cliff-hanger," says Valerie Keller, EY Beacon Institute Global Leader. "Automation, digitalization and ongoing economic and political volatility are inspiring a great searching of the corporate soul. A new idea – and ideal – of successful business in the 21st century is emerging: purposeful business.”
It is relatively easy for a company to adopt the rhetoric of a feel-good purpose that articulates an aspirational reason for being. But actually living, breathing and effectively demonstrating a commitment to that purpose is an infinitely larger task. Yet it is an effort that can pay off substantially in our disrupted world.
Can a CFO be Happy?
Last year my unit overachieved Budget: we grew double digit, we increased profitability, market share was up, too. During the pre Christmas party, I had this picture being taken and I used it to thank the many that contributed to such a success. I called it ‘The Happy CFO’. All targets were over achieved, my unit was in great shape: shouldn’t be the time to share positive feelings, emotions and happiness? I was so happy and content of the achievement and enjoying absorbing the happiness of the many colleagues in the same situation. I sent many Xmas cards using that picture and many colleagues were surprised: “Happy” and “CFO” seem an oxymoron. “Many other adjectives would go with CFO but ‘Happy’ shouldn’t” they said.
Unbelieving, I surfed the Web: they were true. Google did not find neither correlation nor constant match. Very few lines of the search engine had the two words together. Then I took a pillar book on Finance by Robert J. Shiller, co-creator of the Case/Shiller Real Estate Index and Yale University world known Professor, - “Finance and the Good Society” – in the section where he lists the various roles in Finance careers, and searched if happiness and emotions could be part of the roles. With despair, I read : “An accountant has to keep emotional distance from the people and organizations he or she serves, so as not to be drawn into any of their machinations. Of particular importance, a corporate accountant must feel a general sense of symphaty for the various claimants to the organization’s purse, so as to remember all of them and trait them fairly.” Maybe, when the book was written in 2012, right after the big financial crisis and the disillusion of many towards Finance and Financial institutions, when the protests against Wall Street, Banks and many corporations were still strong, it was evident that being an independent Finance professionist could have been a way to limit some of the excesses happened in the pre 2008 crack. The way Shiller defines the CFO as someone that has to keep emotional distance seems to explain why, at a first glance, being Happy cannot be a status of the CFO.
When a CFO can be Happy?
In my opinion, we need Happy CFOs. A Happy CFO has reached the short term objectives of his or her unit without compromising the long term sustainability. He or she has then optimized the use of money.During the year, I was holding “the purse” (by the way the word budget comes from the French “bougette” word for purse) and with what we, in my unit, call the “Dynamic Resource Allocation”, I tried to “make Happy” all my ‘claimants colleagues’. Through this constant optimization, I make sure to minimize the waste of Financial resources. Finance in a company aims to properly distribute resources in order to guarantee the long-term sustainability of the scope the unit has and to improve its growth. My intent has then to be positive, trying to understand the ‘machinations’ of my business colleagues, and it could only be achieved with intellectual and brain power but also with a lot of empathy, understanding a bit also the humane side of the budget owners. When the objectives are reached, it means that the unit the CFO works for is in line with its broader scope. For my unit, for example, providing solutions to cancer patients. Then embedded in a broader scope, when numbers turn in the right direction, the CFO feels his or her role accomplished. The whole Society benefits for proper use of money. Happiness comes.
Can both the CFO and the CEO be Happy?
Shiller continues describing the CEO/CFO relation: “A CEO cannot double as the accountant or chief financial officer (CFO) of an organization. Humane impulses to be manipulative and self-dealing are too strong. There is necessarily a degree of conflict of interest between the CEO and the CFO – a conflict that is built into the very model of the modern organization. The CEO is supposed to be visionary, looking to the future. The CFO remembers commitments and resource limits, with an eye to the promises of the past and the realities of the present”
EY, one of the Big 4 Audit companies, sees it differently: “On a traditional model, the CFO position might have been considered to be solely focused on past performance, on the numbers, and on financial reporting. But today that mandate seems almost universally to have been exceeded, with the CFO providing not only financial planning and analysis, but information about where the business is going and how quickly it is getting there. Almost all our interviewees attest CFOs to being deeply involved in supporting and enabling strategy, but a good number of them suggest they are developing and setting it outright. And most work side-by-side with the CEO. Involvement in corporate strategy has become an integral part of the job. CFOs now have the ability and the mandate to contribute directly to the direction of the business as well as reviewing and reporting on its performance. It seems only logical that since CFOs now contribute much more significantly to organizational strategy and operational success, these top-level executives rely not only on financial analytics but on a degree of reflection and insight as well — to understand not only where the business has been, but where it's heading.”
