Archives For Finance Transformation

Why balanced finance capability matters in finance today

accapr —  15 May 2013 — Leave a comment

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By Jamie Lyon, head of corporate sector, ACCA

Reading a lot of the commentary on finance and the role of today’s CFO you’d be forgiven for thinking that today’s finance function spends all of its time on strategy formulation and execution. I don’t doubt for one second how important the role of finance as a strategic business partner to the organisation is, or the critical role progressive CFOs increasingly play in strategic support to the organisation. But it is also worth remembering the role the finance organisation plays in what I would call the fundamentals – cost management, cash-flow management, finance operations and so on. There are of course differences and changes in priorities – the strategy of the business, the prevailing state of the economy, its industry sector – are naturally factors which shape and influence the focus of finance leaders and the function at any given time. But it seems irrational to think that great finance functions are still not held to account on the strength of control and financial management of the organisation. This indeed is at the core of its fiduciary responsibilities. It’s also critical to get this right if you truly aspire to supporting the strategic agenda of the business – these multiple aims of the finance organisation are not mutually exclusive. Having this bedrock of broad finance capability is also, of course, particularly relevant in a period of on-going volatility and growth challenges.

We recently produced a report examining the future needs of the finance function, and the implications for developing the capabilities needed. The report, the complete finance professional, draws on a wide range of studies, including ACCA research specifically with CFOs and other finance leaders, to test these ideas out. The conclusions were very simple. Great finance functions needs to be able to draw on a wide range of finance capabilities. They can’t survive on staffing their functions with people schooled on a narrow version of management accounting, and this isn’t particularly healthy for developing the capabilities needed in future finance leaders either. Let’s consider the roles some finance professionals perform to illustrate the point – can financial analysts drive truly effective decision-making if they don’t have a broader understanding of risk; can internal auditors perform their roles effectively without a strong grounding across financial and management accounting disciplines; can accountants with investment appraisal responsibilities get by with no awareness of tax, or regulatory changes which may have implications on project benefits…and so on. I don’t quite think so.

Secondly, with public debt, currency instability, emerging market growth, commodity price rises and many other signs of significant volatility, finance leaders themselves are in a huge period of flux, change and uncertainty; we know the role of CFOs continues to evolve but it’s the shear breadth of skills and knowledge that is now called into play; also given the level of volatility in the global economy we see a real call out to balance the quest for growth with the need for control – this ‘balanced finance leadership’ really is as a hallmark of the top finance job right now. The report also comes to other simple conclusions – a recognition that the changing face of finance operations with the advent of shared services, outsourcing, centres of excellence and the retained organisation demands both excellence in traditional finance capabilities (e.g. process mastery, transparency in controls, specialised finance expertise) as well as new capabilities (transformation, project management, dealing with change, customer centricity and so on); and that strong finance functions earn the partnering mandate best by ensuring effective finance stewardship of the organisation as a strong foundation; in short you can’t neglect one for the other, it doesn’t quite work like that.

At ACCA we continue to advocate the need for breadth and depth of financial understanding in finance functions today.

In ACCA, CFO, Finance Transformation, Jamie Lyon , ,
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All change at the top

aksaroya —  10 May 2013 — Leave a comment

As a new CFO takes the helm at TCS, Cesar Bacani, editor-in-chief of CFO Innovation Asia, looks back at how the finance function has transformed and considers the wisdom that outgoing chiefs can pass on to younger colleagues.

IT Consultancy

Before I interviewed S Mahalingam, until recently the CFO of global IT services and business process outsourcing giant Tata Consultancy Services (TCS), I thought he had been in finance for 42 years. He set me straight. Although a chartered accountant, Maha, as he is known, had been in almost all functions except finance in 33 of his 42 years with the Tata Group.

‘I used to write [software] programmes, develop systems, do marketing,’ he said ‘I opened the international offices in the UK and the US. Basically, I have done almost all of the functions – I looked after project delivery management, I looked after HR and training.’

It was a career path that he feels made him a much better CFO when he finally headed finance. ‘I would rate that as the biggest part of it,’ said Maha.

‘Had I been a backroom person [in traditional finance], I think I would not have been able to counsel anyone. I would have reacted to decisions, rather than being a part of [decision-making].’

