Session 3 - Reengineering the Finance Organization

Reengineering the Finance Function
Lean Finance Conference:
Session 3 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  Reengineering the Finance
Organization
v  Transforming the Finance Professional

Goals for Workshop 3:
Reengineering the Finance Organization
§  Understand Founda-onal Reengineering
Principles
§  The Transforma-on Framework
§  The Role of Shared Services in Finance
Transforma-on
§  The Role of Outsourcing in a Comprehensive
Delivery Model
§  Trends in Global Service Delivery
§  Managing Change in Transforma-on

Reengineering for Effective
Transformation

What is Reengineering?
The fundamental rethinking and radical redesign
of core business processes to achieve dramatic
improvements in critical performance measures
such as quality, cost, and cycle time.
Source: Adapted from Hammer and Champy, Reengineering the Corporation, 1993

•  Organize around outcomes, not tasks
•  Have those who use the output of the process to perform the
process
•  Subsume information processing work into the real work that
produces information
•  Treat geographically dispersed resources as though they were
centralized
•  Put decision points where the work is performed and build controls
into the process
•  Capture information once and at the source
Principles of Reengineering
Source: Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July-
August, 1990, pp. 104-112.

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.

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.

Reengineering can Drive Transactional Efficiency
and Provide Resources for Strategic Efforts
Source: American Quality & Productivity Survey
FTEs as a Percentage of Total Finance FTEs

Reengineering Must Address How Organizational
Labor is Used
Managing labor costs is critical to managing overall Finance cost

Reengineering Typically Leverages Technology in
the Drive for Efficiency

The Transformation
Framework

Incorporate the Levers of Transformation into
the Transformation Framework
•  Vision
•  Strategy
•  Corporate Governance
•  Organizational Structure
•  Processes
•  People & Competencies
•  Infrastructure (Technology, Applications & Data)
•  Culture

Define Activities that are Core to a Company’s
Strategy
Leading companies standardize and automate transaction
processing to focus on value-added analysis and insight

The Transformation Framework
Project Launch
and
Current State
Review
Detailed
Transformation
Roadmap
“Focus and Mobilize”
“Design and Launch”
“Transition and
Realize”
Transformation Execution
and Management
“Measure
and Refine”
Strategic Direction
Process
Organization
Technology/Applications
Management and Controls
•  Crucial for setting the correct
priorities
•  A core competitive strength of a
asset intensive company
•  Organizational issues can create
roadblocks
•  The enabler of integrated
processes
•  Establish baseline — manage,
measure and adjust the course
Change in Emphasis throughout the Transformation Lifecycle

Focus and Mobilize – Key Activities
•  Focus
–  Business vision created or refined
–  Strategy defined and aligned with business vision
–  Management, stakeholders, and partners identified and aligned
(including sponsors)
–  Engagement business or functional areas identified and prioritized
–  Program Office established, including representative stakeholders
from business areas, technical functions, and solution architecture.
•  Mobilize
–  Business area stakeholders engaged and mobilized
–  Project risks identified (including change implications)
–  Gap analysis performed against current-state processes
–  Data integration and conversion strategy defined
–  Technical infrastructure architecture to support development, testing,
and target ERP environments
–  Training strategy and organizational architecture defined
–  Testing and IT security strategy and approaches defined
–  Development approach and release strategy defined
–  Business case and estimates refined

Focus and Mobilize – Key Deliverables
•  Project Plan
•  Change Management Plan
•  Communication Plan
•  Project Tools and Templates
•  Initiative Kick-off Presentation
•  Benchmark Analysis
•  Current State Process Flows
•  Current State Process Narrative
•  Current State IT Architecture
•  Current State Application Architecture
•  Current State Data Architecture

Design and Launch – Key Activities
•  Design
–  Business process changes defined
–  Role definitions changed or added, and communicated and
coordinated among programmers, stakeholder management, and
project teams.
–  Competencies changed or updated
–  Organizational structure changes designed and developed
–  Training materials developed
–  Transition plan defined
–  System documentation provided and enhanced
–  Data conversion/cleansing and population plan created
–  Production environment defined and implemented Integration
–  Finalize Service Level Agreements
–  Hire SSO personnel

