For years, traditional lockbox operations passed along remittance details via next day courier. A/R clerks then worked from the documentation to manually post receipts in the accounting system.
Today, those details are most often delivered via an FTP folder containing the check images and accompanying remittance documentation. Remittance advice can also be transmitted in a BAI file or similar format and contains the bank routing number and account number, both machine captured from the MICR line of the check, as well as the check amount, which an operator must key in. Additional remittance details, such as invoice numbers and payment amounts, can also be added to the file, but with the traditional lockbox that requires additional data entry at a cost. The data in the remittance file can then be used to automatically post payments to an A/R system, but achieving a high match rate is usually problematic.
Because there are now so many electronic payment channels, organizations must capture remittance details sent in emails, via EDI, entered into web portals as well as those associated with RDC, credit cards or via ACH. All these payment channels demand an integrated process – otherwise all their data must be re-keyed into the A/R system. While there has been huge growth in the world of electronic payments in recent years, there still remains a considerable amount of inefficiency in posting B2B remittance data to the A/R.
OCR technologies, however, have advanced to the point where templates and contextual search tools require minimal or no human intervention. Images are automatically converted to electronic files and then run through the auto-cash algorithms for automatic posting to the A/R. This reduces both lockbox and cash posting costs substantially.
Finding a Match
Matching payments to customers and invoices, figuring out what to do if the remittance is different from the receivables and properly coding all exceptions are the three primary activities involved in posting payments to open receivables. Broken down further, the individual manual tasks include:
- Identifying the payee and invoice
- Reconciling payments to receivables if details are missing
- Determining if prompt pay discounts were timely
- Deciding if a customer needs to be charged back for underpayments
- Preparing debit memos for unauthorized deductions (with proper reason codes)
- Preparing credit memos for authorized promotional adjustments or payment deductions
- Preparing credit memos for overpayments and payment on account
These seven steps must be incorporated into any automated remittance algorithm to ensure remittance details captured from both the lockbox and other electronic payment channels are matched correctly to the receivables database. Because of the complexity required, the auto-remit capabilities of A/R software solutions are often inadequate. Only matching 40 to 60 percent of remittances automatically will not realize the true benefits of automated remittance processing from either an efficiency or cost perspective, because it is the difficult postings that consume the most time.
Since the ability to process remittance advice transmitted by emails, often on a spreadsheet, is increasingly important, you also need a technology solution to automatically extract and interpret content from emails and their attachments. Additionally, algorithms are needed that can recognize the most common forms of payment deductions. Combined with automated workflow, these algorithms will automatically generate credits when applicable or route exceptions to a resolver on the rare occasional human intervention is needed.
The higher the automatic match rate the greater your processing efficiency and the lower your unit costs. Most cash receipts can be matched with minimal additional processing. The typical interface can capture up to two-thirds of payments. The remaining remittances are those that are progressively more difficult to match. When your automated solution is tailored to capture and push even these problematic remittances through, then you know you’ve achieved a best-of-class level of efficiency.
Have you incorporated each of the 7 steps into your remittance process? If not, what are the challenges you believe you would face?
Doing more with less is one of the most prevalent mandates in business today. Given how manual the task of applying cash is, this is often one of the first areas targeted in such an initiative. The good news is that automation technology exists that eliminates nearly all of the manual work, freeing up resources to do higher value activities that more positively impact the bottom line. This is exactly how Reckitt Benckiser's credit department approached the mandate to do more with less.
Reckitt Benckiser was experiencing year-over-year increases of 5% in checks, 24% in invoices, and 18% in deductions and realized that it was time to stop manually keying in all of this information. After a thorough selection process, driven by the IT team and the Director of Credit, they went with the HighRadius' Cash Application Solution. It was agreed that HighRadius offered the most modern technology available in the market and was able to integrate with the JDE ERP system with little IT involvement.
Reckit Benckiser made the decision to implement the Cash Application Solution in three phases:
- Phase 1: Automate the top 6 largest customers, accounting for 40% of total invoices. This phase included the process of programming customer-specific rules around how to correctly post cash and code deductions.
