Business Process Services White Paper Five Principles to Consider when Consolidating your Finance and Accounting Function
About the Authors Vikas Golchha, Associate Vice President, TCS Vikas is part of the finance and accounting team supporting solution design and managing delivery within the TCS Business Process Services unit. He has over 15 years of experience in finance and accounting, financial planning and analysis, transitions, finance transformation, cost control, compliance, internal audit, and cross functional project management. Suresh Koteeswaran, Vice President, TCS Suresh is a shared service transformation specialist and is the global solution design lead for the finance and accounting practice within the TCS Business Process Services unit. He has over 20 years of experience in accounting operations and transformation, and has held leadership roles across supply chain and commercial functions. As part of his consulting tenure, Suresh has led multiple business process re-engineering (BPR) and ERP implementation programs.
Organizations are constantly reevaluating their expenses and finding ways to boost their productivity. They are under pressure to decrease activities that do not enhance value for their business. This scenario is forcing them to reduce cost and strive to enhance the quality, reliability, and responsiveness of transactions both inside and outside the organization. To achieve these objectives, organizations are employing new business strategies. Intertwined in this change process is the organization's finance and accounting function. The finance and accounting function provides the quintessential tools, knowledge, and information used to outline current and future business practices. Consolidating the finance function releases the value-creating potential of this often overlooked resource of the organization. Such a consolidation opens up new opportunities that require a strategy, a methodology or guideline to get the finance and accounting function on the road to world-class performance and value-added finance. Organizations must make decisions on likely timescales, benefits and potential problems, how they will be managed and critical success factors, before embarking on a consolidation. They need to be better equipped than before in order to remain competitive. This paper delves into the five principles that should be considered while consolidating the finance and accounting function to aid in such a transformation.
Contents Introduction 05 Five Principles 06 Principle One 06 Principle Two 07 Principle Three 08 Principle Four 09 Principle Five 10 Taking It Forward 11 Conclusion 11
Introduction Increasing costs resulting from stricter regulatory compliance requirements, spiraling inflation, rising labor costs and additional technology upgrades have caused companies to struggle to preserve their margins. The companies are striving to achieve top-line growth and are cutting costs in order to increase profitability. Organizations today consider service providers as partners who can help them enhance their growth opportunities, be more agile and responsive in their interaction with the market. They want a strategic partner who can deliver to business KPIs (Key Performance Indicators), understand and deliver to the geographic markets while adhering to compliance norms, and are willing to own end-to-end functions. The partner s ability to bring about transformation leading to efficiency and effectiveness is critical. It is now about transforming and re-engineering business processes - through proper documentation, KPIs or measurements, periodic reporting, and remote processing. In essence, they seek partners that can deliver on value drivers such as improving efficiency, providing access to a global talent pool, optimizing the technology landscape and ensuring that risks are mitigated in all aspects. In every organization, the finance and accounting function plays the significant role of a catalyst in such a process of transformation - playing a significant role in aiding both the service provider and the customer. This paper explores the five simple principles that should be considered while consolidating the finance and accounting function to aid in such a transformation. Clearly define the goals and objectives. Identify the enablers required to meet these goals. Set up a clear operating model and design objectives. Identify what to retain and what to leverage. Define roles of the retained organization. Make tough people calls early. Choose the approach most suited to your organization. One size does not fit all. Invest in change management and communication. Executive sponsorship is mandatory. The typical journey for any finance function starts with three key pillars - People, Process and Technology along with the right communication and sponsorship from the executives. The finance function s goals in such a transformation largely revolve around gaining efficiency and effectiveness, by leveraging technology and global talent. This in turn leads to reduced operating costs. 5