Design and Launch – Key Activities
•  Launch
–  User and support roles and staff changes implemented
–  Users and support staff trained
–  Organizational structure changes implemented
–  Interventions and enablers implemented
–  System management, security and contingency procedures
implemented
–  Deployment plan implemented (organizational transition)
–  System cut-over plan implemented
–  User acceptance tests developed and performed
–  Service level agreement defined and implemented (if long-term
contract)

Design and Launch – Key Deliverables
•  Future State Process Flows
•  Future State Process Narratives
•  Future State IT Architecture
•  Future State Application Architecture
•  Future State Data Architecture
•  Future State Organization Design
•  Data Migration Strategy
•  Updated Job Descriptions
•  Future State Security Profiles
•  Training Plan

Transition and Realize – Key Activities
•  Transition
–  User and support roles and staff changes implemented
–  Users and support staff trained
–  Organizational structure changes implemented
–  System management, security and contingency procedures
implemented
–  Deployment plan implemented (organizational transition)
–  System cut-over plan implemented
–  User acceptance tests developed and performed
–  Service level agreement defined and implemented (if long-term
contract)
•  Realize
–  System production cutover accomplished
–  Knowledge transfer to support resources completed
–  ERP environment operating, supported, and continuously improved
–  Performance metrics collected and compared to established
expectations
–  Governance program identifies performance shortfalls and issues
corrective action

Transition and Realize – Key Deliverables
•  Completed Training
•  Organizational Transition Plan
•  Post-implementation Support Plan
•  Service Level Agreements
•  Cutover Plan (if required)

Critical Success Factors for Transformation
§  Executive support
§  Alignment with corporate strategy
§  Compelling vision and business case
§  Well defined scope
§  Common governance model
§  Global process owners
§  Strong change management processes
§  Strong relationships with operating
entities (“the customers”)
§  Frequent and consistent
communications
§  Common technology infrastructure

The Role of Shared Services in
Finance Transformation

Shared Services – Where is the Market Heading?
Where are companies going with
Shared Services?
•  Drive is towards enabling each Operations
to focus on its core competency
•  Gaining efficiencies in the back office and
supply chain functions where scale is
critical
•  Leveraging existing shared service
infrastructure to incorporate additional
processes
•  Shared Services is merging with a more
comprehensive delivery model that
includes hybrid delivery models and
selective outsourcing.
•  Cloud computing is enabling the
virtualization of shared services to create a
true global delivery model
Driving Results with Shared Services
§  A leading glass manufacturer consolidated
its Far East back-office operations and
reduced cost by over 30%
§  A multi-national commercial and defense
concern leveraged existing shared service
facilities to achieve greater process
standardization and over $50 million per
year in cost efficiencies
§  A consumer products manufacturer
consolidated the back-office operations
from multiple acquisitions reducing costs
by more than 25%

Deployment of Shared Services can Reduce Cost

Shared Services is more than Centralization
•  Services provided centrally by Corporate
•  Costs charged back using blanket
allocation methods
•  Businesses have little involvement in
determining service standards/levels
•  Businesses are seen as users rather than
customers
•  Shadow activity remains in businesses
(“just to make sure”)
•  Little incentive to improve performance
•  No accountability with business units to
oversee internal service providers
•  Standardization of processes where
possible
Centralization
•  Operate with an arms length relationship to its
“customers”. Service levels and prices
negotiated in a “market-based” approach
•  Clear and agreed upon Service Level
Agreements (SLA’s) in place
•  Accurate, timely and informative
communication to “customers”. Services
groups understand their needs and partners
with them for success
•  Multi-dimension performance measurement
and tracking with performance-based
incentive structure
•  Customer has identified buyer and user roles
•  High effective and efficient end-to-end
processes with enabling technologies
•  Personnel policies/practices in place to attract,
retain and develop high caliber employees
Center Of Excellence/Shared Services

