Finance transformation: How exactly do you start?


Editor’s note: This is the first article of a three-part series on finance transformation. Subsequent articles will cover tips on automation vendor selection and strategies to build business partnering skills in a finance team. Sign up for the CGMA Advantage newsletter to receive updates on this series.

Businesses today face many of the same challenges: commoditisation of products; eroding margins and sales volume due to continuous price wars; and customers’ failure to see differentiated value beyond price, customer relationship, and service reliability. To stay competitive, companies become “consumer-centric” by building close relationships with customers and solving customers’ pain points and problems.

As such, it is important that finance and accounting (F&A) be part of the business value-creation process and provide business advisory solutions on top of debits and credits, knowledge of accounting standards, and financial management.

I’ve found in my time observing high-performing F&A teams that successful companies expect the finance function to do more than just the basics and to develop business partnering capabilities.

F&A teams are expected to (1) identify value-creation activities (What kinds of activities create value and what activities don’t?); (2) develop future strategies (Where should the business be headed?); and (3) suggest ideas to execute and drive those goals (How can the business achieve its goals?).

However, many F&A departments fall short as advisers. Two common features prevent them from doing so: being backward-looking and relying too heavily on spreadsheets.

Backward-looking. In the F&A departments I’ve worked in, there was much criticism that the function was backward-looking and thus didn’t add any real business value. The F&A departments provided past-month historical reports and explained what happened in the past month versus last year and versus budget, financial ratio, and so on. Variance analysis explanation is based on what already happened. It’s like reading last month’s newspaper today.
Overreliance on spreadsheets. Spreadsheet programs like Excel are very powerful and user friendly. However, when all of a company’s financial information is compiled using Excel and spreadsheets are used to consolidate business results, employees have to spend a lot of time sieving through data and performing regular reconciliation to check for possible errors. And these Excel files tend to grow in size and complexity as the business grows.

If F&A departments are to spend a huge amount of time compiling historical financial information using a clunky and ineffective method, it is just a matter of time before existing competitors or new entrants eat up the differentiated value created by the business.

Understanding these problems, how does one transform traditional F&A into a function with business-partnering capabilities? Drawing from my past experience, I found these three strategies useful.

Dive deep to understand the value-creation process. In a transformation project I was part of, I examined the internal value-creation process of the organisation. I knew I needed to understand who our customers were, the key activities to generate customer value, and how the business delivered such value to its customer.

An example of this is in an article I wrote about an instant noodle manufacturer. First, I identified that students were the primary customers of the business. Then I learned how the business processes along the entire supply chain worked to make the product. Lastly, I identified how the business delivered its product to its customers via its distribution network, from factory to distributors or retail store to customers.

You can find more details and examples of how to leverage this perspective in the CGMA Business Model Framework and value-chain analysis.

Gather information and build trust and empathy. The next step is to collect information from other internal stakeholders and build trust and empathy in those relationships. This information collection exercise can help to identify fresh issues.

For instance, in one finance transformation project, I learned that the F&A function was very tied up with daily routine tasks using spreadsheets and constantly preparing many reports. There was no time to invest in improvement projects. F&A also didn’t have the right tools to reduce these daily workloads. There was a general fear of job security as well; if spreadsheet work were to be automated, would some staff be retrenched?

I concluded that the general readiness was very low to embark on a finance transformation journey. I figured I had to first build relationship and trust by:

Establishing myself as a reliable person within the organisation who would do what I said and deliver results. It’s very important to demonstrate reliability and gain trust especially if you are new to the business.
Listening without passing judgement and understand the challenges that they faced from their point of view.
Building relationships by offering help and gaining “social credit” that I could use further down the road.

These three points, simple as they may seem, are difficult to implement in real life. It’s key to persevere, exercise patience, and cultivate a never-say-die attitude.

Look beyond internal business model and value creation. It’s important to look externally beyond the business model and the value-creation process of the business. In the same transformation project, I compared business models and value-creation processes of direct competitors and top global companies to identify emerging trends. This helps identify where the organisation has done well and where there are opportunities to improve. I call this “state-of-the-art” information gathering. Knowing emerging trends will help raise discussion pointers as a finance business partner and key considerations for the business in its strategic plans.

What doesn’t work

Many textbooks and models advocate for going after the “low-hanging fruit”. However, the idea of going after the easiest option and hoping to produce results did not work in my experience. Many such options could not bring significant enough impact to the business and move F&A closer to being a finance business partner. Research shows that 70% of finance transformation projects fail to deliver forecasted benefits to the business.

Finance transformation projects are really change management projects that will not yield results if you’re working on an easy option. Finance transformation projects are multifaceted, and a project manager must first secure senior management support, plan the implementation in phases, and ace the people factor that comes with project implementation.

Let me share a more concrete example of what didn’t work from a transformation project. I started a project with engagement sessions with the finance team. I tried to create a sense of urgency by sharing a vision for the finance department and where the business wanted the F&A to go. I used some best-performing companies and competitors as examples and hoped that the team would see the vision and the future we should be aiming for.

However, key F&A managers pointed out that the function was too busy with routine work, that business partnering was not the culture of the organisation, and that the finance team did not know enough about the other functional areas to give strategy recommendations.

That was when I realised that implementing finance business partnering is a change management project. So, I asked myself, how do I get support? Who can I approach? How can I get the team on board?

Mandate from the top

Support from the top is crucial to kick-start a transformation in F&A, and I realised this the hard way. The background research and preparation using the three strategies above need to be in place, and when the right time comes along, you will be ready to present your ideas.

In my case, an opportunity came when a member of the senior leadership asked if there were any improvement pointers for the company shortly after I joined the organisation. I had done my homework beforehand and prepared short points to share.

My ideas resonated in his mind and an executive committee meeting was called shortly after, and I sat in to present my idea. A steering committee was swiftly set up to drive the finance transformation, and I was appointed as the project manager. The powerful key stakeholders were also on the steering committee to give direction and support.

I learned that the concept of low-hanging fruit does not work in practice. Tailoring finance transformation to what the business wanted, especially to powerful stakeholders in the organisation, enabled me to move mountains.

Final word on the people factor

Building relationships with internal customers and gaining their trust is crucial in getting buy-in for any transformation. Such projects must create value and provide services to solve their pain points, in the same way any business provides products or services to their customers, before internal stakeholders see the benefit of a finance transformation.

One way to respond to managers who need to see how a finance transformation would benefit them is to show them the possibilities for higher efficiency. You could identify a more powerful IT tool besides spreadsheets that will help reduce both routine and ad hoc report preparation workload. (The second article in this series will cover more details on the vendor selection process and implementing automation.)

I once listed all routine and ad hoc reports prepared by various F&A teams and focused on reports that took the longest time to prepare. Through this exercise, I concluded that about 20% to 40% of reports could be eliminated, automated, or simplified. The F&A teams saw how they would benefit from a transformation and how their workload could be lightened.

I hope the points shared here will be useful for the scoping phase of your F&A transformation project. In upcoming articles, I will share on the specifics of implementing automation and building business knowledge to enable finance business partnering.

C.F. Wong, ACMA, CGMA, is a member of the North Asia regional advisory panel for CIMA and a principal–Greater China at the CFO Centre in Hong Kong. Previously, he led the finance digital transformation of a multinational manufacturer, listed in Singapore and Hong Kong, involving all its 70 entities globally. He has more than 20 years of experience in finance, including strategic finance business partnering and mergers and acquisitions. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at [email protected].

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Date de Publication : 2021-01-04 09:00:00

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