Not that he had no qualms about switching over to finance; things had changed so much since he qualified. ‘I don’t think anyone was called a chief financial officer,’ he recalled, ‘The finance manager and CFO as a distinct role really came in the 1980s and 1990s.’

‘I was a little worried as to whether I would have the capability to do the accounting,’ he added. And then I realised that the function has moved on far beyond that’ — something that’s not news for more and more of his peers today.

Standards and processes have become more structured and there are things like automation, straight-through processing, outsourcing and shared service centres — all of which Maha harnessed to free finance to focus more on value-added work. For, as the CFO found out, finance’s remit has expanded in all directions.

`You have to really work with the chief executive, to give the relevant drivers for running the business and making sure that you are not only helping in the planning process but also in measuring [performance],’ he said.

Not that the core of finance has been neglected at TCS.

‘Accounting is an expertise function,’ Maha explained, ‘My challenge in the last 10 years has been to create this expertise, in the same way that a specialist structure was also created around global taxation’ (TCS has 58 offices around the world).

I interviewed Maha after he was honoured as CFO Innovation Asia’s CFO of the Year in 2012. He retired on his 65th birthday in February but years before he had already started grooming a successor in Rajesh Gopinathan. An engineer with an MBA degree, Gopinathan was on the business side when Maha brought him over to finance.

`He is not a chartered accountant,’ said the new CFO’s mentor.

The way things are going, though, it seems that even a non-accountant can take the financial reins — provided that he or she is backed by the expertise of accountants, tax experts, treasurers and other specialists.

This article first appeared in Accounting and Business, China edition, April 2013

In ACCA, CFO, Finance Transformation
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Global Business Services at the top table? Servants don’t dine with their employers

accapr —  5 April 2013 — Leave a comment

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By Deborah Kops, founder and managing principal of Sourcing Change

Over the past few weeks, it seems as if everyone in the accountancy world is talking about GBS, GBS, GBS. Shared services organisations encompassing one function in a few countries with a centre or two purport to be running global business services.

Companies with transactional accounting processes operating around the world declare that they are GBS leaders. Sourcing leaders managing an outsourcing deal or two are trying to link governance together under the guise of GBS. Procurement heads are dangling the notion of GBS in front of their bosses as a strategy to move up the proverbial value chain. Newcomers to shared services and outsourcing are even christening their first forays into consolidated business models as GBS. The chatter has become so pervasive, it’s starting to sound like cicadas mating in the summer.

If you take a cynical view of GBS, it’s almost as if changing the name of the processes and systems that serve the business, and putting as much of them as possible under one organisation will magically create new prestige and impact. With a new moniker, and more scope, will CXOs will suddenly be clamouring for GBS leaders—whose calling card is adept cost containment, reasonable customer service, some level of stakeholder management, and a track record of process excellence to join them, putting their two cents into every strategic decision.

But does organising under the banner GBS elevate the importance of business operations execution, making it more strategic? Will knitting services together really earn a seat at the corporate high table? Or is the value that business services ultimately delivers to the enterprise remain reliable, out of sight/out of mind operations? And, by the way, that’s no mean feat. As process operations become more sophisticated and industrialised, it not only increases cost-effectiveness, but boosts agility.

Any good corporate leader or manager aspires to create value for his or her organisation. There’s no doubt that the roles we variously group within shared services, sourcing or outsourcing leadership have as their mission to deliver consistent and predictable business processes that underpin operations to a range of corporate stakeholders by manipulating the levers consolidation, standardisation, process improvement, sourcing and technology enablement. But isn’t creating a reliable operating platform that delivers the ultimate means to an end – providing better service to the organisation so that they can get on with the business of being strategic good enough? What’s unimportant about taking over the management of the tasks critical to corporate operations to the next level, increasing efficiency and effectiveness, by performing them on a silent running basis?
There’s a difference between execution value and strategic value. I suspect that corporate leadership will look to GBS in any of its iterations as operations, not strategic direction; in fact, troll the internet for mention of GBS and the entries supports that observation: “GBS optimises the mix of resources, process acumen, and technology to deliver… services on an enterprise-wide basis to support business strategy” according to HfS Research. That’s still pretty important stuff.