Where are Companies Locating?
Company Location Scope
Aetna Hartford, Connecticut National
MediaNews Group Colorado Springs, Colorado National
Microsoft Fargo, North Dakota Regional
U.S. Bank Fargo, North Dakota National
Corning Budapest, Hungary Regional
SAP Sophia, Bulgaria Regional
General Motors Sophia, Bulgaria Regional
Bausch & Lomb Hong Kong Regional
British Airways Mumbai, India Global
Citigroup Manila, Philippines Regional
Corning Shanghai, China Regional
Dell Computers Hyderabad, India Global
FedEx Singapore Regional
Ford Motor Company Chennai, India Regional
Alcoa Sao Paolo, Brazil Regional
IBM Buenos Aires, Argentina Regional
Gillette Buenos Aires, Argentina Regional

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Order Management
Customer Service
Logistics
Purchasing
Credit and Collections
Accounts Receivable
Fixed Assets
General Ledger
Human Resources
Accounts Payable
Travel
IT
Payroll
What Processes are Moving to Shared Services?
Percentage of Respondents
Source: 2008 Technology Issues for Financial Executives Survey.
Currently Use
Plan to Use
Overall
Currently Use
Plan to Use
> $1 Billion
Shared Services adoption continues to expand

Shared Services Continue to be Viewed Positively
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Payroll
General Ledger
Accounts Payable
Accounts
Receivable
Fixed Assets
Credit & Collection
Order Management
Purchasing
Human Resources
Logistics
Customer Service
Travel
IT
Highly Successful Moderately Successful Moderately Disappointing Highly Disappointing No Opinion

Centers of Scale are used for Transaction-
oriented Processes
Centers of Scale will focus on transaction oriented activities that benefit from scale and
standardization.
Order-to-Cash Source-to-Pay
Account-to-
Report
•  Customer master
maintenance
•  Credit Management
•  Customer Invoicing —
commercial
•  Intercompany Invoicing
•  Receivables
Management
•  Collections
•  Cash Applications
•  Vendor master
maintenance
•  Non-contract indirect
Purchasing
•  Procurement Card
Administration
•  Accounts Payable
–  Vendor invoice
processing
–  Vendor payments
–  Dispute Management
•  Freight Bill Audit
•  Fixed Assets Accounting
•  Project Accounting Int/
Ext — Commercial
(including Contract
Mgmt) *
•  Day-to-day General
Ledger Activity
–  Account
Reconciliation
•  Monthly/Quarterly/
Annual close
•  Financial Reporting
•  Management Reporting
•  Analytics & KPI’s
Centralized Control

Cash and Banking
Planning and
Performance
Management
•  Banking master data
maintenance
•  Establish and manage
bank accounts
•  Account reconciliations
•  Template development
•  Data collection
•  Data aggregation
•  Management Reporting
Centralized Control
IT
•  Software application
development
•  Software application
support and
maintenance
•  Hardware support and
maintenance
•  System and network
management
•  Help Desk – first line
support
Centers of Excellence will focus on transaction oriented activities that benefit from scale and
standardization.
Centers of Excellence are used for Activities
Requiring Expertise
Finance
•  Implementation of IFRS
•  Taxation
•  Treasury
•  General ledger maintenance
•  Sales and Use tax,
•  Business Analytics/
Intelligence

Centers of Excellence are Becoming a More
Important Part of the Service Delivery Model
Activities included in Shared Services
7%
24%
38%
57%
96%
0%
17%
42%
67%
100%
We do not have a sub structure
Geographic alignment
Customer contact centers
Competence centers / centers of
expertise / centers of excellence
Transaction processing centers
20102009
8%
28%
41%
55%
93%
0%
11%
44%
78%
100%
We do not have a sub structure
Geographic alignment
Customer contact centers
Competence centers / centers of
expertise / centers of excellence
Transaction processing centers
Peer
Group
World-
Class
Source: 2010 Hackett Global G&A SDM Study

Outsourcing as Part of a
Comprehensive Delivery
Model

Common Reasons for Outsourcing
•  Processes are not part of a company’s core
competency
•  Ability to obtain a service for a lower cost
than can be delivered in-house
•  Company would like to take advantage of
offshore markets but has no experience in
other countries
•  Company would need to make a large
capital investment in technology and would
prefer to avoid the capital outlays
•  A 3rd party service provider has built
specific competitive advantages (e.g.
proprietary software) that are difficult to
recreate

