CFOs today are in general faced with similar, if not the same challenges, regardless of the size of the organization or the industry they belong to. The many challenges and the key questions they all face include:
- How can Finance and Accounting (F&A) help drive greater shareholder value?
- How do we improve controllership and management of risk?
- What work should be done in-house? What work can be outsourced?
- How should the Finance organization be structured?
- What technologies are required to support our strategy?
- How can we automate, streamline and standardize our processes? What are the best practices?
However, size does matter. CFOs of large organizations (annual revenues more than $1 billion) are able to obtain better economies of scale within their F&A departments by consolidating operations, whether through a shared service facility or otherwise. This could also help them garner the critical mass to leverage the capabilities of external outsourcing services providers.
In a 2010 survey of mid-market CFOs conducted by Everest Global Inc., it was noticed that at mid-sized companies, the typical business model lacked agility, is manual work intensive and does not make the best use of technology, thereby impacting their costs and utilization of resources.
DESIGNING THE NEXT GENERATION FINANCE ORGANIZATION
Mid-sized companies are, however, taking a cue from larger entities by bringing about strategic clarity and robust governance at the enterprise level. The key to this transformation is breaking up packages of work and understanding how and where they are best performed.
Catalyzing the transformation process is a new breed of service provider that is able to help mid-sized organizations optimize their back office functions. The 21st century is seeing new business models evolving to service mid-market organizations. These models today include a variety of function-specific experts, and are aimed at flexibility and agility to adapt quickly to business changes.
The next generation F&A organization clearly demarcates the service roles from corporate and business unit roles, and can be broken down into 4 key work areas:
||Mid-Market CFOs: Creating an Effective Framework
|1) CORPORATE CENTERS OF EXPERTISE:
This function is and will continue to be part of the corporate/business role in F&A. It constitutes key decision making and strategizing pertaining to the business. It forms the core of the overall business strategy of the organization, and includes:
- Defining finance strategy
- Defining policies and business rules
- Establishing processes and system standards
- Performing key functions (treasury, negotiations, audit, risk management, investor relations, strategic planning).
2) EMBEDDED BUSINESS PARTNERS:
This is your decision support system. It constitutes various partners of an organization performing critical tailored activities whose output is fed to the Centers of Expertise. This function acts as an enabler for decision making by the Center of Expertise and performs the following services.
- Financial analysis
- Decision support
- Planning and forecasting
- Performance analysis and reporting.
3) SHARED SERVICE CENTERS:
Functions that can be clearly defined and measured are handled by off-site/on-site/outsourced shared service centers. Organizations look to outsourcing partners to help carry out these functions. This allows management to focus on key business initiatives and strategies. Examples include:
- Transaction processing (accounts payable (AP), accounts receivables (AR), fixed asset, general accounting, consolidations/close, payroll, cash management, soft collections)
- Master data maintenance
- Financial/Management reporting.
4) REPORTING AND ANALYTICS:
Organizations seek visibility into performance to enable actionable changes to today’s dynamic environment. Without clear visibility, business decisions will be taken from an isolated point of view. And more often than not, consequences are far reaching. Today most businesses have either a dedicated team to manage these activities or look at niche outsourcing partners equipped with the right tools and technology to manage them. Examples include:
Redefining the activities of the F&A department has helped mid-sized (as well as small organizations) understand what functions they can entrust to an outsourcing services provider while still retaining control of the department and improving reporting. The advantage of being able to focus on decision making, which was typically available to larger entities, is now available for small to mid-sized businesses as well.
Engaging with an outsourcing services partner without this level of understanding makes it difficult to generate real cost savings and efficiencies.
The key is in finding the right partner: an organization that has the expertise and technology needed to optimize processes and at the same time possesses the ability to provide a flexible, customized solution to your needs. A good partner should be able to provide you with a combination of advisors and industry, business and IT experts (do-ers) along with a local/global solution.
Do you think that the framework will enable better engagement with your provider? Let us know your views in our comments section.