In the movie, it’s a funny scene. But when similar scenes are played out in companies because employees are befuddled with finance, it’s not so funny. It can cost millions of dollars in unnecessary expenses and lost opportunities.
Some employees–even executives–can’t answer the most fundamental financial questions. For example, how many of your company’s employees can answer this question: “What is, or should be, the top two goals of our company?” The answer is not what most people think. (Continue reading to find out.)
Should Your Company Invest in Financial Training?
The fact is, your company can’t afford not to.
Finance is about how we move and make our money. Finance is at the core of all business activities. Finance deals with how a company raises capital, analyzes opportunities, develops business plans, executes the plans, monitors results, assesses success or failure, implements improvements and reports to employees, investors and government.
Finance is not just for financial people; it is for every employee. Streams of financial information flow from marketing, operations and human resources through the finance function to upper management and then back again. At each level, the people who make decisions need to understand the financial information that is relevant to them. If they don’t understand the information, they can’t act on it.
Every decision made by every employee is a financial decision and will impact financial results. If employees have financial knowledge, they can evaluate the financial impact of decisions before the decisions are made. The alternative is to wait until after the decisions are made (and cross your fingers).
Finance must first be taught before it can be used in practice. You cannot “fake” finance, although many try. Finance changes over time, so finance must be continually taught. Unless every employee understands finance at an appropriate level, no company can achieve its full potential.
A Model for Financial Training
A good model for financial training:
- Takes a multi-level approach.
- Focuses on relevance.
- Links training to company initiatives and priorities.
- Changes as business priorities and financial practices change.
The level of financial knowledge needed varies from one level of an organization to another. In developing financial training, learning organizations need to match the training content to the company’s business objectives and pinpoint the proficiencies needed at each level of the organization.
For lower-level employees, financial training should focus on basic business literacy: How does my company make money, and what can I do to help? How does money flow through my organization, and how does my work impact these flows, particularly the outflows or costs?
Consider the implications of more financial awareness. What if one employee in your company could save just $5 each business day by eliminating some bad expense habits such as making 15 photocopies when only 10 are needed or leaving equipment on at closing? Now multiply the $5 daily savings for that one employee by 250 business days. The annual savings for that one employee would be $1,250. What if all employees saved $5 daily? For every 1,000 employees $1.25 million would flow directly to the pre-tax bottom line. For a company with 10,000 employees, the annual bottom-line improvement is $12.5 million. You do the math for your company.
At the supervisory level, basic accounting concepts should be added. Employees in supervisory positions must be able to interpret key company reports, understand the key financial measures at their level and understand how they can improve those measures. At the supervisory level we begin leveraging the daily expense and productivity improvements.
At the management level, the context shifts and becomes more strategic. More emphasis should be placed on external and internal reporting, the importance of conducting financial analyses before making decisions and the impact of decisions on the financial statements. Managers need to be able to “speak finance” to financial people in order to form partnerships with the finance organization. Daily improvements in expenses and productivity at this level can be leveraged into hundreds–even thousands–of dollars per manager.
At the lower executive level, there is frequently a split between executives coming from financial backgrounds and non-financial backgrounds. Executives with a non-financial background may need to master capital expenditure basics such as discounted cash flow analysis and learn how to take a more strategic approach to decision making. Executives with financial backgrounds may need training in newer concepts such as “Economic Value Added” (EVA), Value-Based Management and, of course, the new Sarbanes-Oxley accounting rules.
Further leveraging of expense and productivity improvements at the executive levels means even higher daily improvements. At these levels, strategic improvements can extend the benefits of this year’s financial training well into the future.
Even at the highest levels, executives may have difficulty functioning outside their comfort zones. For example, a manager who has been promoted from marketing, operations or human resources to the executive ranks may have difficulty fully contributing at executive committee meetings, particularly when it comes to evaluating the high-level financial aspects of their functional area.
The consequences of financial miscues at the executive level can be devastating. Imagine a company launching a major advertising campaign based on sound marketing analysis but faulty financial analysis. Imagine a company expanding a manufacturing plant based on good functional analysis but inadequate financial analysis. Unfortunately, we sometimes have to question the financial skills of some at the executive level in an organization.
Even the highest-level CFOs need financial training to keep up with the latest changes in accounting and finance. However, at the CFO level, training sessions are usually called “briefings.” Probably every CFO whose company stock is traded on U.S. stock exchanges has attended briefing sessions on Sarbanes-Oxley accounting rules.
One area that is often overlooked in training financial professionals, including CFOs, is improving their communication with non-financial people. Most financial professionals need to learn how to communicate better with managers who are less fluent in finance than they are. Better communication will foster more trust and improve collaborative relationships between non-financial managers and financial managers. Another benefit of training finance people to communicate more simply is that they may actually be filling in some knowledge gaps themselves.
Measuring the Cost Effectiveness of Financial Training
Measuring the cost effectiveness of financial training is a “no-brainer” considering that we are dealing with core money-management skills. If the cost savings or productivity improvements of a single employee are just $1 per business day, the annual savings per employee would be $250. The $250 benefit per employee is about twice as much as the per-employee cost of a business-literacy training program. With just $1 in daily benefits, a company could double its investment in the first year. The ROI benefits of financial training are significantly leveraged at higher levels in the organization.
