3 key components of a world-class finance function and how to optimize them
September 8, 2021
How would you describe a world-class finance function? If you think of adjectives like reliable, competent, efficient, consistent and impartial, you have a vision of a trusted partner who empowers your organisation to execute your strategy by providing easy access to the data required for financially savvy and timely business decisions.
To reach this vision, you need a solid foundation which rests on a few critical cornerstones. It includes a well thought out enterprise architecture, data and operating models that meet your corporation’s strategic needs.
Bear in mind that this is strategic. It must be relevant and serve its purpose for five to 10 years. Be prepared to revisit your decision-making process during the coming years by documenting all main assumptions and arguments. Stay true to your main design principles, however, stay alert and ready to adjust, should your strategic objectives or the world around you change significantly.
Enterprise applications and data
At the starting point, a large corporation’s system landscape may have multiple HR, manufacturing or financial accounting solutions built on different technical platforms. Mergers and acquisitions could have added to the complexity. These legacy systems have different data structures and master data harmonization is, therefore, very challenging. From a financial reporting point of view, these structures require several sets of data mappings and conversions, before consolidated group level financial statements are ready. Such environment offers limited data analytics or end to end (E2E) process performance management capabilities. In order to meet your vision of an efficient, consistent and timely data provision, this landscape must be simplified.
CFOs do and should play an ever increasing role in defining the corporate strategy for digital transformation. Harmonized cloud-based financial accounting and reporting solutions help in staying current with the latest digital capabilities. Off the shelf, fit for the purpose, operative applications for business processes can be integrated into modern and open financial accounting solutions, rather than resorting to old ways of trying to customize and hardcode a single solution to serve all functions and business line specific needs.
Holistic data architecture that covers all necessary operative applications with strong master data governance is a critical part of a successful enterprise architecture. For example, customer and product master data should be harmonized throughout the E2E business processes. It is important to carefully design the structures. These should be kept flexible for future changes and leave room for adjustments. Traditionally we could limit our thinking to how many management reporting dimensions we need to support the management. However, the role of data has changed. Data analytics capabilities have improved and are critical for predictive and prescriptive management of business operations.
The benefits of well-defined enterprise architecture and data harmonization are clear. Harmonization brings opportunities to automate and speed up processing. It delivers reliable and consistent data for decision making. Optimizing the system landscape reduces the overall cost of maintaining systems. It reduces the need to retain technical knowledge about multiple legacy systems, updating interfaces and keeping up with the system-specific upgrades. Strong integration and harmonization also support automated internal controls and improve the efficiency of your data quality assurance. These operating cost efficiencies come as a side product in addition to capability to support business with correct and purposeful data.
Forming a clear vision of the future strategic digital capabilities requires expert knowledge. Having an impartial party to support the design phase has many benefits. It provides access to the latest trends, helps to keep an open mind and safeguards an independent decision-making process. An integral part of the planning is the decision about ramping down and archiving the legacy systems. This is where the long-term cost savings come from.
Operating model
When designing the future digital capabilities for your strategy execution, you must also define the required business processes, rule for common ways of working and organisational structure, roles and responsibilities and required competencies.
The concepts of E2E processes, such as Order to Cash, Purchase to Pay and Record to Report are widely adopted. Designing and maintaining corporate-wide E2E business processes that are operated in a harmonized system landscape call for strong cross functional commitment and corporate-wide governance.
Harmonized accounting processes and stabilized operations are prerequisites for productivity enhancements, such as automated cash application and leveraging scanning and Optical Character Recognition (OCR) based processing for incoming invoices. Only after upstream business processes, like order management have been standardized and integrated from the operative systems to financial accounting, can increased invoicing efficiency and optimized order to cash lead times be reached. Optimum E2E process harmonization will form the basis for harmonized, centralized and automated processing. This will provide consistent data for timely reporting and adoption of advance business planning and forecasting solutions.
Never underestimate the change effort required to transform your complete operations from a multisystem environment with limited transparency to a transparent and harmonized operating model. What makes sense from Head Office point of view doesn’t necessarily seem sensible from a local country or product line perspective. Local ways of working are well-intended, optimized for local needs and deep rooted. Professional program management helps to ensure that all key requirements are incorporated into the global design work. It will follow that the deployment does not pass through the entities as only a system implementation but tracks also the adoption of the new operating model.
As previously mentioned, the harmonization of business processes across different business lines and geographical regions requires global process and system design governance with dedicated business process and system design owners. These owner roles are responsible for efficient process design. They define related roles and responsibilities, key performance indicators (KPI) and own the governance of ongoing process improvements as well as introduction of new capabilities in close collaboration with the key business stakeholders. Staying true to the original design principles remains important after the initial development and deployment.
People
The key finance function competencies have extended from technical accounting and financial reporting focus to ability to leverage digitalization and efficient data analytics. Collaboration with both internal and external stakeholders in E2E process environment requires a new set of soft skills. For your teams to excel in the new environment, finance function roles, responsibilities, required skills and competencies must revisited. Renewed career paths will showcase different strengths and bring new opportunities for both personal and professional growth.
Some words on transformation
When you have formed a clear vision of the target for your corporation’s system landscape, identified the critical business processes and required competencies, you can start working on a capability roadmap to reach the target. It is important to ensure that the whole leadership team is committed to supporting this roadmap. Prepare a solid risk management plan with undisputed risk ownerships. A change management plan will state clearly what is changing, who are impacted and what are the benefits of the change. Keep your organization informed and communicate at regular intervals. It is important to manage the expectations. The Finnish mentality of “let’s not fuss about this” is not at all helpful. During times of change “no news” does not equal “good news”. Engage change management and communication professionals. Communication must be integrated in your change journey; it will take time and requires dedicated resources.
It is important to recognize that a transformation program is always temporary by nature. It runs in parallel to your ongoing operations. Both are critical for your success. Keeping this in mind, carefully consider who should be involved during the different phases. Ensure that your key resources are engaged and have an opportunity to contribute to their own future leveraging on their individual strengths.
Depending on your deployment strategy, big bang or waved approach, you need to be able to pass the baton from development through deployment to ongoing operations. Show love and understanding for your organization, as transformation will not be easy on anyone. Maintain momentum, track the progress on preparations and engage the organization to stick to the agreed project plans. Celebrate successes. If some countries start lagging with their preparations or face new priorities, replace them with other ones. Life happens and priorities change. The key is to stay agile but focused.