Vikas Wadhawan looks at the nuts and bolts of driving through a Finance transformation
Gone are the days when Finance’s job was restricted to financial reporting, carrying out transactions, and providing a control environment for budget monitoring. In this changing milieu, the function is expected to play a much more active role in business partnering, strategy development and decisionmaking.
Technology disruption is challenging organisations in many ways. The advent of process automation in transaction management has changed the way we do business. Even the volume of data that is now captured has grown multi-fold, and it is essential to use the right tools and technology to analyse this data to support business decisions. The competition has become more intense, and growth targets are more aggressive than ever. The upshot is that Finance must now support the business much more actively – which in turn means that the function must transform itself.
What is Finance transformation?
Finance transformation is not a one-time activity, but an ongoing process of evolution, which includes aligning the function to the business’ growth and objectives. It is a set of initiatives aimed at improving the overall efficiency of the Finance function, and making it more relevant to the business. Broadly, this can be categorised into several buckets:
Finance transformation is about evolving the function from number crunching to value creation
- Controllership: Initiatives that contribute to better control, compliance and reporting
- Scalability: Aligning Finance with the growth targets of the business, and bringing in cost efficiencies
- Business partnering: Providing timely and in-depth financial analysis or insights to business leaders
When starting out on this journey, there are a number of initiatives need to be planned around.
With changing expectations of Finance, this is one of the most critical elements to consider. For any such transformation to succeed, it is imperative to have the right team, with a strong understanding of the business, and solid leadership skills.
A roadmap for technology adoption
This includes identifying the areas where technology interventions are needed, and finding the right tools and technologies that meet this need. Business has ever-growing expectations for in-depth analytics. With exploding data volumes, it must adopt the right set of tools and technology. Doing so can significantly improve Finance’s planning and analytical capabilities, provided, of course, that the team has the right skill-sets in place.
Enterprise performance management (EPM)
A study by the Hackett Group finds that companies with superior EPM capabilities are likelier to outperform their industry peers on financial metrics. To be effective and add value to the business, it is necessary to set-up a robust EPM within the organisation. Finance has a key role here, because ultimately, it is responsible for efficient and accurate reporting and forecasting.
Financial process reengineering
This includes eliminating noncritical processes, or outsourcing them so that the Finance team can focus on core activities. It also means improving process efficiencies to boost productivity, reduce turnaround time, and improve accuracy levels.
CFOs must lead from the front in terms of transforming Finance in line with business needs. This includes:
- Planning ahead, and having a clear understanding of the objectives/ goals of the transformation exercise
- Clearly prioritising activities, and eliminating the low value items/ activities
- Setting expectations for the business in terms of the likely interim disruptions, as well as the overall timelines
- Continually reviewing to ensure that the process is on track, and making any necessary coursecorrections along the way
Finance must move from governance-based to guidance-based support
Beware of these pitfalls
Transformation exercises can go wrong in a number of ways, so it is vital to look out for certain pitfalls.
- Don’t focus too much on cost: While cost is an important end-objective, it is not the only one. It is also important to set realistic targets that are relevant to the specific business case, and not overly driven by industry benchmarks.
- Trying to achieve 100 per cent ‘customer satisfaction’: Meeting the expectation of internal customers (i.e., the business) is important, but one should not focus too much on it during the transformation exercise. Instead, the focus should rest squarely on the end-objectives, which might sometimes mean compromising on certain demands from the business.
- Expecting to achieve the end-goal too quickly: Transformations are an ongoing process, and not a one-time activity. As the business strategy evolves, one needs to evolve the strategy for the Finance function in line with the overall business strategy.
- Underestimating business complexities: Fast-changing markets, business strategy or technology might make the transformation project obsolete even before it gets completed, so careful planning and anticipation is key. Even as Finance must understand the changing business needs before initiating change, it is equally important to review and revisit those assumptions along the way, taking corrective action where required.