Outsourcing Continues to get Good Grades
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Payroll
Human Resources
Customer Service
Production
Logistics
Accounting
IT
Research &
Development
Sales & Marketing
Purchasing
Highly Successful Moderately Successful Moderately Disappointing Highly Disappointing No Opinion

0% 10% 20% 30% 40% 50% 60%
Purchasing
Sales and Marketing
Accounting
Customer Service
Research and Development
Human Resources
Logistics
Production
IT
Payroll
Payroll and IT are the Most Commonly
Outsourced Activities
Percentage of Respondents
Currently
Outsourcing
Outsourcing
Planned
Overall
Currently
Outsourcing
Outsourcing
Planned
> $1 Billion

Trends in Global Service
Delivery

Trends in Global Service Delivery
•  Started with IT,
Customer Service
and Finance
•  Now includes HR,
Procurement ,
Engineering,
Legal, Facilities
and others
•  Companies
looking to
leverage existing
infrastructure in
regions
•  Reflects needs
and culture of the
organization
•  Combines
insourcing,
outsourcing,
onshore and
offshore
•  No longer the
exclusive domain
of high-volume
transaction
oriented
processes
•  More functions
involving analysis
and specialized
knowledge now
moving offshore
•  Countries working
to enhance their
value proposition
•  Demand for labor
drive up costs in
established
countries (i.e.
India)
Expansion of
functions sourced
globally
Increasing focus
on high skill
positions
Hybrid sourcing
strategy
Additional
geographies
considered

High-Performing Companies Take a Portfolio
Approach to Service Delivery
Decentralized in
Business Unit
Captive
Offshore Outsource
Captive
Onshore
Virtual Captive
•  Good for activities
that require tight
communication
with business
•  Process are
relatively unique to
the specific
business
•  Consolidate
processes that
benefit from scale
•  Benefits from
labor arbitrage
•  Consolidate
processes that
benefit from scale
•  Focus on higher
value activities
that require
specialized skills
•  Provides physical
space for
personnel
•  Combines in-
house staff with
outsourcing
capabilities
•  Use selective
outsourcing for
processes that
require skills that
are too difficult or
expensive to
maintain in-house
(i.e. legal , tax)
No Single Approach Is Right For Every Circumstance

Managing Change in a
Transformation Initiative

Managing Change During the Transformation
•  Stakeholder Management: Align key
influencers with the stated vision
•  Manage organizational resistance
•  Develop a communication plan
•  Focus on the human element
•  Develop comprehensive transition plan
•  Invest in regular training

Obtain the Buy-in of Key Stakeholders in
the Organization
•  Create stakeholder map
•  Build RACI Chart (Responsible,
Accountable, Consulting, Informed)
•  Determine requirements and influence
of each stakeholder
•  Include both internal and external
stakeholders
•  Develop a communication strategy that
effectively addresses stakeholder
concerns

Clearly Understand the Handoffs between various
Stakeholder Groups both Inside and Outside the
Organization
•  Organizational design is comprised of structure,
processes, policies and procedures that govern the
movement of information through the business
units, corporate groups and the Shared Service
Organization
•  Process flows should be detailed enough to
document tasks to be completed.
•  Narratives should accompany the process flows to
provide a more detailed perspective on expected
behaviors
•  Clearly capture the transfer of information between
stakeholder groups
•  3rd party suppliers should be incorporated into the
process design
•  Supporting technologies that enable the flow of
information should be identified

Overcome Organizational Resistance
•  Resistance can be both active and passive
•  Active resistance is easier to identify and
correct.
•  Passive resistance can undermine a
project, especially if it comes from a key
and influential stakeholder
•  Both forms of resistance must be
addressed by the program leadership
•  Disciplinary action should be taken against
resistors, up to and including dismissal
from the program or the organization
•  Senior Management and the Executive
Sponsor can do a great deal to overcome
organizational resistance

Remember to Focus on the Human
Element of Change
•  Too many companies focus on the mechanics
of creating efficient processes with little
thought to the human element
•  Companies that have successfully reaped the
benefits of transformation understand that a
comprehensive and consistent change
management program is essential for the
successful transition to the articulated vision
•  People throughout the organization should be
invited to be involved at the appropriate stages
of the transformation (e.g. recruit personnel to
test processes during the development phase)
•  It is difficult to over-communicate the status of
the project and the future key deliverables and
dates
•  Issue a call to action when stakeholders are
expected to contribute

