No one plans to make a mistake and when we do, it is very frustrating and discouraging. But when we really look, what do we find behind those mistakes?
What causes someone to make an error at work?
Before we go into the answer to that question, which can be tricky when we consider how every work situation can vary, let’s consider the following concept. The graph below shows an inverse relationship between process or procedures implemented at a company and the competency required to complete a task (This is derived from Figure 5-1 of the Innovator’s Solution which shows Product Architectures and Integration). The key point of the Innovator’s Solution graph which led to the thoughts behind the figure below is the existence of a Performance Gap or a Performance Surplus.
In the same way, internal processes, or the standardization of work methods, exist in a way that creates a performance surplus or a performance gap among staff. From what I’ve seen, startups tend to exist on the left side of the graph where no Process requires highly competent individuals. When little process exists, internal knowledge (or tribal knowledge) of “how things are done” is required to complete tasks. On the other hand, when clear processes exist, employees are able to tackle different and more complex problems. Large and mature companies, therefore, exist on the right side of the graph where processes are well defined and work can be delegated.
As companies grow, the volume of work requires that processes be established to facilitate the completion of work by more individuals. Clear definition of “who does what when” simplifies work and reduces chaos, while standardization of work methods allows small companies to scale by creating deterministic processes which ensure accuracy.
Accounting, for the most part, is simple. Entering the information from a bill into any accounting package is straightforward and requires little complicated analysis. However, Finding and fixing an incorrect entry is quite the opposite, and tends to throw accountants into bouts of procrastination.
One of the challenges with scaling finance is that the accounting function must be stable and correct; completely free of mistakes. Before diving in and assessing the competency of individual employees, the first step is to identify where a company is regarding Process or Procedures.
1. Process or Procedures: In accounting, there are three basic processes: order to cash, procure to pay, and record to report. Each of these processes can be designed and documented in a way that reduces the possibility of error by working within well defined procedures.
Small companies tend to be low in process while large companies tend to be high in process. This can lead to a performance gap in startups when accountants are recruited from larger companies. For accounting roles and tasks, competency required is relative to the standardization of work methods. Moving an accountant from a structured (large company) process into an unstructured (small company) process can cause someone who experienced success (performance surplus) to struggle and fail (performance gap).
As a company begins to scale, leaders are responsible for developing the processes that provide the link between strategy and execution.
2. Competency: When there is a performance gap between Process and Competency Required, errors become more and more common. Accounting, unlike other departments, never stops. Features can be pushed to the next release, deployments can be delayed to the next month, and sales can move to the next quarter, but payroll must run on schedule, bills must be paid, and invoices must be sent. Stopping day-to-day tasks to standardize how work is done is outside the scope of an accountant’s role and capacity.
The documentation of accounting processes (who does what) is necessary in order to understand where the errors are coming from. The need to standardize work methods while working at capacity creates significant issues when new processes are needed to scale an organization. However, if an accounting process is well defined and stable, the manager must decide if the competency issue can be solved by additional training or if the employee needs to be reassigned.
Managers work within defined processes and are responsible for execution.
3. Stress: Error, and the possibility of error, can create a significant amount of stress for accountants and can cause the whole department to spiral out-of-control. Delaying any of the day-to-day accounting tasks is not an option without increasing stress levels. Instead of delaying a task when errors exist, causing inaccuracy, a workaround is implemented and an open-loop (which is a nice way to say stress for the accountant) is created. A common example is reconciling cash using Excel and not the company’s accounting program.
When competent employees working within well-defined processes begin to make errors, it may be because of stress. Stress can take many forms, and the solution to that stress can come from many places, depending on the specific issue. If the employee is experiencing stress at home, either a divorce or sick family member, then the manager should reassign the employee to a less demanding role or create a temporary redundancy to ensure accuracy. If stress is coming from chaos at work, then the manager and leader need to investigate alternative solutions.
One of the most common stressors of small company or startup accountants is the availability of cash. I once heard an entrepreneur say “your job should get easier when there isn’t any cash to worry about.” Unfortunately, accounting gets exponentially harder due to cash constraints, primarily because of the stress that it causes. Consider for a moment, the small company controller who must delay expense reimbursements or vendor payments so as not to miss payroll. All the while, keeping cash issues hidden from co-workers.
While the accountants are responsible for performing their assigned jobs to the best of their ability, ultimately, it is the leader’s role to prevent errors resulting from stressed-out employees.
Accuracy is critical in building a strong, scalable accounting and finance function, but before making drastic changes in staffing or process, identify which of the three root causes is behind the mistakes you are observing. Companies are more likely to succeed in scaling operations when they continually improve the standardization of their work methods and create alignment with the competency of their staff.