Change is the order of the day in Finance, driven by the tremendous upheaval caused by the economic turmoil of the past several years. Compliance is on the minds of governments and financial institutions alike, affecting everything from daily operations to attempts to expand into emerging markets. Many markets have complex and bewildering regulatory requirements that raise risk and cost for organisations attempting to expand—yet growth is essential to survival. How CFOs approach this challenge of meeting ever-tighter compliance while attempting to globalise their operations is crucial to the overall success of the entire enterprise, not just the Finance function.
Finance transformation is not a matter of choice. If companies wish to remain competitive, they must consider the changing role of Finance in helping the entire organisation create greater value. With international corporations operating across a score of markets, many of them emerging and fast-growing, old financial operational models are simply not effective. Companies need to standardise and consolidate their Finance processes across borders to boost simplicity, quality and visibility, and to reduce costs.
Finance, as the one department that sees across the entire enterprise, is imminently well suited to managing the complexities of compliance requirements that affect the entire organisation and to finding ways to achieve flexible, reliable deployments in new markets. Often, this is accomplished by partnering with experienced third parties with a knowledgeable organisation in place that can quickly ramp up operations ranging from transactional activities to more complex, higher-end F&A that returns value to the enterprise as a whole. True transformation puts these companies well out in front of their peers, which raises the question—why isn't every organisation looking at better utilisation of their own Finance function?
Compliance vs. Growth
Driven by a variety of banking scandals, international regulatory bodies have moved to set up an ever-expanding array of rules and standards affecting Finance functions. Some are sector-specific, such as Basel II/III and the new Anti-Money Laundering rules in banking, and the EU's Solvency II regulations for insurance. Others apply more widely across industries and focus on tackling corruption, such as the U.S. Dodd-Frank legislation and the UK Bribery Act.
These regulatory pressures coincide with the need for companies to grow and extend their operations into emerging global markets in order to compete more effectively. A major obstacle to expansion is the different risks and compliance processes involved in setting up operations in these new markets. Speedy and accurate information is required to support solid decision-making if companies are to be able to seize opportunities such as the major cross-border M&A deals realised by the beer brewing sector of late: Heineken's $5.7 billion purchase of Mexico's FEMSA, SABMiller's acquisition trail in Latin America, and Carlsberg's continued expansion in India, including the acquisition of its sixth Indian brewery in November 2012.
Creating further challenges for organisations looking to expand, many high-growth and emerging markets have more intrusive compliance and control environments than more mature jurisdictions. Companies seeking to operate in these markets cannot afford compliance breaches, since these will not only attract fines and undermine their licence to operate, but may also have an irreversible effect on their brand reputation. A further challenge for Finance is that starting up and growing operations in emerging markets demands agile and reliable deployment in order to take advantage of new opportunities before the competition. Companies need to be able to take informed decisions much faster, which requires a more flexible Finance structure that both delivers the necessary business insights and also enables faster implementation of strategic initiatives. A new way of looking at Finance and its entire role within the enterprise is required.
Finance's new relationship with the business
To be successful in coping with the twin challenges of compliance and globalisation, international corporations must transform both the way their Finance function operates and its relationship with the wider business. This includes acquiring new skills and new technology as well as understanding of the impact of the new regulations on the whole organisation —and then Finance must take the lead in advising the board and management on how to operate under them. This means a new, more strategic role and mandate for the Finance function at the heart of the business, combining greater visibility, agility and efficiency with a firm grasp of the business's long-term strategic needs. Many companies are moving to achieve the operational side of this transformation through standardisation, simplification and consolidation of the Finance "back-office" into shared services, whether captive or outsourced. Simpler and more transparent processes deliver faster, more certain and more controllable outcomes, while consolidation enables the enterprise to leverage economies of scale and to avoid rework and process duplication.
Addressing Finance's new operational needs in this way also helps it to fulfil its new strategic role. Consolidating Finance processes has the inevitable effect of disaggregating transactional, largely administrative Finance activities from more complex and value-adding non-transactional activities. As a result, Finance managers have more time to advise the business on Finance issues related to front office-oriented, revenue-generating initiatives around products, customers and channels. This puts Finance squarely in the mainstream of business decision-making, partnering with the business to help drive the execution of strategy and creation of higher shareholder returns.
A Deep Look into Finance's New Role
Finance's migration to this new role as a business partner is under way in most major businesses, but at differing speeds and with varying degrees of success. How can it be encouraged and accelerated? And what is its effect on Finance professionals and their skill requirements?
To gain fresh insights into the evolving role of Finance, Genpact collaborated with the Chartered Global Management Accountant (CGMA) to produce the research report, "New Skills, Existing Talents". Based on research by the CIMA Centre of Excellence at the University of Bath School of Management, the survey findings show clearly that today's multi-speed environment requires global organisations to pursue different strategic and financial objectives in different markets.
