Steward Leadership: Differentiate Strategic from other Financial Roles

Posted by Matthew Thomas

matthew-thomas-2Essential to any financial strategy, no matter whether an enterprise is upscaling, downsizing, or trying to hold a line, is the differentiation of financial roles between strategy, management, and procedure. Most enterprises focus on the procedural: making sure there is adequate separation of roles and powers to reduce the risk of fraud or theft. While certainly an essential part of any organization's structure, this procedural role differentiation is only a small part of the whole. It is also, of course, commonplace to group procedural work by task: Accounts Receivable, Accounts Payable, General Ledger, Payroll, and so forth. This is because a certain degree of efficiency can develop from task repetition and focus, as Henry Ford demonstrated long ago. Modularizing tasks and separating powers is often a technical solution to snarled bookkeeping and accounting. So whether procedural roles sub-divide along tasks or certain powers (or, usually, both), this kind of role takes up most of the "best practices" manuals and accounting standards most enterprises focus on.

 

The management and strategy roles, then, tend to get less attention. Part of the reason for this is that they tend to operate outside the finance and accounting departments and non-financial-titled people often are responsible for them. Nevertheless, to maintain organizational excellence and implement creative, innovative approaches to challenges, steward leadership requires that strategy and management roles must have their due.

 

Like what you're reading? Subscribe Now! Strategy roles often reside in the executive-level staff and the governing board(s) and/or other accountability structures which work on behalf of the owner(s). Strategy begins with the overall financial model in which the enterprise operates. Questions of financial goals, where money generally comes from, where it gets expended, where profits go, what does long-term growth, sustainability, and viability look like - these are strategic questions. Specifically financially-titled executives support the chief executive's capacity to develop strategy within the owner(s') and governing body's parameters.

 

These strategic roles are supported by those in the management roles. Management roles provide the forecasting, planning, analysis, and reporting functions that support the overall enterprise. They also provide the day-to-day decision making within strategic parameters to advance toward longer-term goals. They work at the trend level, observing trends and intentionally working to create trends within their scope of responsibility. Some of these roles may have explicitly financial titles (like Financial Analyst, Office of Budget), but others may not.

 

One of the reasons that many enterprises end up focusing on procedure, even when they want to develop and manage strategy, is because the normal financial reports most accounting systems produce are quite procedural, and many organizations try to use the same, basic reports at all levels. In smaller enterprises, this happens easily since the roles are not very differentiated, and so people who work at a procedural level often are asked to report at the higher levels. And some executives and managers, fearing to reveal their own (perceived or real) lack of financial savvy, just go along with it.

 

Our free Financial Services Roles Tool groups these three types of roles - strategy, management, and procedure - from top to bottom. Using the tool, steward leaders can list out the different needs of their organization at the various levels, and define who is doing what role. It's usually best to start with the procedural roles and work up - procedural roles are easier to define, and the rest may take some thinking and working. Don't be surprised if there are gaps! Don't be surprised, either, if certain roles exist as outside contractors rather than within the organizational chart.

 

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Topics: financial confusion, Matthew Thomas, financial management, Financial Health,, Financial roles

Steward Leadership of Financial Pinch Points

Posted by Matthew Thomas

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matthew-thomas-2I have worked in a number of settings recently where it appears that the different aspects of the enterprise's operations are in competition with one another for resources. For instance, a service organization constantly wrestled with balancing the needs to pay staff against the expenses of running programs and maintaining a facility. As part of its mission was to reach out beyond itself in support of other organizations, the funds needed to do this also competed with the staff, programs, and facilities. Each part of the organization felt the financial pinch.

Like what you're reading? Subscribe Now! We have discovered that many service-oriented enterprises (across sectors and industries) wrestle with these balances between staffing, programs, facilities, and outreach. Balancing these four areas is part of active steward leadership, and steward leaders face this acutely in their role as managers on behalf of owners. Pinch points like these can hurt the entire organization when the different parts are set in competition. We are often called in to work to resolve the organizational pain this causes.

In these settings, we find the balance easier to maintain if the following is true:

  1. FivewaystofindFinancialBalanceLeaders budget forward from income, rather than backward from current expenses.
  2. This planning leaves room for margin so as to be able to maintain core operations despite fluctuations in cash flow.
  3. Plans tie programs and facilities together as a cost since most programs require facilities to house them. (Travel costs are also included here.)
  4. Growing organizations (or those intending to grow) maintain at least 15% in outreach funds against the other two areas.
  5. Leaders recognize that staffing will almost always be a greater portion of the remainder (vs. facilities and programs), even in volunteer-oriented organizations. However, if the program / facility portion is less than 10% overall, the organization may either be over-staffed or have under-developed programs and potentially deferred maintenance on facilities.

When we conduct our financial health assessments, we find that the balance between these areas can fundamentally shape the organization's outcomes. Steward leaders who want to meet the ownership goals for their enterprise continually look toward the capacity of their enterprise to meet them. Keeping these areas all in balance can improve both short- and long-term outcomes and impact.

 

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Topics: becoming a steward leader, financial confusion, Financial Leadership, steward leaders, steward leader, steward leadership, Financial Health,

Steward Leadership as Owner-Centeredness

Posted by Matthew Thomas

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matthew-thomas-2Often, when I hear someone speak of "good stewardship of resources," I find that it is really code-speak for a cost-centered approach to finances or personnel. It's a euphemism for "it costs too much."

