Agility and financial planning – have CFOs had their day?

Dr. Christian Buddendick, Senior Manager at zeb, has gained in-depth insights into banks’ financial planning in the course of his consulting activities. He has supported numerous financial institutions on their journey to agile working. In this interview, he explains why there is no universal starting point for agile transformation and states that the roles of the CFO and of the entire finance department in an agile organization need to be radically redefined.

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Over the past decade, agility has become increasingly popular, also in the banking industry. Does the agile approach live up to its promise?

We conducted a study at more than 30 European credit institutions in late 2020. The results revealed that both customer satisfaction and the commitment of employees can increase significantly with the introduction of agile methods – and they also demonstrably improve operational performance. This explains why the financial performance of banks boasting an agile organization is 20% to 30% superior to non-agile competitors. Accordingly, two-thirds of respondents rated agility as highly relevant to their own organizational performance. Yet only 5% of respondents qualify as agile performers and are able to implement agile concepts on a major scale. 

What does this mean for the other 95%? How can they make their way to increased agility?
 

zeb has supported a large number of clients on their journey to agile transformation who came from very different starting positions. One thing we have learned in the process: there is no one-size-fits-all approach to achieving more agility in a company. Every institution needs to find its own way. Some of our clients adopted a classic approach by implementing agile software development processes. Subsequently, these banks gradually expanded the use of agile methods and design principles throughout the organization. Two other institutions, however, set up temporary structures to kick-start the agile journey. A leading Dutch bank, for example, has created cross-functional teams that act as “value streams” throughout the organization. Their task is to coordinate strategic business priorities with available IT capacity. What they all have in common is that the agile transformation of a company must always fit the bank’s organizational culture and maturity. 

How much laissez-faire can the agile approach tolerate?

Just a few years ago, many people associated agility primarily with the abandonment of rigid structures and rules in favor of more sticky notes and brainstorming sessions. Business cases and clear accountabilities were neglected in order to acquire a hip agile veneer. But it is not that simple. Today, credit institutions understand that clear accountability for delivering outcomes is essential in an agile organization and that these results must be in line with strategic priorities and road maps. Nevertheless, many banks still rely on traditional approaches to strategic financial planning, which are based on annual cycles and run parallel with agile approaches.


So is it necessary to change financial planning to promote agility?

In fact, in an agile organization, the roles of the CFO and of the entire finance department need to be radically redefined, since traditional approaches based on concepts such as yearly time horizons conflict with rolling quarterly outlooks. While CFOs should retain overall responsibility and set a clear tone from the top regarding cost and revenue budgets, they need to sacrifice their ability to intervene in favor of speed, timeliness and collaboration. Accordingly, the finance department is transformed from a cost control entity into a strategic business partner – with a focus on value-oriented steering. Roles and responsibilities need to be redefined. Finance, Business and IT collaborate to develop solutions for generating more added value within the organization’s cost budget. Business defines the strategic agenda over a traditional three-to-five-year time horizon. Together with IT, Business maximizes the value for each value stream based on priorities and within the given cost budget. Budget allocation among the value streams and the specific use within the value stream are kept flexible. Through company-wide communication, banks can make sure that all employees are aware of the targets and feel responsible for achieving them.

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“In an agile organization, the CFO’s role has to be radically redefined. The finance department needs to transform from a cost control entity into a strategic business partner.”