Building a Best-Run Finance Organization: A New Role to Address Today's Business Realities Executive


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Is your company seeking to incorporate finance as a core line of business? This SAP Executive Insight examines the changing role of the finance organization in today's business environment - and describes how companies can develop best-run finance organizations.

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Building a Best-Run Finance Organization: A New Role to Address Today's Business Realities Executive

  1. 1. Building a Best-Run Finance ORganizatiOn A New Role to AddRess todAy’s BusiNess ReAlities SAP Executive Insight
  2. 2. there is a company executive with a growing influence in today’s boardroom – the chief financial officer. And the role of the finance organizations that these executives lead is expanding as well. while the advent of the sarbanes-oxley Act has focused enormous attention on the financial accountability and in- ternal controls of companies across all industries, compa- ny executives recognize that individual business activities do not occur in a vacuum. All functions – such as sales, marketing, manufacturing, service, and even human re- sources – affect not only the bottom line but also a com- pany’s financial integrity. increasingly, prudent companies are drawing their finance organizations into greater collab- oration with the operational aspects of the enterprise. Moreover, companies are asking their financial officers to take on a more prominent role in defining company strategy. this sAP executive insight examines the changing role of the finance organization in today’s business environment. Further, by answering the following questions, it describes how companies can develop best-run finance organizations: • What operating characteristics help companies develop best-run finance organizations? • How do you measure a best-run finance organization? • How does the focus of an organization change as best- run finance methods are applied? 2 SAP Executive Insight – Building a Best-Run Finance organization
  3. 3. eXecutiVe agenda At A GlANce Recognizing Best-Run Finance Investing in Financial Processes Striking a Balance leading companies that are successful in supporting these success factors are a the best-run finance organization will incorporating finance as a core line of company’s internal processes. top- continue to address near-term priorities business typically display some common performing companies have financial while helping to chart long-term business characteristics. these companies are: processes that are: direction. As a result, the mission of • Agile. As the economic environment • Automated. when a transactional pro- today’s finance organization is truly both continues to change at an ever- cess is automated, the result is fewer tactical and strategic: increasing pace, there is no time to errors and less effort. with process • Tactical. standard financial operations, implement change in small, bite-size reliability, financial professionals can such as month-end close, remain criti- chunks. centralizing processes – such shift their focus from repetitive and cal to a company’s success. Process- as shared financial services, risk analy- manual transactional tasks to more ing financial transactions efficiently and sis, and compliance – can provide con- strategic business analysis. in strict legal compliance solidifies a sistency that enables a company to • Integrated. Financial processes should company’s standing in the financial, implement changes once, quickly be plugged into business processes analyst, and shareholder communities. reaching the entire enterprise. across the enterprise. organizations • Strategic. At a time when business • Connected. No executive – or busi- need to pull down the silos and ensure models are changing rapidly, finance ness function – is an island. Finance, that all relevant financial and operation- plays an increasingly important role in especially, has dependencies on activi- al functions are considered when mak- charting the course of an evolving com- ties in each line of business across the ing critical business decisions. pany. Finance must drive strategy and entire organization. the integration of a • Consolidated. it is inefficient to imple- innovation – enabling the growth of an company’s operations with its financial ment process or regulatory changes organization, facilitating the changes function is a key success factor, foster- that affect an entire organization on a that come with that growth, and manag- ing a common view of the current state system-by-system or subdivision basis. ing risk. and future direction of an organization. A common technical platform can elimi- • Metric driven. leading companies nate this potentially costly requirement. sAP and the Americas’ sAP users’ measure their successes – such as the Group (AsuG) have conducted bench- effectiveness of their transactional pro- marking studies that provide important cesses, the performance of core busi- insight in how leading companies achieve ness operations, and the efficiency that the desired balance in their financial orga- finance contributes to the overall orga- nizations. Further, by analyzing the perfor- nization. Particularly for an evolving mance of businesses across diverse business, metrics can also provide a industries, these studies also offer cFos clearer picture of a company’s starting the metrics needed to assess their own point, its transformation plan, and the company’s success. results of its execution. SAP Executive Insight – Building a Best-Run Finance organization 3
