Session 1 - The Value-adding Finance Organization
- 1. The Value-Adding Finance Organization Lean Finance Conference: Session 1 Master Class Series
- 2. © 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
- 3. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 4. © Copyright 2011 Stephen G. Lynch, All Rights Reserved Goals for Workshop 1: The Value-Adding Finance Organization § Understand the drivers behind lean finance transforma4on § Understand the characteris4cs of a world-class finance organiza4on § Understand what it means to be cost effec4ve § Understand the drivers of complexity and how leading companies simplify § How to achieve the twin goals of effec4veness and efficiency § What it means to become a strategic finance organiza4on
- 5. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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.”
- 6. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 7. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 8. © Copyright 2011 Stephen G. Lynch, All Rights Reserved The Evolving Role of Finance
- 9. © Copyright 2011 Stephen G. Lynch, All Rights Reserved How Do Leading Finance Organizations Spend Their Time? Source: American Quality & Productivity Survey FTEs as a Percentage of Total Finance FTEs
- 10. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 11. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 12. © Copyright 2011 Stephen G. Lynch, All Rights Reserved What Prevents Companies from Achieving World-Class Performance?
- 13. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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.
- 14. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 15. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 16. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 17. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 18. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 19. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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.
- 20. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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 ProcessTechnologyPeople Information n Performance Measurement n Availability of Data n Timeliness/Relevance of Data
- 21. © Copyright 2011 Stephen G. Lynch, All Rights Reserved • 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
- 22. © Copyright 2011 Stephen G. Lynch, All Rights Reserved Shaping the Strategic Finance Organization
- 23. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 24. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 25. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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 efficiencyInternal & External Stakeholders Economic Forecast Corporate Strategy
- 26. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 27. © Copyright 2011 Stephen G. Lynch, All Rights Reserved • 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
- 28. © Copyright 2011 Stephen G. Lynch, All Rights Reserved Case Study: Unilever Finance
- 29. © Copyright 2011 Stephen G. Lynch, All Rights Reserved • 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
- 30. © Copyright 2011 Stephen G. Lynch, All Rights Reserved World-class finance processes Innovative business partnering Financial flexibility Dynamic performance management People and Organization Unilever’s Strategic Thrusts
- 31. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 32. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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
- 33. © Copyright 2011 Stephen G. Lynch, All Rights Reserved Questions & Discussion
- 34. © Copyright 2011 Stephen G. Lynch, All Rights Reserved 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: steve@globalfinance360.com
- 35. The Value-Adding Finance Organization Lean Finance Conference: Session 1 Master Class Series