By Jean-Pierre Lim Kong *

Organisations in all sectors of the economy are facing a wider array of challenges and opportunities on a greater variety of fronts than before. This is due to the many ‘megatrends’ that are shaping the business landscape so profoundly - globalisation, downsizing, the information economy and rapid technology advancements, just to name a few.

Many companies are already feeling pressure from these changes. Finance functions worldwide are dealing with the need to transform themselves for this new world order by asking how they should change to increase their relevance and what core competencies they need to develop to contribute more to the top and bottom line.

Indeed, there are numerous examples where significant benefits have been achieved through a fundamental reorganisation of the finance function. Research by Arthur Andersen and others indicates that organisations can achieve savings of 25-50% by moving towards a Shared Services Centre. American Express reduced headcount by 358 in the year that it increased sales by 31% by moving to a Shared Services Centre. These benefits are not confined to large companies only. A study conducted by the Manchester Business School in 1997 which compared the relative efficiencies of small and medium-sized enterprises across nine generic finance function activities showed that there are significant potential efficiency gains in the finance function of these enterprises. For instance, it was found that these is scope for a 42% saving in the use of staff resources in Management Accounting for the average firm. Rather than increasing efficiency, other companies such as Heller Financial, have reduced the cycle time for monthly close to 2 days.

The role of the finance function of the future will be more strategic. As the traditional role of transaction processing becomes less resource intensive, the finance function will reallocate its investment to drive value creation throughout the business. This article attempts to depict how the traditional foundations of the finance department as we know it have changed and to describe the key steps in the transformation journey of finance from scorekeeper to business partner. It also explores the ways and means of achieving the transition and consider some practical steps for companies wishing to start the transformation process.

FINANCE TODAY

FINANCE TOMORROW

  • Backward looking

  • Scorekeeper

  • Forward looking

  • Business partner

    • The traditional foundations of finance have changed

    Finance is moving away from being internally focused, manually intensive and stand alone to a customer focused function that has a commercial understanding of the business and with processes and systems in place to support the business partner concept. In the transformation from scorekeeper to business partner, finance is switching its attention away from transaction processing to business decision support.

    Finance Today

    Finance Tomorrow

    Transaction Processing and Reporting

    • Historical, earnings perspective
    • Institutional procedures
    • Collect and analyse financial data only
    • Accounting systems: complex, detailed, redundant, focused internally

    Transaction Processing and Reporting

    • Long term vision, strategic focus
    • Accounting systems: streamlined reporting, actionable data, customer focused
    • Collect and analyse financial and non-financial information
    • Continuous improvements

    Financial Accounting Risk Management

    • Control financial accounting risks
    • Sole proprietor of financial control
    • Top down control of costs, people and tasks

    Business Risk Management

    • Identify and control causes of key business risks
    • Share responsibility for cost control with operating units
    • Empower people to control risks and improve processes; establish accountability for results

    Decision support

    • Oversee transactional and reporting activities
    • Review data downstream: focus on internal monitoring and external reporting
    • Policemen, enforcers
    • Devil’s advocates

    Business Partnering

    • Provide value-adding services
    • Analyse information upstream: focus on risk/return, business strategy
    • Problem solvers, process innovators

    Finance’s transformation journey

    Many organisations have started this transformation by focusing on reducing the cost of transaction processing alone. Reengineering initiatives and process improvement efforts have reduced the average cost of the finance organisation to less than 1.2% of revenues. Best companies are boasting an average cost of less than 1% of revenues. However, very few organisations have successfully transformed decision support.

    Transforming finance into a true business partner requires fundamental changes in process, technology and organisation resources. Processes have to move from being silo-based, internally focused and heavily controlled to being cross-functional and customer focused, with controls embedded in technology. Technology has to become integrated to enable single data capture and automated processes so that finance delivers consistent and accessible information for business decision making on a timely basis. Organisation resources have to change from a technical focus to a business focus, with a team orientation through staff empowerment and shared accountability. The transformation is often depicted as a series of stages:

    How will finance achieve the transition to business partner?

    For the finance organisation to evolve to a business partner, it must build on its core competencies such as:

    • Expertise in quantitative analysis, measurement, information management, objectivity, and other skills that enable finance to proactively support the operating units;

    • The ability to originate and orchestrate change within the finance organisation which enables finance to assume leadership responsibilities for broader initiatives;

    • The capacity to synthesise information in the broad context of broad business understanding to promote organisational learning.

    To achieve the transition, finance must reorganise itself along the enterprise value chain and focus on activities that add value to the business.

    Finance should reorganise itself along the value chain

    In the past, businesses have traditionally been organised on a functional basis. However, to be able to support strategic objectives through financial management leadership, the finance function has to align itself along the value chain of the enterprise.

    This reorganisation will place finance in a position where it can add value to each of the core business processes. Finance already touches every process across the value chain of an enterprise through its fiduciary and financial reporting functions. It needs to transcend its traditional boundaries to identify root causes of inefficiencies and mismanagement of the organisation’s scarce resources. This cascading effect of improvements will allow finance to act as a catalyst for change in key processes such as procurement and inventory management.

    Practical steps towards financial management excellence

    Before any real transformation can occur within the finance function, it is essential to clarify the purpose of finance within the organisation. This can take the form of a mission statement which is aligned to the organisation’s business objectives and strategy. It is only then that finance will embrace the business partner concept in its fullest meaning. Thus, for example, in an organisation driven by growth, the finance function can add real value by being a leader in pursuing acquisition targets and managing the acquisition process.

    Once the objectives are clear and understood, the management need to understand what is actually taking place within the finance function. This can be achieved by activity analysis and process mapping. These techniques can quite frequently lead to revelations about current processes and performance. Frequently, incremental improvements that are quickly and easily made are identified through examining activity sheets and process maps. These improvements often take the form of the elimination or reduction of duplicated tasks, redundant activities, infrequently used reports, multiple data entry, and inefficient workflow.

    However, to substantially improve performance, more fundamental changes are required. These changes may involve one or more of the following:

    • Re-engineering of one or more processes to improve efficiency and/or reduce costs;

    • Re-designing the organisation’s Management Information System;

    • Implementing a shared services centre (a single service centre for functions that are common to a number of business units);

    • Outsourcing the finance function.

    In addition, there are a number of tools that can be used in the improvement process. These include

    • Activity Based Management techniques which will stop a company doing activities that waste money;

    • Benchmarking which will help you find out who does things better and learn from the best practices; and

    • The Balanced Business Scorecard which will enable you to monitor your performance more effectively.

    The content of this article is intended only to provide general guidelines related to this particular matter. For your specific circumstances, full specialist advice is recommended.

    * Jean-Pierre Lim Kong is a Business Consulting Manager at De Chazal Du Mée. He holds a BSc (Honours) degree in Mathematics and Management Studies and is a member of the Institute of Chartered Accountant in England and Wales. De Chazal Du Mée is a Pan-African business advisory firm employing over 600 professionals based in Mauritius, Madagascar, Kenya, Tanzania, Uganda and Malawi. For more information on DCDM and/or Business Consulting, visit our web site.