CFOs must be an independent thinker and approach in a very factual way the plans of his or her organization. Shiller’s description is a bit far from what a modern CFO is expected to be doing today. With complexity, speed and dynamism of nowadays activities, the CFO has to get really deep in understand the past - “If you're no good at financial analysis, you cannot be the CFO. That goes without saying,” said Luca Maestri, Apple CFO – and have to have a balanced view of the future.
The CEO/CFO relation in modern corporations it is essential to create balance and also Shiller accepts that “CFOs are responsible for ensuring that financial appearance matches reality and it is ultimately through their efforts that through their efforts we trust our business enough to find it motivating and even inspiring to work for them and invest in them”.Ultimately then the CFO certifies the outcome of the unit, he/she reassures the CEO that the unit is in the right trajectory and then both can be Happy and proud of the job done together.
The Happy CFO and the Good Society
It is then clear that in a world where human organizations strives to optimize use of scarce resources, including Financial assets, finding many Happy CFOs means improved use of resources and ultimately better outcomes.Borrowing the more authoritative words from Shiller: “We need a system that allows people to make complex and incentiving deals to further their goals, and one that allows an outlet for our aggressions and lust for power. It must be a system that redirects the inevitable human conflicts into a manageable arena that is both peaceful and constructive.”
My article is too short to explain more in detail the link between the Good for Society and the Happy CFO but one of the conclusive sentences in Shiller’s book: “What I want most for my students – near and far, young and old – to know, is that finance truly has the potential to offer hope for a more fair and just world, and that their energy and intelligence are needed to help serve this goal.” offers in my opinion justice to the role that a Financial resource optimizer as the CFO has in Society. That’s why I am the Happy CFO.
Searching the web you hardly find the word Happy near the one CFO. Why? It is hard to answer. It is an old time stereotype that CFO cannot be happy.
The CFO as Strategic Business Partner is a great professional, humane and intellectual journey.
Finance helps Society to be Happy with a wise use of resources and offering tools to sustain economic development
A dwarf on a giant's shoulder sees the furthest of the two
During a simple and touching ceremony, my current manager and two colleagues handed me a recognition certificate for the 25 years I spent in the same company, Novartis.This anniversary made me reflect on the reason why certain individuals stay loyal, working mostly for one company, while others build a career jumping from one company to another.
A recent study, published by Elite Network (partially adjusted and shortened below by me) lists the good reasons why a worker would change job:
1. Career advancement. This is the primary reason most people change jobs. They either want greater opportunity for advancement and their company can’t provide it, or an absolutely irresistible opportunity comes along out of the blue, and they can’t pass it up.
2. Work environment. This can mean different things to different people. It may mean less stressful conditions due to deadlines or pressure. It could also mean more manageable hours, fewer weekends or flex time. Or it could simply mean a friendlier atmosphere.
3. Challenge. This typically means greater mental or technical stimulation. People like to feel that they are learning new skills. This can provide them with greater market value or it can simply be more intellectually satisfying. Either way, this is very important to most people to maintain happiness in the job.To celebrate my anniversary, I then decided to write my first article on LinkedIn and I made an imaginary interview (based on info public on the WEB) to two leaders very loyal to their company, where they reached the CEO position: Jeff Immelt, GE CEO and Ginni Rometty, IBM CEO.Both have been with their company for more than 30 years, much longer than me, so I am sure they can help us understand why people stay long in the same organization and do not see a good reason to leave.
Marco: So, Ginni and Jeff, have you ever consider leaving your company in all these years?
Jeff: GE has always offered me internal growth opportunities: I joined in 1982 as an internal marketing consultant, and then from 1983 to1989 I was district sales manager in Plastics. I led, as Vice President Consumer services in Appliances from 89 to 92. Then I became Vice President and general manager of Plastics. GE offered me the chance to completely diversify my competencies, in 1997, as CEO of Medical Systems. Then, in 2001, I became GE CEO. With all these opportunities, there wasn’t much time to search for something more dynamic and interesting. No reason to leave!
Ginni: As I answered already to Forbes, in my 35-year career at IBM I led spending programs for data-analysis software and skills, cloud computing and IBM's Watson artificial intelligence technology. I joined IBM in 1981as a systems engineer in its Detroit office. Then I joined IBM's Consulting Group in 1991. In 2002 I championed the purchase of the big business consulting firm, PricewaterhouseCoopers Consulting, for $3.5 billion.It accelerated my career, and I became Senior Vice President and group executive for sales, marketing and strategy in 2009. Since my early days with Big Blue, I envisioned IBM's growth strategy by getting the company into the cloud computing and analytics businesses. I was also at the helm of readying Watson, the Jeopardy! playing computer, for commercial use. I had so many achievements in my career that even an offer from Steve Jobs would have made me change job!
