Posts tagged: Finance Transformation

How Finance Can Improve at Influencing Business Decisions

These days the pressures and challenges a business faces are constantly changing and the finance function, along with the organization as a whole, must be ready to adapt.

Finance must act as a navigator and support business leaders with information and analysis about the organization’s position and course, contribute to strategic decision-making and enterprise performance improvement.

In other words, finance must partner more with the business and help create value.

To fulfill these new responsibilities, it is important for finance professionals to acquire a new blend of skills that will enable them to partner more effectively with other business areas and exert greater influence on the company’s strategic and operational decisions.

In order to remain relevant and become better at influencing business decisions, finance should do the following:

1. Embrace a forward-looking and commercial view of the business

Influencing business decisions goes beyond tracking and reporting the numbers (traditional financial reporting).

At the core of effective decision support is developing a deeper understanding of the drivers of these numbers and making these numbers work for the business.

Unlike conventional finance teams that focus on historical numbers, effective business advisors take a forward-looking and commercial view of the business and provide strategic insights based on industry and macro-economic trends and competitor dynamics that drive better business performance.

They combine various enterprise performance management (EPM) techniques and methods to examine business performance, interpret and explain to decision makers what the numbers mean for the long-term success of the organization.

It is this understanding of what is required to be effective in the role that differentiates successful effective business partners from the less successful ones.

2. Remain close enough to the business and its operations

Finance is increasingly being called upon to provide decision support on key strategic and operational decisions.

Thanks to automation, the majority of routine accounting processes are now automated and streamlined, leaving enough capacity for finance to focus on value-add activities.

Effective business partners have extensive business acumen that extends the realms of the finance function.

For example, they have a clearer understanding of sales, marketing, R&D, supply chain, and production, which enables them to proactively and confidently support these business areas.

They have a natural interest in the business and how the different parts of the organization fit together to complete the puzzle.

They are also inquisitive with a desire to understand a broad range of commercial and macro-economic issues and the implications these have on business performance.

Effective decision support professionals also have higher levels of credibility and trust with business leaders.

They are able to engage in extensive dialogue with decision makers, challenging constructively their assumptions and decisions to ensure the business is managed in the long-term interests of all stakeholders.

It is through these engagements with business leaders that effective finance business partners have managed to build a reputation for themselves and secured senior management business partnering buy-in.

3. Develop and improve on the soft skills necessary to fulfill the role

In addition to the core finance and accounting skills, key decision influencers also possess commercial insight and strategic thinking combined with influencing, communication and leadership skills.

Commercial insight enables them to stay abreast of developments in their company, industry and the wider economy. These insights in turn help the organization to proactively seize opportunities and mitigate any new threats.

Communication skills are essential for effectively presenting financial data and the decision it supports to non-finance people.

When invited to the decision table, effective business advisors are able to listen attentively to the ongoing dialogue, interpret correctly different scenarios, influence current choices and challenge management thinking to drive better decision-making.

In today’s dynamic environment, repeatedly asking key performance questions and challenging the status quo is key to making effective and reliable strategic and operational decisions.

Not every finance professional is destined to be a strategic business advisor. Some finance people are interested in the technical matters and therefore prefer working under SSC and COE models.

However, where the strategy and structure of your organization allows collaboration and views finance as a co-pilot, it is important that business leaders conduct a skills analysis gap to determine the skills currently available and those that are needed to build the business in the future.

This will help you strike the right balance between recruiting to bring new skills and developing existing finance team members to become effective co-pilots.

4. Know who your internal customers are

Effective finance teams have clear knowledge of who their internal customers are, and they are constantly working to ensure that the needs of these customers are met.

For example, the stakeholders that other finance professionals (such as business controller, financial accountant or reporting accountant) represent are different from those served by the business analyst.

Knowing who your customer is helps you focus your efforts only on those tasks that are critical to them and capable of adding value.

It is foolhardy to have a business performance analyst spend the majority of their time, say on account reconciliations, instead of on providing objective and independent analysis of how the business is performing and advising managers on what decisions must be made to improve performance.

5. Focus on continuous improvement

Transforming finance into an effective decision support function is not a once-off project with a start and an end date.

