Transforming the finance function in banking

Banks are increasingly prioritizing value creation over value preservation. In the process, they’re embracing cloud ledger technology to standardize ways of working and AI-powered forecasting and data analytics to help the business navigate the future. Banks that can temper their risk-averse appetites and create capacity to innovate are more likely to achieve true transformation in ways of working.

Technology upgrades are an important part of any transformation, but fundamentally, its success is all about human and cultural change. Change management is therefore a critical part of the roadmap to success.

As data integration and technological innovation reduces the need for reconciliations and accounting production activities, finance departments will take on more enterprise process and performance roles.

Finance employees need to be prepared for those new roles and ways of working. A strong change program will not only address technological re-skilling, but also consider employee motivations, expectations and experience to help teams to push through the ambiguous and uncertain process of change.

Given these challenges, what can finance leaders do to advocate for change and mobilize their teams through a successful and sustainable transformation?

Organizational change management has come a long way in the 25 years since John Kotter’s Leading Change, a foundational work on the topic. Change management is recognized as a must-have capability in all organizations, because of the speed and scale of change in today’s markets. And the principles of change management have shown to be valid across multiple functions and industries.

How should those principles apply in the context of banking and finance? In such context, organizations value reliability, predictability and control. Accountants, controllers, financial analysts and financial managers are professionals whose roles demand technical depth, business insight and operational excellence. In banking, they deal with highly matrixed reporting structures and a web of regulatory requirements.

Taken together, these factors create a working environment that is not change-friendly. Consequently, a leader can have a significant impact on the likelihood of success by choosing appropriate change management strategies. The following are identified from our experience in banking.

Even with a powerful CFO, transformations are difficult for banks to navigate. Multiple stakeholders and teams invested with substantial power may have different views about what's best for the finance function. Some stakeholders, for instance, may be pursuing conflicting agendas or competing for access to shared resources, which can stall or complicate progress.

A clear, well-presented, and well-defined purpose for change is essential to gaining alignment. In finance functions, improvement goals are often expressed in terms of service quality, control and efficiency. However, while everyone can agree to vague statements such as “Let’s be better, faster and less costly,” real alignment of purpose comes from defined statements. “Let’s get to a 3-day close from 6.” “Let’s reduce controls by 25% with no increase in error rates.” “Let’s reduce cost of financial reporting production by 20% and reinvest the savings in financial analysis and enable our people.”

Consulting on such statements can help to align stakeholders. More often than not, consultations help uncover competing priorities and concerns about feasibility. There is value in these conversations, not only for organizational learning, but in giving stakeholders the opportunity to express their views. They may not agree fully with the goal and urgency of the change, but are more likely to execute on future decisions after their perspectives have been heard.

Organizations need to develop strategies that motivate people to learn the new ways of working, to adopt change and advocate for that change with their peers. Professionals can be persuaded to commit to transformation if they find personal motivation in it. The best scenario is when enterprise-change goals align with personal or career objectives. Depending on the maturity of the organization and where individuals are in their career lifecycles, personal goals and incentives to support change will vary.

In banking finance functions, we see differences between middle and upper management on the one hand, and a new stock of professionals on the other. Leaders should ask themselves: is the tenured workforce receptive to the needs and requirements of the emerging workforce?

As context, people occupying senior roles often entered the profession without expecting any major upheavals, and tend to approach change with caution. These professionals carry valuable knowledge about, and an established interest in, how things are currently done. In project-speak, these are the subject matter experts (SMEs) – their value to the organization, and often professional pride, comes from familiarity with the complexities in finance processes and data, and why those complexities exist.

In contrast, workers earlier in their careers tend to have an enthusiastic outlook about how finance is changing. These employees have different expectations around the nature of their roles, work-life balance, personal growth, and rewards and recognition. For these workers, professional development is often the most important incentive. Involving them in a change project, either dedicated or part-time, can be highly motivating if the role provides on-the-job learning, and even opportunities for formal training and certification in new professional standards and technologies. And the experience of project work is often essential to preparing for future roles in middle and senior management.

For workers more advanced in their careers, different incentives may be more meaningful. Often, tenured workers perceive a transition from a stable Business as Usual (BAU) role to a dedicated project role as a transfer to an uncertain future. They will want the security of knowing what BAU role they will return to upon project completion. They may also value financial incentives or promotion opportunities which reward them for their project contributions.

Resources such as KPMG's Banking Finance Function Benchmarking (BFFB) report, which gathers finance function data from across the banking industry, can provide useful guideposts in devising workable change management strategies. The BFFB, for instance, correlates the following organizational characteristics with successful finance transformations:

• Future-minded CFOs: Successful finance function transformations are led by ambitious and forward-looking CFOs with business experience and long-term CEO aspirations. They're supported by senior teams that share a business first vision, and information technology (IT) functions that support finance needs. They adopt a venture capitalist approach and take brave, yet informed steps. They're guided by convictions, not calculators.
• Focus on use cases: People and data integration is best led through use cases instead of insisting on organizational consolidation or large data programs driven by technology. People are much more likely to rally around meaningful business issues and challenges rather than technical goals. For example, good program branding is not “Ledger Migration” (or some other technology-centric name), but rather achieving “Daily Close.”
• Standards, with flexibility: Successful enterprise programs promote adoption of global standards and common frameworks, but also strive for balance with local needs in implementation. In other words, a core solution should be applicable globally, but allow for a degree of local configuration (i.e., to account for regional and/or business specifics). Let global process owners (GPOs) define the standards for each end-to-end process and govern the exceptions. This governance concept is so successful that leading banks often retain GPO roles and governance long after transformation programs have officially ended.
• Balanced workforce: A workforce designed for change should have a mix of skills and higher-than-average data literacy. This mix does not happen by accident. For example, successful change project leaders deliberately diversify their change program teams to encompass disciplines outside traditional finance and accounting. It's a benefit to have people working on the same problem coming at it from different perspectives. And outside the project team, we see banking finance functions broaden their recruiting sources beyond traditional finance and accounting.
• Cloud technology and portfolio automation: Most finance transformation programs employ integrated cloud architectures with best-of-breed additions to support advanced capabilities. To weave together such portfolio solutions and scale safely, it’s necessary to develop a finance business architecture capability.
• Leverage regulatory change mandates: Follow a guiding principle of maximizing return from investment in compliance capabilities. Encourage change managers to beat the compliance bar when it comes to large regulatory spend, and take advantage of funding opportunities to transform processes and data.

