Transcript of "Periodic Reassessment, Continuous Improvement of Finance Operations"
• Cognizant 20-20 InsightsPeriodic Reassessment, ContinuousImprovement of Finance OperationsA well-considered and executed transformation roadmap can helpfinance keep pace with emerging technologies and service deliverymodels, as well as advance key business objectives. Executive Summary ment for developing a transformation roadmap is a detailed operating landscape map, including The ever-changing needs of the business and an in-depth understanding of the “as-is” process, its operating environment make it imperative available talent, organizational structure, for organizations to continuously reassess their technology landscape and levels of automation. core processes, including those that pertain to Once an in-depth understanding of the current finance. Doing so will ensure that processes can landscape has been developed, analysis can be meet any new business requirement and support performed and alternative future-state scenarios the organization through needed change. This developed to begin building the enterprise trans- has led to a growing trend in recent years for formation roadmap. finance groups to conduct rigorous assessments and develop multiyear transformation roadmaps. A transformation roadmap needs to be dynamic A well-constructed and well-executed transfor- and continuously updated. Current operations mation roadmap will address the wide swath of need to be reassessed in light of changes to the process, people and technology issues. This will company and its environment, including: put companies on a path to become best in class and stay ahead of their peer group. • Availability of new software tools and solutions. This white paper discusses the factors that • Maturing of outsourcing options. mandate a transformation plan update and pro- • Finance operations performance. vides a framework for a comprehensive assess- ment and roadmap. • The advance of globalization. • Evolving best practices. Creating, Extending a Transformation Roadmap • The changing role of finance. Finance transformation roadmaps are strategic in By continuously evaluating and updating the nature and built for a multiyear timeframe. They transformation roadmap, companies will be able set the transformation agenda and direction for to take advantage of the latest developments in the organization. The critical information require- technology solutions for finance. New software cognizant 20-20 insights | october 2012
tools can be leveraged to increase levels of • Consolidations: Optimize ledger consolida-automation, eliminate non-value-added activities tions.and help create an organization of the future withbest-in-class processes. • Reporting: Standardize financial planning and reporting by creating system-generated auto- mated reports that are available centrally.Technology EnablementSoftware applications are available that lend a • FP&A: Build custom views of data and provide analytics.degree of automation to all finance processes.These software technology enablers almost fully FAO Optionsautomate the process, as in the case of accountspayable invoice processing, or improve the effec- Transformation roadmaps also help companiestiveness of the function, such as financial plan- objectively evaluate whether to retain processesning and analysis (FP&A). Examples of finance or take advantage of the lower labor cost andprocesses for which mature technology offerings shared investments of working with a serviceare available include the following: provider. This can be achieved by comparing offerings and providers with existing cost• Invoicing:Eliminate invoice processing with structures and service levels. Web-based solutions that connect buyer and supplier. The offerings of finance and accounting outsourc- ing (FAO) providers are changing and maturing• Order management: Optimize order manage- rapidly, moving from the provision of rules-based ment, billing and collection functions with transaction processing to complex judgment- Web-based solutions. based work. In the early days, the FAO scope• Cash application: Automate credit card and was limited primarily to accounts payables work. cash applications by leveraging auto-matching Successful delivery of cost savings and quality of bank feeds with ERP. improvement from accounts payable outsourcing• Recurring entries: Automate booking of re- quickly led to the outsourcing of other transac- curring expenses and allocations by leveraging tion processing work, such as accounts receivable, existing ERP functionality. fixed assets accounting, cost accounting and routine reporting. Over time, as FAO became a• Travel expenses: Optimize travel expense pro- more accepted and proven business practice, cessing by integrating expense reporting with companies expanded their outsourced work to corporate travel cards. include complex reconciliations, ad hoc reporting,• Reconciliations:Optimize reconciliations by Sarbanes-Oxley compliance work and selected auto-matching multiple feeds. treasury activities (see Figure 1).Degree of Outsourcing of F&A Processes Over Time High Pioneer Emerging Mature Accounts Transaction-intensive processes Accounts receivable payable 2009-2010 2007-2008 General Depth of Outsourcing Scope Payroll ledger Judgment-intensive processes (Degree of process FP&A 2009-2010 ownership transferred 2007-2008 to FAO service provider) Tax Regulatory reporting & Internal compliance During the past few years, audit FP&A scope evolution was driven more by the increasing depth of scope than the frequency of inclusion of FP&A Low processes in FAO contracts. Low Frequency of Inclusion High (Percentage of transactions) Sample size: 580 multiprocess FAO contracts signed as of 2010 Note: For more information, please refer to “Moving Beyond Transactional FAO:The Rise of FP&A Outsourcing,” Everest Group, December 2010.Source: Everest Research Institute (2011)Figure 1 cognizant 20-20 insights 2
