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The Rising Power of AI in Financial Services

July 24, 2018 by

Artificial Intelligence (AI) is already transforming the way in which financial services companies are doing business.

More and more of them are using AI to process the information on their customers, cut costs, save time, monitor behaviour patterns, assess credit quality, automate client interactions, analyse markets, assess data quality, and detect fraud.

A PWC Digital IQ 2017 survey found that 72% of business decision-makers believe AI will be the business advantage of the future.[1] About 52% said they’re currently making “substantial investments” in AI, and 66% said they expect to be making substantial investments in three years.

Franck Coison, Industry Solution Director, at international IT services company Atos, says the four main types of AI are facial and voice recognition, natural language processing, machine learning, and deep learning.[2] They can be used in chatbots, document analysis, process automation, or predictive analysis, he says.

Although robotic process automation (RPA) is increasingly common in financial services, it is usually used for quite simple, repetitive tasks, says Coison. “In contrast, AI can be used to automate more complex tasks that require cognitive, or ‘intelligent’, processes.

“While RPA is appropriate for back-office and accounting processes, when it is combined with AI, any process including customer-facing activities can be automated.”

That means it has great potential in areas such as customer service, sales and customer intelligence, IT services, fraud prevention, and cybersecurity, he says.

The PWC survey found that the adoption of practical machines that think is widespread in the financial services sector. Some banks use AI surveillance tools to prevent financial crime, and others use machine learning for tax planning. Many insurers use automated underwriting tools in their daily decision making and wealth managers offer automated investing advice across multiple channels.

A provider of next-generation investment analytics Kensho Technologies has for example developed a system that allows investment managers to ask investment-related questions in plain English, such as, “What sectors and industries perform best three months before and after a rate hike?”.[3] They receive answers within minutes.

AI is proving popular among banks too. Lloyds Bank, for example, has invested £3billion on its digital transformation initiative, which includes using AI to “simplify and progress modernisation of its IT and data infrastructure, as well as other technology-enabled productivity improvements across the business”.[4]

Terry Cordeiro, Head of Product Management at Lloyds Banking Group says AI has “completely transformed how the finance industry works, with the vision at Lloyds being to use smart machines for extending human capabilities while using data to respond.

“Automating processes means better opportunities to reduce costs for better decision making, and intelligent products mean that our customers are able to do much more,” Corderio says.

Earlier this year, NatWest Bank introduced ‘Cora’, an AI-powered ‘digital human’, which converses with customers in its branches.[5] Cora can answer more than 200 queries, covering everything from mortgage applications to lost bank cards.

The plan is to develop Cora so it can answer hundreds of different questions, as well as to detect human emotions and react verbally and physically with facial expressions. As well as being put in branches, Cora could be used by customers at home on their laptop or PC and, in the long run, on smartphones.[6]

Finance departments are also benefiting from AI. The insight into data that it can provide will be a competitive advantage, according to Matthias Thurner of the Corporate Performance Management and Business Intelligence solutions provider, Unit4 Prevero.[7] “For this reason, AI will become integral to finance functions in every industry,” he says.

As technology improves, AI will become faster and smarter at providing analysis, he says. Companies that don’t use it will be at a competitive disadvantage.

“Businesses don’t want to replace their employees, but they do want to make better financial decisions, and AI will allow them to do that faster and cheaper than a whole team of humans.”

It will enable skilled office workers to spend more time on their core competencies rather than maintaining data, he says. This will help organisations to reduce costs and the time spent on manual tasks or the classifying of data.

Likewise, FDs will benefit from AI data analysis, says Thurner. That’s important since there’s an increasing expectation for FDs to be a source of business insight. Boards want more frequent reports that contain more context and detail. Fortunately, they will be able to deliver more detailed and more frequent reports thanks to AI, he says.[8]

But it’s unlikely an FDbot will appear in finance departments any time soon. “We can expect machine learning to powerfully augment human expertise and experience in the near future even if that’s not a reality today,” says Thurner. “AI can provide data back-up and make suggestions to help the human decision-maker, but it’s the CFO who ultimately has to decide what to recommend,” says Thurner.

