The first phase of the health crisis of March 2020 brought out the importance of the Finance function's activities. It also highlighted its role as a catalyst. Indeed, it helps to ensure business continuity, manage short-term economic and financial difficulties, and carry out financial planning. This is why it is essential today for organisations to make financial transformation a priority. Business objectives must structure this transformation, while adapting to the different phases of the crisis. Optimisation levers, new organisation: our 5 recommendations for a successful financial transformation.
MAKE ACCCELERATING THE FINANCE TRANSFORMATION YOUR PRIORITY
During the COVID crisis, Finance rose as one of the key catalysts to fight and manage companies’ economic difficulties, leading to short term actions regarding cash and treasury management, cost reduction plans, scenarios and acceleration plans, client and supplier payments… with dedicated “finance war teams”.
Towards a sustainable financial transformation
This moment of truth for finance teams emphasized their capacity to react quickly, to adapt with agility to uncertain times and their ability to re-plan the “new normal” … and thus assess the “finance transformation readiness” !
There are 4 priority areas:
- Business oriented focus with transparency on data and activities, richer information and continuous accounting to be best-in-class and provide provisional insights
- End-to-end process integration and reduced lead-time
- Transformation, performance and continuous improvement mindset
- Digitalization, automation and innovation : work from anywhere to ensure the continuity of the business
Our approach to structure the finance transformation
In this context, the CFO has the opportunity to start the ball rolling … and accelerate the Finance Transformation to build the “new normal” !
Assessment of the organisation's maturity
Perform a diagnosis to assess the finance macro-processes readiness :
- Transactional processes, covering interactions with suppliers, customers and group entities, and including processes supporting business operations
- Finance controlling activities structuring transactions and strategy: FP&A, investment strategy (portfolio mgmt., optimization of resource allocation), Inventory et Treasury (Working Capital) and financing (debt, equity management)
List the optimisation levers
Identify relevant levers of optimization and set the stage to make the Finance transformation happen.
Structure business objectives
Define a transformation roadmap, defining business objectives and listing priority processes to be optimized.
Set up a project organisation
(Re)launch and accelerate the finance transformation plan, as these are these critical activities for the future.
Key priorities of the finance transformation
- Investment strategy
- Asset investment valuation, M&A, strategy & performance
- Opex & Capex budget management, Planning, Forecast
- Inventory management
- Inventory level, stock movement & valuation
- Cash & treasury
- Payments processing, Cash pooling, Bank account management, …
- Debt & equity management, short-term borrowings, …
- Tax & legal management
- Corporate tax & VAT, customs & duties, transfer price
- Database management
- Vendors, customers, employees, articles, locations, fixed assets
- Payment & processing, reconciliation
Supplier invoices, expense reports
Order taking & invoicing, sales matching
Closing, pre-closing and consolidation, and regulatory and statutory reporting
- Credit management
Credit risk management
KEY BUSINESS OBJECTIVES STRUCTURE THE TRANSFORMATION AROUND THE THREE PHASES OF A CRISIS
Following the assessment of the Finance organization and processes, business objectives will be set up for all processes, considering that they will be reached at different times and according to established priorities.
In this time of crisis, the business objectives will be defined following 3 phases :
- Weather the storm : when the crisis is here, the focus is on performance and cash
- Take back control : when growth is starting again, the process structure and IT framework are key
- Foresee the next wave : processes are optimized, automated and digitalized to anticipate the next crisis
Those objectives will lead the finance transformation and will be shared with all finance employees and all stakeholders that directly or indirectly play a part of the relevant processes.
The objectives of the finance transformation
Weather the storm
- Optimize the monitoring of the company’s performance from a sales and cost standpoint based on Business intelligence
- Optimize the Working Capital and cash management by focusing on “necessary” expenses
- Secure the funding and liquidity of the company
- Ensure continuity of the business with the right allocation of resources
- Increase pricing power with vendors based on the volume of transactions at a global level
Take back control
- Harmonize the end-to-end processes and related databases, and eliminate low-value added activities
- Set-up a compliant framework and internal controls for all end-to-end processes
- Define the IT strategy for standardizing and digitalizing processes when legally possible (through RPA, AI, etc.)
- Automate credit risk management with suppliers and customers
Foresee the next wave
- Develop continuous accounting by automating processes
- Automate reconciliation for consolidation and statutory purposes
- Make the processes transparent and fully auditable
- Set-up continuous improvement programs
- Build a flexible organization
A step-by-step transformation
From those objectives, levers of optimization will be defined at the process and organization levels. The goal is to eliminate non value-added activities, optimize core activities and streamline the organization to make it flexible and adapted to market conditions.
While in the first phase, the energy of the finance team is focused on solutions to the crisis and cost cutting strategies, it is also essential to keep in mind the long-term objectives to avoid an unbalanced investment strategy between the front office, the middle office and the back office. This situation jeopardizes the company’s operations and its performance on the long-term.
OPTIMIZATION LEVERS TO MEET THE BUSINESS OBJECTIVES
When optimizing the finance department post-crisis, there are many levers to set up, depending on the market, the size of the company and its culture.