Service Level Expectations to accommodate the expanded agenda. Order management is transforming itself from beingIn-house levels of service performance also a back-office function to a front-office saleschange over time, for better or worse, as do per- channel.formance requirements. Several factors can drivethe need for a change in service levels, including • Accounts payable: Improving discount capturenew expectations, accounting standards and and recovering debit balances are now increas-technology, as well as changes in the operating ingly being built into the standard accountsor regulatory environment. If current process payable process and are key deliverables forperformance levels are not meeting the new most accounts payable managers.demands, this calls for a process reassessment inorder to achieve compliance. • Sourcing: With changing expectations, sourcing teams are now being measured onConsider the following scenario: The end-to-end actual savings delivered. They are expectedcycle time for Company XYZ, from request receipt to leverage spend analyticsto order fulfillment, is 12 working days. The best- and new technologies to With changing take advantage of scale and negotiate better rates and expectations, sourcingin-class cycle time is four days. The company,therefore, must reassess the process with atarget of getting close to best-in-class to stay terms of credit. teams are now beingcompetitive. The goals and aspirations of measured on actual finance are also changing over savings delivered.Globalization also impacts the finance transfor- time. As finance organizationsmation roadmap. As companies expand globally are transformed, goals are evolving from predict-to access new markets, or get closer to the ability, efficiency and accuracy to business impact,existing markets they serve, the demands on predictive analytics and business partnering.finance change. In the traditional model, organi- These evolving goals also force revisions tozations tended to create infrastructure and back- finance’s transformation roadmap. Increasingly,office support in new markets, including finance. corporations want finance to not only record trans-With the maturity of today’s FAO offerings, it is no actions and report accurately but also be a truelonger a requirement to build all of the necessary business partner supporting overall enterprisesupport. Organizations are now able to operate in strategy and growth.multiple new markets with minimum investmentby partnering with established providers that A final factor is the progress toward the existingoffer global F&A services. Companies that have transformation roadmap itself. Progress may besuccessfully adopted this model are able to lagging or exceeding thequickly ramp up in new markets, get closer to the original plan; if it is lagging,markets they serve and focus on core business. what are the factors that As finance are slowing progress? Was organizations areAs the World Turns the original plan realistic? If transformed, goalsBest practices are changing rapidly. In response the answers are no, then theto changing technologies, maturing of outsourc- plan needs to be revisited are evolving froming and changing regulations, approaches and and updated to ensure that predictability,activities that were best practice just a yearago may no longer hold that status. Organiza- the objectives are met. efficiency andtions are leveraging the power of information FAO providers are also not accuracy to businessand developing a greater understanding of the immune to the need to impact, predictivefinance back-office function and converting it into reassess operations andvalue for the organization. This has led to a new revise transformation plans. analytics andtrend, in which back-office functions are trans- A service provider that only business partnering.forming into revenue-generating functions: implements the transforma- tive changes identified at the start of the rela-• Order management: This function is now used tionship is failing its client. For all of the afore- by companies to cross-sell and upsell prod- mentioned reasons — technology, regulation, ucts and services. This has a direct impact on performance, etc. — FAO service providers must revenue. The processes and skill sets of the also step back and periodically reassess. people managing this function are changing cognizant 20-20 insights 3
Creating a Transformation Roadmap Client: Large U.S.-based hospitality chain Our Approach: Challenges: • Current-state assessment (people, process, technology). • Large-scale operations with complex fran- chising and refranchising relationships. • Analysis of multiple future-state scenarios. • Fragmented financial processes and systems. • Development of transformation roadmap and business dcase. • Poor knowledge management; highly resource centric. Client Benefits: • No formal business metrics program. • Five-year transformation roadmap, with identified quality and business impact • High process variation from one business benefits. unit to another. • Identification of 35% savings on current total cost. • Identification of 5% year-over-year ongoing productivity improvements.Figure 2The required periodic reassessment of finance an optimized cost. Based on our experienceis not a cursory, surface-level activity; it must be with large global companies, a well-drafted andboth objective and comprehensive. At a minimum, executed transformation roadmap can reducea reassessment must include: program costs by 30% to 50% over a three- to five-year timeframe, as was achieved by one large• Benchmarking internal costs against the hospitality industry client (see Figure 2). market price of external service providers. Any business that has not reassessed its finance• Benchmarking performance (productivity, organization and revised its transformation accuracy, timeliness, cycle time, stakeholder roadmap within the past 24 months needs to get satisfaction, etc.) against the performance of started. To truly achieve an objective and rigorous external service providers. review, and a roadmap that is actionable and• Assessing finance operations against leading pragmatic, outside assistance is recommended. best practices. When seeking help with assessing and transform-• Assessing the deployment and effective utiliza- ing finance, we suggest choosing a partner that tion of technology. not only provides consulting but also operates large-scale financial operations for others. AGetting Started provider of finance and accounting outsourcedA disciplined, successful implementation of the services will be best positioned to know the realfinance transformation roadmap will enable timeframes, costs, benefits and risks associatedorganizations to build financial organizations with alternative transformation initiatives.of the future with best-in-class processes at cognizant 20-20 insights 4