Modernizing the finance function through finance transformation
INSIGHT ARTICLE |
The marketplace for middle-market companies is changing rapidly due to several factors, including evolving technology, globalization and increased merger and acquisition activity. In our engagements with clients, we consistently find a strong correlation between companies that are thriving and those that have a continuous improvement culture, especially in the finance function. It is now a requirement for the finance function to anticipate change and adapt to fluctuating customer and market demands.
To advance the effectiveness of the finance function, organizations should view the finance function as a strategic enabler and insightful advisor for achieving business goals rather than just a back-office recording and reporting function. For many companies, this requires transforming the finance function. A finance transformation framework brings several key areas together including increased automation, strengthened data and analytic capabilities, and improved controls to support the strategic direction of the business.
If an organization does not understand the leading practices and technologies that enable finance to move from a back office position to a strategic innovator, it is easy to overlook the group’s potential. This, combined with a failure to implement the right strategies, technologies and processes, often causes the quality and productivity of the finance function to suffer. In addition, without the correct level of support and a culture dedicated to continuous improvement and innovation, several threats to efficient operations can originate in finance and affect the entire business, including:
Lengthy and overburdened close cycles – The financial close provides organizations with a total view of their operations. However, the leadership team needs information quickly to make necessary adjustments. Many organizations have inefficient close processes in place, or aren’t sure how to prioritize close-related tasks in order to drive efficiency and improve data quality.
Poor integration between systems and lack of automation – Companies often don’t understand the depth of potential integration and automation opportunities within the finance process. As a result, many fail to make timely investments in new technologies or are significantly underutilizing their current systems. This creates a significant amount of manual work, which erodes controls, efficiency, agility and data quality. With improved systems and built-in data controls, efficiency is drastically increased, allowing the finance team to spend less time focused on transactions and more time on analytics.
Lack of timely visibility into data for decision-making – Long close cycles and manual processes lead to a lack of visibility into key business information. Organizations often can’t make informed business decisions, because meaningful data is not available in a timely manner. For example, accelerating the month-end close cycle from 10 days to five days not only means getting more timely access to results but also freeing up resources for more value-added analysis and business insights to help the company make the right adjustments moving forward.
Additionally, today’s businesses need more than just a single snapshot at the end of the month; they need to look at real-time financial data on a daily basis and in an effective format in order to manage performance and make sound decisions.
Leading finance organizations have the traditional basics—standard report generation and the like—down pat, so their time and resources are freed up for more analytical and forward-looking activities. These companies make investments in modern technologies and proven process improvements; this enables them to provide significantly greater value to the overall company, and as a consequence finance is viewed as an important partner in the business.
So, how can you start modernizing your finance organization? Increasing the performance and perception of the finance function begins with a comprehensive finance transformation strategy. A typical framework for doing so employs three key solutions to help overcome fundamental challenges and enhance the scope and effectiveness of the finance function.
A business can gain operational improvements by closely evaluating the finance department’s people, processes and technology. One crucial strategy for assessing the maturity of your finance function is conducting periodic gap assessments evaluating the organization’s current practices against relevant benchmarks. These assessments are intended to provide immediate value by measuring the degree of alignment between the finance organization and a mature and efficient operating model and analyzing the functionality and use of technology. This process can help establish a road map that puts the organization on a path to future success. From there, company leadership can effectively establish a timeline for improvements that is prioritized based upon value to the overall business, as well as cost and degree of complexity.
The initial assessment outlines specific areas that can benefit from enhanced processes, systems and controls. Once you understand the critical pain points and areas for improvement, the trick is identifying the required skills, processes and technology solutions to address those areas. The right solutions can provide drastic improvements, such as reduced close-cycle times and better automation of the balance sheet and operational reconciliation functions. Using technology to automate the right processes for your business can result in 20 to 50 percent efficiency improvements in your workforce productivity.
Another reason to consider automating the close process is that it can greatly reduce the risk of error and drive higher alignment with financial controls. Most solutions also drive greater transparency through advanced dashboards and progress tools—a major challenge for many financial leaders. An efficient, automated close process is the foundation that helps accountants establish a better balance of time between performing transactional initiatives and performing value-added analytical services to help make informed decisions and drive higher levels of value from the finance organization.
Organizations need a periodic review of their budget to understand how the process is conducted today and how it can be done better. Current tools should be evaluated to decide how they could be more useful, and the correct level and amount of data necessary for effective budgeting must be determined. When evaluating your current tools and processes, flexibility is critical. Many organizations build FP&A plans that are too detailed with little attention to the bigger picture. Simplifying financial models creates significant efficiencies while allowing you to keep a close eye on precise performance measures.
This process should help shorten forecasting cycles so that budgeting can evolve into a more cyclical exercise, conducted every few months throughout the year, integrating constant updates to ensure accurate and effective forecasting. There is a direct relationship between the quality and timeliness of forecasting data and the ability to make sound business decisions; time spent cleaning up inaccurate data erodes the time and resources available for more important analytics work.
To remain competitive in a quickly evolving business environment, organizations must leverage the true potential of finance to provide more meaningful insight and support to key strategic business initiatives. Unfortunately, many organizations feel they are stuck with their existing finance framework and create counterproductive workarounds instead of seeking a better way.
Focusing on goals such as enhancing the speed of the close process, better integrating systems and processes, increasing insight to help make strategic business decisions and automating processes and controls makes finance more valuable, increasing the success of the function and the business as a whole.