Financial Training at Novartis
One company that understands the importance of investing in financial training is Novartis AG, headquartered in Basel, Switzerland, with major operations in the United States. Novartis recently became the first pharmaceutical company to be awarded a quality certification by the European Foundation for Management Development.
Frank Waltmann, head of global learning, describes Novartis’ approach to financial training as a “holistic approach” that cascades key messages down into the organization through all levels to make it part of the overall culture. He also believes that finance differs from other areas of development because it is skill- and knowledge-based, as well as experience-based. “Finance is knowledge. Like learning a language. You need to learn the basics before you can apply them,” Waltmann said.
The evolution of the company’s current financial training portfolio began five years ago with a merger of two complex companies with many business units, each with its own finance training. According to Waltmann, the first challenge was to put a better structure in place for financial training programs. The company began by eliminating programs that didn’t meet its standards and redesigning others to better align with the corporate financial language and procedures. These efforts ensured that all financial programs, whether offered by corporate learning or by business units, would be aligned with the company’s core business messages.
Novartis Corporate Learning has adopted a “pipeline” training model, which utilizes a three-tiered structure. The company’s leadership development program led this effort, and the model is now being extended to the finance organization, with programs for finance professionals and non-financial management in place and a program for employees below the management level in development.
As an international company with offices all over the world, Novartis faces many additional challenges when it comes to financial training.
One challenge is finding faculty with a global knowledge of finance. Access to a pool of speakers and professors with global knowledge and cross-cultural experience is one reason the company has developed strong partnerships with business schools such as the Harvard Business School.
Another challenge is training financial professionals in smaller countries in more remote regions. While the company headquarters in Basel has a large finance function with many experienced employees who can help new employees understand the processes, smaller countries with smaller finance functions are at a disadvantage. The company is currently designing specific training for its more remote offices in order to get new employees up to speed quickly.
Programs Tied to Talent Development
The philosophy that drives Novartis’ commitment to training is the belief that talent development is a key success factor. Because the company is committed to promoting from within, it takes a long-term view of training and invests significant amounts annually so each employee can grow in professional responsibilities over many years.
According to Waltmann, training is “one piece of the talent development puzzle.” In addition to formal training programs, the company develops talent through initiatives such as international assignments and mentoring programs.
Best Practices in Financial Training
Waltmann describes relevance as the key success factor for financial training: “The most important factor is to make training relevant, so participants can apply what they’ve learned directly on the job.”
With relevance as its goal, the company has adopted three best practices:
- Customization of the programs.
- Gaining support and active participation of senior management.
- Use of company speakers to heighten relevancy.
Novartis financial training programs have a very high degree of customization. For example, in the finance program for financial professionals offered in conjunction with the Harvard Business School, 70 percent of the cases are Novartis-specific.
Senior management, particularly divisional CFOs, are involved in both the design and the delivery of finance programs. According to Waltmann, getting senior management sponsorship from the beginning is essential to effective program design: “You need to know what is relevant to them.”
In the delivery phase, internal company speakers are invited to present their viewpoints and lead group discussions. Finance programs generally have five to six high-level internal presenters, including presenters who participate in case discussions. At a recent program for finance professionals, speakers included the global head of accounting, divisional CFOs and country CFOs. Finance programs also include an interactive video teleconference with Novartis Chief Financial Officer Raymund Breu.
The company continues to refine its finance programs, always with an eye toward improving relevance. For example, one program obtained a nearly perfect rating last year after the program was further customized by adding discussions about talent development in the finance organization. According to Waltmann, this proves that “training shouldn’t only be about numbers and facts…it should be about possibilities.”
Measuring the Value of Training
Novartis chooses to measure the success of its financial training through a three-step qualitative analysis. Directly after each program the company takes comprehensive Level 1 measurements to assess the participants’ initial impressions about the program. Random checks are then performed after six months to measure the impact of the training on participants’ behavior on the job. Similar measures to assess behavior change are taken between 12 and 18 months after training.
The company also uses data that is not generated by the participant interviews, including internal assessments and functional surveys.
“We don’t measure by numbers,” said Waltmann. “We say, ‘Did it really change your behavior? Did it help you perform better on your job?’ We do find correlations between performance before and after training.“
Does Your Company Need a Finance U?
You do if you want to achieve the top two goals of every company—to survive and to thrive. Many employees consider survival a given and therefore not a goal at all. This is a dangerous mindset that can lead to company-wide complacency and faulty risk-return analysis. Even companies that are industry leaders cannot take survival for granted in this extremely volatile, brutally competitive, hostile-takeover business environment (a case in point is the plight of the leading airlines). To enhance survival prospects, every employee needs to understand the company’s core business activity–finance–how we move and make money. Only if you survive can you thrive. To thrive, you need to optimize money-making activities by making financially wise decisions at all levels in your organization.
Wendy Almeida and Joe Kirley are senior associates for Shaws-Lawson Associates, a global financial training company headquartered in the Boston area (www.shaws-lawson.com). For more information, e-mail Wendy and Joe at firstname.lastname@example.org.