Marco: A recent consultant analysis suggests that people change job to look for a friendlier atmosphere or less stressful environment. What was your experience in that sense?
Jeff: Stress keeps you alive and nurtures your achievements. As you see from Wikipedia, I took over the role on September 7, 2001, just four days before the terrorist attacks on the United States, which killed two employees and cost GE's insurance business $600 million, as well as having a direct effect on the company's Aircraft Engines sector. Then I was pressed to defend GE's business model and the quality of its financial reports as the economy reeled from the Enron crisis. In 2008-09 I shepherded GE through the United States financial crisis. As legendary UCLA basketball coach Jack Wooden said, “Things turn out best for those who make the best of how things turn out.” GE required all my attention and interest with a lot of stamina and challenges: where else I would have found a better job?
Ginni: Growth and comfort never coexist, I told to the Northwestern 2015 graduates, in my early career as an executive I always took risk: when presented with a great opportunity to advance in my career, I questioned whether I was ready. The evening after having received the proposal for advancement, my husband of 35 years now sat and listened patiently to my story. He would then say only one thing: ‘do you think a man would have answered that way? I know you. In six months, you will be telling me how you are ready for the next challenge. I told the graduates to close their eyes and ask themselves when they have learned the most. Probably when you have felt at risk, so when you start to feel anxious, that’s actually a good sign. You’re learning! Changing for the sake of a less exciting job was not in my plans.
Marco: Need for another challenge is quoted as the third reason for people to change job. How you were able to constantly find another challenge, despite your long tenure in the same company?
Jeff: Marco, have you ever heard of “Neutron Jack”, my predecessor? See Investopedia definition: “To attract the right personnel, Welch instituted a strategy that earned him the moniker "Neutron Jack". He had GE cut all businesses in which the company could not dominate the market in first or second positions. Next, he had managers fire the bottom 10% of GE employees, while he fired the bottom 10% of management. Welch's housecleaning cleared away layers of bureaucracy that had built up at the organization and made way for a quicker flow of ideas.” It was a challenge everyday for me to show my capabilities to such a great leader. I learnt a lot and I was as a dwarf on a giant's shoulders but this helped me to see furthest down the road and avoid being a passive inheritor of "the house that Jack built." But I took a different path, differentiating from Jack in both substance and style. On the one hand, I eliminated or reduced GE's involvement in a number of businesses from the Jack era, with moves in the Plastics, Appliance and GE Capital businesses. On the other hand, I seized the growing international nature of commerce to expand GE's operations overseas.” Standing on his shoulders has helped me grow further. This was my everyday challenge that made me appreciate my job.
Ginni: I owe a lot to Sam (Palmisano – former IBM CEO). He was always telling me: “ A good CEO should never fall in love with himself. I was maybe the longest-sitting CEO of IBM other than Watson, but, nonetheless, I’m not the IBM company. A lot of people before me built a great enterprise. I was fortunate enough to represent it for nine to ten years, but I’m a temporal steward of an iconic organization. If you think you are the success, then you’ll make mistakes because you won’t encourage and motivate the team to go win every day. One of the most detrimental things any leader can do is put themselves above the organization. Yet you see it all the time. If you can leave the company better than when you found it, to me that was the ultimate measure of success”. The big challenge as first time woman as IBM CEO is that as Sam said: “Ginni got it because she deserved it... It’s got zero to do with progressive social policies”. To get the top job as a woman in IBM was really challenging but I agree with Jeff: I was humble for many years to stand as a dwarf on a giant's shoulders and from there see the potential IBM has to develop Watson, cloud and professional services.
Jeff - Ginni: Marco, it is now clear to you why we stayed so many years in the same company, there we found challenges to be solved, a stressful but learning environment and a place where our capabilities were rewarded. Both had the possibility to learn from the leaders of the past in our organizations and leverage their experience to see the future in a sharper and cleaner way. What made you stay for 25 years in the same company?
Marco: I am so glad that you quoted Isaac Newton’s sentence to Robert Hooke in 1676: “A dwarf on a giant's shoulders sees the furthest of the two” and I think he meant to say that when a man's low intelligence, like me, is combined with one's of greater intelligence, the dwarf (less smart one) will have a greater advantage than the giant (smarter one). Novartis gave me the opportunity to work with intelligent, smart, prepared and determined colleagues and bosses. Every of my almost 5000 working days in the company was full of learning, challenge and solutions to be found. I took the advantage to absorb from many colleagues a lot of their knowledge, behavior, empathy, competencies, skills, and that made of me a better person, a better leader. Those leaders helped me to grow professionally in Finance, General Management, Change management and Strategy. There was no reason for me to change company, as 8 career advancements and opportunities became real; no reason to change, as the work environment was friendly, rich of learning and positive stamina; no reason to change, as the challenges were always occasions to raise the bar, start from achievements and grow further.
