session 1 - the value-adding finance organization

The Value-Adding Finance Organization Lean Finance Conference:

Session 1 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  Re-engineering the Finance Organization

v  Transforming the Finance Professional


Goals for Workshop 1: The Value-Adding Finance Organization

§  Understandthedriversbehindleanfinancetransforma4on

§  Understandthecharacteris4csofaworld-classfinanceorganiza4on

§  Understandwhatitmeanstobecosteffec4ve

§  Understandthedriversofcomplexityandhowleadingcompaniessimplify

§  Howtoachievethetwingoalsofeffec4venessandefficiency

§  Whatitmeanstobecomeastrategicfinanceorganiza4on


Business Finance Magazine

The Case for Finance Transformation

Most Finance organizations earnestly desire to be true partners with Operations, but…

“Finance must first have established credibility with the rest of the organization before it can effectively perform the role of wealth generator. Building this internal credibility typically has required finance to go through its own transformation process of becoming a more efficient and externally focused organization.”


Top Challenges of CFOs that Drive Need for Transformation

•  Support corporate strategy

•  Maintain profitability and margins

•  Maintain liquidity

•  Monitor and identify risk

•  Manage regulatory compliance including reporting convergence

•  Attract and retain talent


The Evolving Role of Finance

Traditional §  Manager: Facilitates the efficient operation of

finance

§  Controller: Manages risk consistent with corporate strategy

Expanded §  Strategist: Partners with its business to

develop and enable strategy

§  Catalyst: Drives change in the organization to enable efficient growth


The Evolving Role of Finance


How Do Leading Finance Organizations Spend Their Time?

Source: American Quality & Productivity Survey

FTEs as a Percentage of Total Finance FTEs


Financial Strategy

External Business Partner

Financial Processes

Market Conditions

Risk & Compliance

Profile

Access To Capital

Next Generation

Finance Resources

Liaison with Investor

Community

CFO Community

Finance Strategy

Profitable Performance

Efficient & Effective Back Office

Effective Information

Organizational Exposure

Financing the Organization

Scarce Resources

Investors

Finance is Constantly Adapting which Requires an Agile Organization To Deliver High Performance

•  Ageing workforce •  Increase levels of regulations •  Changing job roles & requirements

•  Access to Capital markets •  Leverage available debt •  Working capital / cash management

•  Increased global regulations •  High cost of compliance •  Converging compliance standards (IFRS, GAAP, BASELL) •  Ensure all risk is identified and managed •  Manage each risk depending on realization of crystallizing

•  Visibility into the markets and key trends •  What are the competition doing •  Market models changing •  Speed of market intelligence

•  Shared Services, Centers of Excellence, BPO

•  Competitive Benchmarks •  Optimize technology

investments

•  Forward looking metrics & information •  Competitor analysis •  Environmental, Geo-political analysis

•  Integrate Finance strategy into the wider business strategy •  Identification of key products/services to be sold •  Which regions/markets to be selling into

•  Increased transparency •  Sophisticated investors


How Effective are Leading Finance Organizations?

Metric Value Finance Cost as a % of Revenue 0.53%

Finance FTE per $ Billion in Revenue 50.3

Manager/Professional/Clerical mix 18% / 46% / 36%

Span of Control 1:4.6

Percent of Finance transactions automated 65.4%

Monthly accounting close cycle 5 days


What Prevents

Companies from

Achieving World-Class

Performance?


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.


Challenges •  Multiple instances of ERP

•  Non-aligned data structures

•  Manual data formatting and transfer between systems

Technology Enablement

Opportunities •  Instance consolidation as a

lever for finance transformation

•  Point solutions tightly integrated with core ERP

•  Improve internal controls with system based, preventative controls

•  Cloud-based infrastructure and applications to drive virtualization


Challenges •  Poor or non-existent

governance structures

•  Master data standards don’t exist or are not adhered to

•  Business does not take ownership of data quality

•  Data and information is not treated as a strategic asset

Data and Process Governance

Opportunities •  Engage operations, finance,

HR, IT and other groups in a true partnership to form an effective governance structure

•  Establish process councils for key processes to control and optimize end-to-end processes

•  Set up master data standards and enforce! A unified data structure is essential to world-class performance


Challenges •  Multiple, redundant controls

•  Manual controls

•  Overly complex Chart of Accounts used for management reporting

•  Demands of multiple and divergent stakeholders

Complexity Management

Opportunities •  Reduce Chart of Accounts

•  Leverage Business Intelligence for management reporting

•  Simplify yet strengthen internal control structure

•  Establish clear management requirements with operations stakeholders and focus performance goals on those requirements


Challenges •  Transaction processes are

decentralized

•  Processes vary by Business Unit or by location

•  Workforce turnover leads to process variation

•  Weak policies and procedures governing process management

•  Poor visibility of processes across regions and business units

Process Enablement

Opportunities •  Establish corporate standards

•  Business Process Management (global, in the Cloud)

•  Reduce manual intervention

•  Focus on materiality

•  Leverage technology integration


Challenges •  Continued pressure to move to

lower cost locations

•  Shifting delivery market globally

•  Delivery model varies by SBU

•  Shadow Finance organization with hidden FTEs

Global Service Delivery

Opportunities •  Define comprehensive

delivery strategy

•  Employ 3rd party partnerships to drive cost reduction and process innovation

•  Leverage technology through 3rd party outsourcing partnerships

•  Leverage new global talent pools – whether onshore or offshore


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.