Key levers put in place in high-performance companies for transactional processes
|Process / Activities||Key business levers of finance transformation||Weather the storm||Take back control||Forsee the next wave|
|Review the list of vendors and renegotiate contracts||x|
|Automate the end-to-end invoicing process (through digital / RPA)||X|
|Reduce lead time by centralizing the invoices and streamlining the number of vendors||X|
|Reallocate resources for managing invoices considering value, more than volume||X|
Travel & expenses
|Review the process and set up internal controls to eliminate low value or non-compliant activities||X|
|Automate the process through digitalization: paperless expenses||X|
|Automate the reimbursement of employees||X|
|Identify new sources of revenues||X|
|Automate sales reconciliation from various sources (bank statement, stores, GL, …)||X|
|Reduce exceptions or transactions that are different from the standard procedure||X|
|Harmonize the chart of account with formalized principles and interface with the local chart of account (when applicable)||X|
|Implement an end-to-end and automated process of reconciliation of transaction and balances (if possible, daily)||X|
|Improve governance and internal controls in overall financial close process||X|
|Set-up a “reporting factory” organization with clear roles & responsibilities||X|
|Identify the risky suppliers and customers and anticipate non-payment or no deliveries||X|
|Define key guidelines and processes for the release of credit blocks and clarify the approval credit process with other entities (delay, etc.)||X|
|Automate credit risk management with risk visualization and management tools for vendors and customers||X|
|Financing||Sell account receivables to improve Cash flow and finance immediate projects (invoice factoring)||X||X||X|
|Use real options for capital projects (Sizing, fundamental, etc.)||X||X||X|
|Set the target capital structure according to investment needs||X||X||X|
|Review the strategy for financing inflows and outflows (project schedule, cash or stock payments, etc.)||X||X||X|
|Cash & treasury||Centralize cash management & cash pooling to always keep cash available if needed||X|
|Monitor cash flows to improve liquidity and financing activities||X|
|Define hedging strategies to prevent FX exposure (e.g. buying bonds in foreign currency)||X|
|Centralize the bank account management and bank relationships||X|
THE FINANCE TRANSFORMATION IS ACCOMPANIED BY A NEW ORGANISATION
The launch of the finance transformation relies on a new organization focusing on innovation that is supported by a network of Change Ambassadors.
How to prepare the finance team to carry out its transformation?
- Redefine the organization according to the roles of the Finance function within the company
- Size the Finance organization following the strategy on transactions processing (volume vs. value, manual vs. automated)
- Make the Finance function a centre of expertise with identified experts
- Define a strategy for building or optimizing the Finance team or Shared Service Center (SSC) as a key support partner of the enterprise’s transformation
- Identify key Business Process Owners and Business Process Experts (BPE) that can lead the transformation and be Key Users when implementing a new solution
- Define new roles that are multidisciplinary while respecting the segregation of duties,
- Give the accountant more controlling power, as automation is reducing his/her role of processor
- Link the financial roles with the internal control functions
- Invest in the core skills of the finance function (processing, controlling, treasury, etc.) and build an adapted career path
- Define a training path adapted to each career path within the finance function
- Develop Business Intelligence skills as monitoring activities for both the finance function and business function
Innovation and change
- Make the finance function an innovation lab in the company to test new processes and tools (e.g. RPA)
- Identify the BPEs that can be Change ambassadors to support the transformation within the finance function and with other functions in the company
- Build a continuous improvement state of mind with a focus on innovation via communication and dedicated events
OUR CONVICTIONS FOR A SUCCESSFUL FINANCE TRANSFORMATION
During the next months and years, the objective of the finance team is to become increasingly proactive and to adapt to the business transformations to come and the market context. Some key factors of success help make this happen:
Global holistic vision with one unified strategy throughout the group
Define clear rules and principles as well as a global roadmap between all the group projects.
Focus on the priority steps of the finance activities to transform, by identifying the business objectives and the key elements that would be the right foundations on which to deploy tools and processes (e.g. Internal control framework, financial structure, formalized processes….).
Global governance with key stakeholders
Define the right number of committees with the right people; too many stakeholders and too many committees (as well as KPIs) could delay a project and jeopardize its agility.
Change management and communication
Especially during a crisis time.
Build a collaborative approach with BPOs and BPEs and develop a feeling of involvement around the project by helping the project players become "Change Ambassadors".
Optimize & reorganize at the same time
Doing one before the other might be counterproductive in the long term as the organization or the processes could be unaligned.
Finance is the backbone of a company: to support its growth, to capture all transactions and ensure compliance, the finance teams must adapt to the transformation of the business, but also to the market. Underinvestment in corporate teams usually generates inefficient operations and inaccurate insights or decision-making. Today, it is time then to reconsider the finance team, start the ball rolling and accelerate the Finance Transformation !
Thomas COLIN, Principal at Eurogroup Consulting
Paul-Antoine MARTIN SAVELLI, Supervising senior at Eurogroup Consulting