Many leaders see stewardship as managing scarce, non-renewable resources in a way that doesn't do too much damage to the environment, the people around us, our organization, or the bottom line. Seeing stewardship as damage control creates a focus on costs, often above all else.

The issue is that good stewardship isn't about cost-centeredness. It's not even technically about return on investment, either, although that is closer to the mark.

Good stewardship is about focusing on achieving the owner's (or owners') goals, within the means constraints the owner(s) have provided. Only then can ROI and cost figure in.

Like what you're reading? Subscribe Now! A focus on costs often diverts stewards from the owners' real goals, and could prevent steward leaders from achieving the owners' outcomes. It tends to stifle creativity as direct cost control prevents alternative ways to achieving goals that still fit within the owners' constraints. 

SixSteward-OwnerQuestionsSteward leadership invites creativity on both sides of the ledger: if something has a high cost, is there a way to engage in a model that either offsets that cost or leverages that cost to accomplish something bigger? Or is it truly just resources being thrown away?

See why cost-centeredness leads to a fundamental confusion about budgets, here. 

Steward leaders value creativity because this best reflects the level of trust and freedom to make decisions with which the owners have invested them. Owner-centeredness allows these leaders to rise above cost accounting (which is often a short-term issue) and move to a more balanced, creative approach.

I find it helps for me to think through the following questions:

  1. What are the owner's (or owners') goals?
  2. What are the stated constraints?
  3. How can I use what they have given me to accomplish these goals?
  4. If at first I think they haven't given me enough, are there creative ways to leverage what I have to do more?
  5. How does this specific item (project, initiative, etc.) fit into the larger picture?
  6. How do I maximize the results the owner or owners seek?

The answers to these help me design healthy financial practices and systems into the work I do, so that we can meet the long-term ownership goals, rather than just focus on specific item costs. Next time you are thinking through a budget, a new initiative, or a project plan, try these questions out. See how they change the conversation!

 

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Topics: leadership, becoming a steward leader, financial confusion, stewardship, steward leaders, steward leader, leader, steward leadership, Four Financial Confusions,, Financial Health,

Reflections from #CLA14 for Organizational Leaders

Posted by Matthew Thomas

Two weeks ago, I had the opportunity to present a workshop called “Overcoming Four Financial Confusions” at the Christian Leadership Alliance Kingdom Outcomes conference #CLA14.This annual conference offers great speakers, powerful training and continuing education experiences, and broad opportunities for networking with many Christian nonprofit and church leaders. If you are a Christian nonprofit or church leader looking to network with other leaders and learn from a variety of experts in fields that strengthen your leadership, CLA’s conference is the place for you. Check out their website here for more information on the conference they have planned for next year in Dallas, TX.

In our workshop two weeks ago, the material I presented covered the “4 Financial Confusions Infecting Nonprofit Leaders” e-book by Design Group International CEO Mark L Vincent. (You can get your free copy of the e-book by clicking on the button below. The original series of articles is here.)

4 Financial Confusions Get the free e-book

The feedback from the 100+ people at the workshop indicated that the Four Financial Confusions are alive and well in executives of churches and nonprofits, no matter the size. A number of CFOs from a variety of ministries were in attendance, and indicated that while, of course, they understood these confusions, often times their CEOs, Pastors, and boards did not, and this creates organizational tensionabout how to move  forward. Several of the CFOs expressed that their organizational leaders often accuse them of a lack of faith because of their preference for using their accounting expertise to manage ministry’s finances. Having sat in both seats – as an executive and as a CFO, I have lived that tension from both sides, and I can certainly relate.

matthew-thomas-2In larger churches and faith-based non-profits, executive and financial roles, responsibilities and procedures are often well developed – by necessity, to maintain their optimal size. Nevertheless, the tension about the role of the financial leader vis-à-vis the rest of the executive team often still exists. Sometimes this is a personality conflict between the types of personality underlying visionary leaders and the typical accounting types; but many times it goes deeper than that: often it is truly a difference in theology of finances between the CFO and their financial staff on the one hand, and the CEO and the rest of the organization on the other. This tension is one we hope to address in future resources and articles.

In small- and medium-sized churches and non-profits, this tension exists alongside the additional complications of less role differentiation and often less developed financial procedure and process. These added complications often make it even more difficult to find the clarity to move their mission forward than for larger nonprofits.

For those organizations, we would like to offer two additional resources. The first is our Financial Roles Map, a resource developed a year or so ago that can help enterprises of all sizes determine the roles they need to fill – even if several must be filled by the same person to start with. It is available below.

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The second is a brand-new resource, the Four Financial Confusions Workbook, that helps leaders working through the Four Financial Confusions material with examples and exercises to gain clarity around how they might move forward organizationally. It contains basic curriculum material tuned toward group process that works alongside the Four Financial Confusions e-book. We would like to provide it to our readers free, for a limited time. Click the button below to get your copy!

Get the Four Financial Confusions Workbook

Together, the three resources presented in this article can give you the capacity to strengthen your mission by clarifying your perspective on money and its management. We hope these resources are useful as you continue the valuable work you do.

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Topics: financial management confusion, financial confusion, Financial Leadership, Matthew Thomas, financial confusion of nonprofit leaders, Four Financial Confusions,