With so much potential in key areas of business, it’s no wonder that AI is being hailed as the Fourth Industrial Revolution.

“AI will have an impact as big as electricity and will transform every single industry,” predicts Cordeiro of Lloyds Banking Group.

To discover how a part-time FD will help your company, please call the FD Centre on 0800 164 8902 or visit our website now.

[1] ‘Artificial intelligence and digital labor in financial services’, PWC, https://www.pwc.com

[2] ‘Artificial intelligence: the new power in financial services’, Coison, Franck, Director of Finance, http://dofonline.co.uk, May 21, 2018

[3] ‘How Artificial Intelligence Will Redefine Management’, Kolbjørnsrud, Vegard, Amico, Richard, Thomas, Robert J., Harvard Business Review, https://hbr.org, November 2, 2016

[4] ‘Artificial intelligence ‘transforms financial services’, Alger, Leah, Software Testing News, http://www.softwaretestingnews.co.uk,June 19, 2018

[5] ‘How does NatWest keep up-to-date with online banking trends?’, Alger, Leah, Software Testing News, http://www.softwaretestingnews.co.uk, June 15, 2018

[6] ‘NatWest Bank tests Cora, an AI bot that will answer customer questions, Jones, Rupert, The Guardian, https://www.theguardian.com, February 21, 2018

[7] ‘Here are the human CFO traits that no artificial intelligence can replace’, Thurner, Matthias, Diginomica, https://diginomica.com, March 12, 2018

[8] ‘Do CFOs have what it takes to be AI educators?’, Thurner, Matthias, Finance Director, www.financedirector.co.uk, February 21, 2018

How to start building your “dream team” for helping your company Scale Up

July 18, 2018 by

Venture Capitalists, angel investors, bankers and private-equity managers may not agree on much, but there is one idea they share. They’d rather put their money behind a stellar management team even if it has a just-okay idea than put it into a brilliant idea implemented by a ho-hum management team.

If your company is seeking to break out of startup mode and into a period of aggressive growth, how do you go about building that stellar management team? You may need people with skill-sets, experience, and connections that are a few levels above those of the people who have helped you get this far.

It’s sort of like when you graduated from university and its pajamas-friendly environment and had to buy your first real ‘work’ outfit to start your “grown-up” wardrobe. What should be the first piece to add to your ‘collection’ of your management team that will take your company to the next level?

A CFO is the key to unlocking your future

You might think it’s best to start by recruiting top-level talent in Operations, Sales or R&D. And those functions are vital. But the foundation to it all is finance. Remember that “money makes the world go ’round.”

Looked at another way, a lack of money can stop your world from turning. What signs could exist to indicate that money issues might hold you back?

Your bank keeps calling to say that you’re close to violating your covenants on existing credit
Your head of Accounting shows up at your door a few too many times asking where the cash to cover payroll is
You don’t have a clear idea of what financial resources you have available in the near or long term, to fund working capital or investments
The account manager you’ve worked with for years gets transferred – and you find you have nobody at your bank to advocate for you

If you have the money issue solved, you’re free to implement your growth ideas – research new products, expand into new markets, offer new products to existing customers – confident that you have the financing to allow those ideas to happen. But how do you meet your financial needs in a way that works for your still-growing company?

3 ways to get the CFO you need

There are several ways to sweeten a cup of coffee – sugar, honey or a vast array of artificial and “natural” sweeteners. In the same way, there’s more than one way to get the financial expertise you need.

Promote from within: You can take someone who knows your financial picture – your head of Accounting, say – and move this person into the CFO role. You need to be sure that the person has the right skills and connections, because what makes a good CFO is different from what makes a good Controller. And, you need to back-fill the role that this person was promoted from.

Hire a CFO from outside: The second way involves hiring a full-time CFO from outside your organization. This person will come with the skills and connections you need, but at a cost – literally. The amount you must pay to attract top talent can throttle your company’s cash flow, exactly the problem you want to solve. And, top CFO talent may well be wasted on a midsize company. After the setting-up process is complete, your new CFO may get bored and start taking calls and meetings with search consultants.