If a genius like Newton was ready to admit how much advantage we can get, if we are ready to build on the past, if we consider those that before us were part of building the organization where we work, then I am proud that I spent a lot of time to learn from my past and current managers.
I see the furthest, I enjoy my job, I enjoy the game. Thank you to all my managers during these years: you let me see always the way ahead and made my 25 years a fantastic journey.
This imaginative interview published on LinkedIn aims to publicly thank you.
Milan 31st, December 2016
Leading with Trust - Guest post by Paul J. Zak, PhD
One-third of business leaders surveyed in 2015 said that retaining colleagues is their number one concern. Everyone knows that people are mobile. About one-quarter of employees say that they will look for a new job in the next year. Some are chasing a higher salary, but nearly equally important is the desire for a better opportunity inside or outside their present company. Employers underestimate the importance of personal and career development on employee retention, vastly overestimating the importance of salary and benefits. As Christopher Bishop, head of Herman Miller’s Innovation lab has said, "The war for talent is over, talent has won."
Shawn Achor on happiness as a competitive advantage
The Happy CFO: the Happiness Advantage
Make your numbers
Last post generated quite some buzz, as the topic of Finance and happiness seems really difficult to be combined. The Happy CFO was sharing happiness for the outcome and achievement of his unit: “All targets were over achieved, my unit was in great shape: shouldn’t be the time to share positive feelings, emotions and happiness? I was so happy and content of the achievement and enjoying absorbing the happiness of the many colleagues in the same situation”. As CFOs, we are trained to be prudent in assessing how past result can drive future outcome, we spend hours in analysing different options and alternatives, teams work hard to identify elements predictive of the future. So when results come, it is important to communicate positively and share happiness for the achievements. Happy and CFO then can live together.
Happiness and Achievements
There were many enthusiastic comments to the post, but among them one really stroke me: “(..) but it's really hard to me thinking into the happiness and the unhappiness like something correlated to the successful results”.
How is it possible? For The Happy CFO, achievement is everything. So, also inspired by a post from Amy Carrol, Communication Coach, I found a nice TED Talk by Shawn Achor “The Happy Secret to Better work”.
In it Shawn explains that research shows:
25% of job success is predicted by IQ
75% of job success is predicted by optimism
He explains a lot about his research on Happiness. Amy brings the definition: “Before we go into the research, let’s clarify what we mean by happiness; Happiness is, at its essence, a positive mind-set. A positive mind-set is most obvious when we are happy, and easiest for us to identify. If happiness is a sign of positivity then it is also a key part of communication. Our own happiness, and the happiness of others around us impacts our ability to communicate effectively and productively”.
Shawn: “Success?, you just changed the goalpost of what success looked like. You got good grades, now you have to get better grades, you got into a good school and after you get into a better one, you got a good job, now you have to get a better job, you hit your sales target, we're going to change it. And if happiness is on the opposite side of success, your brain never gets there. We've pushed happiness over the cognitive horizon, as a society. And that's because we think we have to be successful, then we'll be happier”.
Nowadays the Epicurus’ Letter on happiness is forgotten: “We must remember that the future is neither wholly ours nor wholly not ours, so that neither must we count upon it as quite certain to come nor despair of it as quite certain not to come.We must also reflect that of desires some are natural, others are groundless; and that of the natural some are necessary as well as natural, and some natural only. And of the necessary desires some are necessary if we are to be happy, some if the body is to be rid of uneasiness, some if we are even to live. He who has a clear and certain understanding of these things will direct every preference and aversion toward securing health of body and tranquillity of mind, seeing that this is the sum and end of a happy life”.
The Happiness Advantage
Shawn’s research seems to confirm Epicurus’ intuition:”But our brains work in the opposite order. If you can raise somebody's level of positivity in the present, then their brain experiences what we now call a happiness advantage, which is your brain at positive performs significantly better than at negative, neutral or stressed. Your intelligence rises, your creativity rises, your energy levels rise. In fact, we've found that every single business outcome improves. Your brain at positive is 31% more productive than your brain at negative, neutral or stressed. You're 37% better at sales. Doctors are 19 percent faster, more accurate at coming up with the correct diagnosis when positive instead of negative, neutral or stressed.