Instead, this is a continuous process aimed at focusing resources and finance talent on activities where they can have a real impact.

It’s important to have a set of performance measures that are monitored and evaluated against goals in specific decision areas, as this will help you to monitor progress, highlight performance misses, and determine ways of improving.

Since the decision influencers are always close to the business, it’s also important to regularly seek feedback from business managers to see if they are meeting their expectations.

Becoming great at influencing key business decisions is not about the title one holds, rather, it is about continuously adding strategic and operational value to the business.

Finance in the Digital Age

The face of the finance function is changing every day but do we really understand what this means in reality? I love to mentor young professionals and offer them advice that can help them propel their careers forward. One of the many questions I often get asked is “With all the technological advancements taking place, what does this mean for current and future finance professionals, including the finance function as a whole?”

A lot has been written about the current digital revolution taking over specific jobs performed by humans and making them redundant. One of the jobs being accounting and finance. No wonder finance professionals are worried whether they will still be in employment in the next five years, ten years or not too distant future.

Think of robotics, artificial intelligence and machine learning. These new technologies can replicate humans and perform rules-based, repetitive activities.

Traditionally, finance professionals joined the finance organization via the accounting route. An individual would go to university, earn a Bachelors in Commerce, upon graduating register with a professional accounting body such as ACCA, CIMA, CPA and CMA. Undergo a three-year training program and bingo, your finance career is birthed.

Fast-forward to the current digital age. The finance landscape has significantly changed. Rapid environmental changes, shifting customer behaviours and technological breakthroughs are all turning business models upside-down and upending conventional wisdom. This new operating model demands finance professionals to have a different skill set.

Having technical competences alone is no longer a hundred percent determinant for success.

We now live and conduct business in a hugely connected and better informed world. Thanks to social media and IoT. Social media is allowing us to stay in touch with colleagues hundreds of miles away from us. Through IoT, buildings and other items are now technologically connected allowing data to be gathered, exchanged and analysed to generate key decision-making insights.

Cloud is Driving Finance Transformation

Cloud-based applications are enabling CFOs to do more with less, at the same time modernizing and transforming finance. These solutions have the capability to integrate external data and optimize decision-making. They allow finance executives to have full data visibility, identify correlations and trends, as well as key drivers of operational performance and financial outcomes.

One example of cloud-based solution that is making waves is Syft, a cloud analytics platform that directly links into your existing accounting cloud software and instantly generates easy to interpret graphs and reports for your business.

The challenge for many CFOs today is unlocking critical business insights from their data. The insights they are looking for lay buried in disconnected, legacy ERP systems that are struggling to keep pace with today’s information needs of the business. Most of these legacy systems operate in silos and do not communicate with each other.

In the ongoing digital revolution, integration is the new information paradigm. Where silos were the norm, organizations today must seek to share critical data among business operations to manage costs and coalesce company strategy.

Not only does cloud integrate external data, it also simplifies the cost structure of the business, help forecast with greater precision and potentially close books faster. In addition to having analytics embedded within the applications, these cloud-based financial systems are designed from the ground with the end-users’ real-time information requirements in mind.

This is different from the traditional ERP systems that lack customer specifications and customization, and are build for standard adoption. In today’s information age, organizations have different information needs, specific to their strategic direction and are not keen on adopting the herd mentality.

Investing in cloud computing and SaaS often results in reduced finance and IT costs mainly because of reduced up-front capital expenditures. With cloud-based applications, the focus shifts from capital expenditures to operational expenditures (subscription-based) as there is no need to have the financial system set up on business premises.

Unlike traditional, on premise financial systems which require the software providers’ IT support team to visit your offices to service or upgrade the system, cloud-based platforms are easily updated remotely allowing you to always work with the latest version, with current features and functionality.

This way, you avoid getting billed for call-out fees and other unnecessary servicing costs.

Reinventing the Finance Function’s Wheel

Technology alone is not the silver bullet, it is an enabler and empowers finance professionals. Rather than look at the ills of this new digital age, why not look at the opportunities presented? Higher demands are being placed on finance to transition from a back office reporter of the past to a trusted business advisor.