Hire a part-time CFO: This solution (which is one that The CFO Centre provides) can give you the best of both worlds. You get an experienced CFO, often with a track record in your industry, and you don’t need to pay anything like the salary and benefits package expected by a full-time employee. Many experienced CFOs like having a part-time position – it gives them the flexibility and work-life balance they want, while still being able to get the satisfaction of helping great businesses succeed.

Our experience at The CFO Centre is that any company can benefit from someone in the CFO role, whether it is part-time or full-time. How that role is provided depends on the circumstances.

Feel free to contact us to see what we can contribute towards your thoughts regarding your company’s future.

How your business can fly away from cash problems

July 3, 2018 by

Do you ever feel that growing your business is like being a bird in a cage? Even if it’s a big cage, it’s still got its limits. For your business, that “cage” can be a lack of cash needed to let your business fly as high as it can.

It shows up when you’re hit with a lack of cash to hire new people, to move to larger premises, or to invest in R&D to upgrade your products. It’s your accountant warning that you’re short on money to make payroll or pay the rent, or your bank asking you to replenish your accounts.

Sometimes, cash flow issues intrude if business is slow, and your fixed payments such as rent and utilities eat up too much of the small amount of revenue that comes in.

But cash can also be a problem if your wildest dreams come true and you have too successful a business. If you need to hire staff, buy inputs like parts and raw materials, and buy and install equipment, that means a lot of cash going out if you’re to meet your customers’ needs (see our post on “Hypergrowth” for more on that).

Even if your customers pay right away, you’re still left holding your financial breath until that money’s in your bank. And you may need to hold your breath a lot longer if your customers take 30, 60 or even more days to pay.

Success-induced cash flow problems are particularly problematic for scale-up companies, because their cash shortages are often much larger than those of startups. Smaller companies can dig into their home equity, a personal line of credit or friends and family. But scale-ups’ cash demands are often too big for those startup-type solutions.

It’s like learning to swim – in the shallow end of the pool you can always put your feet on the bottom. But at the deep end, that’s not an option.

Learning how to deal with those deeper waters starts by understanding how your company can get into cash flow problems in the first place.

What causes cash flow problems?

According to the CFO Centre’s e-book “Cash Flow,” the main causes of cash flow issues are:

Slow-paying customers: Customers may be facing their own cash flow problems and may be inclined to drag their heels on paying your company. There’s often a gap between the time you pay for the inputs to your product – including paying your staff – and when your customers pay you. You may be reluctant to press for payment, partly because you don’t want to alienate or lose a customer, but some customers will take advantage of that.

High fixed costs: You may be paying too much in rent or payroll, because in the optimism of entrepreneurship, you expect to need that capacity sooner rather than later. But your “sooner” may be taking its time arriving. When in growth mode, you’re likely paying more for inputs and fixed costs than you’re bringing in as revenue, so all costs need to be monitored regularly to ensure that you’re not spending too much.

Your prices are too low: You may be trying to win customers, particularly in a market where prices are easily comparable, but if you’re not covering your costs or giving yourself a healthy margin, you risk running out of cash. Customers who choose only based on prices will likely jump to a competitor if you increase what you’re charging. Understanding your costs and developing your pricing model accordingly is critical.

Other common reasons include low sales volume, too-generous payment terms, bad debts and too much old inventory.

How to get the help you need to avoid cash flow problems

Most entrepreneurs would rather focus on growing the business than watching over the finances. That’s even more so as the business gets bigger, and the cash flow picture becomes more complex.

This means that growing companies can benefit from specialized financial expertise. Sometimes, that expertise is available within the company, but more often, it’s necessary to look outside.

A professional with financial expertise can help you recognize warning signs you may have missed as you focused on growing your business. This person can then help you find ways to deal with those issues, such as pressing customers for faster payment. There may also be opportunities for other ways to deal with your financial crunch such as vendor financing or R&D tax credits, that you may not have fully explored.