- Phase 2: Conduct a stress test for HighRadius to make sure the technology could handle the complex processes and high volume that Reckitt Benckiser has.
- Phase 3: Complete the automation of nearly all cash application activities including checks and remittances coming into the bank lockbox.
- 98.5% of cash application is automated
- Staffing costs are down 65%
- No overtime to close the month
"We close on the last day of the month, every month. The system has completely eliminated the overtime required to close the books. We no longer have unapplied cash sitting on account. Every payment is matched to an invoice the same day it hits the bank and the deductions coding process is automated." - Josef Genda, Director of Credit, Reckitt Benckiser.
Recently, I was in San Francisco at the Conscious Capitalism 2013 Conference. Now, San Francisco is one of my favorite cities for many reasons, not the least of which is the food. One evening I had a wonderful panna cotta dessert similar to the picture on the right (of course, I had devoured most of my own dessert before it hit me that I should have taken a picture, ha). There were some unexpected flavors and textures, all of which were delicious by themselves but when combined, made a unique and inspired dining experience. It struck me that this not only symbolized the principle tenets of Conscious Capitalism but also effective change management.
Conscious Capitalism is a philosophy or movement that posits organizations have 5 key stakeholders – Society, Partners/suppliers, Investors, Customers, and Employees (or SPICE). Each has their own unique flavor and texture and are equally important to the overall success of the company. The business is managed in such as way that the interests of each stakeholder are brought to the table and result in a simultaneous win rather than the all too common win/loss scenarios. For example, how many employees have felt they’ve been on the losing side of decisions to satisfy investors? Ironically, the companies who embrace the Conscious Capitalism tenets have been shown to financially outperform the S&P 500 by 9:1 and the companies found in the book Good to Great (by J. Collins) by 3:1 over a ten-year period. (Source: Firms of Endearment: How World Class Companies Profit from Passion and Purpose, Wharton School Publishing). Sounds like an inspired dessert to me. Sounds like a change I would like to see throughout the business world!
What if that win/win approach was taken in your change management efforts? Are your decisions solely based on economics or are the interests of your employees, your customers and vendors considered? We all know that about 70% of change initiatives fail because of lack of focus on the human element. Certainly the lack of attention to employee needs is paramount in this dismal statistic. But what about a lack of attention to customer needs? And how does the human element impact the Receivables Management solution provider selection process?
Attunement to your employee interests all revolves around communication. How well are you soliciting – and then LISTENING – to their input and feedback? Do you understand the manual A/R environments’ pain points and account for suggestions for improvement while you’re in the data gathering and solution provider selection phases of the project? Are you talking to the subject matter experts who actually do the work and bear the brunt of customer complaints or do you rely solely on high level bosses and the view from 10,000 feet? Do you listen to the diversity of opinions and then make well-informed modifications when necessary or do you stand in a position of pride or stress and dismiss anyone who thinks differently as just not being on board with the project?
Change can bring about the fight, flight, or freeze response in many individuals. Do you have a change management program from experts in the field who can teach leaders how to help employees (and themselves) manage through this process with respect? What if the new Receivables Management System results in job changes? Are you handling this with open, honest communication and support?
What about the interests of your customers? Have you solicited their input directly? Are you listening openly and non-defensively to their needs and incorporating that into your solution? Do you strive to excel at customer satisfaction and exceed their expectations or is “no news good news”? How well are customers integrated into the change process? Is there a communication plan and implementation plan to address their questions as the process changes? Listening to the customer reflects how much you value them and is reflected back to you in customer loyalty and revenue.
Is there a true partnering with you’re A/R source system? If so, I wonder what different questions might be asked during the selection phase beyond pricing. Is this Receivables Management System provider one you want to be in a relationship with for the long haul; a company with integrity that you can trust to meet your needs as a customer? Will they be there when things go wrong? In short, is this a company you are proud to be working with?