In most companies, finance is spending considerable time and effort gathering data and getting to the right numbers instead of analyzing what the numbers mean. In these organizations, a lot of emphasis is placed on transactional processing and reconciliations as opposed to insightful analysis.

Thanks to the digital revolution, finance has an opportunity to move up the value chain. But what does this digital transformation really mean? Does this mean entirely changing what finance does within the business? No. Finance is a decision support function to the business and will always remain so.

What digital transformation means for finance is that the function should take stock of its current deliverables, evaluate priority areas and establish where value should be delivered most, and how, arguably by leveraging new technologies.

This also involves building upon the existing talent and skills. Individuals with a strong technical background still have their place within the function. But what we are saying is that the organization’s talent base must be fit for purpose in this digital age, and aligned to areas of value creation.

Having a finance workforce that is tech savvy, diverse, connected, curious about how the business works, asks the right operational and commercial questions, and understands the application of disruptive digital technologies to drive automation and insight will differentiate great finance functions from those that are simply good.

Build a Positive Business Case for Digital Investment

Companies that have fully grasped the opportunities presented by the current digital revolution are allocating significant resources to IT budgets. The future finance function will have robotics and automation at the core. It is therefore advisable that CFOs jump on the train before it passes through their station.

Just because your organization is not investing in digital does not mean that your competitors are also not. Lessons can be learnt from the demises of Kodak, Blackberry, Borders and Nokia, only to mention a few. These companies failed to set pace in a rapidly changing technological environment and they all paid dearly for their slumber.

CFOs must therefore build a robust strategic business case for investing in digital and the advantages of harnessing its power. This helps secure the much-needed buy in from senior management. The later group must be made aware why it is critical for the organization to transition to the current digital ecosystem.

If the CFO is able to articulate the complexities the business is currently facing and how they can be addressed by investing in digital, then getting the thumbs up from senior management will not be very onerous.

This is a make or break time for many organizations. The ball is in your court, to either maintain your old-fashioned systems or inadequate business processes or invest in today’s modern systems for future strategic success.

Finance’s Role in Managing Enterprise Risks

The risk landscape is changing fast. Risks are multiplying at an alarming rate threatening to cause both financial and reputation ruin to the business. Because of this increasing risk complexity, there is a heightened focus on effective risk management.

Senior management and board members are consistently looking for a deeper understanding of the organization’s risk profile and how various risks to the business are managed.

Risk management is an enabler of higher level performance.

Without taking risks, organizations cannot grow and achieve strategic success. Risk is no longer something to only dread, minimize and avoid. Instead, leading organizations are using risk management activities to create value and help them improve their businesses.

It is therefore critical to ensure that efforts to mitigate the downside impact of risks are coordinated with efforts to manage risks that support business growth.

As a strategic thinker, the CFO should play an important role in helping other executives and the board get a deeper understanding of the organization’s key risks and risk management capabilities. He or she can help build an ERM framework that is entrenched in the organization’s management processes and functions.

A well-structured and coordinated ERM framework provides support and guidance on risk management activities, helps identify and manage enterprise risks holistically and makes risk consideration an inherent part of key decision-making processes. On the contrary, a siloed approach to managing risks exposes the business to significant risks and value erosion.

Unfortunately, in most organizations, risk management is a disjointed process. Multiple functions are managing one or more aspects of the company’s risk profile, and there is minimal coordination with each other. For instance, each function carries out its own risk assessment process using different risk terminologies, methodologies and reporting practices. Decision makers are overwhelmed with more than one versions of the truth.

The problem with this approach is that it often leads to confusion on the true meaning of risk, duplication of efforts, unnecessary bureaucracy and costs and poor risk decision-making processes.

When there is a common risk language across the enterprise better decisions are made, for example, concerning market entry, new products and acquisitions. This often leads to reduced earnings fluctuations and increased stakeholder confidence.

Build a clear picture of significant risks.

As the role of the CFO continues to evolve into a more business-partnering one, it is imperative that the finance organization is rightly equipped to proactively identify all the potential risks and defend their businesses.

What are the key risks to the achievement of your business objectives? Do you have the required risk management capabilities to address this risk profile? Who is responsible for monitoring and reporting risk information to decision makers?

