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Establish your finance foundation process to perform with confidence

INSIGHT ARTICLE  | 

This article is part two of a seven part series providing a practical playbook for today’s CFOs

Why it is essential to look at the processes

Finance leaders are all too familiar with the vital role they play in driving business growth and overall strategy. However, most companies are unable to effectively accomplish the tasks due to their teams being bogged down with inefficient, duplicative or outdated processes. These methods take a toll on employees, affecting productivity and often causing undue stress.

With the abundance of finance technologies available today, it is easier than ever to automate core accounting activities such as invoicing, expense management and reconciliations. The deployment of automation solutions alone, however, is not the answer. Many finance organizations seek improvement through addressing individual pain points, rather than taking a holistic approach to end-to-end process improvements and the technology to enable it. Developing the future state process by considering all components of the finance operating model helps overcome the pervasive mindset of “this is the way it has always been done.”

The process drives the solution

The finance operating model, and the relationships between each individual component that comprise it, is fundamental to achieving the strategic goal. Because business process links to all areas, it represents the bedrock upon which a successful finance department is built. Although seven components comprise the overall operating model, the following four key aspects are essential to consider when determining processes:

  • People and organization: Who will own this process and how will it be executed?
  • Technology strategy and execution: What technology will be used and what means are available to automate?
  • Controls and governance: How will the processes be controlled and how will those controls be automated to the greatest extent possible?
  • Data analytics and performance management: How will data flow through this process to avoid information silos and how will the quality of data be ensured? How will the process be assessed to determine if it is operating effectively now and in the future?

It is critical to remember that pain points related to each of the above items are felt every single day, from the most senior manager to the newest analyst. However, it is also likely that collectively, the organization has not comprehensively diagnosed or prioritized the severity of each issue or developed actionable requirements to fix systemic problems from beginning to end. These requirements can be focused on technologies, roles and responsibilities, controls, reporting and many other items.

The next steps for change

When seeking to launch down the path to business process improvement, leaders should first align improvement goals with their department’s overall strategy, as well as the business as a whole. The desired business benefits and how they will ultimately be measured should be defined upfront, which will also establish the return on investment to be targeted throughout the initiative.

This is done by establishing a baseline of current performance, quantifying the existing effort, and making assumptions around potential improvements. Based on these suppositions, leaders can make targeted decisions as to where the most value can be obtained through improving individual areas.

Next, project leaders should examine the current landscape to uncover issues and places for improvement by performing deep-dive working sessions that identify the root cause of existing challenges. The added benefit of performing this exercise is that it is a silo-busting activity that helps individual departments connect the dots between teams that are primarily focused on their own tasks rather than the enterprise. Obtaining shared consensus on key challenges aligns each level of the organization, allowing a company to better benchmark and measure the impact of future improvements. 

Once pain points and root causes have been identified, the data must be transformed into relevant information by comparing it against the elements of the target operating model. Because a single pain point can have an impact across multiple areas (i.e., people, technology, data, reporting, etc.), this analysis can be more art than science. Consider these examples: 

  • Order to cash: Sales teams are maintaining product and price information through a customer relationship management (CRM) or other sales tool, and finance is relying on its core financial system for accounts receivable and billing information. If the two systems are not properly integrated, it could lead to data governance issues, inaccurate billings, and eventually, performance measurement and reporting issues. Ultimately, the billing team cannot accurately serve as a partner to the business to provide proactive or prescriptive direction based on those reports.
  • Procure-to-pay: If there is no procurement department, and purchasing and invoice processing is decentralized, it could lead to vendor master duplicates and control issues, delays in payment processing, and lack of visibility into the status of outstanding invoices. This, in turn, could have future impacts on the organization, the responsibilities of the people, and noncompliance with policies and controls.

Once the impact of each pain point has been considered, an organization can assess its current performance by comparing itself against basic performers and leading practices. Reviewing all elements will show where gaps exist for each function, as well as where the organization stands in comparison to the overall industry.

Upon the review of current performance, the organization may be able to develop targeted recommendations for the remediation of each pain point and the ultimate process redesign. These recommendations serve as the blueprint for the organization's leaders to confirm what is most important and where resources should be focused to make the greatest impact.

Imagine if a controller simply recommended new technologies to reduce the time to close the books, rather than focusing on the underlying data that might ultimately be an issue. The resulting implementation could fail, sinking those investment dollars. In this example, the company should first align an approach that corrects the data issue and then reduces the close.

Because most organizations have strict budgets and overburdened staffs, they need to determine which initiatives can be performed to attain an ideal future state over a period of the next year, three years and five years. Enterprise resource planning (ERP) solutions can take months or years to implement and cost upward of millions of dollars depending on the size of the organization and the tier of the ERP solution. Process modifications, on the other hand, can require just hours, depending on the change capability.

Future-state enhancements should be documented and confirmed with key decision-makers. Obtaining executive buy-in is critical to any change management initiative, and process improvement is no exception. Executive buy-in will help drive momentum, stress the importance of change, and ultimately, set the organization up for future success.

Read next: The Practical CFO Playbook, Part Three: Flatten the curve—close with quality


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