Broader remit, wider skills
The CGMA study confirms that many Finance leaders recognise the need to shift their role towards business partnering. To do this, Finance functions continue to drive efficiencies in transactional Finance activities while increasing their strategic role and influence by expanding their remit in two key ways: Finance functions are increasingly providing additional management guidance such as non-financial information about the internal and external drivers of cost, risk and value that lie behind reported financial outcomes. They have also begun to undertake more rigorous analysis to generate insights that can drive performance improvements. This increasingly involves tracking and analysing 'Big Data' -- helping the business ask the right questions and connect the dots to generate better business intelligence and drive greater value from a mass of data.
Finance is taking an increasing role in both strategic and operational decision-making, especially in higher-performing companies.
Finance professionals combine core accounting skills with the commercial awareness and acumen to contribute business insight, together with the influencing skills to help shape operational and strategic management decisions in a way that contributes positively to business performance. It is significant that employers in the study express a desire to put these skills among their Financial staff to use. Shantanu Ghosh, SVP of Genpact, comments in his blog on the Future of Finance: "To deal with emerging needs, these professionals also need new skills—such as how to manage systemic risk, how to create flexible operating structures and models, and how to think from the perspective of operating leverage rather than strictly financial leverage. Such new ways of thinking must be coupled with the old, core financial skills in order to attain the insights required to help guide the business forward."
Aligning finance with business strategy
Compliance is an issue that affects the entire organisation, while improved end-to-end operational performance impacts bottom line value. A Finance function tasked with overseeing both is both more efficient and more effective in serving the greater organisational business goals. Its traditional financial skills, combined with deep business acumen, can have a major impact on business performance. Because Finance is the only department that sees across the entire enterprise, it can make a major contribution to the organisation's strategic objectives by adopting an approach that focuses on creating a holistic view across business silos and providing end-to-end visibility into processes, from acquisitions and expansions on through daily, steady-state operations that drive tighter control, greater transparency, lower cost, and minimised risk.
To maximise Finance's contribution to enterprise performance, the linkage between the organisation's strategic priorities and business processes needs to be analysed and understood at a granular level. Companies can achieve this degree of insight by comparing results across industry benchmarks and capturing best practices to build a clearly-defined transformation roadmap geared to the specific needs of the business.
One of the best examples of Finance transformation and strategic alignment comes from AstraZeneca, one of the world's leading pharmaceuticals companies, whose track record of innovation stretches back more than 70 years. With over 61,000 employees and a presence in more than 100 countries, AstraZeneca is focused on responding to global industry challenges -- including tremendous margin pressures and increasing risks in developing new drugs -- by aligning its finance strategy to become the 'best in class' Finance function in the pharmaceuticals industry.
This meant moving from a completely decentralised model to a Finance structure that clearly integrates strategic activities and specialist skills at a global level, opening up opportunities to boost effectiveness across the organisation. The operating model that AstraZeneca implemented for its transformed Finance function is illustrated in Figure 1.
AstraZeneca's successful Finance transformation was enabled by its strong commitment to driving, managing and communicating the necessary change. The skills in the Project Management Office (PMO) were carefully balanced between a range of functions, including not just Finance but also HR, IT and Communications. Progress was sustained by robust project governance with frequent milestone reviews, open and ongoing communication, and a joint "one team" culture. Also, each phase of the transformation had measurable outcomes that were incorporated into key executives' critical areas of responsibility.
Not next year... now
In major corporations worldwide, Finance transformation is not an option but an absolute and urgent necessity. Compliance requirements will not lessen, only get worse from country to country and market to market, compounding risk and complexity in seizing new opportunities. Finance is the strategic partner within the enterprise best suited to meet the challenge and deliver both the business acumen and the improved performance required for sustained growth—if CXOs embrace the idea of a new role within the organisation aimed at creating value beyond the bounds of the Finance department.
As CGMA reports, transformation enables the Finance function to act as a strategic partner in business decisions, yet not all companies are moving to take advantage of this critical competitive differentiator. Why not? Those who do not are at extreme risk of being left behind by more agile competitors. Obstacles to transformation include embedded fragmentation, legal requirements, cultural resistance to change, and the need to fund significant investment. But ultimately, the need for transformation is clear—and achieving it is all about commitment. A true examination of business needs must include an evaluation of how Finance can drive achievement of overall enterprise goals by using the very valuable skills already embedded within the organisation, and committing to leadership in bringing them to the table for the benefit of the enterprise at large. As a driver of shareholder value, Finance's moment has arrived. Is your organisation moving ahead—or running in place?
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