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Is Your Finance Function Ready For Change?

Last month, CFO Research in collaboration with the business process management firm WNS, released a report on the Finance Function’s Readiness for Change.

The report is worth reading and discusses how finance organizations can prepare themselves for the corporate and market demands of the future, and help their companies realize full value from data and drive business performance.

As the volumes of financial and performance data continue to increase, pressure on the finance organization to help senior managers and decision makers make sense of this data is also increasing. Instead of hiding behind the scenes, CFOs and their teams are being challenged to become strategic business partners and add value to the business.

If the finance organization is to add value, the function has to quickly adapt to the changing business landscape and become agile.

According to the Finance Function’s Readiness for Change report, in order to play a critical role in the future, the finance function has to develop and improve in four areas:

  1. Finance operating model
  2. Automation of finance processes and activities
  3. Governance, risk and control (GRC) structures and processes
  4. Adoption of sophisticated analytics and digitization

Improving the Current Finance Operating Model

Of the surveyed respondents, 60% plan to shift further towards a more centralized and standardized finance operating model. By adopting this shared services center model, finance chiefs are expecting to cut down on complexity, reduce costs of finance and improve the overall control and management of finance processes.

Other benefits indicated by the respondents as accruing from adopting an advanced and centralized finance operating model include improved working capital management, reduced risk from a more controlled and stable operating environment, improved company-wide operations, increased revenue and an overall improvement in business performance.

Shifting from a basic to an advanced operating model requires a well crafted finance strategy and execution abilities. The finance strategy must be aligned to the broader strategy of the organization, and ensure it contributes towards its achievement. You don’t want to have a finance organization that is solely focused on achieving its goals and objectives at the expense of the overall corporate strategy.

Also important to note is that cost reduction should not be the sole purpose of moving towards an efficient finance operating model. Improving finance operations is also about freeing finance from spending more time on routine, non-value adding activities to focusing more on value-add activities. Getting finance involved in the operations of the business and support effective decision-making processes.

 

Automating Finance Processes and Activities

As per the survey results, to be successful in the future, 57% of the surveyed finance executives agreed they will need to boost their current levels of finance process automation.

When asked to consider the potential benefits from achieving advanced automation capabilities, respondents identified two benefits as the most important:

  • Realizing efficiency gains in transactional processes such as order-to-cash, procure-to-pay, record-to-report, and cash management; and
  • Adopting digital performance management tools (e.g., dashboards and visualization; customized management cockpits for planning, budgeting, and forecasting; profitability and cost management).

Depending on the size and scale of the organization, it is worth looking at your finance processes and review the level of manual data intervention processes and activities involved.

Automating your organization’s finance processes and activities will enable you speed up transactional processes and reduce the number of costly errors arising from manual interventions.

How many times have we heard of companies that lost millions and millions of money due to spreadsheet errors?

When it comes to embracing new technologies, it is critical to understand that new technologies are an enabler for decision-making processes. Many senior executives tend to believe that implementing the latest technologies will instantly work magic for their organizations, which unfortunately, is not the case.

Just like the finance strategy above, the IT strategy must also be aligned to the broader strategy of the organization. What solutions are you seeking from the new technology or system? Are you trying to improve your budgeting and forecasting processes? Are you seeking to efficiently collect and organize data in ways that provide management with better decision-making tools? Maybe you want to develop and improve your reporting structures and ensure faster period closing?

More often, when implementing new systems, senior managers tend to go for the household names just because everyone is using the same packages. The result is that you end up embarking on costly implementation projects for a system that is standard to the industry but not specific to your organization’s needs.

It is therefore critical to first conduct a thorough cost-benefit analysis and then shop around for the right technology or system that addresses your needs at the right price.

 

Improving Governance, Risk and Control (GRC) Structures and Processes

The environment in which business is conducted today is very volatile, uncertain, complex and ambiguous (VUCA). As a result, companies are exposed to a wide array of risks, and if these risks are not identified, assessed, managed and monitored properly, there are far reaching consequences on the overall performance of the business.

Surprisingly, two-thirds of the survey respondents view their current GRC structures and processes either at an intermediate level (61%) or at a basic level (5%), whereby there is a huge reliance on non-standard processes and individual judgement-based metrics or mix of standardized and non-standardized processes for global or functional needs, meaning we are still a long way from reaching the ideal position.

The report also mentions that “The primary benefit from improved GRC processes, selected by 48% of respondents, is seen as ensuring compliance and avoiding personal liability”.

I have a problem with the above statement. First, the term “GRC” itself causes a lot of confusion to many people. To some, “GRC” stands for Governance, Risk Management and Compliance. To others, “GRC” stands for Governance, Risk Management and Control.

When the primary benefit of “GRC” is seen as meeting regulatory compliance, definitely there something which is very wrong. “GRC” goes beyond that.

According to OCEG, “GRC” is the integrated collection of capabilities that enable an organization to reliably achieve objectives while addressing uncertainty and acting with integrity.

This definition therefore calls for effective board operations and the alignment of strategy formulation, performance management, risk management, compliance and internal audit processes as well as the other aspects of organizational governance to ensure they are all working towards one common objective.

When “GRC” is aligned to the broader business, high-risk potential areas can easily and quickly be identified, in turn enabling the organization to be more proactive as opposed to being more reactive.

In other words, “GRC” should be seen as supporting effective decision-making processes instead of being seen as a box-ticking exercise that is conducted once or twice per year.

Finance executives have a critical role to play here and ensure that one definition of “GRC” applies through-out the organization and also that “GRC” is promoting the right behaviours and driving business performance.

 

Adopting Sophisticated Analytics and Digitization

New advancements in technology such as analytics, digitization, artificial intelligence and machine learning are disrupting business models and those companies that have thoroughly done their homework and tapped into these new technological developments have already started seeing and reaping the benefits.

Much has been spoken and written about finance becoming the analytics powerhouse of the organization. Unfortunately, this will not happen unless finance makes a firm a decision to change it’s identity and become the real business partner sought after by senior decision makers.

The finance organization is used to reporting on what happened in the past. However, in today’s fast-moving business environment, maintaining a competitive advantage requires the function to become forward-looking, as well as develop a real-time understanding of changing conditions and markets. This can be achieved by adopting more advanced analytics and digitization technologies and tools.

While respondents from the survey plan to implement technological capabilities for advanced data mining and predictive analytics, it important to have a clear strategy and execution plan. You first need to identify your data analytics needs and the questions that you are seeking answers for.

Yes, it is true that these new technologies have the benefits of reducing operational costs, improving operating margins, improving performance reporting and  overall decision making processes. However, the challenge with advanced analytics and digitization projects is selecting and implementing the right tool that will help you achieve all the benefits above.

It is not a matter of just choosing one technology over the other based on gut-feel. You need to conduct a cost-benefit analysis and the value add to the business of the new technologies and tools. Do you have enough resources to allocate to the project?

How familiar are you with the project? If your organization does not have experience of implementing advanced analytics, it is recommended that you start with a pilot project before going full-scale.

How easy is it to integrate the new technology with the current systems and processes?

You have to ask as many questions as you can as this will help you make the right decision.

 

Digitization will be a priority for finance moving forward. Thus finance executives should be prepared to make the case for how digitization can support the advanced analytics that will be necessary to drive future competitive advantage for their organizations.

This is a fine document for preparing the finance function for the future. But are finance professionals ready to adopt the changing new role and drive business performance?

I welcome your views.

 

 

 

 

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