  4. 4. agile oPtiMiziNG FiNANce to MAxiMize eFFicieNcy Streamlining Processes with Responding Efficiently to Risk and Automation and Shared Services Compliance Issues GRUMA Industry: consumer products – food like best-run operations everywhere, in addition to controlling financial expo- Summary more and more finance organizations sure, companies are expected to maintain GRuMA is the worldwide leading pro- are looking for ways to streamline their consistent operational and audit process- ducer of corn flour and tortillas and processes. Automation is an obvious es. to ensure compliance with legal regu- sells its products in over 50 countries. strategy. By automating transactional pro- lations, companies must implement GRuMA required a process and tool to cesses, top finance performers are low- checks and controls – based on the con- ensure that its end users had the right ering the cost of financial activities, text of individual business processes – access privileges to perform day-to-day reducing errors, and increasing turn- that define who can access and change business operations without exposing around speeds. in fact, benchmarking information. AsuG/sAP studies indicate the business to risk. GRuMA selected studies reveal that top quartile perform- that targeted governance, risk, and com- the sAP® GRc Access control ap- ers have finance costs that average just pliance initiatives can help companies plication and established a compliance 0.7% of company revenue, compared to measurably improve their ability to detect program with minimal investment that greater than 1.3% for the bottom quartile. and prevent fraud while reducing the enables exceptional change and access Automated processes can also ensure resources spent on compliance. control. that an organization’s core data is reliable Results with SAP® Software and readily available. Further, as financial and operational rules • internal it audit revision time change, new processes must be imple- completed 90% faster But without a systematic method to mented throughout an organization as • external it audit revision time ensure compliance with these processes, soon as new rules take effect. A central- completed 50% faster companies can still experience costly ized model to control risk and compliance • Greater ability to track compliance localizations across business units and facilitates the ability of an organization to with auditors’ recommendations and geographies. A growing trend in best-run turn on a dime in a changing global measure improvements finance is to drive efficiency through economy. • Faster, risk-free user setup shared services. A finance organization • improved risk assessment with a single business process platform can provide consistency across different regions and divisions – and still address the requirements of local regulations. the advantages of this approach include the stages of Maturity Effectiveness Improvement % 32% sharing of financial resources, quicker Net Cost Savings % and more accurate financial consolida- 23% tion, and increased speed in complying 15% 14% with legal and regulatory changes. 8% 5% 84 1% 0.5% Benchmarking again shows that compa- No Shared Service Emerging Established Leaders nies with mature shared-services organi- typical Profile • Fragmented • Centralized • Automated • Highly Automated zations achieve cost savings and • Varying Processes • Mostly Standard transactions • Highly Integrated increase organizational effectiveness Processes • Consistent Service • Comprehensive • Varying Service levels Metrics (see Figure 1). levels • Efficiency Metrics • Customer Governance source: AsuG/sAP 2006 shared-services study Figure 1: Shared-Services Adoption Driving Improvements in Efficiency and Effectiveness 4 SAP Executive Insight – Building a Best-Run Finance organization
  5. 5. cOnnected iNteGRAtiNG FiNANce to EnSuRE EFFECtIVEnESS Embedding Finance in Closed- Enabling Integrated Information across organizations, a finance organiza- Loop Processes tion is in the unique position to identify in addition, a company cannot effectively current trends, forecast future results, Finance is no longer a back-office func- pursue a strategic direction unless there and ensure consistency across these tion. instead, today’s best-run finance is consistent, accurate, and real-time visi- organizational boundaries. organizations reinvest the time and bility across the enterprise – especially resources saved by running an efficient when it comes to its financial information. studies indicate that as finance organiza- organization to provide proactive insights A business, for instance, cannot react tions evolve, a greater percentage of that enable other lines of business to proactively to demand forecast adjust- their time is spent on business analysis make informed decisions supporting the ments if this information takes several (see Figure 2). Accompanying