Written by Gwen van Heijst.
In an era of continuous change and digitization, the role of finance function is also constantly evolving. The traditional image of finance as a "bean counter" is giving way to a more proactive role, using financial data to optimize and drive business operations. But what else do we see happening in the market and how can organizations take advantage of this by moving with their finance function? Mariska Seijsener, Managing Partner at ConQuaestor, brings with her more than two decades of consulting experience within the finance domain to share her views on the key issues currently affecting finance.
An obvious development is that the finance function is subject to change. Whereas previously the goal was to have the hygiene in order, including making annual reports, ensuring that the planning and control cycle runs orderly and shortening lead times, the interpretation is changing to being a strategic business partner from finance. "Many organizations now have the basics perfectly in order and therefore have the scope to help steer the business, by interpreting the ever-increasing amount of data available into important insights," says Mariska.
The choice between in- and outsourcing
That space, by having the basic hygiene of the finance function in order, obviously did not come naturally. Years ago, this did not come naturally and therefore there was a trend of organizations investing the basic processes, think order-to-cash and purchase-to-pay, with an external party. By choosing to outsource and contractually agreeing on results, they relinquished responsibility and received a best-practice process, in exchange for a hefty bill, in return. These third parties, based in Eastern Europe and Asia, among others, specialize in implementing and optimizing these processes. Specifically, Mariska indicates: "These parties are very efficient in executing long-term contracts, think of sourcing contracts, for example. That is why it is attractive to outsource this to such a party."
Bringing basic finance processes back in-house is a trend that Mariska, too, is now seeing in the marketplace. The reason this choice is increasingly being made is because processes are increasingly automated. Outsourcing to low-wage countries is therefore less interesting. "Organizations should not underestimate here what responsibility comes back into the organization when they make the choice to insource processes again."
Putting this responsibility in place is a key issue here. Because, of course, one has to deal with a piece of change management to adjust to new work and processes have to be tightly structured to function effectively, but putting in place strong governance is perhaps even more important. "As an organization, make people responsible for an end-to-end process and not just part of it," Mariska advises. "The content may remain the same, but the role the organization plays in the execution of the processes changes significantly. Someone who can then monitor the total overview and quality is crucial in this."
Centralizing in a Shared Service Center
Process insourcing is part of the trend we are seeing in the market; another move organizations are making is to centralize the finance function in a Shared Service Center (SSC). This internal organization then mainly takes over the administrative side of the end-to-end processes. For this, it is important that the target operating model strong. Consider establishing a Service Level Agreement (SLA) that sets results and KPIs to measure and ensure quality. "Also, establishing the scope of services is important to have agreed on where the cut-off point is in responsibilities and thus have clarity on what can be expected from the SSC, but also what the SSC can expect from its customers," Mariska explained.
In line with setting expectations in an SLA, Mariska also explains that certain decisions have consequences for declining departments. One of the characteristics of an SSC is that it charges the parent organization for services provided. The choice to be made here is how the payment is made; a lump sum or per service delivered. The advantage of a lump sum is that since there is a budget, there is no need for internal settlements. "The downside of this is that one can become 'lazy' in optimizing processes in the department," says Mariska. "Because it is not penalized in the form of a higher rate per service."
An example is agreeing on a standard invoice form from suppliers, which makes receiving invoices easily automated and thus requires little work from the SSC. Thus, if this process is not optimized at the front end (where customer/supplier interaction takes place), it results in more work at the back end (where employees process customer and supplier information). This extra work would be "punished" if one pays per service delivered, which can be a trigger for efficiency projects.
Process efficiency hinges on good process design
Then again, it is important to start with the basics. To cite the example of the different forms of invoices again, it becomes clear why it is so important to have the front end of processes set up properly. A recurring phenomenon in organizations is maverick buying; when an unlimited number of external parties can be sourced. Mariska: "The challenge this poses is dealing with the different invoice templates, which means they mostly cannot be handled automatically."
What is often applied in an SSC to avoid this problem is a product catalog. For each product, a standard supplier is designated, with whom agreements are made to easily process orders. The downside, of course, is that there is a limited option in terms of suppliers, so exceptions to the rule, such as contractual obligations, must be properly arranged.
This is one example of harnessing the front end of the process allowing optimization at the back end. For example, Robotic Process Automation (RPA) can mimic the interaction between humans and computers, becoming an additional employee or supporting one. However, this is only possible if the process can be performed using "if-then" rules. So it is good that organizations want to take a step toward automation, but the design of underlying processes determines to what degree this step can be successful.
Fortunately, there are several smart technologies that can help detect process inefficiencies. "For example, consider Process mining, which we can use to visually visualize end-to-end processes and thus very accurately identify inefficiencies and the reasons for them," Mariska said. That is a very valuable help in making a plan to close the gap between where organizations are now and what the ideal new situation is. Because the more tightly organized the front end is, the more efficiently the back end can be organized.
Important aspects in a transformation journey
But where do you start when setting up the front end of your processes? Mariska shares her views on what aspects are important to include in a transformation journey. First of all, take a holistic approach: look at financial processes end-to-end and performance. Formulate your targets and include a benchmark with the best practice. Make goals concrete and realistic so that they are achievable and look carefully to see if this fits within the organization. "After all, a best practice does not have to be the best for the organization right now," explains Mariska.
The next step is to conduct a maturity assessment to identify how big a step the organization needs to take. In doing so, be realistic and make strategic decisions about releasing or attracting products and/or services. Arrange for strong governance, with end-to-end accountability, and don't forget to pay close attention to human involvement as you implement the transformation.
Conclusion
In conclusion, the finance function is undergoing a transformation from a traditional role to a more proactive strategic partner within organizations. There is also a shift from outsourcing to insourcing of basic finance processes, and their centralization in Shared Service Centers (SSC).
Optimizing the finance function, by efficiently designing the front and back end of core processes, is important to best leverage innovative technologies to achieve organizational advantage. To do this, Process Mining, for example, can provide insight to address process inefficiencies and provide a basis for formulating a transformation plan.
Get in touch:
Learn more about ConQuaestor and our philosophy on the website by click here. Or contact Mariska with no obligation.
Mail to mariska.seijsener@conquaestor.nl or call +31 (0)6 531 71 554.
