Yet, in spite of huge investments in new IT systems, shared service centres, process re-engineering, etc., our research has found that fewer than one in three finance transformations succeed. Leading CFOs attribute high failure rates to conventional transformation approaches focusing on the wrong levers of efficiency. As a first step on a transformation journey, most companies benchmark transactional effectiveness and finance IT capabilities. Often, the benchmark score results in an efficiency goal and the goal then becomes the cornerstone of the transformation strategy. This over reliance on efficiency benchmarks is flawed for two reasons.
First, these metrics only provide a backward looking perspective on departmental costs and, second, they focus on finance cost as a proportion of annual revenue even though functional complexity is just as much of functional cost. Benchmarking exercises are usually followed up with back office efficiency targets, often achievable only through greater levels of automation and centralisation. While better integrated finance IT solutions and shared service centres can be an attractive means to improving reporting capabilities, this is not a silver bullet for improving finance effectiveness and delivering targeted business support.
Which brings us to what works. Successful finance transformations do not just focus on how finance does things, they focus on what finance does. A successful transformation is about making difficult choices with regard to the activities finance will improve and which it will stop. It focuses on the back office (transaction processing, reporting) and the front office (analysis and decision support). They have a clear vision of the activities that create most value and drive business outcomes and which do not. Successful transformations understand the skills and competencies their staff need now and in the future and focus on unlocking trapped potential within the finance team and building stronger talent capabilities in the areas of weakness
To be successful, Finance must act like a profit centre
So here is a call to action for finance. It’s time to be brave. Drop the service centre mentality. Currently, 90% of finance departments aim to support every business partner request. In a resource constrained environment, it is simply not possible to meet an increasing volume of demand and simultaneously delight the internal customer. Instead, think about a finance departments as profit centres and act accordingly. In practice, this means doing following:
- Build a finance strategy based on alignment with business goals rather than hitting a cost target.
- Tier support based on business need and appropriate levels of risk.
- Track the time and cost of ad-hoc requests.
In a business climate where the only certainty is continuous change, finance departments should not fall into the trap of trying to look like everyone else. Instead, build a vision for supporting business growth, scale back the activities that don’t contribute to this vision, and actively manage your internal customer to bring them with you on this journey.
Paul Dennis is a senior director at CEB, which provides research and advisory services on issues related to the Finance function.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