Which means we can reverse the formula. If we can find a way of becoming positive in the present, then our brains work even more successfully as we're able to work harder, faster and more intelligently. We need to be able to reverse this formula so we can start to see what our brains are actually capable of. We've found there are ways that you can train your brain to be able to become more positive. In just a two-minute span of time done for 21 days in a row, we can actually rewire your brain, allowing your brain to actually work more optimistically and more successfully. We've done these things in research now in every company that I've worked with, getting them to write down three new things that they're grateful for 21 days in a row, three new things each day. And at the end of that, their brain starts to retain a pattern of scanning the world not for the negative, but for the positive first”.
Amy summarizes nicely what it is needed:
1. Random Acts of Kindness: Every morning when you open your inbox send one short, positive email praising or thanking someone in your team or social support network (friends, family, mentors etc.).
2. Meditation (3minutes twice per every day)
3. Exercise (daily if possible)
4. Journaling (writing down one positive experience for the day).
5. Gratitudes (writing down 3 things you are grateful for every day eg. no traffic on the way to work).
Amy completes her suggestions: And by doing these activities and by training your brain just like we train our bodies, what we've found is we can reverse the formula for happiness and success, and in doing so, not only create ripples of positivity, but a real revolution.
The reason this is important is what Shawn calls the “Happiness Advantage”: When it’s positive your brain works significantly better than when it is negative, neutral or stressed. Intelligence, creativity, and energy levels rise. If you act happy, others will perceive you this way and since energy is contagious, they will send it back to you and guess what, you’ll start to actually feel happier!!
That’s why, when celebrating successes of my unit, I was The Happy CFO.
Happy Brain - Base for understanding Phisiology of Happiness
Budget: Anxiety, Motivation, Control
Budget: Anxiety, Motivation, Control
When Marcelino Sanz de Sautuola, a Spanish amateurial archaeologist saw Maria, his 9 years old daughter disappearing behind a big red rock, trembled, but then when she cried: ” I found it!” his concern disappeared.
It was 1879 in Altamira where Maria found a cavern with the richest paintings of prehistoric age.
Our ancestors living there were a group of hunters. Finding, hunting and killing bisonts was their main objectives and scope but the task was risky, uncertain, unpredictable so painting on the cavern walls the images of what the hunt was expected to be, helped them in managing their anxiety. Grunting and patting each other in front of their objective was giving them the energy and motivation to go out in the open field and challenge those animals. Finally counting the beasts on the wall, they were able to fix their objective and check their achievement: at least 3 had to be killed to assure a month of food for their small tribe.
Sounds familiar: 35000 years ago the key elements of Budget were defined. Anxiety to define a controllable outcome, Motivation to reach it and Control over achievements.
I do not know how tasks were separated in those prehistoric days but I am sure the CFO was in charge of painting on the walls the first Budget!
“Here is your objective!” I imagine him saying.
It took 100 years, after the cavern discovery, to Geert Hofstede, Professor Emeritus of Organizational Anthropology and International Management at Maastricht University in the Netherlands, well known for his pioneering research on cross-cultural groups and organizations, when debating and commenting about “The Game of Budget”, to refer at ancestral roots of one of the most utilized and debated process in nowadays corporations: the Budget. He inspired me in this article.
Hofstede was a master in recognizing that, in addition to national culture, it is certainly possible to argue that other constructs of culture exist. While still defining culture as “the collective programming of the mind that distinguishes the members of one group or category of people from another”, Hofstede (2001) introduces the concept of corporate culture as the cultural construct existing in corporations parallel to the national culture. Here he describes national cultures along six dimensions: Power Distance, Individualism, Uncertainty avoidance, Masculinity, Long Term Orientation, and Indulgence vs. restraint.
In this article, I will focus on Uncertainty avoidance that describes the extent to which members of a society try to avoid uncertainty and ambiguity (Hofstede, 2005). Uncertainty about the future is a basic fact of human life (Hofstede, 1980), but the central issue here are attitudes towards this uncertainty and how, and to what extent, people just let the future happen or try to control it (Hofstede, 2005).
After 35,000 year from the first prehistoric budget, the debate is open and much more recently, in 2013, two students of Stockholm School of Economics, -Bobo Delemark and Carl Axel List -, in their master thesis: “Budget processes and national culture – putting Hofstede to the test. An empirical case study of the Swedish and Russian sales organizations” followed Hofstede’s path and suggestions and analysed how the Budget is applied in different cultures. The students analyse the case of a Swedish multinational company with important presence in Russia.
The two students, analysing the way a corporation was applying the Budget process in different countries, tried to demonstrate how national culture and or local rules influence it.
I freely took from their excellent work to write this article and comment about the three key variables to be considered when dealing with Budget: Anxiety, Motivation and Control.