Develop a Comprehensive Transi;on Plan that
Considers the Sequence of Events and the Key
Dependencies
•  Risk increases during the transition period.
Risk must be actively managed.
•  Project plan must allocate sufficient human
resources to cover processes on both ends
during the transition period
•  A Help Desk should be created to handle
issues and concerns during the transition
period
•  Names and contact numbers of those who
can assist during the transition period
should be communicated as part of the
Change Management process
•  Super users who have the ability to fix
configuration deficiencies should be
available

Invest in Regular Training
•  The job isn’t done when the first transaction takes
place in the reengineered process
•  Formal training will enable processes to remain
consistent over time
•  Informal training between employees is acceptable
but should not displace a formal training program
•  Training should cover existing employees as they
expand their skills as well as new employees who
must be on-boarded
•  Employees should be educated not only in specific
processes but in their role in meeting the agreed upon
metrics of service as defined in the Service Level
Agreement.

Case Study: Global
Manufacturer in Commercial
and Defense Sectors

Current State Analysis
Opportunity to increase Operating Income by more than $90 million/year
Barriers to realizing this opportunity are:
• Company XYZ’s multiple ERP landscape and legal structure are inherently inefficient
driving up the total cost of ownership and operation in every aspect of the business.
• While existing Shared Services in Company XYZ are operating at first and second quartile
performance levels, only approx. 21% of “transactions” are handled by Shared Services.
–  “World Class” companies have 80%+ of “back office transactions” processed by Shared
Services
• The transition from a “holding company” to an “operating company” has not reached full
fruition.
–  Potential synergies and corresponding savings have not been fully realized due to the
lack of “corporate standards” (“mandate” vs. “optional”)
• The lack of a “Process-Centric” organization results in considerable non-value added
activities and sub-optimized processes.
–  An absence of standardization and lack of proliferation of best practices is the result
• Timely, accurate, and actionable management information is not readily available.
–  No “single version of the truth” exists

Key Goals of Transformation
To ensure value creation for Company XYZ the following need to be in place to
allow for the SSC’s to flourish.
• The acceptance and implementation of Company XYZ’s Business & IT principles
across the organization
• A requirement that all business units use the Shared Service Organization for
designated processes
• Implementation of a common:
–  ERP system
–  Master data
–  Processes
–  Common reporting suite leading to “one version of the truth”
• The development and implementation of a standardized Chart of Accounts
• Differing processes will be required to handle Defense (ITAR) and Commercial,
for example:
–  A/P for Commercial will be handled in China versus Defense on-shore
–  Project Systems for Defense will be handled in COE’s

Enterprise Processes and Enabling SAP Modules
Sales &
Marketing
(Biz Dev)
Management
(Marketing & Sales
Force Automation)
Product
Development
(R&D/Engineering,
Implementation,
Quality, Reg. &
Compliance Mgmt)
Manufacturing
Resource
Management
(Prod. Planning &
Execution,
Procurement,
Warehouse Mgmt,
Distribution, Plant &
Facilities Mgmt)
Information Technology
(Master Data Mgmt, Customer Data, Product Data, Employee Data, Supplier Data, Financial Data)
Finance & Accounting
(General Accounting, Close, Controlling, Tax Mgmt, Audit, Treasury, A/P, A/R, Payroll)
Human Resources
(Recruit to Retire, Benefits, Workforce Planning, Performance Mgmt, eLearning/Certification)
Business Analytics
(Business Intelligence, Reporting, Business Planning)
Customer
Service
Management
(Analysis, Customer
Support,
Order Mgmt, ,
eService, Field
Service, Contract
Mgmt)
Supply Chain
(Sourcing, Logistics, Indirect Procurement)
Key
Processes
SD PP
FI
PM
BI
SCMSRM
QA
Current in Scope SAP Modules
MDM
HCM
CRM CRMSD
CO
MM
WM
AM
Future Scope SAP Modules
PS
PLM
GTS
EnablingProcesses/
SharedServices

Questions

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 3 - Reengineering the Finance Organization

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