Thus, the CFO and his team need to consistently assess, improve and monitor the way the organization manages its evolving risk profile. The risk assessment process must provide actionable and real-time insights on inherent risks and link them to the organization’s objectives, initiatives and business processes.

A thorough risk assessment process helps identify and prioritize risks that require urgent monitoring and mitigation. It also allows for the testing of existing internal controls and identification of opportunities for improving controls and risk mitigation strategies.

On the other hand, insufficient risk management processes can lead to costly lawsuits, significant financial losses, massive reputational damage and fly-by-night financial reporting, which can raise fundamental questions about the business as whole, its management team and viability.

An effective continuous risk assessment and management system therefore requires the team given the responsibility to do so to develop thorough knowledge of the company’s strategic objectives, operations, products, services, risk history, internal environment and its external environment.

Some organizations are leveraging data analytics tools to access forward-looking data from a range of sources, generate insights about changing market conditions and behavioural changes, evaluate metrics and integrate this real-time information to build risk models and forecasts as well as comprehensive risk strategies.

Coordinate and align business processes.

Risk management activities should be a key element of normal business operations. For this to happen, there must be top management buy-in to the business case for embedding risk strategy into the day-to-day running of the business as well as enhancing risk management performance.

It is therefore important to receive clear communication, proper oversight and accountability from senior management and the board concerning risk and governance. This will ensure that a common risk framework and universe is embraced and implemented across the organization.

Maturity models and benchmarks of leading practices can be used to help management determine the existing state of their organization’s risk management capabilities and define the desired state.

As one of the organization’s senior executives, the CFO should play a leading role in defining risk management objectives and embedding risk principles into the business processes. They can leverage their analytical and communication skills to broadcast to the business the benefits of risk management and the disadvantages of inadequate risk management processes.

The CFO plays a critical role in establishing the organization’s risk appetite, determining how the business will measure risk and ensures risk taking is within the acceptable risk thresholds of the organization.

By regularly reporting risk information and coverage to business unit managers, a risk aware culture is embedded in everyday business practices, and this in turn will help business managers understand the implications of their decisions on business performance.

I welcome your thoughts and comments.

Raising the Internal Profile for Finance

Businesses today are operating in an increasingly complex, volatile, uncertain and competitive environment. To cope with these challenges, organizations are increasingly calling on their finance teams to move beyond their traditional role of historical performance reporting and start providing more forward-looking decision support.

In the past, businesses have focused more on lean accounting practices to achieve profitability growth. However, there is a tipping point for these measures.

Organizations are realizing that they can cut costs only up to a certain level and for a certain period. In the long-term, cost cutting alone is not sustainable.

Because of this, there is increased pressure on the organization to find other ways of stimulating growth, for example, expand into new and unfamiliar markets.

Unfortunately, organizations cannot nosedive into a new market without first understanding its strategic and operational dynamics. A deeper understanding of the markets and the competitive landscape is necessary.

Finance can play that important role of providing enriched, reliable and objective information to senior management to enable them make successful strategic investment decisions.

To successfully play this strategic business partnering role, finance personnel must start working towards raising their profile within the organization.

The perception that finance is a back office function is still large, and for this to change, finance must increasingly support business managers and contribute to company performance.

Finance is a lot more than measuring income and costs

Finance teams are under pressure to improve business performance and help the company grow in the midst of the current economic conditions and challenges.  To be able achieve this, finance personnel need to recognize that their responsibility goes beyond the realms of number crunching.

There is a difference, for example, between reporting the revenues made by the business and understanding the key performance drivers of those revenues.

Revenue is more than a number. For instance, do you have an understanding of the level of risk that is being taken by the business against this revenue? Also, how much capital is being allocated for this revenue?

It is therefore critical that finance develops a detailed understanding of the revenue drivers, and move beyond evaluating past financial performance and help the business grow by providing high quality analysis and actionable recommendations that are fact-based and real-time.

The starting point for finance executives is to perform a thorough and objective analysis of their finance talent mix.

Whereas in the past it was ideal for the finance function to only be filled by accountants and auditors who are naturally transaction-oriented, the modern finance function requires a different skills composition.

There is need of personnel with more capabilities in strategy setting and execution, operational experience, advanced analytics and a broad business perspective.

