As CFOs around the globe continue to shift the focus of their finance functions from tactical to strategic, many are trying to find ways for their finance operations function to take part in that transformation. This goal is clearly reflected in a recent global CFO Research survey of senior finance executives, sponsored by SAP, which looked into ways that effective and efficient finance operations can support companies’ growth ambitions. Our findings are published in the report titled “Building High-Performing Finance Functions.”
The first challenge is to connect finance operations to larger-stakes corporate success. The survey found that 8 out of 10 respondents believe that improving finance operations should be one of their companies’ top priorities, specifically citing the impact that a more efficient and effective function has on core activities such as business process execution, budgeting and forecasting, and cash management. (See chart, below.) Only a handful of respondents say the performance of their finance operations is “good enough.”
But gaining management attention for finance operations activities that can be seen as unglamorous — for example, accounts payable and receivable, cash management, procurement, vendor/supplier relations — is often difficult, even though the failure to make operational improvements can have far-reaching consequences for a company. For example, the CFO of a U.K. construction company notes that “[management] need to understand that without a world-class finance function, they will struggle with cash flow.”
People, Processes, and Tools
The good news from the survey is that most finance chiefs believe their staffs have the knowledge and expertise needed to effect a finance operations transformation. Unfortunately, a counterpoint to this confidence is the finding that more than half of survey respondents (58%) say that their finance operations staffs are overwhelmed by the current demands placed on them. And paradoxically, any decision to increase staffing to better match demand hinges on senior management buy-in to the notion that a world-class finance operations function can deliver enterprise value.
Of course, better information tools and processes are also required to unleash the full potential within finance operations. While two-thirds of the survey respondents (67%) say they have already upgraded information systems, there is clearly room for improvement; half of the respondents report that they are considering upgrading information systems or making additional process improvements in order to improve finance operations further. Respondents understand that the potential gains from optimizing a flawed process can only be incremental, while the potential gains from actually fixing a flawed process can be exponential.
A survey respondent identifying himself as a “transformation leader” at a U.S. manufacturer advocates for “simplifying and harmonizing processes to reduce volume and complexity of operational work.” The payoff, he says, lies in being able to “reinvest savings in higher-value business support and analysis activities.” A CFO from the media/leisure sector makes the case more directly: “Less time chasing payables would enable more focus on the business operations.”
The survey found that organizational solutions — outsourcing and shared services centers — are not being pursued as actively as process or systems solutions are. Only about a quarter of survey respondents report that their companies have already adopted either type of organizational solution.
Manual processes are neither neutral nor benign. Each manual task represents a fresh opportunity to introduce error, slow down related processes, and take a full step away from a transformative vision of finance operations. Each manual task steals the time that a finance team member could be using for a higher-value (and higher-visibility) activity. This is relevant because three-quarters of survey respondents (76%) report that their finance operations systems still require a great deal of manual intervention in order to be effective.
Most companies of the size and scale surveyed by CFO Research have already implemented multiple information systems for a wide variety of purposes; they typically have dozens, if not hundreds, of separate systems. When finance systems and processes are not optimally integrated, a great deal of manual intervention is required.
A controller at a U.S. manufacturing company summarizes the challenge: “Lack of technology results in rework, duplication of effort, and a lot of manual processes that are not efficient or effective.” Another executive attributes the hypercomplexity of his firm’s accounting transactions to “disparate systems and recent business integrations,” while a third writes, “Too many disparate systems requires too much rechecking, hampering efficiency.”
In the end, the greatest value from technology improvements is in allowing companies to put their finance expertise to its highest use. The controller of a U.S. manufacturing firm explains that the company’s priority should be to “upgrade information systems so as to maximize the time and value of the existing staff, who should be transformed from the current ‘data aggregator’ into ‘effective analysts’ adding value to the business.”
A CFO from the pharmaceutical industry notes in his survey response that “we fight fires really well, but we aren’t consistently proactive in identifying issues and addressing them.” Throughout the survey, finance leaders express their aspirations to overhaul finance operations processes, upgrade their information architecture, and move from fighting fires to steering the business.
The CFO of a U.S. professional services firm describes how far the firm’s finance operations have advanced in delivering value outside the function: “A/R management is very proactive, and we have the best realization and turnover rate among our peers in the industry. [We have a] highly efficient close process at month-end and year-end, with very timely reporting of management information following close. Analysis of operations and business units [is] both thorough and timely, with an emphasis on information that can impact decision making and strategic assessments.”
This same CFO is now looking to raise other finance operations activities, such as cash management, to the same high-impact level. The goal, he says, is to leverage the use of new technology capabilities so that the finance function can “use the vast amounts of information available to translate into meaningful analysis [in order] to direct business efforts and influence strategy.”
Other survey respondents acknowledge how far their own organizations have to go to fulfill these kinds of ambitions. A controller in the manufacturing industry urges the finance operations function to give “equal weight to analysis as [it does to] transactions.” His logic is simple: “Just providing data is not as important as providing actionable information.”