Finance in the Flat World

Earlier this year, global consulting and services firm Accenture published the latest in a series of studies of high performance in the finance function, focusing on the challenges and opportunities presented by globalization. Business Finance talked with Dan London, managing director of the firm’s finance and performance management service line, about the research.

Business Finance: Accenture’s recent research focuses on finance in what the firm calls the “multi-polar” world. Is globalization now the strongest force shaping businesses in the West?

Dan London: We might be coming to a tipping point in terms of this becoming the preeminent force that’s shaping enterprises, whether in the West or anywhere else on the planet. As businesses have implemented and responded to more global operating models, they’ve provided new challenges and opportunities for finance.

BF: Where are the major impacts for finance?

DL: There’s a different set of workforce needs associated with how to best support the business, and clearly there are cost structure questions around that.

In the past, the finance department might have been on a different floor in a shared service center; then it might have been in a different building across the street; and over time, it might have been in a shared service location in some low-cost place.

Now it’s much more disaggregated. You might have a finance transaction-processing factory in a low-cost location; you might have regional processing capabilities, and front office capabilities close to the business center. You have a much wider array of global sourcing options in terms of talent and cost.

And then there’s the skills dimension. You have a global workforce to draw upon, and if you’re looking for deep analytical skills, you might find those in different parts of the globe than you previously did. There’s also the need to structure finance to grow the business on a global basis, and that’s not likely going to be in the traditional model that’s corporate-center based.

BF: What was the most striking result of the research?

DL: The good news from the research is that the high performers are rising to the challenge. The thing that was most striking to me, and what distinguishes them from their peers, is that they have a proactive and thoughtful strategy around where they are, where they’re going, and how they’re going to get there.

If you divide finance into its building blocks and ask what’s the most important sub-function, the answer is it’s different for different companies, depending on what sector and what part of their lifecycle they’re in. The high performers have answered that question. They’ve determined where they are in the business cycle and where they are competitively. They’ve assessed where finance needs to be to best support the business, and they have a plan to get there, which might involve cost reduction capabilities as well as effectiveness capabilities, perhaps around planning, budgeting, forecasting, or analytics.

BF: Whatever happened to benchmarking?

DL: The research showed that a surprising number of companies do not have a very good understanding of their underlying cost structures. It’s not necessarily that they don’t have access to the data; it’s just that they haven’t necessarily gone after it, which, of course, makes it difficult to answer the question “How efficient am I?” And if you’re not sure where you are, it’s hard to find the path that gets you from A to B.

The pace of change in globalization, M&A, and restructuring has caused companies to focus on those very urgent activities. One would have to acknowledge that benchmarking or cost baselining, while it’s certainly important, may not be urgent. It’s clear from the research that even companies that acknowledge the importance of understanding their running costs have not kept up with it.

If you’re entering two new markets and doing merger or integration pre-analysis, you’ve only got so many top finance executives you can put on things, and they get stretched pretty thin, pretty quickly.

But leading finance organizations make sure that understanding where they are on the journey to efficiency and effectiveness is something they come back to.

BF: Are companies still under-invested in enterprise risk management (ERM) and enterprise performance management (EPM)?

DL: Many organizations that have focused on making sure that their transaction processing is efficient, highly controlled, and supporting the business haven’t seen ERM and EPM as the most appropriate areas to focus on to really drive value across the business.

At the same time, some companies have invested in these areas. But if we were doing this interview in the early ’90s, we might be talking about how companies had invested quite a bit in enterprise resource planning, and not all of them were happy with it. Certainly, with hindsight, it was just a question of where we were in that cycle.

I’d also point out that EPM processes are actually fairly complicated and hard to get right because you’re asking questions like: How do I take my company’s strategy and turn it into action as rapidly as possible? What are the value levers? How do I incorporate those into the annual operating plan? Do I have the ability to forecast efficiently? Do I have the appropriate analytics in place to support that?

Many companies are choosing specific parts of it. An organization may decide that it wants a balanced scorecard or two, or that the forecasting process takes too long, or that it needs to change the annual planning process to be more aligned with the strategy.

EPM is a daunting task, and one that takes quite a bit of time and effort, but we’re starting to see companies that are getting it right.