this shift best interests of the entire company. days to reach the finance department. are increases in operating margins as Holistic processes that encompass every And in highly siloed environments, there much as 38%. top performers increase part of the business – and that facilitate is the risk that critical information will nev- efficiency with lower transactional costs, communication between departments – er reach other impacted organizations while maximizing effectiveness with are critical to ensuring that finance is inte- such as manufacturing. greater emphasis on strategic decision grated with these operational decisions. support. Finance needs information that is timely Finance, marketing, sales, and manufac- and accurate if it is to fully assess the Volvo Aero Services turing must all work together, for exam- operational situation of a company. Man- ple, to effectively determine appropriate ual processes open the door to error Industry: wholesale distribution spend based on expected returns and, when transferring data or rekeying Summary ultimately, the bottom line. with closed- entries. Automation can ensure a free Based in Boca Raton, Florida, Volvo loop processes in place, a finance flow of accurate information between Aero services corp. is a leading pro- department can forecast potential reve- departments, lines of business, and vider of aftermarket parts and services nue, run what-if analyses, and develop geographies – optimizing the entire for the aviation industry. in addition contingency plans to manage costs. if business. to being the exclusive distributor of marketing targets more sales than manu- surplus parts for Boeing company, facturing can supply, managers can Acting as Strategic Advisor Volvo Aero Services offers a range of adjust demand plans or secure additional services including warehousing, financ- manufacturing resources. if manufactur- A truly connected finance organization ing, repair management, and leasing of ing costs increase, finance can flag off- will identify opportunities that take its aircraft parts and engines. Part of the target trends and initiate early corrective company to the next level. with its ability larger Volvo Group of companies, the action. to analyze operational performance company chose sAP® software to en- able an evolving business model and to Effectiveness achieve operating efficiencies. Strategic Decision Support Operating Margin Results with SAP® Software +38% • days sales outstanding reduced 15% Expertise-Based Activities Finance Costs as • on-time deliveries increased 18% % of Revenues (up to 97%) –30% Transactional • time for general ledger reconciliation Process Support reduced 50% • increased visibility into product costs Below Average Top Performer and market demand Efficiency Figure 2: The Benefit of the Right Balance SAP Executive Insight – Building a Best-Run Finance organization 5
  6. 6. MetRic dRiVen PuttInG tHE RIGHt MEASuREMEntS iN PlAce Maintaining Financial Excellence surements, however, must be evaluated that brings company-wide forecasts in concert. For example, both cost and together in a single comprehensive plan – the measurements that an organization speed are critical in time-to-close pro- providing what-if analysis, assessing risk, puts in place – and how these perfor- cesses. Rapid financial results enable and identifying inconsistencies among mance indicators are prioritized – often effective and timely business decisions departments. determine which companies are business for all business units of a company. leaders. Metrics that measure the effi- Best-run finance goes one step further ciency of finance operations typically Financial organizations will continue to and compares company performance include cost per transaction, fixed asset process the important daily transactions with external economic data. this com- valuation, department headcount, and that invoice customers, pay vendors, and parison can reveal how the business audit times (see Figure 3). such mea- capture operational costs. indeed, an on- stacks up to the general market, its going mandate of finance is to generate industry, and its geography. By providing the financial statements expected by the such insight, a finance organization can market and shareholders. drive growth strategies. At the same Slade Gorton time, these strategies can mitigate the Driving Operational Excellence risks presented by business realities such Industry: wholesale distribution as economic downturns and emerging Summary Beyond the necessary financial state- global regulations. slade Gorton & co. inc. is the industry ments, the best-run finance organizations leader in the development, market- also play an integral part in operations ing, and direct distribution of seafood. planning. By performing operational anal- since 1928, the company has worked ysis, finance can support the decisions of hard to provide its customers with the departments across the enterprise: finest and widest line of fresh and fro- sales, manufacturing, and services. in zen seafood available. By offering only fact, it is often the finance department the highest-quality seafood products from around the world, slade Gorton is transforming the way foodservice and retail customers and consumers per- ceive and