Finance Function:
In the wake of recent accounting scandals and in the increasingly competitive business environment, many CFOs and the finance organizations they lead have started to take on new strategic roles within the enterprise. They are aiming at enforcing stricter control processes to ensure legal and regulatory compliance, offering strategic insights into the internal and external business environment, and connecting the business strategy with daily operations through performance tracking.
The trend toward a more strategic role is echoed by the responses of participants in recent research conducted by APQC, an internationally recognized nonprofit organization that provides best-practice research, metrics, and measures. The participants indicated that, three years down the road, they anticipate spending 30% more time on decision support and management (see Figure 3). According to the same research, however, in spite of their aspirations, participants have not made much progress toward a greater strategic role. Finance organizations, no matter what their size, report to APQC that they still spend almost two-thirds of their time on transaction processing and controls and only one-third on decision support and management.
The difficulty in evolving the finance role lies in bridging the current gap between the finance function that emphasizes greater efficiency and the finance function that becomes a partner in managing the business. The best companies have found that reaching the goal of a more strategic finance function warrants a two-step approach, as follows:
1. These companies improve the efficiency of the various functions that come under the finance umbrella and, in the process, free up corporate resources for other activities. As one global treasury manager put it, “We must develop a finance function that is as efficient as it can be, replicate it globally, and then use it effectively to help us quickly establish brands and enter new markets.” Companies like this one choose a variety of approaches to streamline and automate finance functions while ensuring that they keep customers happy (in the case of shared-services arrangements).
2. With the efficiency of the transaction and control functions assured, these companies can turn to devising a more strategic approach for finance – giving finance not only more of a decision-making responsibility in risk management and compliance but also a proactive role in managing the daily cash position and thus increase resources for quick strategic moves.
One global consumer products company took a two-step approach to a more strategic path for finance. In the first step, the company developed a more efficient cash management, accounts payable, and accounts receivable group of functions in its worldwide operations, based on greater transparency of information. In the second step, the company developed “straight-through processing” along every level of the finance function, leveraging its global reach to maximize cash management efficiency, foreign exchange exposure, and the global supply chain to help fund growth, participate in new marketing and distribution arrangements, and comply with worldwide regulations.
Given the current state of the finance function in U.S. companies, the challenges to that function, and the road map to increasing its strategic capabilities, the following article will share the results of SAP research as well as APQC’s Open Standards Benchmarking CollaborativeSM (OSBC) research. The OSBC research is the first global set of common standards for business processes and data, giving organizations an independent, authoritative resource for evaluating and improving business practices. Despite more than 10 years of lip service paid to the idea of a strategic finance function – and the increasing strategic demands on finance – most companies admit that, while they do want to focus more on decision support and management, they are in reality still spending almost half of their time on transaction processing (see Figure 3).
However, some finance organizations have already made significant progress on their journey to becoming a strategic business partner, as illustrated in Figure 4. First-quartile performers allocate only 30% of full-time equivalent (FTE) time to transaction processing, enabling them to invest 45% of their resources in decision support and management activities.
The right staffing mix, however, does not necessarily imply cost-efficient operations. From an overall cost perspective, the survey identified three important highlights, as follows:
- Finance costs tend to be relatively lower for larger companies.
