Why is it that some businesses are still not able to bridge the mediocre chasm to become a high-performing organisation (HPO)? In mediocre businesses, the terms
“efficiency” and “effectiveness” continually come up in conversations when planning how to move a business from just being “good” to being “great”, but actions speak louder than words when it comes to transforming your business.
Tangible costs like payroll, utilities, and cost of goods, etc. are simple to monitor and manage. However, truly exceptional business leaders recognise these expenses are only part of the “taxes” an organisation is paying for, every business day. Strong fiscal management is of course important in managing tangible day-to-day revenues and costs, but there are four other key areas that must also be considered in order to truly achieve a competitive advantage. We call these four areas the “hidden taxes.” Unlike real taxes and on-the-books expenses, these hidden costs are invisible, insidious and left unchecked damaging, but they can be managed and mitigated.
The first of these hidden costs we call the ‘Productivity Tax’, which is a huge drain on company resources. Only consider the hours and days spent by finance teams and business managers: collecting, entering, manipulating, verifying, and distributing data, only to repeat the whole process at the next reporting cycle! Think about those late nights when the finance department burns the midnight oil, or the average monthly financial close taking 13 working days, according to Ernst & Young.
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To meet the demands of an increased Productivity Tax, Finance turns to IT with more requests for solutions. The tangible costs here are obvious but the business also starts to suffer from the second hidden tax, the Tech Tax. The backlog of IT tasks grows longer; IT folks spend more time writing reports so they move from proactive to reactive mode, to meet demands. They have less time for improving employee productivity and building new applications that would strategically benefit the business. It isn’t surprising then that only 6% of financial department heads are comfortable with the state of their current finance technology solutions.
When the Productivity and Tech Taxes grow, so do the workarounds and shortcuts that are needed just to “keep things moving.” But there is a price to pay for those shortcuts and assumptions, and that price is the ‘Confidence Tax’. Every incorrect number damages the finance brand and credibility, an inability to prove that the numbers are correct impacts confidence, especially if there have been errors before, creating a culture of doubt.
This Confidence Tax also surfaces when business processes don’t actually keep up with the business itself. This was aptly illustrated by PwC when they reported that only 45% of businesses actually believe their own forecasts! In an attempt to mitigate errors, businesses try to add lengthier and ever more complicated reconciliation processes, slowing things down even further. Sometimes the business gives up on finance and IT, creating their own shadow data systems that subject the company to security risks, which can make critical information vulnerable.
In the end, those frustrated business users, including finance and IT, now find themselves hamstrung by the ‘Responsiveness Tax’. For example, say you have a data warehouse and you’re doing an ETL(Extract, transform, load) from the ERP system into that data warehouse. ETL is duplicating data – most often in a summarised or selectively aggregated form. This data is delayed by hours or sometimes days slowing down finance so the Productivity Tax climbs. IT has to manage these complicated ETL and data warehouse demands often employing multiple people just to meet the demands of the business so the Tech Tax increases. Having duplicated some of your data to the warehouse, you now no longer have the details behind the numbers. In fact, you are not even sure if the numbers are right or even current – causing a damaging rise in the Confidence and Responsiveness Taxes!
A lack of timely information, slows decision making. When in doubt, leaders defer making decisions or simply move forward without using solid metrics and analytics. Neither of these options reliably improves performance, and bad decisions will have a significantly detrimental impact. The hardest part to quantify is the cost of lost opportunities – new ventures, partnerships, or projects that could have taken the business to the next level if only their value had been identified sooner, so the right course of action could have been taken.
So what to do? First, start by simplifying and ensuring that you are using your significant investment in the ERP to the fullest. You can do this by selecting solutions that connect to and understand your ERP. These “plug and play” solutions don’t require lengthy or risky IT projects. This allows you to stop generating outdated data and avoids the error-prone use of excel spreadsheets.
Next, streamline your systems by selecting products that serve all the major financial requirements: reporting, analytics and planning. By having a single system that fully understands your ERP, you have access to fully auditable results with drill down to the details and supporting information for critical processes (reducing your Confidence Tax). This will also make processes more efficient (lessening Productivity Tax).
Finally, empower your people. Today’s financial users are savvy and technically capable. Letting users self-serve their information needs frees up their time (and IT’s time) and ensures that they can be ultra-responsive for more strategic initiatives. A win-win for the entire business.
You have invested a small fortune in your ERP system to make it your ‘system of record’. Now it’s time to put it to work for the business. By being aware of these hidden taxes, you can start to combat them, and accelerate your transformation from a “good” company to a high-performing organisation.