The financial analysis is often the only consideration in the Receivables Management System decision. So, how much more effective could the change and your company be if all the unique flavors of your stakeholders were combined into an awesome solution – a beautifully inspired dessert, worthy of multiple spoons?
Do you include the key stakeholders in your change management efforts? What challenges have you faced?
The number one roadblock in order-to-cash (OTC) efficiency is paper documents. The problem is a combination of the time to process paper and the sheer number of documents that flow through the OTC process. Potential errors or inefficiencies increase exponentially as documents are either handled or generated at every junction in the workflow. Converting these paper documents to electronic files is the key to achieving high efficiency in your OTC performance.
Merely converting documents to electronic images for archive purposes, however, is not enough. A document image still requires manual handling at each touch-point of the OTC process. What must happen is for these documents to be converted to an electronic data format – not just an image – so that the information within the documents is captured and exchanged electronically in order to achieve straight through processing (STP).
Access to back-up documentation is the biggest factor affecting effective deduction management. With paper based documents, access is time-consuming, cumbersome and inefficient. Paper makes researching deduction issues and sharing those findings with other participants more difficult. Paper documents are also hard to track, so monitoring the status of individual deduction claims is nearly impossible due to a lack of visibility.
Deduction management, if not handled efficiently, will suck up time from other higher return activities, raising the true cost of deduction management. Another factor contributing to inefficiency stems from upwards of 90% of deductions being cleared by a credit memo or other adjustment. Ignoring deduction resolution, however, will only ensure that deductions rapidly accumulate as open AR items in your workflow, negatively impacting other credit and collection activities such as order approval and remittance processing.
All of these issues combine to make an environment that is primed for an automated solution. Remember, getting rid of paper is not enough. It really is about electronic capture of information that can drive effectively and efficiently drive automated processing. A holistic solution interfaces deduction management with auto-cash protocols, provides matching to trade promotions management (TPM) solutions and incorporates proof of delivery (POD) analysis. This confluence of different-but-related processes enables an automated solution where the majority of deductions can be automatically identified by type and then routed according to pre-defined workflows. The automated matching of pre-existing promotions facilitates automatic settlement and full cycle promotion analysis. Additionally, readily available POD information, now that most carriers post POD info online, can be used to identify and resolve issues related to shipping and quantity.
Emerging technologies are helping AR move beyond capturing and populating data to actually eliminating a very large proportion of the work associated with deduction management. Web aggregation technology automatically trolls websites and customer portals to identify and capture claim forms, PODs and other documentation. This technology will then collate the information and attach to the correct deduction case.
Automated solutions also make deduction management metrics easier to obtain and distribute, and in so doing deliver greater control than can be achieved with a manual, paper-based environment. Root cause identification, automatically measures the types of deductions created and tracks their recurrence. When deductions are quantified by type and associated costs, it is then possible to justify the efforts needed to eliminate such root causes. This in turn reduces the cost burden of deductions.
In the same way, returns variance analysis can compare deductions taken by customers to agreements with sales. It can also look at records from logistics or carriers to find further inaccuracies. Automated analysis of this type highlights issues and helps create higher recovery rates, thereby facilitating better deduction management.
Watch the, “Recover Lost Revenue from Invalid Customer Deductions” recorded webinar today!
Credit applications are cumbersome. Their complexity and the chance information will be incomplete conspire to create a lengthy process. Paper applications are the biggest offenders as they have to be sent, returned and then manually processed with the inevitable back-and-forth to gather any missed information or signatures, and that’s before any financial analysis has been performed.
Once processed, credit applications are typically archived either in a file cabinet or as a digital document image. When applications are available online, they still are often stored as a PDF file. But so what? Archived credit applications are indexed to the customer account along with a credit bureau report and other documents, but the information is not shared with any systems. A credit application that is merely archived is as static as a paper document. Such a situation is begging for automation.