How can finance expect to provide good advice and decision support to the business if it lacks enough knowledge about its business, industry and the competitive landscape?

Finance must take a supportive approach to the business

It is no secret that in many organizations the image of the finance function is tainted. There is a large perception that finance stifles business growth by constantly looking for problems and saying “no” to strategic investment decisions. By taking a supportive approach to the business, finance can create a positive image for itself.

Instead of being viewed as the policemen of the organization, finance personnel must strive to improve their identity and become the trusted strategic advisors of the business.

Business leaders are constantly looking for information capable of helping them get a better understanding of the profitability of each customer, segment, market or geography they operate in and how they can improve that performance.

Finance can act as a source of this information. It is therefore important for these leaders to find the analysis, information and recommendations produced by finance useful.

To avoid being labelled “bearers of bad news”, finance must learn to bring objectivity to the discussion table. In other words, finance must bring a different perspective and help business managers view the future differently.

For example, leveraging on the function’s analytical rigour, finance can help forecast trends and conduct business reviews aimed at anticipating market movements, future disruption and opportunities.

This in turn helps the organization allocate resources more effectively and effectively, and drive value creation.

Create Centres of Excellence

Many finance functions across the globe are not adding strategic value to the business as much as they would love to. This is mainly because of their current focus. Findings from numerous studies have revealed that finance executives are spending the majority of their time on non-value add transaction recording and reporting processes.

However, some finance organizations have managed to get it right. In order to free up time on value-add activities, they have created and implemented shared-service centres that bring together certain functions (e.g. procurement, customer services, audit, payroll, tax, treasury etc.) under one roof and also created Centres of Excellence aimed at improving future performance, for example, Financial Planning and Analysis (FP&A).

This integration of different functions enables finance not only to reduce costs but also to collaborate more with the business and supply high quality and more timely information.

By spending more time with the business, finance can move beyond simply observing the impact of decisions made by business managers and be directly involved in the creation of that value.

Routine transactions and processes are being automated via Robotic Process Automation (RPA) technologies. At the same time, our current data-driven economy is leading companies to invest in advanced analytics.

This is also freeing up time for finance to focus more on data analysis and insight generation. However, business leaders must understand that investing in technology alone is not enough.

The organization still needs trained and experienced analytically finance personnel to bring the best out of the system.

I welcome your thoughts and comments

Providing Effective Decision Support: What CFOs Need to Know

One of the challenges facing today’s finance executives in transforming the finance organization from a back office function into a successful front office strategic advisory role is a shortage of talented finance professionals and leaders.

Without the necessary finance talent and an operating model to support finance transformation initiatives, it is increasingly difficult for CFOs and their teams to effectively influence business decisions.

Have An Effective Finance Talent Strategy

The skills necessary to successfully influence strategic decisions are different from the skills required to fulfill finance’s stewardship and operator roles.

It is therefore critical for CFOs to take stock of the current talent and evaluate whether the available talent is capable of moving the business forward.

Although in most organizations the HR function is responsible for overseeing the overall talent strategy of the organization, it is critical for the CFO to collaborate with HR to determine Finance talent needs and allocation with the function.

The CFO is in a better position than the HR Manager to know and understand the skills required to drive Finance effectiveness.

In one of their CFO Insights publication, Deloitte identifies critical questions that Finance leaders must answer prior developing their organization’s finance talent strategy:

  1. What knowledge, skills, abilities, and experiences do we need now? Where do we need them? How many do we need? When do we need them?
  2. Which skills will be most critical to our business in the next three years? Five years? Longer term? How are these skills and skill mix changing?
  3. What are the specific competencies that we need to develop in our finance workforce, from both the technical and leadership perspective? Are there new competencies required in both finance and the business generally?
  4. What are the “people” or talent programs, policies, and practices necessary to realize both those technical and managerial competencies? Can we leverage or build upon what HR already provides, or do we need something new or unique?
  5. Why would somebody join our company’s finance department, given the high demand of finance professionals? Why would they stay? What makes our finance function a career destination rather than a career way station?
  6. What is my role and those of our finance leaders and C-suite colleagues in fostering a talent experience within finance that emphasizes the right combination of development, opportunity, and work-life balance?