Using Hofstede terminology, Uncertainty about the future (Anxiety) is a basic fact of human life (Hofstede, 1980), but the central issue here are attitudes towards this uncertainty and how, and to what extent, people just let the future happen or try to control it (Hofstede, 2005). In countries with a high Uncertainty avoidance scores, rigid codes of belief and behaviour are created, and intolerance towards unorthodox behaviour and ideas are displayed. Weak Uncertainty avoidance societies on the other hand display relaxed attitudes and “practice counts more than principle” (Hofstede 2005).
The two students confirmed that, as in Hofsted model, “Russian associates have an extremely high Uncertainty avoidance score, illustrated for example by the fact that it has one of the most complex bureaucracies in the world. Detailed planning and briefing is also very common in most circumstances of Russian life (Hofstede Centre, 2013).
While Sweden has a low Uncertainty avoidance scoring: People in general believe that only few rules are necessary, schedules should be flexible and hard work is undertaken only when necessary for a specific reason (Hofstede Centre, 2013)".
So let’s hear the Swedish HQ: “Make it Simple”
“In terms of budget philosophy, simplicity is the key word, HQ emphasises repeatedly when it comes to both budget planning and budget use” -the students report- “Einstein once said that everything should be made as simply as possible and that’s how we look at budgets. We continuously try to make the process simple, to avoid too much time being spent on it, and to avoid that the budget planning starts too early” (CEO & Co-founder/Owner). Moreover, the budgets for many sales divisions are essentially only revenue budgets with costs not calculated per se, but simply as figures being the result of unchanged margins and sales increases (fixed costs kept unchanged except for in cases of planned capital expenditures).
“I don’t really look too narrowly at all this, the important thing is that increase in sales is bigger than the increase in costs” (CEO & Co-founder/Owner). Another aspect that is highly emphasised is that a set budget is never changed. “It creates too much work and the benefits are only marginal” (CEO & Co-founder/Owner).
According to Hofstede, Sweden scores very low on another dimension: the Power distance. “Sweden is a country associated with independence, decentralised power and equal rights. Control is disliked and managers are informal, exemplified by the fact that addressing someone on a first name basis is accepted in almost all circumstances”. The student’s reports: “According to the CFO, “the vision is a major underlying idea that affects all budgeting”.
The Russians sees it differently
“Trying to keep things simple in a multinational company is however not entirely straight forward. “We try to streamline the process and we made some achievements in terms of the length of the process, but in terms of time used it’s still quite extensive. At the same time, I think that’s the only way it can be done” (Group Controller). An interviewed HQ member continues: “What is presented to the management is a one page document. On the surface it might look like something that takes 15 minutes to do but in fact it takes a lot of time”.
The Russian affiliates see it differently: “Budget is generally seen as very tough. ”I see colleagues that are miserable and have totally given up reaching the budget” (Branch Manager). A Sales Engineer describes how his branch has reached the budget goals only twice in the eight years he has been in the Group.
“In Russia things can be very unpredictable. It is important that the sales plan is realistic, otherwise we will lose motivation" (Sales Manager). Without forewarning, the government can for example suddenly change important tax rules. This means there are almost always cost deviations compared to budget targets” In Russia bonuses can reach up to 50% of the Sales Managers’ total compensation and it is distributed individually according to a set of rules. (While in Sweden only a small percentage is variable).
The broad lines of this somewhat complicated system is that if sales exceed 75% of the budget a small bonus is paid, which is then raised incrementally to a maximum of 100% of the base salary (i.e. bonus part = 50% of total compensation) if the revenue budget is exceeded. The bonuses are paid on a monthly basis, but can also be received retroactively if sales are uneven and sales in later months of the year. Higher degree of budget slack in Russia compared to in Sweden exists.
Lukka (1988) defines budget slack as deliberately created differences between the budgetees forecast about the future ("honest budget estimate"), and his or her submitted budget figure (budget proposal).
“From our research” – the students say – “we clearly note that budget slack is used to different extents within different parts of the Group; in Russia budget slack is frequently used in the budget to hedge against negative outcomes while in Sweden it is not. This is supported both by the claim that Branch Managers tend to be “overly pessimistic” made by the Russian Country Sales Manager, and by an interviewed HQ member who claims that the initial budget proposal he receives from the Russian sales division will always be overly pessimistic”.
The students find out that due to local cultural need to avoid Uncertainty and high Anxiety, on top of the impact of the variable salary component (i) budget setting starts earlier (and takes longer) in Russia than in Sweden, (ii) budget setting and budget use is more time consuming in Russia than in Sweden, (iii) costs receive more attention in Russia than in Sweden, and (iv) there is a higher degree of budget slack in Russia compared to in Sweden.
Control and Motivation
Finally, as an answer to the perhaps sometimes overlooked question of what is the actual purpose of using a budget, the CEO & Co-founder without hesitation answers: “It’s a tool that makes it simpler to control and follow up operations” (CEO & Co-founder/Owner). It should not be seen a forecast (even if is as a good source of information for creating a forecast), nor should it be seen as a tool to create motivational effects, according to the CEO & Co-founder/Owner.
What we can learn from this simple case when running Budget process in Multinationals Companies
Every beginning of the year, many Corporations across the world launch Budget Simplifications initiatives, that simplifications requires a big change management as Anxiety, Motivation and Control are lived and understood differently in different parts of the world. Moreover sometimes it is not easy to discuss openly about Uncertainty Avoidance (Anxiety) among managers that belong, despite being part of the same corporation, to very different cultures so fixing a common ground it is not at all easy. It is not the process reengineering that matters but the feelings, reward system, personal culture that matters. How fixing a target motivates people is another aspect with a lot of cultural biases. And the small example from the Student’s thesis tells a lot about it to all of us that try to improve the process every year since the last 35,000.
Despite being aware of the challenges, only very few companies dare to abandon the Budget process. The Beyond Budget initiatives in that direction receive small attention and support.
Trying to control the future via a forecast, a prediction and expectation is so intrinsic in our human nature that it is complicate to fix the problem.
Let’s hear the students: “These observations all follow the same pattern: they relate to the Uncertainty avoidance dimension of Hofstede’s model, meaning that, all other things equal, persons from high Uncertainty avoidance countries will try to control uncertainties related to the budget more extensively than what persons from low Uncertainty avoidance countries will. We argue that two main practical implications follow from this: (i) companies have to be aware of the strong effect individual countries’ degree of Uncertainty avoidance has on the budget process, and (ii) if companies want to make changes to the budget process on a global scale, they have to be aware that the ease of implementing these changes will depend on whether the changes go towards or away from the “preferred position” of that country determined by the degree of Uncertainty avoidance”.
The Russian country MD explains that if he sees that the budget isn’t going to be reached, he starts cutting costs. He explains that certain costs fall automatically with lower sales and that this is reinforced by the fact that bonuses make up a large part of employee compensation.
In Sweden on the other hand, overly tough budgets are usually simply accepted without any further questioning.
The Happy CFO
Trough Happy Lens
In these days, when in politics populism is increasingly successful, managers may be tempted to change the way they motivate their teams, moving to a more manipulative communication style, where reality and facts are adapted to the message not viceversa, in order to increase consensus and influence belief. In the picture of the post, I manipulated reality using my face on the body of a world known leader.
Is it enough to make me a more convincing leader? Do you see The Happy CFO or the image of a different man?
Is ‘making people believe’ enough to be more effective and have them to agree with the strategies, policies, and goals of their company?
If we want to succeed as Finance leaders, then we should understand the reasons behind why our teams come to believe, or fail to, and then how we can influence a change in their beliefs. As Finance is a fact based, reality based function how a convincing communication and approach can be successful?
To help me understand more about how to create a motivated Finance team, I took inspirations from The Carrot Guys: Adrian Gostick and Chester Elton. They put their first ideas down on paper for The Carrot Principle book. The idea for The Carrot Principle came about after the pair conducted extensive research and interviews with various heavy-hitting corporations regarding employee recognition and engagement.
Imprisoned in the cave
When I met Chester Elton in 2013, during a Finance Forum organized by my company, I explained to him that my intent was to help my team to move from a strong Technical Finance competency base towards a more Strategic vision, aligned with the company objectives. Their strong understanding of company’s processes should have helped them to drive also the Operational Efficiency agenda, but until then, I was not very successful in making them changing to the new vision. He opened my eyes, with the Plato’s myth (Freely adapted below from Wikipedia).
“Marco, I guess that your team is still, maybe imprisoned in the Plato’s cave, they have their own knowledge and opinion on how to best run their area of accountability and when you come with different proposals or ideas they react with ‘cognitive dissonance’: a reaction when someone is presented with information that contradicts what they think it is right. Imagine them in a cave, where Finance managers have been imprisoned from birth. These prisoners are chained to daily routines, executing very rigid processes and have the belief that running them efficiently gives the company a great advantage. Systems and processes force them to “gaze at the wall in front of them and not look around at the cave, each other, or themselves. Behind the prisoners is a fire, and between the fire and the prisoners is a raised walkway with a low wall, behind which business people walk carrying objects "of businessmen and other living things – the business reality". The people walk behind the wall so their bodies do not cast shadows for the prisoners to see, but the objects they carry do. The prisoners cannot see any of what is happening behind them, they are only able to see the shadows cast upon the cave wall in front of them (financial reporting, sales data, vendor’s invoices). The Finance manager sees reality only via his/her processes and systems and that is enough. The shadows are reality for the prisoners because they have never seen anything else; they do not realize that what they see are shadows of objects (the business complexity and its opportunities) in front of a fire, much less that these objects are inspired by real things outside the cave”.