For many companies, that means a need for the skills of a Chief Financial Officer, but maybe without the price tag of a full-time CFO’s salary. A part-time CFO may be the answer – someone who is fully part of your leadership team, but on a basis that may range from a few days a month to a few days a week.

The CFO Centre’s “Cash Flow” book provides some suggestions on how to deal with possible cash flow problems, as well as describing your options as regards a part-time CFO.

Why Hollywood Actors Should Get Training from FDs

July 2, 2018 by

You shouldn’t be surprised to discover that Meryl Streep, Robert De Niro, Hugh Jackman, Gary Oldman among many other Oscar-winning actors and actresses bear a grudge against Finance Directors.

It’s easy to understand why. For although the likes of Streep and Oldman have achieved fame, fortune and critical acclaim, they can usually only inhabit one role at a time. They take it on for a few months and then move on to the next.

A great FD, by comparison, is the master or mistress of multiple roles and can switch between them easily and effortlessly. What’s more, they perform those multiple roles day in, day out for weeks, months and even years.

That’s because an FD is there to help the business owner achieve the company’s objectives by providing financial and strategic guidance to ensure it meets its financial commitments and to develop policies and procedures to ensure its financial management is sound. The Institute of Directors says the FD is “often viewed as the member of the board who creates a solid foundation upon which a business can grow”.[1]

It’s why a typical FD job advertisement features a huge list of responsibilities. These will often include the following and more:

Providing strategic financial leadership to optimise the organisation’s medium to long-term financial performance and strategic position
Contributing fully to the implementation of organisation strategy across all areas of the business, challenging assumptions and decision-making as appropriate and providing financial analysis and guidance on all activities, plans, and targets
Providing robust financial reporting and analysis to the Board of Directors, Finance, Risk and Governance Board and Corporate Management Team including the provision of financial support to strategic decision-making and transactions
Working with senior management to steer the business towards the goal of greater financial independence and sustainability
Providing cash management – monthly cash flow reporting and long-term strategic cash management
Overseeing the preparation of VAT and other statutory submissions
Developing and ensuring compliance with financial policies and controls
Presenting annual accounts to the General Meeting.
Risk management and reporting – maintenance of the organisation’s risk register ensuring control processes are fit for purpose
Developing an IT strategy that supports the organisational strategy.

Although FDs aren’t expected to be able to speak in an accent, swordfight or ride a horse as actors are, they are expected to have accountancy qualifications, excellent communication and interpersonal skills, the ability to manage complex stakeholder relationships and to provide strong attention to detail with commercial and strategic acumen.

So, as you can see, at any time during an FD day, the FD will be a sounding board/mentor for the CEO (and sometimes the only one to point out the flaws in a ‘blue sky’ idea), strategic advisor, bookkeeper, financial controller, risk management advisor, finance team leader, recruitment advisor and much more.

Being able to adapt to any one of the roles comes from experience. The FD Centre’s part-time FDs, for instance, have all had years of experience working in large corporations. They’re used to working in complex, demanding environments and switching roles as the need arises.

Unlike actors, FDs don’t perform as they do for applause or for a gold-plated statuette (although many would be very, very happy if you offered to pay them in real gold bullion). They do it to help business owners like you take your fledgeling business to new heights of success.

What’s more, you can be sure that the FD you hire won’t ever pull you aside before or during a meeting to ask, “What’s my motivation?” *

To discover how an FD Centre part-time FD or CFO will help your business, contact us now on 0808 164 8902. To book your free one-to-one call with one of our part-time FDs, just click here.

* [Note: No Oscar-winning Hollywood actor or actress was harmed during the writing of this article.]

[1] ‘What is the role of the Finance Director?’, Factsheet, Institute of Directors, https://www.iod.com, May 2017

Strategically Outsource to Maximise Efficiency and Productivity

June 4, 2018 by

If you’re looking for a quick way to cut costs, boost efficiency and improve productivity then consider outsourcing one or more of your business’ support processes.