Honestly answering the questions above will help you identify strengths and weaknesses in your current talent strategy and act as a starting point for a successful transformation journey.

It’s imperative to have an effective strategy that not only supports Finance, but also the broader strategy of the business.

Effective Decision Support Goes Beyond Reporting on the Past

Reporting on the past alone is not enough. Finance professionals must also be able to extract meaning from the numbers and influence business decisions.

This requires the function to increase its commercial acumen as well as improve its leadership and influencing behaviours.

The CFOs role is more than producing management accounts. It is not about putting data together but asking the right questions. The CFO must be able to interpret the numbers produced, have a good understanding of all the facets of the business and be solution-focused.

Thus, Finance needs to stop focusing on historical backward looking data (descriptive analytics), and leverage predictive and prescriptive analytics for better decision-making. Are you looking to the future through the use of leading key performance indicators?

You need to be a good story-teller and help executives understand the drivers of the numbers and map the future and its outcomes. Are you helping your CEO look at the future differently?

Finance Transformation is a Journey, Celebrate Small Wins

Transforming the finance organization into a successful strategic advisor is a journey and not a once-off initiative. There will always be room for improvement.

It is therefore imperative that CFOs take a strategic approach to adding value.

Instead of tackling all decision support opportunities at once, they need to collaborate with the business and identify requirements, challenges, priority areas and activities.

By focusing on these priority activities, Finance will be able to focus attention on what is critical, allocate resources accordingly, deliver real value and prove the function’s add-on value to the business.

As a Finance leader, care must be taken that you are engaging your team in many activities at once as this will probably cause your team to lose focus and produce sub-optimal results, which in turn will relegate Finance back to the back office.

Small wins will result in further collaboration opportunities in the future.

Get the Basics Right the First Time

If the numbers are not right the first time, then it becomes difficult for the CFO to build credibility and become a strategic advisor.

Although there is increased demand on the CFOs to be more strategic in their approach, stewardship and operator roles still remain critical and must never be regarded as non-critical.

These roles still play a critical role in delivering the broader Finance strategy of the business.

Creating A Value-Adding Finance Function

As the demand on CFOs to provide real-time analytical insights, support senior management decision-making and become valuable strategic business partners continue to increase, a strategic transformation of the finance function is necessary.

Depending on whom you converse with, some finance professionals prefer to use the term finance transformation whereas others do not. It’s not the term you use that matters most but rather creating a more effective finance function that delivers sustainable value. It is about creating a finance vision that is aligned with the business and supports the organization’s strategic direction.

A number of challenges are confronting CFOs and keeping them awake at night. Challenges such as; market fluctuations, increased innovation and disruption, new technologies radically changing business operating models, increased shareholder scrutiny and public demands for transparency, complex regulatory operating environment, increased risk landscape etc.

In the wake of these challenges, the finance function has to evolve from being a transaction processing function to a value-adding function. There is need for finance to have improved ability to respond to opportunities and risks as a result of better financial insight and forecasting.

At the same time, finance must be able to implement new improved processes that enhance value and leverage new technologies and business models capable of delivering more efficient and effective services.

Although the doctrine of finance transformation started years ago, the light at the end of the tunnel is still a distance away. Quite a number of organizations have started the journey of reinventing their finance functions and are failing to reap the benefits of their efforts.

Some of the common reasons why many finance transformations fail include:

