PK Improvements

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Dr. Peter Kundinger

The Internal Audit as Change Agent

The activation and successful implementation of organizational change

Executive Summary

1) The Internal Audit as Change Agent

One major entrepreneurial success factor in gaining added value is a company‘s ability to innovate and change. Like each entrepreneurial function, as well Internal Audit (IA) is obliged to deliver an added value to the company in which it is operating. Consequently, one way in which IA can contribute to a company‘s added value, is supporting innovation and change on an entrepreneurial level. IA can accomplish this objective in two ways:

in encouraging those attributes, which are typical for innovative and change-minded companies. These characteristics of an innovation-friendly company (in this approach called „CIF“) can be identified in the fields of an innovative management/organization, handling of knowledge, corporate culture and eventually, influenced by aforementioned factors, an innovation-friendly behavior of organizational members;

in supporting concrete change processes occurring usually in form of timely limited projects

Depending, if change is encouraged either in terms of concrete change projects or in terms of the „CIF“, various activities performed by an Internal Audit as Change Agent can be distinguished. They are captured in the following componenent of an IA innovation function:

  • the inition function (ITF), if change processes are initiated by IA;
  • the process creation function (PCF), if change processes are accompanied by IA;
  • the process review function (PRF), if change processes are reviewed retrospectively by IA.

In order to be enabled to act as a Change Agent, competencies so far known in the areas of Change Management or Organizational Development, must be available as well within IA. As far as those competencies are not yet available in IA departments, they have to be previously created with the help of a sustainable qualification process.

Taking over the role of a Change Agent, several consequences are arising for IA:

  • caused by the new role, objectives, activities and competencies of an Internal Audit function are extended, but may not go beyond the scope of established IIA professional standards. Therefore, the role as Change Agent must be included in common IA standards as well as in the CIA qualification framework.
  • Since it contributes to adding value to a company, the Change Agent role will generate a new market for all competitors delivering IA services. Therefore marketing measures are getting more importance for the Internal Audit function.
  • Finally, IA departments have to adapt innovation-friendliness, symbolized by the „CIF“ as well as by change management methods, for their own way of working.

2) Preface to the approach

In a lot of discussions, the term „innovation“ appears as a key success factor for sustainable ecomonic growth and entrepreneurial success. In fact, innovation can be amongst other factors (like a companies‘ market position, productivity, liquidity or operating profit) a recipe to add value, which is the overall objective in a competitive environment. Therefore as well innovation must be within the focus of business processes and activities.

And since any organizational function is required to deliver a contribution to a companies‘ prosperity, as well Internal Audit activities must keep an eye on innovation. Even more, since Internal Audit (IA) in the nature of its business ideally has an excellent overview about a companies‘ activities, processes, structures and, last but not least, key players.

Furthermore, even if this may not always has been in the consciousness of its stakeholders, a value adding IA function so far always played a certain role in terms of entrepreneurial innovation: isn’t any recommendation arising out of operational audits literally a potential basis for a subsequent innovative process? Presumed that the implementation of a recommendation requires change in terms of a company‘s business process or organization, the answer to that question is obvious! However, since that conclusion is so stringent, it is surprising that neither in fundamental literature nor in the daily IA business, the role of a Change Agent is carried out sufficiently! As a consequence, the potential of each Internal Auditor to encourage organizational change so far is not (properly) used, and much less optimised!

Assumed that certain characteristics or attributes are required from an Internal Auditor to play the role of a successful Change Agent, in the following as well this aspect will be put into the spotlight. Frankly, it can be stated that as well so far a good auditor anyway needed certain (social, intercultural etc.) skills in order to gain valuable information in interviews before and during operational audits. But as well after the pure adressing of recommendations, communicative and cooperative skills are required to deliver proper consultancy about how to implement recommendations.

The goal of this book is to deliver a comprehensive overview about goals, potential activities as well as individual requirements of an IA acting as Change Agent. After the exposure of the fundamental framework and presumptions referring to IA as well as Innovation/Change, the characteristics of an innovation-friendly company („CIF“) are introduced. Subsequently activities, in which Internal Audit can contribute to entrepreneurial innovation and change, are embedded in three independent but synergetic fundamental components. Eventually, required competencies for an Internal Auditor acting as a Change Agent are carried out.

Grafically the components of the approach can be shown as follows: