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Scalable, agile & fast: 10 steps to financial efficiency
Delaney Turner 270002T14M email@example.com | | Tags:  cfo_study
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There's no shortage of research exploring the ways that business is changing, whether it’s because of the economy or interconnectedness or global integration or smarter technology. But what we don’t hear quite as much about is how the roles in business are also changing. Take the role of a CFO, for example. The most recent IBM CFO Study, just released in March, reveals that 70 percent of CFOs now help make decisions about how to mitigate risks, how to transform business models and what metrics to use to evaluate performance versus strategy. “The world the CFO now lives in is different,” says Paul Whelan, the CFO of Telefonico O2 Ireland, "technical accounting skills are not as important.”
The IBM CFO Study, which is based on conversations with more than 1,900 CFOs worldwide, also demonstrates that the most successful companies have CFOs that have taken on a role the study calls a “value integrator.” Value integrators stand out from their peers by being scalable, agile and fast. And how do they get that way? One of the answers to that question is financial efficiency.
Value integrators have reduced the complexity of their financial operations, implemented common processes and standardized data and metric definitions. The good news is that becoming a value integrator is within your grasp. Here are 10 steps you can take to achieve financial efficiency. It’s possible that you might be doing some of these things already, which means you can skip a few steps. You can get more details on aspects of these steps at the Virtual Finance Forum on May 19.
1. Understand your what finance organization does. This might seem obvious, but you’d be surprised at the number of companies that are unaware of the scope of activities and services their finance organization delivers. However, you can’t optimize functions and processes if you don’t know they exist. So, the first step in embarking on a financial efficiency campaign is to document your finance organization’s core functions, along with the resources and costs those functions use.
2. Determine where your finance organization is going. After you’ve documented what your finance organization does, you need to determine where it’s going. Use your understanding of your organization’s functions and services to prioritize short-term, mid-term and long-term opportunities that will guide your finance vision and help you prepare for transformation.
3. Understand your company’s key business drivers and performance management objectives. Again, this might seem obvious, but in a world populated by information silos and granular tasks, it’s easier than you think to lose touch with the rest of your business. Understanding what drives your company and its business goals lends perspective that can help guide how you use your information to maximize not only efficiency, but performance.
4. Build a business case for Finance transformation. Finance cannot become more efficient without support from within—and without. It’s important to make a strong business case for optimizing Finance efficiency. Start by defining how finance efficiency can contribute to your company’s business strategy. Then, quantify the impact of your transformation by calculating expected cost savings after automating and improving ongoing Finance functions. Finally, document the business case and communicate it throughout your Finance organization and your company as a whole. If you follow this process, you can minimize the challenges created when no one has much of an idea about what you hope to achieve with finance efficiency and how it will effect your entire organization. You are also more likely to get company-wide buy-in, including support from your C-suite.
5. Evaluate the availability and commonality of the underlying data used to make decisions. Timely, trustworthy enterprise-level analysis based on accurate and up-to-date source data is necessary for financial efficiency. You cannot be efficient if you are hunting for information that's scattered over disconnected general ledgers, ERP applications or other systems, hidden in spreadsheets on a laptop somewhere or buried in a file folder on someone’s desk. Take a hard look at all your data sources and types and determine how much of it is useful and how much of it is out of date and contradictory.
6. Standardize your data. The key to breaking the shackles of incomplete and inconsistent information is standardization. Once you have evaluated the sources of your data and made determinations about its trustworthiness, consider solutions that define your data, automate business rules and reduce manual processing. You can even standardize in increments if you feel overwhelmed by the idea of developing a comprehensive set of standards all at once. For example, improving product line profitability analysis can drive process and data definition consistency.
7. Assign process owners to drive standards adoption. Efficient finance organizations mete out responsibility for specific processes, such as procure-to-pay, order-to-cash, treasury, tax and general accounting, throughout their companies. According to the results of the CFO Study, 80 percent of the organizations with process owners have been able to implement standard processes enterprise-wide. However, it is not enough just to appoint process owners; you must also help them to be effective. Look for performance management and BI solutions that provide cross-functional integration while supporting the processes that individual business units use to make decisions and manage their operations. Another important part of establishing process owners is to give them the power they need to mandate change when necessary.
8. Adopt common accounting applications. Implementing a common ledger and standard accounting transaction applications is a tried and true efficiency accelerator that produces a standard chart of accounts while facilitating the unification of processes and data standards throughout your finance organization. Consider investing in a common enterprise resource planning system that reduces multiple accounting systems to a single global instance. That significantly increases your efficiency right there because everyone is using the same system and working from the same set of information.
9. Use alternative delivery models. Sixty-nine percent of the CFO Study’s value integrators came from companies that used shared services centers, also known as centers of excellence, or outsourcing for financial transaction processing. This is not an “either-or” proposition—you can decide to provide some functions internally with centers of excellence or externally by outsourcing. Be sure that you do more than evaluate its potential to reduce costs because the keys to using alternative delivery models successfully is how much control and flexibility each offers. For example, one company that uses a shared services model, along with a global chart of accounts and an ERP system that unified 80 account systems, can now consolidate and close its books 66 percent faster and analyze global profitability in five days, which is an 83 percent improvement. Service maintenance costs have fallen by 36 percent.
10. Never stop trying to improve. The most successful CFOs and finance organizations realize that IT efficiency is an ongoing exercise. No matter how well you think things are going, there is always room for improvement. Be sure to have metrics in place so you can see how well your optimization solutions and activities are doing at any given time. Keep up-to-date on new and innovative solutions that can help you achieve even greater efficiency and alignment. And don’t forget to develop your people so that their skill levels are on point with any systems or software you have implemented.