Outsourcing has many benefits and can give you a greater competitive edge in your market. It allows you to tap into a large international talent pool and benefit from external expertise. Your outsourced providers can provide services, innovative approaches, and the latest technology along with cutting-edge solutions that your in-house team might be unable to provide.

It also allows full-time employees to focus on your company’s core competencies. And it means you have lower operational and recruitment costs. The cost savings you achieve with outsourcing can help you to release capital for investment in other areas of your business.

But outsourcing does have its downsides. For example, there’s a risk in allowing outsourced providers to handle confidential company data, whether that’s the details of employees or customers or competitive information. Under the GDPR, companies will be held responsible for any third-party data breaches. The penalties for such breaches will be stiff. What’s more, any data breaches will dent your company’s reputation and damage your brand.

Then there’s the risk that the output will be sub-standard or that delivery time frames will be stretched. Both would damage your company’s reputation and possibly result in lost sales. And there’s a danger that unless the outsourcing is carefully managed, the expected cost savings won’t materialise. This was the case for the UK government. Its programme to outsource back-office functions ended up costing taxpayers £4 million. Officials had predicted the programme would save up to £400 million a year, but after two and a half years, it had saved just £90 million but cost £94 million.

It’s for these reasons many companies are still reluctant to consider outsourcing.

That’s a shame because if the outsourcing is well-managed, the benefits will far outweigh the risks. Take the Alibaba.com e-commerce website, for example. Today, it’s known as the world’s biggest global marketplace but in its early days, its founder Jack Ma had to outsource the website development to a US company. At the time, he couldn’t find development talent in China whereas developers in America had the skills he needed. It also allowed him to overcome the Chinese government’s tight internet restrictions.

Google is another giant that also outsources work to IT specialists, developers and virtual assistants. At one point, Google outsourced phone and email support for AdWords, one of its top-grossing products, to about 1,000 external representatives.

The founders of the hugely popular WhatsApp Brian Acton and Jan Koum also hired the services of external providers. In their case, they used the services of an iPhone developer Igor Solomennikov for the core development work on the app.

What can you outsource?

You can outsource any or all of the following:

Administrative tasks such as data entry, typing, travel arrangements and scheduling.
Lead generation and customer service including cold calling
Marketing including content writing, direct marketing, website design, brand development, press releases, social media, blogging and search engine optimisation
IT Directors
Sales Directors
Legal Directors
Human Resources including recruitment and the management of employee benefits
Accounting and financial duties including bookkeeping, invoicing, accounts payable and receivable, payroll processing and financial reporting. You can, for example, hire a part-time Finance Director who knows how to finance a business, deal with growth, present meaningful monthly numbers and get the best deals from banks.

It means you get a highly experienced senior FD with the experience and knowledge to help you plan, manage and control business growth. The FD Centre will provide you with an FD with ‘big business experience’ for a fraction of the cost of a full-time FD.

To discover how an FD Centre part-time FD or CFO will help your business, contact us now on 0808 164 8902. To book your free one-to-one call with one of our part-time FDs, just click here.

10 Ways To Resolve Your Cash Flow Problems

April 18, 2018 by

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes like Carillion.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you protect your company from future cash flow issues?

1. Cut Costs

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments. You could also reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better payment terms.

2. Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

3. Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

4. Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans

5. Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow. You can also claim the lease expense.

6. Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

7. Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Think of it this way: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

American entrepreneur Nolan Bushnell says a sale is a gift to the customer until the money is in the bank.[1]

8. Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

9. Get external funding

You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

10. Hire a part-time Finance Director

A part-time FD from the FD Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your FD will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also make decision-making over whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

Put an end to your cash flow problems now by calling the FD Centre today on 0800 169 1499. To book your free one-to-one call with one of our part-time FDs, just click here.

[1] ‘Finance for the Non-Finance Manager’, Siciliano, Gene, McGraw-Hill Companies, Inc., 2003

Can Your Company Pay a 20 Million Euro Fine?

March 20, 2018 by

Could your company afford to pay a 20 million Euro fine or to lose 4% of your annual global turnover?