High-performing companies address key business drivers simultaneously

+ + =

n Technology leverage n System complexity n Standardization n Centralization

n Staffing levels n Resource allocation n Partnering

n Cost n Productivity n Cycle times n Complexity

How you

manage your staff

How you

enable your staff

How you execute

n Cost n Value n Service levels n Risk management

n  Data vs. Intelligence n  Proper level of granularity n  Must be actionable

High Performance

Process Technology People

Information

n  Performance Measurement n  Availability of Data n  Timeliness/Relevance of Data


•  On the 3 x 5 index card provided, please list your organization’s: –  Greatest finance challenge –  The greatest impediment to overcoming that

challenge

•  Please don’t list your company’s name

Workshop Exercise


Shaping the Strategic

Finance Organization


What Makes a Finance Organization Strategic?

•  Partners with the Business to define and execute corporate strategy

•  Manages risk levels to align with corporate risk appetite

•  Manages liquidity to fund operations

•  Supports acquisitions through due diligence and post-merger integration

•  Provide investment analysis / capital management

•  Provide decision support and analytical insight


Product Leadership

(Apple)

Operational Excellence

(UPS)

Customer Intimacy

(Nordstrom’s)

•  Companies must excel in one discipline year-in and year-out

•  Companies must meet the minimum thresholds in the other disciplines

Minimum Threshold

World-class Finance Organizations Align with Corporate Strategy


Leading Finance Organizations Adopt a Multi-faceted Finance Strategy That Have Common Characteristics

•  Actionable - realistic and detail specific actions to bring the strategy to fruition

•  Flexible – organizational models that can respond to new opportunities in a pragmatic and disciplined manner

•  Scalable – with systems, processes, organization and governance structures in place that enable them to scale as their business grows

•  Supportable - generating the value-added delivery capabilities their company require

•  Measurable – with an integrated set of key performance indicators that drive effectiveness and efficiency Internal & External Stakeholders

Economic Forecast

Corporate Strategy


Operational Characteristics of World-class Finance Organizations

•  Reduce reliance on annual budget and emphasize rolling forecast •  Foster an environment of continuous learning and improvement •  Benchmark regularly to monitor progress towards world-class journey

•  Align Finance services to support strategic mission of the company

•  Maximize efficiency of transactional processes (i.e. Accounts Payable, Cash Applications)

•  Leverage technology to standardize processes and drive out cost

•  Organize into Centers of Excellence to leverage common capabilities

•  Create actionable intelligence through a robust Business Intelligence environment


•  Speed

•  Reliability/Precision

•  Performance-Based

•  Customer-Centric

•  Adaptability

•  Low cost leader

•  Relationship Management

•  Technology enabled & self-service

•  Flat organization with technology providing real-time information for people to do their jobs

•  Tools, training, support, and expectations for delivering quality and consistency at all times

•  Clearly understood metrics, goals and targets; rewards and compensation tied to performance

•  A valued business partner by providing high quality customer service at every point of contact

•  Ability to change as market, products, services and organizations change

•  Streamlined business processes which result in significantly improved productivity and efficiencies

•  Ability to manage all types of relationships

•  Enable and encourage full utilization of technology

Customer-facing Characteristics of World-class Finance Organizations


Case Study: Unilever Finance


•  Global consumer products company with over €44 billion

•  Operates in all major regions of the world

•  Has 400 brands focused on health and well being

•  Products sold in over 180 countries

•  53% of sales are in emerging markets

•  2 billion consumers world-wide

Unilever Overview

Source: Unilever March 2011 presentation


World-class finance processes

Innovative business partnering

Financial flexibility

Dynamic performance management

People and Organization

Unilever’s Strategic Thrusts


Unilever’s Three Pillars of Finance Strategy

Accounting & Information

Expert Services

Business Partners

• Decision Support

• Performance Management

• General Ledger

• Financial Accounting

•  Information Management

• Treasury

• Tax

• Compliance

•  Investment analysis

• M&A

• Capital Management


Unilever’s Finance Transformation Journey

Before After •  Each company had its

own CFO •  Finance resources had

a dotted line to the Corporate CFO

•  Viewed by the company primarily as “Bean Counters”

•  9,000 FTEs •  Focused on transaction

processing •  Transaction processing

decentralized at each Business Unit

•  One global finance function

•  Solid line to Corporate CFO

•  Partners in value creation

•  5,500 FTEs •  Focus on decision

support, not just transaction processing

•  Deployed shared services and outsourcing model to centralize processing


Questions & Discussion


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: [email protected]

The Value-Adding Finance Organization Lean Finance Conference:

Session 1 Master Class Series

session 1 - the value-adding finance organization

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