With an automated online credit application, contact information and other demographics are electronically extracted directly from the application and used to populate Customer Master File data fields. This automated step by itself benefits other processes when there is integration to CRM or AR software. Other information needed for credit scoring models, such as year founded, number of employees, financial status, and payment trends is extracted automatically either from the application, a credit bureau or from public online sources. All this is a step in the right direction, but there is still more automation that can take place.
When credit bureau data elements are captured with automated interfaces they can be used to speed up the validation when an application is being completed. Besides verifying the applicant is who they say they are, key demographic data is pulled from the application and crosschecked with the credit bureau as part of the validation process and to help populate additional open fields on the application.
Because the interface can automatically pull data from various sources, the data required from the customer on the application can be further enriched. This data can then automatically be added to the master data files. In addition, corporate linkages (family tree) can be captured from the credit bureaus and used to identify other related customers. By using the power of the web to its fullest, especially with public companies, a wealth of information can be found to aid the credit application process.
Financial statements can also be submitted with an online credit application (or sent as a document image and converted into an electronic format by the automated interface using OCR technology) or captured from SEC filings if it’s a public firm. Skipping the need for manual data entry, the process is sped up further because the automated solution goes a step beyond by generating ratios and period-to-period comparisons that can be inputted into the credit scoring models.
All this data – either automatically pulled out of the application or uploaded from credit bureaus and other public sources – is used to drive automated decisions. Approvals and denials can be determined within pre-set parameters without need for manual touches. Even decisions that aren’t so cut and dry can be summarized in a report format in order to provided support for the human decision makers, with the system ensuring appropriate approval authorities. After the application is approved, an automated solution can then go the extra mile by generating new customer documents including approval letters, contracts, leases, security agreements, and so forth.
The more data you capture and support by automated workflow, the shorter your approval process will be. The ultimate goal is to then drive as many automated decisions as possible, while reducing the number of manual interventions.
Download the 2013 Revenue Cycle Management analyst report to learn more.
Collectors deserve automated systems that provide considerably more collection capacity than afforded by manual systems. Misguided system improvements, however, can render an automated solution ineffective. Such improvements typically revolve around trying to find a “quick fix” rather than a comprehensive solution. Lacking process re-engineering, only incremental improvements are achieved, instead of the dramatic performance enhancements required. Ideally, the goal is to eliminate low value-added processes that take up more than their fair share of time.
Simply automating manual processes is not the way best-in-class businesses operate. These companies streamline activities and generate measurable data on speed, accuracy, and reliability to improve existing systems even more.
The following four pitfalls demonstrate how low-impact improvements can actually weigh down the overall collections process:
Pitfall #1 – Relying on Simple Dunning Notices:
Mass produced dunning notices will provide meager benefits if they are not integrated with the AR system. When they don’t take into account discrepancies and other existing issues, dunning notices tend to create more customer service issues than collections as annoyed customers request their accounts to be reconciled. Likewise, monthly statements: when large numbers are sent out early every month to customers that don’t pay from statements, the effort spent can take away from more critical collection activities.
Pitfall #2 – Not Linking Follow-up Activities to the AR System:
You must have all your systems in sync with each other, or you might as well go back to paper processes. A tickler file that isn’t automatically updated when invoices are paid or credited isn’t worth a hill of beans if a collector has to go back and forth between their online calendar or task manager and their AR system to update items that no longer require attention.
Pitfall #3 – Failing to Code Disputes:
When disputed items are not identified and coded properly, customers can get flooded with repeated dunning notices especially when the AR system and the mass dunning service aren’t in sync. This creates redundant efforts and wastes money for the collections team, not to mention it annoys customers.
Pitfall #4 – Failing to Integrate Reporting:
Collection activities are usually reviewed in conjunction with the accounting cycle and are therefore affected by month-end close out activities. If invoice, payment and risk data isn’t linked into the reporting system, the compilation of these monthly reports can take more time than necessary and thereby puts collectors behind the curve as they struggle to achieve their goals.
As an example, let’s take a closer look at Dunning Notices. There is no strategic advantage to mass dunning if all it does is send the same letter to every past due account only because they are past due the same number of days. Some of the major issues are:
- Many customers purposely pay 15 or 30 days late so dunning notices sent “on time” are largely ignored.
- When a customer has made partial payments or indicated a problem with outstanding bills, repeated dunning notices could be annoying.
- Mass produced dunning notices don’t always take into account multiple invoices within a date-range, thus producing multiple notices and flooding the customer’s inbox. Also, they often contain less supporting information than a customer might need to resolve the problem.
- Dunning notice services don’t always send out notices with timely information due to the fact that you turn over account information only periodically (once a month for instance).
Dunning needs to be tightly integrated with what is presently transpiring in the AR, not based on where things stood at the end of last month. When dunning is integrated it can be more targeted to the collection circumstances at hand and therefore generate better results. Throwing a lot of notices at customers is often counterproductive. A targeted approach to dunning incorporated within a strategic collection framework will prove to be much more cost-effective. The same holds true for the generation of the collector’s task list and reporting – integrated systems are key.
Have you struggled with automating your collection processes? If so, what have your struggles been?
The cash application process is highly manual, time-consuming, costly, and error-prone. Companies receive many forms of payment (check, ACH, wire transfer) across multiple lockboxes or banks and customers often provide inconsistent remittance detail in a variety of formats (paper, EDI, email attachments, online portals). On top of this ineﬃciency, the cost of paying the bank to key in data from paper remittances can be very high and only partially address the problem. Also, as you know, remittance line items can sometimes refer to alternative reference numbers that are not on the original invoice.
Audit and compliance issues arise when a company is sitting on unapplied or improperly applied cash, making accuracy and eﬃciency all the more critical. Knowing all of this, the Encyclopedia of Credit, offers 10 tips/benefits on automatically applying cash:
- The use of automating cash application software to process customer payments enables the cash application team to perform higher value-added functions.
- A 50% auto cash processing rate would be considered low.
- With effort, automating cash rates can climb to 90% or higher.
- One benefit is that much of the drudgery of cash application can be eliminated using auto cash.
- Automating cash both simplifies and dramatically accelerates the cash posting process, making possible better credit decisions based on more current information.
- Another benefit of automating cash application is that this automation process should result in cost savings including the possibility of headcount reductions in cash application.
- Automating cash enables cash application personnel to focus on higher value activities such as addressing disputes and deductions more quickly.
- The benefits of automating cash include the fact that by using auto cash, the cash application handles only exceptions. An exception is a payment that did not post automatically.
- Understanding why certain customers payments cannot be matched means that the cash application team can either (a) change their system to improve its auto cash hit rate, or (b) discuss with customers specific changes that would result in a higher auto cash rate.
- This is proven technology. It is nowhere near the leading edge.
Learn how Reckitt Benckiser increased their on-invoice hit rate to 98.5% by watching the recorded webinar on, "Cash Application Case Study".
As organizations look at transforming their Accounts Receivable area and deploying a Receivables Management System to help automate the existing manually intensive processes, there is always a tremendous focus on what the cost of the project is going to be. How many dollars and cents is it going to take to put the system in place?
There’s another form of “change”, however, outside of the monetary component that is normally overlooked. And….it happens to be the most important part of the investment and it can be the most expensive if not handled appropriately. That “change” is a change management program which engages all of the groups affected by the transformation effort.
Change is a process that requires time and effort. It is not something that is “done to an organization”, but rather an on-going interaction that engages all members of the team in the development of the long-term strategy and vision. It’s a step by step process that may take more time for some individuals than others.
With the level of transformation normally involved when Receivables Management Systems are deployed and when accounts receivable is transitioning from a primarily paper-based process to a more automated approach, the change process takes longer. In William Bridge’s book Managing Transitions, he highlights three stages that people go through when they experience change:
- Ending, Losing and Letting Go
- The Neutral Zone
- The New Beginning
Different individuals within the organization respond to the change and move through the stages at different paces, and all of those factors have to be planned for and considered as a part of the change management approach.
