Session 1 - The Value-adding Finance Organization

The Value-Adding Finance Organization
Lean Finance Conference:
Session 1 Master Class Series

© Copyright 2011 Stephen G. Lynch, All Rights Reserved
About Today’s Facilitator
•  Stephen G. Lynch
•  Principal at CSC Consulting in Finance
Transformation and Shared Services
•  Focus on Finance Delivery Strategy,
Process Optimization and Organizational
Design
•  Served as a Public Accounting Auditor and
as a Corporate Controller
•  Publish the Global Finance 360 blog
(www.globalfinance360.com)
•  Live in Colorado, United States

Overview of the Master Class Series
v  The Value-Adding Finance
Organization
v  Lean Assessment of the Finance
Organization
v  Re-engineering the Finance
Organization
v  Transforming the Finance Professional

Goals for Workshop 1:
The Value-Adding Finance Organization
§  Understand the drivers behind lean finance
transforma4on
§  Understand the characteris4cs of a world-class
finance organiza4on
§  Understand what it means to be cost effec4ve
§  Understand the drivers of complexity and how
leading companies simplify
§  How to achieve the twin goals of effec4veness
and efficiency
§  What it means to become a strategic finance
organiza4on

Business Finance Magazine
The Case for Finance Transformation
Most Finance organizations earnestly desire to be true partners with
Operations, but…
“Finance must first have established credibility with
the rest of the organization before it can effectively
perform the role of wealth generator. Building this
internal credibility typically has required finance to go
through its own transformation process of becoming
a more efficient and externally focused organization.”

Top Challenges of CFOs that Drive Need for
Transformation
•  Support corporate strategy
•  Maintain profitability and margins
•  Maintain liquidity
•  Monitor and identify risk
•  Manage regulatory compliance including
reporting convergence
•  Attract and retain talent

The Evolving Role of Finance
Traditional
§  Manager: Facilitates the efficient operation of
finance
§  Controller: Manages risk consistent with
corporate strategy
Expanded
§  Strategist: Partners with its business to
develop and enable strategy
§  Catalyst: Drives change in the organization to
enable efficient growth

The Evolving Role of Finance

How Do Leading Finance Organizations
Spend Their Time?
Source: American Quality & Productivity Survey
FTEs as a Percentage of Total Finance FTEs

Financial
Strategy
External
Business
Partner
Financial
Processes
Market
Conditions
Risk &
Compliance
Profile
Access To
Capital
Next
Generation
Finance
Resources
Liaison with
Investor
Community
CFO
Community
Finance Strategy
Profitable
Performance
Efficient &
Effective Back
Office
Effective
Information
Organizational
Exposure
Financing the
Organization
Scarce
Resources
Investors
Finance is Constantly Adapting which Requires an Agile
Organization To Deliver High Performance
•  Ageing workforce
•  Increase levels of regulations
•  Changing job roles & requirements
•  Access to Capital markets
•  Leverage available debt
•  Working capital / cash management
•  Increased global regulations
•  High cost of compliance
•  Converging compliance standards (IFRS, GAAP, BASELL)
•  Ensure all risk is identified and managed
•  Manage each risk depending on realization of crystallizing
•  Visibility into the markets and key trends
•  What are the competition doing
•  Market models changing
•  Speed of market intelligence
•  Shared Services, Centers of
Excellence, BPO
•  Competitive Benchmarks
•  Optimize technology
investments
•  Forward looking metrics & information
•  Competitor analysis
•  Environmental, Geo-political analysis
•  Integrate Finance strategy into the wider business strategy
•  Identification of key products/services to be sold
•  Which regions/markets to be selling into
•  Increased transparency
•  Sophisticated investors

How Effective are Leading Finance
Organizations?
Metric Value
Finance Cost as a % of Revenue 0.53%
Finance FTE per $ Billion in Revenue 50.3
Manager/Professional/Clerical mix 18% / 46% / 36%
Span of Control 1:4.6
Percent of Finance transactions automated 65.4%
Monthly accounting close cycle 5 days

What Prevents
Companies from
Achieving World-Class
Performance?