It’s a question you should be asking because it’s the penalty that your company will face if you fail to gain your customers’ consent to process their data or deliberately breach their privacy under the EU’s General Data Protection Regulation (GDPR) which comes into effect within weeks. All companies in the EU regardless of size or sector and all those that deal with data from EU citizens wherever those companies are in the world must be compliant with GDPR by May 25 this year.

Less serious violations of the GDPR such as not having records in order or failing to notify supervisory authorities of a data breach within 72 hours of the incident, will incur fines of 2% of the offending company’s global turnover.

Even if your company could shrug off the impact of such fines, the news that it didn’t protect customers’ data could still cause irreparable damage to your reputation and affect your future business.

Then there’s the chance your company may have to compensate your customers. That’s because the purpose of the GDPR is to put individuals in control of their personal data and to empower them to choose how (and if) businesses use their data, so they will have increased rights to legal recourse and even claim compensation.

For these reasons, it’s critical to do everything possible to prepare for the GDPR and to ensure your company is fully compliant by May 25.

Worryingly, many companies are unprepared for the deadline. For example, security chiefs at FTSE 350 and Fortune 500 companies revealed that over half are not ready for the new regulations, according to a survey conducted by international law firm Paul Hastings.[1] Likewise, more than 90% of the UK’s small businesses won’t be compliant come May 25, according to a study carried out by the National Federation of Self Employed & Small Businesses (FSB).[2]

It seems GDPR unpreparedness is a worldwide condition, according to an article entitled ‘GDPR: the numbers don’t lie – the world isn’t ready’.[3] In a round-up of global markets, it revealed Computerwoche, a German IT publication, found only 2% of German companies are prepared; The Independent reported that Irish firms said meeting GDPR compliance would be ‘challenging’ or ‘extremely challenging’ and Le Monde Informatique reported less than 10% of French companies were GDPR-compliant.

Unfortunately, ignorance is no defence in law. If your company is not yet compliant and you know it can’t afford to pay the massive fines for data breaches and their fallout, it’s time to put your skates on—time is running out.

The Steps You Must Take

Analyse the data your company holds and determine where it is, whether you need it, and who in the company has access to it. Find out your core sources of data. You need to know how your company manages the risk of duplicating data, inaccuracies with data, and the failure to delete data that is outdated.

Look at the data you share with third parties—clients, suppliers, partners, and regulators. With GDPR, you must understand and manage the risk of transferring that data. More importantly, you are responsible for ensuring that data is protected by any third party.

Let your customers or clients know the lengths to which your company goes to ensure their personal data is protected. It could be the thing that sets your company apart from your competitors and the reason customers or clients choose you so is well worth doing.

Ensure that your company is not using clients’ personal data for anything more than what they agreed to. If they agreed to sign up for your newsletter, that’s not permission to sell their details to a third party, for example.

Let clients or customers know the ways you use their data. Explain why you need it and with whom you intend to share it. Be aware that your customers or clients may withdraw their consent whenever they like. Make sure you acknowledge their requests for removal from your data bank with an email.

Make every effort possible to protect the data you hold about your clients or customers from organisational and technical risks. You need to ensure everyone within your company is aware of the external forces that could disrupt your business and that you have a strategy to deal with it.

If your organisation deals with large amounts of client data, consider appointing a Data Protection Officer. This person will liaise with regulators, maintain the right level of privacy awareness within your organisation and monitor your company’s GDPR-compliance.

[1] Fortune and FTSE Companies Underestimate GDPR Compliance by May 2018, New Research Shows, Paul Hastings LLP [US], https://www.paulhastings.com, December 15, 2017

[2] ‘Ninety per cent of small firms still not prepared for new data regulation, new research shows, National Federation of Self Employed & Small Businesses Limited, https://www.fsb.org.uk, February 26, 2018

[3] ‘GDPR: the numbers don’t lie – the world isn’t ready’, https://gdpr.report, January 30, 2018

How To Avoid New Year’s Goals That Destroy Productivity

January 12, 2018 by annbeldia

A funny thing happens on January 4^th. It’s the day traditionally when people decide the mammoth New Year goals they set with such high hopes well and truly stuck.