  • Focusing too much on finance costs as a percentage of revenue. In many organizations, there is this widespread tendency of viewing the finance function more of a cost centre and less of a profit. Instead, finance should view itself less a cost centre and more of a profit centre because of the reports and expert advice the function provides. Playing a strategic role requires finance professionals to look beyond costs and focus more on providing analytical insights that drive strategic decision making. Gone are the days where finance professionals were expected to spend their entire day in their cubicles glued to their computer screens. Today’s partnering role demands finance to go out there, build solid relationships with business unit leaders and help them advance their business plans and goals by providing them the data and analysis needed to execute their individual responsibilities in achieving corporate strategy.
  • Viewing finance transformation as a once-off activity. Reinventing the finance function is not a once-off initiative with a stop date. This is a journey and a way of doing finance which must be ingrained in the organization’s culture. As mentioned earlier on, a number of factors and challenges are disrupting the business today and with disruption comes opportunity and risk, both inside and outside the organization. It is therefore critical that CFOs are adaptive to this disruption. They should be able to determine what the potential disruption and risk to the organization and to the finance function is should things do not go as planned. Does your organization’s finance function have the ability to detect changes in the business direction and help bring the organization’s vision into reality?
  • Lack of collaboration between the organization’s different functions. Collaboration is critical if finance is to keep up with the changing needs and strategies of the business, instigate change and create sustainable value. The challenge is on CFOs to initiate cross-functional dialogue, lead cross-functional teams and build consensus throughout the organization. The CFO should be able to communicate to the business unit leaders the cause-and-effect of their actions on each business units’ strategy as well as the overall corporate strategy.
  • Lack of C-suite buy-in and support. Creating a cost-efficient and more effective finance function should fit into the company’s larger strategy. The CFO should be able to translate the finance vision to other members of the C-suite and explain how finance can help boost growth and increase shareholder value. This necessary to secure C-suite buy-in and support which is critical for driving the transformation initiative throughout the organization. Senior management buy-in is also critical for reducing change resistance at the middle and lower level ranks.
  • Creation of shadow costs. In order to become cost-efficient and effective, the finance organization has to deliver new processes, improve old ones and standardize disparate finance practices. This has led to some organizations adopting Shared Service Centre (SSC) business operating model and centralizing certain processes with the idea of reducing waste, eliminate duplication and ultimately reduce costs. For example, in these organizations, there is a centralized procurement centre for all global business units. The challenge arises when certain business unit leaders still want to own their procurement processes and do not want to transition to the centralized unit. There is always this fear that the centralized procurement centre will compromise existing long-term supplier relationships. If anything goes wrong in the early days, there is a tendency by business unit leaders to appoint someone to focus on procurement at a local level. Instead of reducing procurement costs, more costs are being added which in turn is counterproductive to the centralized procurement objectives.

In the past, most finance transformation processes have focused more on delivering efficient services (reduce costs, automate processes and remove non-core functions)  as opposed to becoming more effective (delivering more insightful analytics, providing better business intelligence and enhancing financial flexibility).

However, if the finance function is to properly transform, both efficiency and effectiveness objectives must be balanced. Finance professionals must be able to define the objectives of their transformation efforts to include both value creation and efficiency outcomes. Start by asking the following questions:

  1. What opportunities are there for us to reinvest savings from efficiency initiatives and create an effective finance function?
  2. How can we shift the mindset of our people and enable them to spend more time on analytics and value creation vs. transaction processing and data gathering?
  3. Do we have the right resources and the right operating model for effective service delivery and processing?
  4. Is there any duplicated work within our global finance function and if there is how best can we address this?
  5. What are the expectations of our internal clients from the finance functions?

Successfully answering these questions will help you come up with objectives and targets based on what value the finance function can provide throughout the organization as opposed to having narrowly defined objectives and targets based on unit costs as a percentage of revenue.

It is therefore critical for finance professionals to increase their business acumen in order to transition from being scorekeepers to valuable business partners who are not reactive but rather providers of forward-looking and insightful analysis that assists the organization in planning, strategy and decision-making. It is also important that finance provides one version of the truth when it gives its detailed analysis and reports.

Although the finance function has to transition to a strategic business partner, this does not necessarily mean that the function abandons its stewardship role. Having the ability to create and enforce the rules and controls of the organization is still an important role for the CFO.

In order to successfully balance their stewardship and strategic partnership roles, CFOs must be able to measure and evaluate the efforts spent on controls, performance management and operations.Transformation of the finance function involves risks. It is therefore important to balance the long-term benefits of the transformation initiative against the short-term risks inherent in the change process. Thus, proper controls must be put in place to mitigate risks.

Finance transformations must be business-led and not technology-led. Remember the finance vision must be aligned with the overall strategic direction of the organization.

Many organizations make the mistake of driving their change initiatives from a technology point of view. Although technology is a key enabler of transformation, it is not a panacea. Before buying and implementing any software, CFOs must first build a business case for their initiatives and then look for the most suitable technology that supports and helps deliver the business outcomes.

