Spurred by a hard-earned understanding of how volatile the marketplace has become, finance executives are determined to imagine and build more integrated and responsive organizations. But the urgency to streamline, standardize, and centralize back-office finance functions coincides with the rise of a new corporate form, where companies are characterized by their intricate interrelationships with employees, customers, and partners. New initiatives, alliances, and networks have rendered businesses more complex than ever.
Add that challenge to the preexisting impediments to undertaking a transformation — the significant capital investment, the breakneck pace of technological change, and the sure prospect of organizational resistance — and the effort can stall before getting into first gear. (See “Unscheduled Delays,” below.) While the goal may be to set the stage for long-term growth, the short-term reality requires maintaining an ongoing sense of urgency, rather than succumbing to gridlock or recalcitrance.
“Our enterprise leaders, our business leaders, and our functional leaders all tell us that this transformation effort is the single most important thing we could work on,” says Stephen French, global transformation leader for finance at W.L. Gore & Associates, the $3 billion maker of Gore-Tex fabrics, medical devices, and other products.
These insights into back-office finance transformation were included among the findings of a recent research report produced by CFO Research and underwritten by the Business Process Services practice of Hewlett Packard Enterprise (HPE). The study was based on interviews about finance transformation with executives who have led such efforts and experts who have scrutinized the undertaking. The goal was to document the approaches that companies take and the models they develop to improve processes and reduce costs in their back offices, seeking to pave the way for smooth growth. (The complete eBook, “Moving Back-Office Services for Finance to Front and Center,” is available for downloading at www.cfo.com/research.)
To keep pace with the global economy, companies must be nimble enough to adapt to shifts in the marketplace, from changes in customer behavior to the arrival of stealth upstarts that announce their presence by poaching customers. Retaining entrenched back-office inefficiencies can squelch innovation, leading to diminished value creation. (To find out if your back office is mired in past practices, see “Is Your Back Office Falling Behind?” below.) As unglamorous as finance and administration, procurement, and travel spending may seem, the efficiency of such back-office finance functions contributes to a company’s ability to fend off rivals and achieve growth goals. “The speed of change depends on the back office,” says Hans Pollet, CFO of German retailer C&A.
However, the velocity of any back-office transformation depends on the mind-set of its champions, finance chiefs foremost among them. What follows are some of the transformation-boosting concepts that finance executives need to grasp and, in turn, spread among their co-workers.
Customization Is Standard
Whether the decision is between “core” and “noncore” or “internal” and “outsourced,” finance executives are used to knowing their choices and educating themselves enough to figure out which options best apply. But when transforming back-office finance processes, a company’s choice of options is limited only by its particular needs.
“For the last 10 years or so, finance processing has been all about the cost of people, about finding the lowest-cost locations to deliver services from,” says Richard Mason, chief technologist for HPE’s Business Process Services practice. “To my mind, there is a shift happening. Now, it’s ‘How do I transform the way that those people do their work today?’”
Rather than choosing between keeping capabilities in-house or farming them out to service providers, companies can use hybrid service models to optimize back-office services. By sorting through the different processes and functions, cross-functional collaborators can determine which blend of shared-services, internal capacity, and outsourced support will create a more efficient and integrated back office.
That’s easier said than done. The exercise requires uprooting existing processes and replanting them where they will be better positioned to bolster corporate agility. Rethinking every back-office function from customer fulfillment to internal audit, and pairing it with the optimal methodology, require expansive intellect and unwavering focus.
“We stepped back and asked, ‘Which of these processes and packages could we do in-house versus which ones do we need an outside partner to help run?’” says Grant Barber, CFO of satellite giant Hughes, which set out to transform its financial processes after being acquired in 2011. “It was a matter of collectively addressing challenges so we could come up with better solutions for the combined back-office functions.”
No End to Change
A back-office finance transformation has a beginning, an end — and another beginning. A phase of the project may come to a close, but the need to keep rethinking the status quo stays ever present. As it embarked on its own finance transformation, the CEO of asset management firm Legg Mason “was very clear that this was not a project,” reports Brian Eakes, managing director and senior vice president of global finance. Rather “this was a new way that we are going to operate.”
That mission begins with top-level commitment, establishing well-defined objectives and outcomes, and with across-the-board participation. As early milestones are established and achieved, a new back-office configuration begins to take shape in the shadow of the preexisting structure. A subtle new dynamic rolls out step by step, adding value along the way. As finance leaders maintain a running tally of successes and shortcomings, it’s incumbent on them to absorb any lessons they’ve learned into the next stages of the transformation.
Every phase of implementation, in other words, has the potential to change the destination. “We’re not saying, ‘We’re going to make this change, and then we’re stuck with that forever,’” says Legg Mason’s Eakes. “We try it, and if we find something that doesn’t work, we’ll just correct that as the next step. Then we’ll keep going from there.”
In addition to monitoring changes in the operating model and technological infrastructure, finance executives need to train a watchful eye on the human enablers of transformation. Attaining employees’ buy-in is not a one-time feat; the dizzying pace of change, combined with a shortage of visibility, can overwhelm them.
“When it comes to moving certain kinds of processes to a shared-services center,” says Wolfgang Faessle, vice president of finance transformation at German airline Lufthansa, “it’s surprising how emotional it can be for a chief of finance. Even though they may be figures-driven by nature, costs savings alone won’t suffice to get all on board.”
Large-scale transformation initiatives, by virtue of their nature, generate intense emotion. If change is hard, transformation can be brutal. Senior finance executives must consciously improve their communication skills, dampening employee distress by striving to keep communication lines open, and repeatedly “marketing” the long-term benefits of the transformation.
After all, you can’t expect to lead an all-encompassing corporate transformation without being changed by it yourself.
Three reasons why transformations stall
Four signs that your back office needs transforming