They look in the mirror and see that despite FOUR DAYS of exercising and dieting they are still not marathon or beach-ready.

By January 5^th, the new running shoes will have been pushed to the back of the wardrobe and the bathroom scales will have been shoved out of sight. A new bottle of Prosecco will have been put in the fridge alongside a monster bar of chocolate. And the New Year’s New You’ goals will be quietly shelved for another year.

In business, goals tend to be longer-term and even more audacious, designed to really stretch and motivate employees. So it usually takes months rather than days for the insanity of the ‘stretch goals’ to become apparent to everyone except the person who set them.

Stretch goals are an ineffective management practice, says renowned behavioural psychologist Aubrey Daniels in his book, ‘Oops! 13 Management Practices That Waste Time and Money. Stretch goals are met only 10% of the time, he says.

Failing to reach stretch goals can have a detrimental effect on employee morale, says Daniels. Performance declines when people repeatedly fail to reach stretch goals.

The consequences of setting and then missing stretch goals can be profound, agree to management professors Sim B. Sitkin, C. Chet Miller, and Kelly E. See, who have carried out extensive research on stretch goals.

“Our research suggests that through the use of stretch goals is quite common, successful use is not,” they write in the Harvard Business Review.[1] “Failures can foster employee fear and helplessness, kill motivation, and ultimately damage performance.”

They say only successful companies should tackle stretch goals. If a company has just surpassed an important benchmark in the industry or in its own recent history, for example, it’s well-positioned to tackle a stretch goal.

“Winning affects attitudes and behaviours positively. When confronting an extremely challenging task, the employees of recent winners are more likely to see an opportunity, systematically search for and process information, exhibit optimism, and demonstrate strategic flexibility.”

Companies that are experiencing weak results should steer clear of stretch goals, they say. “Their employees are more likely to see a stretch goal as a threat, grasp for externally sourced quick fixes, exhibit fear or defensiveness, and launch new initiatives in a chaotic and ultimately self-defeating fashion.

Daniels says despite his findings, it’s difficult to convince executives about the danger of using stretch goals.

“I get more push-back from executives about stretch goals being a waste of time and money than any other thing I’ve written. Executives believe stretch goals will motivate people to do more than they would have if they didn’t set goals. It’s not true.”

So, if stretch goals rarely work, what can you use in their place?

How to Set Productive Business Goals

Setting realistic goals that motivate employees to do more is more successful than stretch goals, says Daniels.

The key to setting such goals is to:

Keep it simple. Focus on one or two things at a time. “Trying to accomplish too many things at once prevents you from being able to do any one of them well,” says Daniels.
Define clear actionable behaviours. Decide what needs to be done to accomplish the goal. Break down the steps into concise actions that need to be taken.
Set many mini-goals. To boost the likelihood of success, break the big goals into smaller, more achievable ones. “Positive reinforcement accelerates performance and therefore, the more reinforcement opportunities available, the faster and greater the improvement.”
Forget stretch goals. If the goal is too high or too difficult to achieve, people will get discouraged and give up.
Celebrate! Every time that a milestone or goal is reached, reward and recognise your employees. “Recognising even incremental progress towards a goal provides more frequent opportunities for reinforcement,” says Daniels. “The more reinforcement, the greater the likelihood the desired behaviour will be repeated, and the more likely achievement of long-term goals will be made.

“Making accomplishments visible and sharing them publicly—when appropriate–creates more reinforcement from peers, groups, and management teams who recognise and acknowledge your success.”

Set SMART goals

Make sure the goals are small, measurable, achievable, relevant, and timely.

How to set goals for your business

Before embarking on any goal-setting activity for your business, you need to know the current state of your business. Fortunately, the FD Centre offers free financial health checks. You can find out more here or call us at 0800 169499.

[1] ‘The Stretch Goal Paradox’, Sitkin, Sim B., Miller, C. Chet, See, Kelly E, Harvard Business Review, January-February 2017, www.hbr.org