Departure from the cave
“Now Marco, suppose that one of the Finance manager is freed from heavy routines, breaks the chains and go outside. This prisoner would look around and see the fire. The light would hurt his eyes and make it difficult for him to see the objects casting the shadows (Business reality). If he were told that what he is seeing is real instead of the other version of reality he sees on the wall, he would not believe it. In his pain, - Chester continues-, the freed prisoner would turn away and run back to what he is accustomed to (that is, the shadows of the carried objects – his/her Technical Finance duties)". Chester continues: "Suppose... that someone should drag him... by force, up the rough ascent, the steep way up, and never stop until he could drag him out into the light of the sun. The Finance manager would be angry and in pain, and this would only worsen when the radiant light of the sun (business reality and complexity) overwhelms his eyes and blinds him”.
"Slowly, his eyes adjust to the light of the sun. First he can only see shadows. Gradually he can see the reflections of people and things in water and then later see the people and things themselves. Eventually, he is able to look at the stars and moon at night until finally he can look upon the sun itself. He/she now understand business drives, complexity, evaluate competition, sizes opportunities and feels pity for those still in the cave that cannot link their Technical reality to the business one. The freed prisoner now understand how he/she can help better the business and doesn’t want to go back to the cave anymore”
The Carrot Principle: through Happier lens
“My advice, -said Chester- if you want to convince your team to become a Strategic Business Partner and move out from their usual approach is simple and maybe not groundbreaking, but very effective. First of all, you need to Engage them so that they understand how their work benefits the larger organization and have a clear understanding of how they are responsible and accountable for their results. They allow the company to have solid processes in place and sound information base. Being able to share timely and valuable data helps them to see the value of their contributions to their company’s larger mission. Then you have to Enable them. This is the key to make change happen. If the company supports employees with the right tools and training, and leaders spend most of their time coaching and walking the floor to ensure that workers can navigate the demands of their jobs, it creates a work environment that supports productivity and performance. You should share with them the bigger picture, help them to escape from the cave, encourage their contribution. Finally they need to be happy and Energized. Leaders able to maintain feelings of well– being and high level of energy are succeeding the most. Marco be careful: any of the three without the other is good but not sufficient for truly exceptional results. Enabling is the most powerful, though. Many of our employees have more to give, but they feel as if they are working in an environment where their management doesn’t give them the information they need to succeed. If employees feel as if managers are enabling them to thrive on their own, they are more likely to view the entire company through a happier lens”.
The Happy CFO and a Finance ALLIN team
After that great inspiring meeting, I started to change the way I was engaging with the Finance associates in my unit, a Region. It would have been much easier for me to leave them in their cave without Sharing everything. From their perspective, one of the country in the Region, reality might have been different and similar to the cave prisoner, understanding of the whole business reality quite limited. Then I started to share company strategy, Regions plans, minutes of various meetings, slides and presentations from various sources. We all know that information is power, would have been more reassuring for me to hold it, while sharing information freely and in advance, making them understand present and future, allowed them to “open their eyes in the sun”, see things differently, create value and opportunities. Instead of being a remote distant manager, I partnered with my talents breaking hierarchical barriers, opening dialogue and exchange in a free and safe manner, I encouraged them to take ownership of cross European (my unit) projects giving them the resources, the coaching, the visibility, the freedom to influence all the others, well beyond and above their responsibility.Root for each other. Increase level of appreciation and camaraderie, creating program Finance ALLIN that offers learning opportunities from the peers, training support, a shared vision about the way to become Strategic Business Partners.
For The Happy CFO, a happy and motivated Finance team, ALLIN, attached to the company and willing to give extra effort, enabled by a work environment that supports productivity and performance, energized, where social and emotional well being (happiness) are working, is key to run successfully and sustain business. How Best Managers Create a Culture of Belief and Drive Big Results without manipulating reality while taking advantage of people’ skills is a great journey inspired by Chester Elton’s ALL IN book to whom you should refer for further learning.
The ideas explored in their Carrot Principle book can jumpstart productivity, solidify engagement, establish valuable employee retention, and excel in the area of customer satisfaction. These improvements are the cornerstone of a successful business in an office or industry of any size. Their groundbreaking ideas are based around ideals that are practiced by companies at the forefront of business like Disney, KPMG, and Pepsi Bottling Group to name a few. The aggregate data from these 200,000+ interviews prompted the Carrot guys to write further books on leadership, corporate culture, and employee engagement turning the Carrot guys into world renowned best selling business book authors.