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Achieving the Optimum Target Operating Model for Finance


An introduction to the key dimensions of performance excellence.



Shantanu Ghosh
Shantanu Ghosh
CFOs today are being challenged to build a borderless finance organization capable of meeting increasingly global and cross-functional business requirements. Budget constraints, compliance requirements, shifting market expectations, delivery issues, talent challenges… all are increasing demands on finance’s resources, skills and budget. Addressing this more complex business environment through a single dimension such as increasing headcount, external leverage, or technology investments may bring temporary relief, but the most sustained results are coming from integrated programs that address the multiple dimensions of finance operations.

More and more companies are ranking the seemingly contradictory objectives of cost reduction and increasing support to decision-making as the primary drivers of finance transformation programs. To achieve such quantum gains in productivity and effectiveness, they must drive improvements across multiple dimensions that jointly define the finance operating model. The following framework has been constructed from thevantage point of having supported over 100 global finance organizations on their transformation journeys.

Ten Dimensions of an Operating Model

Finance’s diverse responsibilities can be broadly classified into four broad categories:
Corporate center: includes the CFO’s office, financial policy, investor relations, and corporate development;
Plan and manage business: includes corporate FP&A, business unit finance, and in some industries (such as CPG, retail, or manufacturing) cost accounting and plant management;
Operations:includes accounts payable (or source to pay), accounts receivable and collections, fixed assets, and general ledger accounting;
Specialty services: typically includes treasury, tax, external reporting, and internal audit.

Performance in each finance category depends on the degree of maturity in 10 underlying dimensions:

1. Strategic alignment: The finance operating model strategy should align to company and business strategy. A formal structure compels CFOs to constantly direct their investments and management attention toward top corporate priorities. Leading companies do this annually, ensuring alignment with corporate long-term plans as well. One global pharmaceutical company delineated core vs. non-core operations, and then centralized operations as much as possible in a single program instead of taking a piecemeal approach, thus avoiding the costs of developing non-critical capabilities.

2. Governance: A comprehensive governance model translates strategic objectives to measureable goals. These models cascade up and down the finance organization, driving accountability for both the objective standardization goals and the more experiential effectiveness and people management goals for each function. Moreover, they incorporate a mechanism for periodically reviewing performance against these objectives to allocate resources and make course corrections.

3. Target Organization Model:A key objective in operations is to design an organization that fosters end-to-end global integration across different functions. For example, the order-to-cash process is integrated across sales, order fulfillment, operations, finance and customer care. In planning, companies are consolidating transactional activities and increasing process discipline in support of business operations. Their goal is to improve support and standardize processes globally while reducing reliance on key individuals. One global beverage maker with traditionally decentralized operations created a comprehensive Global Business Services (GBS) program, incorporating a global hub, regional hubs, and local processing centers that leverage external services to the fullest extent. The centers managed all back office work, including finance, IT, procurement and HR.

4. Target Process Model:Really effective finance process models should address the full cycle of operations. Gaps and silos are eliminated by standardizing processes and understanding how each process links across the enterprise, as one large pharmaceutical company is doing, using proprietary frameworks to highlight end-to-end linkages across several finance functions. Global process owners then manage processes end to end. Goals, targets and SLAs should emphasize collaboration across the organization rather than competition. And process enhancement should not be a one-time activity but a muscle that the organization builds with habitual practice.

5. Global Leverage:Intrinsic to a high performing finance operating model is thoughtful and strategic leverage of global capabilities and expertise. Leading practitioners determine which activities are “core” or “non-core.” This determines what will be retained in-house or outsourced, what skill sets are required, and what are the optimal locations for resources. Experience gained internally and with providers is enabling exploration of new areas that can be centralized. For example, FP&A operations are being broken down into components to standardize data gathering, analysis and reporting across business units. There are many choices for external sourcing models that address talent, language, local knowledge, process scope and other critical needs. One large CPG company built their captive center in Southeast Asia, speeding the process by helping them pick a location, hire and train staff, and institute a continuous improvement program to shorten the learning curve and begin operations sooner.

6. People: World-class organizations hire and train staff to meet the global standards set by end-to-end processes, and a more open learning environment. They also aggressively leverage their outsourcing partners for industry insights, new ways of thinking, and to constantly push the envelope on improving operations. This helps them use the intellectual capital in the broader ecosystem. In addition to the relevant technical skills, the finance organization must be flexible, and well versed in the new processes and tools. Staff cannot be allowed to cling to old processes or suck new hires into old methods. Failure to do so may result in the experience of a global brewery, which centralized operations outsourced activities, but neither released nor revised tasks for their impacted staff. They created new methods to double- and triple-check work, leading to worse productivity than before the outsourcing arrangement

7. Technology: Experience with large implementations has made finance organizations wary of business cases that seem too good to be true. They should be. Companies now consider how to best ‘sweat IT assets’ before investing in new upgrades. Enhancements to the existing ERP environment and cloud-based applications built specifically for the finance function are increasingly viable alternatives when faced with a technology investment.

8. Global master data standards:An often ignored element of finance operations is the “cumulative toxic effect” of mismanaged master data. The best way to fundamentally alter this dynamic is to institute a global master data management program that measures and rectifies data issues regularly, based on global standards.

9. Controls:Large global corporations need a culture whereby controls are viewed as risk mitigators and therefore enablers of value preservation. With globalized operations presenting an incremental exposure to risk, companies are starting to view business processes and controls through the lens of risk prioritization coupled with managing costs of compliance and controllership. Companies must strike a balance between over- or under-controlled business environments, which can either expose the business to risk or stifle much-needed business process agility.

10. Change management:The finance organization should learn to anticipate rather than dread change and develop the ability to deftly manage major initiatives. This requires developing mechanisms that foster easy interaction, smooth implementation, and talent retention. The workforce itself is changing, filling up with technologically savvy workers who come with both expectations and ideas that the company should consider incorporating into its plans.

Corporate culture, operational maturity, and the relative importance of each finance function to the business all impact each of these dimensions. The rest of this series will examine these 10 drivers of excellence in depth.

Shantanu Ghosh, Senior Vice President for Practices, Solutions and Transitions, Genpact
www.genpact.com

Jeudi 12 Septembre 2013
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