Finance Organizations Face Multiple Challenges
Poor Data
Quality
Disparate
Technology
Disparate
Processes
High
Complexity
Disparate
Delivery
Model
•  Lack of data
standards
•  Manual
intervention to
create
acceptable data
quality
•  Multiple, redundant
controls
•  GL used for detailed
mgmt. reporting
•  Complex budgeting
and forecasting
process
•  Processes vary by
SBU or location
•  Weak policies and
procedures
•  Poorly trained
workforce
•  Model varies by
SBU
•  Hidden FTEs
embedded in BUs
•  High cost structure
due to poor delivery
strategy
•  Non-integrated
systems
•  Multiple instances
•  Poor business
intelligence
architecture
Many organizations have failed to realize expected ROI
on investments due to disparate technology,
processes and organizational structure.

Challenges
•  Multiple instances of ERP
•  Non-aligned data structures
•  Manual data formatting and
transfer between systems
Technology Enablement
Opportunities
•  Instance consolidation as a
lever for finance
transformation
•  Point solutions tightly
integrated with core ERP
•  Improve internal controls with
system based, preventative
controls
•  Cloud-based infrastructure
and applications to drive
virtualization

Challenges
•  Poor or non-existent
governance structures
•  Master data standards don’t
exist or are not adhered to
•  Business does not take
ownership of data quality
•  Data and information is not
treated as a strategic asset
Data and Process Governance
Opportunities
•  Engage operations, finance,
HR, IT and other groups in a
true partnership to form an
effective governance structure
•  Establish process councils for
key processes to control and
optimize end-to-end
processes
•  Set up master data standards
and enforce! A unified data
structure is essential to world-
class performance

Challenges
•  Multiple, redundant controls
•  Manual controls
•  Overly complex Chart of
Accounts used for management
reporting
•  Demands of multiple and
divergent stakeholders
Complexity Management
Opportunities
•  Reduce Chart of Accounts
•  Leverage Business
Intelligence for management
reporting
•  Simplify yet strengthen
internal control structure
•  Establish clear management
requirements with operations
stakeholders and focus
performance goals on those
requirements

Challenges
•  Transaction processes are
decentralized
•  Processes vary by Business
Unit or by location
•  Workforce turnover leads to
process variation
•  Weak policies and procedures
governing process
management
•  Poor visibility of processes
across regions and business
units
Process Enablement
Opportunities
•  Establish corporate standards
•  Business Process
Management (global, in the
Cloud)
•  Reduce manual intervention
•  Focus on materiality
•  Leverage technology
integration

Challenges
•  Continued pressure to move to
lower cost locations
•  Shifting delivery market globally
•  Delivery model varies by SBU
•  Shadow Finance organization
with hidden FTEs
Global Service Delivery
Opportunities
•  Define comprehensive
delivery strategy
•  Employ 3rd party partnerships
to drive cost reduction and
process innovation
•  Leverage technology through
3rd party outsourcing
partnerships
•  Leverage new global talent
pools – whether onshore or
offshore

High-performing companies relentlessly
pursue efficiency
Strong data
Governance
Common
Technology
Standard
Processes
Reduced
Complexity
Global
Delivery
Model
•  Data
definitions
•  Data quality
•  Eliminate redundant
controls
•  Decrease COA
•  Decrease budget /
forecast line items
•  Eliminate
variation
•  Focus on
materiality
•  Reduce manual
input
•  Onshore
•  Offshore
•  Distributed
•  Captive SSC
•  Virtual captive
•  Outsource
•  ERP
•  Business
intelligence
High-performing companies focus on the integration
of organizational alignment, technology enablement,
and process optimization.

High-performing companies address key
business drivers simultaneously
+ + =
n  Technology leverage
n  System complexity
n  Standardization
n  Centralization
n  Staffing levels
n  Resource allocation
n  Partnering
n  Cost
n  Productivity
n  Cycle times
n  Complexity
How you
manage your
staff
How you
enable your
staff
How you
execute
n  Cost
n  Value
n  Service levels
n  Risk management
n  Data vs. Intelligence
n  Proper level of granularity
n  Must be actionable
High
Performance
ProcessTechnologyPeople
Information
n  Performance Measurement
n  Availability of Data
n  Timeliness/Relevance of Data

•  On the 3 x 5 index card provided, please
list your organization’s:
–  Greatest finance challenge
–  The greatest impediment to overcoming that
challenge
•  Please don’t list your company’s name
Workshop Exercise