Organizations often think it’s too early to begin a “change management effort” because the plan of action is still being defined and the strategy for how the new processes and systems will be deployed is not “fully baked” with the executive team. Yet a group of individuals has spent the last several months in a back room outlining what systems will be leveraged and how business will be done going forward. Guess what…..change is already underway and the organization should already be deeply engaged.
Organizations rarely have an extensive level of change management expertise internally to design elaborate programs for execution. All organizations, however, should leverage the following “formula” to “drive change” within the organization:
D – Determine the areas for improvement and the actions to be taken
R – Relay the focus areas for improvement to the teams early and engage them in the change
I – Involve senior leadership in the communication plan to drive support and buy-in
V – Validate the need for the change by linking it to the business plan and overall corporate goals
E – Enlist feedback by establishing an easy to use two-way communication approach and USING it
C – Communicate, communicate, communicate – a void of information can sabotage any effort (See previous blog post)
H – Hone in on the differing personalities within the organization and define action plans for each (See previous blog post)
A – Articulate clearly the “What’s In It For Me” (WIIFM) – for each workgroup & individual involved
N – Note the types of workforce skills needed in the future and reevaluate the organization design
G – Gain momentum by celebrating quick hits and short-term wins
E – Encourage and reward positive behavior changes
Note the above does not say, “Wait until you have it all figured out and then send the team a kick-off memo!” People don’t magically change because a project is started, and the worst thing you can do is to make people feel like their opinion and subject matter expertise was not valued enough to be a part of the design. If you are thinking about a accounts receivable transformation project, or even if you already have one underway, start leveraging the steps outlined above now to ensure your investment is a success!
Has your company thought about implementing an accounts receivable transformation project? If so, what has been your greatest challenge?
In many companies, the collections department is seen as a sort of gatekeeper for the administration and resolution of deductions and other problems. The credit staff does not typically have the decision making power to finalize a resolution to problem receivables but needs to do all they can to make the process of getting decisions as streamlined as possible. Utilizing problem-tracking software is a huge step in the right direction and seems an obvious solution to an ongoing problem.
However, to do it right, there are seven critical functions that need to be performed by problem tracking to assure a wide range of benefits.
- Separately identify problems from other past due items – Problem-tracking software can isolate problem receivables from those that have not been affected. These are then pulled out of the queue for appropriate dispute processing, leaving the routine collections issues to a collector who can then focus on the calls and contacts with the highest potential for collecting the most money as soon as possible.
- Identify recurring deductions – Once identified, common problem types need to be grouped together. Commonly recurring problems become more apparent when looked at in groupings, which is the first step in understanding their impact.
- Allow quantification of problem types – Once grouped by type of problem, the total impact of each problem type can be quantified. This should be done for both closed issues as well as open items. By quantifying the impact of different problem types, you are then able to prioritize how they are addressed and in so doing minimize their impact.
- Enable prescribed strategies to be used to resolve problems – By using common problem codes, each code can be associated with a prescribed resolution strategy to guide the collector and keep the resolution process moving forward. By grouping similar types of deductions together in a users work queue, they can also be handled more productively. Collectors work more efficiently by repetitively processing all of one type together instead of jumping back and forth between different scenarios.
- Track contacts with other internal functions – Problem-tracking software can aid in communications with the other departments affected by a particular type of problem. Everyone is then forced to address the problem in a standardized fashion, and capturing the communications facilitates finding permanent solutions to repetitive issue.
- Speed resolution – Problem-tracking software provides the collector/resolver with all the facts in one location so problems can be cleared faster. By helping document communications back and forth between internal groups and external customers, collectors are fully equipped to follow-up with any and all decision makers till a problem is resolved. In short, the leg-work is done for the collectors so focus can be put solely on resolution.
- Provide data for root cause analysis – When problem receivables are looked at in groups by type, quantifiable data is being collected regarding the commonality of a particular type of problem and the efforts needed to resolve it. The benefit is insight into the root causes, which cannot be achieved without an end-to-end tracking process.