buy seafood. Focus Metrics Comparison Results with SAP® Software • Market • Market effectiveness • Ability to operate with very lean staff share • Internal and minimal costs, while maintaining • Growth strategic very high levels of customer service • time to decision integrate • thirty-eight Ftes in finance depart- support acquisitions ment per billion dollars in revenue operational (average benchmark is 100)* Planning and • Error rates • External • Finance costs at 0.35% of revenue Business support • Cycle times • Internal (average benchmark is 1.2%)* • Costs • Real-time, accurate, timely reports • Staffing with lower it support costs transactional levels Process support * As measured in an AsuG/sAP efficiency Benchmarking study. Figure 3: A Focus on Metrics 6 SAP Executive Insight – Building a Best-Run Finance organization
  7. 7. the ROad ahead BecoMiNG A Best-RuN FiNANce oRGANizAtioN there is little doubt that today’s cFos the VE team consists of more than 175 are changing the focus of their organiza- professionals providing in-depth About the Author tions and, as a result, influence business industry and business process exper- operations far beyond the traditional tise in strategy, it planning, global Birgit starmanns is a senior director boundaries of finance. deployments, and benchmarking. For in the Customer Value network group more information, contact within sAP value engineering. star- manns concentrates on developing sAP industry experts and the value solution-focused communities and engineering (VE) team can help your networks, creating value-oriented company build a best-run finance organi- the AsuG/sAP Benchmarking and thought leadership, and working with zation. these experts provide support best practices program can help strategic customers – principally in the throughout the value life cycle, from organizations assess strengths, identify area of financials and customer developing business cases to sharing potential areas for improvement, and relationship management (cRM). knowledge on how to maximize the val- recognize best practices and it strate- Previously, starmanns was a vice ue of sAP® software such as the gies that enable companies to excel. president in sAP’s cRM product following: Benchmarking and best practice management organization for partner • SAP ERP Financials solution: A com- reports are available for financials; channel management and a director for prehensive financial management shared services; and governance, risk, e-commerce. Prior to joining sAP, she was a manager in management solution engineered to support com- and compliance. Additional reports consulting organizations, with a focus panies from the midmarket to the address other operational areas, such on financial and management account- most complex, multinational corpora- as human capital management; supply ing. starmanns holds an MBA and a tions, across a broad range of indus- chain and manufacturing; and BA from the college of william and tries, which supports global financial business intelligence. For more informa- Mary. reporting standards, multiple curren- tion about the AsuG/sAP cies and languages with over 45 coun- Benchmarking program, visit Further Reading try-specific versions, and tight or integration with operational processes contact to learn more, please visit • Financial performance management: or contact your solutions for enterprise performance sAP representative about the management that help companies following: capitalize on the value of their corpo- • AsuG/sAP Benchmarking Reports rate data, enabling organizations to • Driving Financial Performance: How become more agile and competitive top organizations excel – sAP by providing organizational alignment, insight visibility, and greater confidence, • Best Practices in creating a strate- based on information coming from gic Finance Function – sAP insight many different parts of the business – • Fujitsu siemens computers – including financials and operations, sAP customer success story external partners, vendors, and • thrifty Foods – sAP Business customers transformation study • Governance, risk, and compliance: • san luis obispo county, california solutions that promote corporate – sAP Business transformation study accountability by unifying corporate • sentry Group – sAP Business strategy, control initiatives, opportuni- transformation study ty discovery, and loss mitigation across the extended enterprise SAP Executive Insight – Building a Best-Run Finance organization 7
  8. 8. 50 090 293 (08/07) ©2008 by sAP AG. All rights reserved. sAP, R/3, xApps, xApp, sAP Netweaver, duet, Partneredge, Bydesign, sAP Business Bydesign, and other sAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of sAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. data contained in this document serves informational purposes only. National product specifications may vary. these materials are subject to change without notice. these materials are provided by sAP AG and its affiliated companies (“sAP Group”) for informational purposes only, without representation or warranty of any kind, and sAP Group shall not be liable for errors or omissions with respect to the materials. the only warranties for sAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. /contactsap