Shaping the Strategic
Finance Organization

What Makes a Finance Organization Strategic?
•  Partners with the Business to define and
execute corporate strategy
•  Manages risk levels to align with corporate
risk appetite
•  Manages liquidity to fund operations
•  Supports acquisitions through due diligence
and post-merger integration
•  Provide investment analysis / capital
management
•  Provide decision support and analytical
insight

Product
Leadership
(Apple)
Operational
Excellence
(UPS)
Customer
Intimacy
(Nordstrom’s)
•  Companies must excel in one
discipline year-in and year-out
•  Companies must meet the
minimum thresholds in the other
disciplines
Minimum Threshold
World-class Finance Organizations Align with
Corporate Strategy

Leading Finance Organizations Adopt a Multi-faceted Finance
Strategy That Have Common Characteristics
•  Actionable - realistic and detail specific
actions to bring the strategy to fruition
•  Flexible – organizational models that can
respond to new opportunities in a
pragmatic and disciplined manner
•  Scalable – with systems, processes,
organization and governance structures in
place that enable them to scale as their
business grows
•  Supportable - generating the value-
added delivery capabilities their company
require
•  Measurable – with an integrated set of
key performance indicators that drive
effectiveness and efficiencyInternal & External Stakeholders
Economic Forecast
Corporate Strategy

Operational Characteristics of World-class
Finance Organizations
•  Reduce reliance on annual budget and emphasize rolling forecast
•  Foster an environment of continuous learning and improvement
•  Benchmark regularly to monitor progress towards world-class journey
•  Align Finance services to support strategic mission
of the company
•  Maximize efficiency of transactional processes (i.e.
Accounts Payable, Cash Applications)
•  Leverage technology to standardize processes and
drive out cost
•  Organize into Centers of Excellence to leverage
common capabilities
•  Create actionable intelligence through a robust
Business Intelligence environment

•  Speed
•  Reliability/Precision
•  Performance-Based
•  Customer-Centric
•  Adaptability
•  Low cost leader
•  Relationship Management
•  Technology enabled &
self-service
•  Flat organization with technology providing real-time
information for people to do their jobs
•  Tools, training, support, and expectations for
delivering quality and consistency at all times
•  Clearly understood metrics, goals and targets;
rewards and compensation tied to performance
•  A valued business partner by providing high quality
customer service at every point of contact
•  Ability to change as market, products, services and
organizations change
•  Streamlined business processes which result in
significantly improved productivity and efficiencies
•  Ability to manage all types of relationships
•  Enable and encourage full utilization of technology
Customer-facing Characteristics of World-class
Finance Organizations

Case Study:
Unilever Finance

•  Global consumer products company with over €44
billion
•  Operates in all major regions of the world
•  Has 400 brands focused on health and well being
•  Products sold in over 180 countries
•  53% of sales are in emerging markets
•  2 billion consumers world-wide
Unilever Overview
Source: Unilever March 2011 presentation

World-class finance processes
Innovative business partnering
Financial flexibility
Dynamic performance management
People and Organization
Unilever’s Strategic Thrusts

Unilever’s Three Pillars of Finance Strategy
Accounting &
Information
Expert
Services
Business
Partners
• Decision
Support
• Performance
Management
• General Ledger
• Financial
Accounting
• Information
Management
• Treasury
• Tax
• Compliance
• Investment
analysis
• M&A
• Capital
Management

Unilever’s Finance Transformation Journey
Before After
•  Each company had its
own CFO
•  Finance resources had
a dotted line to the
Corporate CFO
•  Viewed by the company
primarily as “Bean
Counters”
•  9,000 FTEs
•  Focused on transaction
processing
•  Transaction processing
decentralized at each
Business Unit
•  One global finance
function
•  Solid line to Corporate
CFO
•  Partners in value
creation
•  5,500 FTEs
•  Focus on decision
support, not just
transaction processing
•  Deployed shared
services and
outsourcing model to
centralize processing

Questions & Discussion

Stephen G. Lynch
Contact Information:
Office: +1.719.481.2599
Toll-free (North America): 1.800.216.2512
On the Web: www.globalfinance360.com
www.stephenglynch.com
Email: steve@globalfinance360.com

Session 1 - The Value-adding Finance Organization

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