The Five Principles Here are the five simple principles to be considered while consolidating the finance and accounting function. Principle One Clearly define the goals and objectives. Identify the enablers required to meet these goals. The first step for any operating model to be effective is to lay out objectives, determine goals and identify the enablers. For a finance team too, it s important to lay out the objectives and find the enablers to create an effective model. There should be clarity on what role the finance function should play; processes that need to be owned by the finance team and what the key enablers are. A great finance team should be setting cost benchmarks while getting closer to business than ever before. Figure 1 displays an example of what some of the organizations are expecting to do in finance. Finance Function Objectives of the finance team Shareholder value creation: Voice of the share holder Investment prioritization: Coach to make money Ethical way of doing business: Robust controls and compliance Processes owned by finance Business decisions support Top down targets: Planning, forecasting and insights Strategic planning: Mergers and acquisitions Enablers Single version of truth Standardized reports focused on business metrics Engagement to drive business decisions Ability to attract, build, retain and engage the best of talent Figure 1 Finance function Role and objectives While being a support function enabling business is a universal goal, every finance team must seek to achieve individual goals and be the function closest to the business. Going beyond transactions, they must be the eyes and ears of the business as well as the flag bearers of controls and compliance. Clearly articulating what is expected from the team will help determine which processes should be retained. Once the goal and role of the finance team are defined and set, it is the right talent and the continuous refinement that executes the well-devised plan and accomplishes the goal. Hence, the team members are the real enablers of the finance function. 6
Technology does not replace people s role in achieving the business objectives, so engaging the right talent becomes mandatory. Attracting, retaining and grooming the right talent are skills that only improve with continuous enhancement. Identify the good performers early and groom their skill to enable the team in accomplishing goals. Principle Two Set up a clear operating model and design objectives. Identify what to retain and what to leverage. Once the team s role is determined, the next step is implementation. An indicative list of processes which remain largely specialized is provided in Figure 2. Largely specialized functions require necessary business acumen, compliance with laws of the land and have embedded risks which make it simpler to retain them in-house. Largely Specialized Functions Treasury & Tax Management Processes Cash Management Policies on Intercompany Loans & Advances Tax Accounting, Reporting & Compliance Value-Added Tax Processes Governance & Compliance Processes Internal Control & Governance Processes Statutory Audit Coordination & Support GAAP Audit Coordination & Support Internal Audit Support Finance Support Processes IS/IT Management Process & Quality Improvement Legal Processes HR Processes Facilities Management Figure 2 Largely Specialized Functions Figure 3, on the other hand, lists out the functions that can be centralized. Functions to be Centralized Procure To Pay Order To Cash Record To Report Financial Planning and Analysis Master Data Management Figure 3 Functions That Can Be Centralized There are various functions in the finance team which can be standardized and simplified. Several options are available today to make them effective and efficient by either performing them in-house or opting for a service provider. Economies of scale, access to various locations, technology and the ever-improving capabilities of service providers make opting for them an easier choice. 7
A good target operating model is the decisive factor for this transformation of the finance function. An ideal model should: Be scalable Drive simplification and standardization Enable accountability Save costs Promote business partnering Enable staffing and succession planning Be easy to implement Several niche service providers serve specialized functional areas. A careful evaluation process is necessary to select the right partner. The most important aspect of working with a service provider is being aware that the entire activity is a collaborative effort. This varies across companies depending on their maturity, degree of change management requirements and expected timelines to manage the change and risks associated with executing them. Principle Three Define roles of the retained organization. Make tough people calls early. In many instances functions do get outsourced but often the role definition remain unclear. Defining the roles is critical. This should be performed after defining the high-level roles expected from the team and the operating model, and deciding which functions are to remain in-house and which are to be assigned to specialists. 8
Organizations need to define the roles that will be played by various teams and people across the finance value chain. This is dependent on the nature of business and diversity of operations. An illustrative list of how roles can be defined is given in Figure 4. CFO Design and develop the Finance function strategy Drive organization strategy along with the business : Engage with business closely Ensure consistency with corporate policies & objectives Create positive work climate and build effective teams for the future Set challenging goals and recognize talent Business Partner Financial Planning Controlling Function Specialized Functions Own the business partnering relationship Provide business with incisive analytics Provide support on commercials & pricing decisions Help prepare business plans Develop policies & procedures for planning Coordinate budgeting and planning process Support CFO/Controllers with financial analytics Predictive modeling and benchmarking comparisons Own policies & procedures for accounting Review financial accuracy Ensure controllership and compliance : Periodic reviews Controls testing Enable and support internal & external audits Provide regular finance services Account payable, Accounts Receivable and General Accounting Provide meaningful reports to Controlling Function & Business Finance teams Process benchmarking Drive efficiency & process improvements Figure 4 - Roles to be played by the functions and the CFO Dedicated time and sponsorship are required to ensure clarity in the roles and responsibilities of the partner organization and to identify the team that will execute the task. The right talent makes all the difference. A good approach that often works is to have two to three players identified and ready for each key role. After this team is ready, invest in a core team and entrust the execution to them to make change happen. The core team should have a mix of internal and external top performers possessing the right attitude, who are perceived to be neutral. This team must share the same vision and clearly defined and measurable success criteria. Team success should to be tied to their individual goals and rewards as well. Principle Four Choose the approach most suited to your organization. One size does not fit all. Organizations lay down the goals and objectives, define the operating model and have clarity on roles and responsibilities. However, in some cases the implementation becomes challenging. Organizations begin attempting many things at the same time - technology change, process change and people change without clearly weighing which approach will suit their business environment. The bigger question that emerges is - should we fix and shift or shift and fix? 9
There are multiple factors that can influence the approach that needs to be taken: Level of homogeneity that exists with respect to geographic business spread Level of technology harmonization Level of automation that exists in the way processes are delivered today Fix and shift tends to work better in environments where there are ongoing system replacements, disparate processes and diverse business spreads. It has been observed that companies with presence in multiple smaller countries and those with the above mentioned factors prefer to fix and shift. On the contrary, shift and fix is effective when there are reasonably stable and defined processes, existing systems do not require immediate change and the need for labor arbitrage is attractive. Companies with a one country - one geography presence often choose the shift and fix approach. Business diversity often influences the outcomes of any finance effectiveness program significantly. Executive sponsorship, communication and working sessions are the levers that need to be exploited. It must be noted that not all ERP systems are complete in all respects and have inherent deficiencies. A streamlined finance function needs to blend upstream and downstream processes with equal amounts of ease and efficiency. Selecting tools which enable this is a decision which needs to be taken early. Tools should be able to bridge the gap and can either be developed in-house or leveraged through service providers. A careful assessment of technology and tool options also needs to be forward thinking, considering the changing world of technology and the significance of mobility today. Mobility devices have changed information perception and this must be factored in the finance transformation roadmap. Principle Five Invest in change management and communication. Executive sponsorship is mandatory. The whole process of moving to an effective and efficient model will result in change. Most of the time companies lay less emphasis on change and do not make the right investments. Change requires a strong executive commitment and sponsorship. Stakeholders buy-in is a critical step and executive sponsorship helps in achieving this. Once the stakeholders are on board, the right communication strategy should be in place for each stage of the program. The program has to be brought in right at the beginning but the revalidation and sponsorship must be sought at every stage of the journey. Managing change requires a lot of effort and the right investments make the difference. A good practice is to engage a communication specialist and a change catalyst early in the program. The right balance of communicating the right content, at the right frequency, to the right audience comes only with time and expertise. 10
Anxiety across the company can be better managed by Clear articulate communication Sharing the roles that people will play in the new model Roping in executives to share the necessary messages Taking it forward Share the learning and best practices. There is no magic formula to get things right every time - however, it can certainly be improved. However, there are certain other points to note - People are the key to make any change successful. Therefore, people management is critical. Multiple approaches should not be attempted at the same time. Technology changes along with company s change program. Choose a partner, invest and believe in partnership. Celebrate success and encourage every accomplishment. Communicate, as people want to listen. Reducing cost is a by-product of creating a value finance function. Creating this value is all about the right vision, defining the end state, choosing the right people and the right approach, and handling change. And this most often begins with the right leadership. Conclusion A consolidated finance and accounting function performing its central duties efficiently brings in additional benefits that add value to the organization. It brings in greater decision making capabilities, allowing the organization to focus on its core competencies and generate higher revenue. These principles can help prevent the finance and accounting function from succumbing to problems resulting from mismanaged consolidation. By following these steps, the finance and accounting function can achieve its objectives and, in doing so, help strengthen the competitiveness of the entire organization. 11
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