It comes down to one word: service. The root of both service and servant is the same. Servants don’t dine with their families, and I’d posit that those who provide service don’t have a seat at the top table.

In Finance Transformation, Guest , , , , , , ,
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Shared Services and Outsourcing: Aren’t we just moving the deck chairs around?

accapr —  27 March 2013 — 7 Comments

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By Deborah Kops, founder and managing principal of Sourcing Change

If you think about our efforts to transform business functions through shared services and outsourcing, are we just trying to make them more efficient and cost-effective? Are we really tackling enough change to make them more relevant to today’s business needs? In effect, aren’t business functions as we know them obsolete, and changing them in-situ is just fodder for conference agendas, full employment for consultants, and topics for bloggers (such as yours truly)?

If you think about it, nothing much has changed in horizontal functions such as finance, IT, HR, marketing and legal for years. Sure, we tweak reporting lines – corporate versus business lines versus geographies; implement technologies to standardise; invest in “transformation” to gain incremental improvement; and change the delivery model through outsourcing and shared services, near-shoring and offshoring. But when it comes down to it, we haven’t really changed the relationship of these functions to the business. We merely focus on cost and efficiency of the same old delivery.

Contrast the dynamism of the so-called ‘front of the house’. Business lines constantly merge, spin off, or break apart in response to the market. Companies merge or divest in order to become more competitive. Yet we hold on religiously to the concept of standardising and consolidating business support platforms, thinking by managing cost we’ll add a lot of value to the business. By setting up shared services and outsourcing, aren’t we just moving the deck chairs to one side of the ship?

That’s not to say that cost-effectiveness and harmonisation are not corporate virtues, and do not create value. But when we focus on building generic platforms, maybe we’re missing a bigger bet. Perhaps it’s time to look at what component of business support functions should be close to or actually within the business. Perhaps, in the thirst for business model innovation, it’s time to admit that it’s conceivable that one size does not fit all. Mono-functional teams may not be our best bet.

If you are an avid follower of the daily HBR blog, you may have read Paul Leinwand and Cesare Mainardi’s 8 February post, Rethinking the Function of Business Functions. In it, the authors submit that “Wal-Mart doesn’t succeed just because of a strong operations group. It has built impressive capabilities that include logistics, inventory processes, buying standards, real estate practices and labour models — most of which it created for itself.” And the post goes on to cite Amazon’s ability to mix it up in new and different ways. In effect, the authors believe that we consider these companies great in part because they incorporated business functions into the business cross-functionally to create value.

The blog goes on to say that mono-functional teams are only oriented to the short-term, conflicting needs of all of their constituents. And, by implication, the value they create sinks to the lowest common denominator. There’s almost no ability to break out, or combine business support functions with the business in new and different ways.

Isn’t this true of shared services and outsourcing? The success of these models is predicated on consistency in structure, performance, service levels, and, most importantly, a customer relationship as opposed to a collaborative relationship. As a result, the perceived value is cost and predictability rather than problem solving and innovation.

Perhaps, after we go through a shared services and outsourcing phase which results in eliminating excess, it will make sense to tear it apart, moving processes closer to the business to create value. One day, sourcing just could be obsolete.

In Finance Transformation, Guest , , , , ,
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Changing role of the CFO: interview with Richard Moat FCCA

accapr —  20 February 2013 — 1 Comment

“The talent agenda is vital” says Richard Moat FCCA, Chief Financial Officer at Eircom Group and Chair of ACCA’s Accountants for Business Global Forum, in this latest video about the changing role of the CFO.

He adds: “To be an effective business partner, finance people have got to understand the commercial realities of the business – have to have a strong commercial link as well as experience in finance.”

Richard also talks about how managing cost, rather than growth, is a big priority for CFOs today.

The Changing Role of the CFO report explains how the financial and business landscape is changing: greater uncertainty for the global economy, fluctuating energy costs, rises in commodity prices, currency fluctuations, government deficits and cost cutting.

In ACCA, Accountants for Business, CFO, Finance Transformation, Global Forums, IMA, Jamie Lyon , , , , ,
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