Like an impressionist painting that looks like specks of different colors until you step back and are able to see the greater image, you cannot get the same perspective on the issues plaguing your receivables department by trying to analyze problems one at a time. By utilizing problem-tracking software to group and sort, you are finally able to step back and see the big picture of where your vulnerabilities lie and where there is room for improvement. By working together with other affected groups to come up with resolutions for these recurrent problems, everyone wins.
Have you implemented any of these seven critical functions in your collections department?If so, which one(s) and how have they benefitted your department?
Companies make difficult decisions every day relative to launching new products or services, discontinuing products or services, merger and acquisition strategies, going public, remaining private, and the list goes on. Yet, when it comes to decisions regarding process transformation, whether that pertains to AR optimization or any other process area that involves changes to the organization and the mechanics of how business gets done, “analysis paralysis” seems to kick in. Why is change in these areas SO hard?
Short answer - human beings are involved. What happens when individuals have too many major balls in the air at once within their personal lives…they freeze. The same thing happens in organizations when they become overwhelmed by the prospect of change.
William Bridges, in his 1991 book "Managing Transitions" highlights three stages of transition that people go through when they experience change. These stages are:
1) Ending, Losing, and Letting Go
2) The Neutral Zone, and
3) The New Beginning
This first stage results in the same emotional responses from the individuals within the organization that would be experienced if they were ending or losing something within their lives outside of work. Those initial emotions are normally – fear, uncertainty, disorientation, and possibly anger. Bridges says that people will go through each stage at their own pace. Some who are more comfortable with change in general will move through the stages very quickly. Others may linger longer in stage one and two.
Managing through these emotional responses by providing more communication, clearer direction and more control during the time of change is one of the paradoxes of change leadership that McKinsey & Company highlight in their quarterly report entitled, “Leadership and the art of plate spinning”.
The article observes that, “A company will need more control when it must actually change direction and more empowerment when it is set on the new course. “ As the article continues the observation is made that, “it is counterintuitive to stimulate change by grounding it in sources of reassuring stability or to focus on boundaries and control when the company wants to stir up new ideas.” These are the steps that are necessary, however, to battle the emotional response within the organization to move individuals through the stages of transition.
Instead, how do most organizations respond? Leadership, either from enforcement of a top-down control structure or fear of the organization’s response (perhaps due to a failed change initiative in the past) takes a “closed door” approach to the change. They are overly cautious about what they communicate and when they begin communication in an attempt to avoid employee and business disruption. They worry about having the strategy “correct” without realizing that no strategy can ever be correct without understanding the details within the processes. Rather than engaging the accounts receivable team in defining the problem and being a part of developing the strategy for solving the problem, they embark on the effort of devising the master plan for the “future state” without any in-depth input or knowledge of the “current state”.
A quote by Jeff Cole in his article, “Process Change – Are You Your Own Worst Enemy” paints the image the best. He reflects, “Organizations that can’t even play their scales right are attempting to play Beethoven.”
But organizations don’t have to be comprised of concert pianists, and change DOESN’T have to be so hard!
Managing change effectively starts with few simple steps:
1) Engage the team early on in the process, so that they feel like they are a part of the change effort not that it is being “forced upon them”
2) Leverage their knowledge of the processes, the current problems, and the needed improvements to frame the go forward strategy
3) Communicate, communicate, communicate, and
4) When you think you’re done, keep going. There are most likely some individuals within the organization still working through the transition stages.
If resources aren’t available internally to support the effort, then find external resources that can help. As we’ve referenced before, this is one of the most important investments you can make to ensure your project’s success. Gartner recommends that companies allocate at least an average of 15% of any project budget to change management and training. That may seem like a lot, but if it ensures the entire cost of the AR optimization effort and technology deployment is not a total loss because it was never adopted internally and ultimately shelved, it’s a good business decision to make the investment.
Have you recently undergone any changes within your department? If so, how did you handle them? Do you have any advice for those considering a change?