Most industries today are undergoing considerable strategic flux driven by secular market forces. While each company’s strategy is devised to create long-term differentiation for its goods and services, several broad response themes emerge across industries. Finance must anticipate their implications and align with strategic shifts in corporate priorities.
The purely transactional activities of finance are increasingly being streamlined with technology investments and global leverage of providers. This is enabling finance to rapidly realign talent to emerging corporate priorities that improve business partnership. True gains are only realized when finance simultaneously develops new muscle in new skills (see Table 1), and systematic measurement, dissection and resolution of operational issues. Strategic alignment of finance with corporate strategy and governance to measure progress provides direction to an effective operating model.
The principal approaches to developing a functional strategy aligned with corporate priorities are the balanced scorecard approach and the economic valuation tree approach. Both allow for a conscious balance between desired output measures (i.e., process performance and time spent on analytics) with foundational ones such as technology maturity, as well as people skills and training. This directs leadership attention to both performance and its long term sustenance.
Governance’s Toolkit: Strategy, Frameworks and Metrics
Changing the operating model is strategy and change management. Many finance organizations don’t develop those skills naturally. Hence the material importance of a strong governance structure that monitors changes to all target operating model dimensions. The five key tenets of a good governance program are:
1. The right configuration: Clear decision-making hierarchy set up for monitoring performance and issue resolution. Typically, process owners and key stakeholders chair process reviews; multiple related processes are reviewed by leaders; and finance leadership collectively reviews finance strategy. Review meetings are held in cascades with more senior teams meeting with inputs from underlying teams.
2. The right mandate: Governance teams must be empowered to act on issues they oversee. For example, process owners should be empowered to create and monitor progress against delivery of a target process model irrespective of their position in the company. This requires ownership of a multi-year plan that incorporates process, policy and technology changes globally. Leadership reviews clear obstacles and aligns multiple process plans into one coherent finance plan.
3. The right people: Members of governing bodies must be encouraged to challenge and question norms where appropriate. Responsibility assignment matrices are usually developed to assist globally distributed process teams in making joint decisions.
4. The right metrics: The metric framework employed to govern performance must be:
• End-to-end.All participants in the value chain must know how they contribute to the outcome. This requires understanding of the process inputs, outputs and performance drivers. For example, Accounts Receivable (AR) performance must provide inputs on customer satisfaction and contribute to better understanding customer preferences.
• Cascading.Good structures connect corporate goals to business drivers, performance metrics, and levers that impact those metrics (see Figure 1 below). Shared services centers and leverage of external services also introduces improved measurement practices across finance by introducing rigorous measurement of SLAs and processing costs.
• Balanced.Both effectiveness and efficiency measures must be included, as should both reactive and predictive measures. Scorecards should also measure soft metrics such as the effectiveness of training programs, and succession readiness sometimes on a different cadence than the performance reporting.
Many finance programs—including process enhancements alongside large system rollouts, and especially organization realignments—may take months or years to generate planned returns and must be measured with separate scorecards and targets, thus separating the agenda to measure ongoing operations and step changes.
5. The right tools: To be efficient on process owner time, leading organizations invest in tools to continuously gather and enhance visualization of performance. These bolt-on tools enable leaders to visualize performance across SLAs, and drill down to analyze root causes.
Governance teams must also establish the cadence for scorecard generation and distribution to facilitate review of the operations they are responsible for, and informing all internal and external stakeholders, such as outsource service providers, sales and operations.
Communicate, Communicate, Communicate
Finally, finance leadership must develop clear communications and articulate the rationale for the strategy, and the plan to get there. Communication of the strategy is often the neglected pillar. The strategy’s vision and pace must be conveyed to all relevant members of the organization through finance newsletters, town hall meetings, intranet postings and other communications channels. Finance must measure and then “sell” its progress—an act that comes natural to former captive service providers, for example, but not to a normal finance group.
As business changes faster than ever before, finance will need to rethink its organizational strategy. Changing operating models calls for close attention to governance, in order to maximize gains while keeping management effort contained, and minimize resistance. With a clearly articulated strategy and the troops aligned to accomplish it thanks to a solid governance plan and organization, leadership can focus on the other dimensions of the target operating model to create fast and sustainable success.
Kalyan Raman is the vice president of finance transformation and business process as a service (BPaaS) at Genpact. He has over 15 years of progressive management consulting and industry experience, and has led several finance transformation programs for large companies, principally in the high technology and consumer packaged goods industries.