The following tactics and techniques have helped finance leaders create capacity and advocate for finance function transformation:

• Invest in people before change happens: Before banks talk about systems, processes, reorganization, or automation, they need to galvanize people. One major bank invested in training its finance executives to be the ambassadors of change with their local teams. They established a crowdsourcing platform to engage finance staff in the transformation, and “game-ified” their involvement with real financial and non-financial rewards. This was a multi-million dollar investment to grow grass-root support for the large-scale program to come.
• Empower people inside the change program: One organization established a customized online platform people could use to visualize and map out their careers, and discover opportunities in the future world of finance as envisioned by the finance strategy. Employees gained the flexibility to switch careers inside and outside of finance. The bank retained institutional knowledge and let people reimagine and shape their careers in line with the finance vision of the organization.
• Accelerating design without overloading BAU: A leading global commercial bank identified a multidisciplinary squad of SMEs within the organization (finance, risk, technology, compliance). It put these people together for a week at a time to design the solutions to complex business problems from a multidisciplinary perspective. These SMEs then rolled back into BAU at the end of the week without exception. Within a week, this team, having the right mix of competencies and institutional knowledge, came up with a holistic solution that went straight to implementation with minimal governance.
• Engage in advanced resource planning: BAU in finance is especially demanding, particularly as it revolves around month-close and quarter-close cycles. Multiple financial services organizations forecasted necessary resources for project delivery far in advance to get ahead of the budget cycle and ensure resources would be available for both project work and BAU work.
• Assign talent to change projects full-time: Instead of tasking people with extra work on a change project, organizations transferred them to the project and backfilled their BAU roles. As a retention tactic, they also provided seconded employees with security of a role to which they would return afterwards. In some cases, the future role was a promotion, contingent on good performance in the project role. In one organization, a resource who joined a project at the manager level gained skills in data engineering, analytics and problem-solving in financial reporting, and as a result rose through the ranks post-project to become a senior director of financial reporting and controls.
• Amplify “small” successes: When you're dealing with people, change can't happen overnight. Delivering on one promise at a time is the best way to maintain credibility. To galvanize support and gain momentum, communicate achievements when they happen. One division in an organization delivered client profitability analytics via digital dashboards in just 6 months. This was then shown to all other divisional heads as an example of what real change looks like.

1. Who are your fellow leaders?

A major change journey will take three to five years, and you need fellow leaders to stand with you and stay the course. It's more than choosing a team, it's ensuring those team members are committed to seeing the project through. Identifying your coalition of the willing is a prerequisite for success. Those conversations can be difficult, but it can help select people to work inside the project and others to maintain BAU.

2. What have you deprioritized?

You can't prioritize change without choosing to do things differently. You can create capacity by choosing not to do certain things. Keeping BAU going with less resources, for instance, could mean making do with less information, producing fewer reports, finding opportunities to reduce load, or fixing a problem you've lived with for years. Without such tradeoff choices, any change plan is not likely to succeed.

3. What's in it for you?

Change programs are more likely to succeed if the career goals of the individuals are aligned with the goals of the change program. For example, a business unit vice-president (VP) of financial planning and analysis may aspire to become a business unit CFO and wants to demonstrate that they are commercially minded. That VP will be more supportive if the program prioritizes reporting solutions which enable that VP to bring better insights to the business. We have observed program leaders who have made their own jobs easier by helping their stakeholders to make such personal connections. Depending on the level of interpersonal trust among the finance leadership team, this was accomplished either directly or via objective third parties.

The Banking Finance Function Benchmarking’s (BFFB) assessment of the Future of Finance will enable finance leaders with data-driven insights for a dramatically changing world. Using the BFFB, finance leaders can turn the challenge of new ways of working and new technologies into future-proofed opportunities for their organization.

BFFB benefits

• Executive report comparing your Finance Function across the banking industry
• Playback session concentrating on high value insights from the executive report
• Participants also receive an exclusive annual report with industry benchmarks and trends, available only for representatives of participating banks
• Access to the benchmarking executive roundtable events in UK, Switzerland, Canada, Singapore, UAE, and Sweden
• On demand access to Roundtables and Peer to Peer Network

KPMG in Canada assists banking finance leaders to structure and deliver successful transformational change programs.

In recent years, KPMG professionals have helped guide some of the largest finance operating model transformations in banking in the world. We provide clients with deep, evidence-based insights on finance function strategy and operating model design.

Our knowledge in banking and finance transformation is supported by a leading global benchmarking platform, sourced over six years from over 50 global banks in every global jurisdiction.

Our change practice helps align finance teams around a need for change, conducts health checks on existing programs, and assists in launching and sustaining change projects. To get your change program started off towards success, contact our finance transformation team.