For decades, the primary role of the finance and accounting organization was to deliver financial insights internally throughout the organization and externally to capital markets. Fraud and questionable accounting tactics in the late 1990s placed greater focus on controls via Sarbanes Oxley, and the economic downturn of 2008-2009 placed an urgent need to manage costs through efficiencies and labor arbitrage.
The external environment as of late, though much brighter economically, has proven to be no less complex to manage. Today’s CFO faces a daunting combination of increasing responsibilities and expectations in an environment where change is the only constant. However, the changing role of the CFO and the finance organization is leading to a transformation — offering CFOs a new way to see, and be seen in, their organization. Finance Transformation is a concept that can help CFOs and their financial organization gain a seat at the proverbial table to more proactively help the company succeed.
Current State of Affairs
CFOs today are turning over at around 17% annually, with three-quarters of Fortune 500 CFOs having held their job for less than five years. For years, CFOs were essentially asked to do less, with less. This was accomplished in a myriad of ways, including big enterprise resource planning (ERP), lean and six-sigma process optimization, and outsourcing. The main objective in all of these initiatives was to drive down costs by “right-sizing” talent. These initiatives were mostly successful in reducing costs, although they often left a shell of an organization, often barely able to support basic fundamental capabilities.
Today, however, due to multiple efforts — from experiencing strong top-line growth to enduring years of cost-cutting measures — successful organizations have embarked upon efforts to transform their finance and accounting function. The initiatives mentioned above, along with others like Global Business Services and Robotic Process Automation, are still relevant; however, the reason to embark on these initiatives has changed. Instead of simply reducing costs, organizations are seeking to reinvest assets and redeploy capacity to build the strategic capabilities they’ve been missing. Simply put, winning CFOs are redefining the role of the finance and accounting function.
A New Day: Finance Transformation
Why should CFOs open their eyes to the potential need to transform?
Well, let's start with what Financial Transformation is not. It's not an ad-hoc approach that results in yearly incremental improvements. While this is an approach often taken, it seldom delivers resutls that "move the needle" and truly transform.
A transformation of the finance function begins with:
- Setting a strategic vision that defines the future role of finance, ensuring that role aligns and supports the broader enterprise strategic vision.
- Creating a well-defined roadmap that will touch nearly every part of the finance organization and even the broader business itself.
- Focusing where and how resources are invested in the future. This requires prioritizing capabilities, and redeploying resource capacity from foundational and core capabilities to more strategic and differentiating capabilities.
The traditional finance and accounting function thought very little of the strategic capabilities they could provide to the business. The function served primarily as a steward focusing on historical reporting and ensuring appropriate controls were in place, and as an operator focusing on transaction processing.
Transformation today involves achieving the optimal balance of traditional roles with the “new” roles of strategists and catalysts. This of course is easier said than done and requires many different, and sometimes new, capabilities to effectively execute.
Is Transformation Right for My Organization?
Though transformative change is what many leaders want, the word transformation alone can conjure up cold sweats from even the bravest.
So how do you know if a true transformative effort should be considered, or if something lesser will do? There are a number of events and triggers that tend to accelerate the need for transformation; though, as always, no circumstance is exactly the same.
Some of these triggers may indeed be part of a transformation effort; however, addressing them independently without considering the entire organization risks an initiative falling short of expectations.
Realizing the Benefits of Transformation
Since Finance Transformation touches nearly every facet of the organization, transformative changes tend to occur across the entire business. There are five key layers of the finance operating model to consider, along with common transformative goals in each:
- Enterprise Insights. Harnessing data to bring key insights that drive decisions.
- Planning and Alignment. Getting the optimal strategic direction and executing on broader enterprise objectives.
- Organization and Talent. Building a scalable and efficient organization that drives performance and talent growth.
- Process and Technology. Simplifying standards and automating to drive efficiency, controls, financial insights and service levels.
- Data Management. Managing data quality, consistency and integration through systems and governance to ensure optimal reporting.
Though the majority of these changes are inward facing, it’s the impact externally that is perhaps most important. One of the most pressing and desired outputs CFOs hope to achieve as they embark on a transformation initiative is to become a stronger partner. Enhancing the ability to support the business and key stakeholders in new ways, and becoming an integral partner to drive enterprise growth and profitability is a primary goal.
Organizations possessing some of the following characteristics may increase their odds of a successful transformation:
- Business insights hubs using advanced analytics and business simulation tools to drive decisions throughout the entire enterprise
- A governance model that breaks down functional silos and looks across end-to-end processes
- Commitment to continuous performance improvement of transactional processes through standardization and simplification
- Deploying organizational constructs that optimize the delivery of finance services though shared services, centers of expertise and business partnerships
- Fully integrated planning, forecasting, budgeting, reporting and performance management
- Robust project management and leadership capabilities, with the ability to execute complex initiatives and manage stakeholder change management
- Preventative and predictive policy and control environment with exception-based reporting and controls that balance risk and materiality
- Harmonized technology platforms and data sources, with robust governance to ensure consistency and quality data
There are countless options for pursuing Finance Transformation. It doesn't have to be overwhelming. It’s about navigating your options and finding the right balance for your organization.
Contact John Cavalier at email@example.com or a member of your service team for further discussion.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.