Looking at the end-to-end process vs. immediate compatibility of the technology will better serve the organization in the long-term.

It is also important to note that people play an important role in transformation initiatives. Technology can only be as good as people who operate it and interpret the outputs.

CFOs will therefore need to conduct a detailed analysis and evaluation of their current resources and capabilities and realign these to deliver the services and competencies that are required as a resulting of the transformation.

In today’s VUCA world, finance transformation is critical if finance is to keep up with the changing needs of the business and play that critical business partnering role.

It is time that finance professionals move outside their comfort zones, get their hands dirty together with operations and become the expert advisors to senior management. They must start implementing structural changes that both reduce overall complexity and provide greater flexibility, insight and value throughout the organization.

Maximizing The Value Of Shared Service Centres

Over the last decade or so, finance shared services have become a vital part of the finance function for most large multinational organizations. The increase in SSCs investment has been driven mainly by business leaders looking for simpler, leaner internal structures that allow the organization to focus on its core competencies as well as ensure finance makes a real contribution to the business decisions.

Most routine transactional processes are now run from these SSCs freeing resources for finance to focus on core issues such as strategy, risk management, business process improvement, financial planning & forecasting, performance measurement, performance management and other value-adding activities.

Despite increasingly popularity of SSCs over the past years, research has revealed that the majority of these centres are still struggling to deliver the promised benefits. Unfortunately, for many organizations, the initial zeal that accompanied their introduction has ebbed leaving centres to stagnate or even decline. Although not an exhaustive list, below are some of the reasons attributed to this poor performance and what must be done to improve SSCs performance:

  • Poor processes and lack of standardization across systems. Despite setting up and maintaining SSCs, some processes are run and maintained at a local level instead of at regional or global level. In order to deliver the promised benefits, SSCs must encompass global processes, systems and data as this helps the business to leverage its extent.
  • Lack of investment in technology which often leads to many business improvement programs failing to fulfil their potential. Technology is an important enabler to driving standardization and improving quality. For example, instead of limit its use to certain basic tasks such as document scanning and workflow, SSCs can make greater use of technology and extend its use to tasks such as issue management, calls and skills routing, CRM, electronic invoicing and master data entry.
  • Poor investment in people. The lack of career opportunities for employees in SSCs is one of the chief reasons for higher turnover rates. When employees feel they are not part of the business, quality will be compromised and people will leave. It is therefore important that the SSC is viewed as an integral part of the business. Furthermore, management must introduce succession planning programs within the SSCs and rotate staff into the broader finance community. External training in process improvement should also be made a priority
  • Inadequate performance measurement systems for the SSC. The “us and them” culture often leads to poor interaction of the SSC with the rest of the business leading to poor service quality. In most organizations, there is no dialogue between the customer (business) and the SSC. Senior executives must support the SSC model, interact with the business regularly and drive continuous improvement to service quality. There is need to put in place a series of KPIs to measure the effectiveness of the specific SSC. It is therefore important for organizations to shift their thinking on how they evaluate the success and failure of the SSC. Getting regular feedback on service performance and responsiveness is vital if SSCs are to deliver their promised results.
  • Geographic and language constraints. Although many organizations have set up SSCs in low cost locations such as India, for the long term success, SSCs must move beyond cost reduction to deriving value from efficiencies and service quality. It is important that that management periodically reviews its sourcing strategy, such as the most appropriate location. A certain location might initially appear as low-cost but then the limited track record of most of its service providers might prove expensive in the long run. Geographic location also has a bearing on the time zone. This difference in the working time zones has to be considered as well if the SSC is to deliver benefits otherwise a relocation to a time-friendly zone might be required which in turn might also prove expensive.

Improving SSCs performance is all about centralizing processes, standardizing them and then continuously improving them. On a regular basis, it helps to send SSC employees into the operations to get a feel of how the operations are doing and what is critical. If the SSC team lacks the understanding and knowledge of how the business and its processes work, then it will fail to perform well since the team will only be focused on a certain portion of the business.

Once the processes are working well, management must start looking at other areas across the organization where the SSC may deliver additional value.

I welcome your thoughts and comments.

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