balancing cost reduction with adding value · 2020-01-11 · 2020 the hackett group, inc. all ights...

The Hackett Group I Key Issues I 1© 2020 The Hackett Group, Inc. All Rights Reserved.

Balancing Cost Reduction with Adding Value

2020 FINANCE KEY ISSUESComplimentary research

EXECUTIVE SUMMARY

Finance is facing a dual mandate in 2020. It must respond to pressures to reduce costs but at the same time support enterprise growth expectations by becoming a more strategic advisor to the business. The effort to address both has shaped finance’s agenda for the coming year, along with its list of initiatives, and how it intends to prioritize its transformation efforts in order to address gaps between the importance of its objectives and its ability to meet business expectations.

By Nilly Essaides, Tom Willman and Jim O’Connor

© 2020 The Hackett Group, Inc. All Rights Reserved. The Hackett Group I Key Issues I 2

Cost reduction remains at the top of the finance agenda for the coming year, reflecting concern about an economic slowdown or even a recession. However, becoming the lowest cost operator is no longer enough in an environment of rapid change and intensified competition. Finance must also support enterprise growth strategies by expanding its role as a strategic advisor to the business. While cost-efficiency has been, and remains, paramount, the next four most important objectives (as expressed by finance executives participating in our annual Key Issues Study) reflect the function’s more nuanced to-do list. Finance is intent on becoming a more effective business partner, for example, by offering practical solutions to urgent problems. To do so, it must free up staff time to focus on more value-adding activities such as continuing to look for process inefficiencies that can be eliminated through automation. To ensure it stays on course, finance plans to better align its key performance indicators (KPIs) with its increasingly expanded role.


Finance key issues in 2020

Source: Key Issues Study, The Hackett Group, 2020

IMPROVE COST-EFFICIENCY Finance budgets are expected to shrink by 3.4%, making cost reduction the top issue for finance organizations in 2020. Many plan to streamline work using digital technology and move more activities to a global business services (GBS) organization, where it can be handled at a lower cost.

SECURE FINANCE DATA AND SYSTEMS Companies cite cyberrisk risk as their chief business risk in 2020. As finance adopts digital technology, it becomes more exposed to these risks. Finance must protect sensitive data and tighten controls to prevent fraud.

ACT AS A STRATEGIC ADVISOR The enterprise is increasingly reliant on finance for providing guidance about strategic decisions. Top organizations will leverage advanced analytics solutions to provide greater insight into setting targets and deploying resources.

INTEGRATE DATA AND PLANNING Many organizations still operate with data silos, making it harder for finance to run analytics and offer advice. By dismantling data barriers and ensuring that planning activities are coordinated, finance can enable the company to set more accurate performance targets.

IMPROVE BUSINESS PARTNERSHIPS Before finance can become an advisor to the business, it must build credibility by helping resolve immediate issues. Finance needs to bolster its business acumen and formalize interaction models.

LEVERAGE NEW TECHNOLOGIESFinance needs to take greater advantage of solutions like robotic process automation (RPA), advanced analytics and cloud-based applications. These, along with other applications, hold the promise of creating entirely new finance capabilities.

REDEPLOY CAPACITY TO VALUE-ADDING WORK Finance must find the time for a more expansive role, but hiring more staff is out of the question. Top organizations will embrace automation to enhance process efficiency so that staff can focus on more strategic projects.

MODERNIZE FINANCE APPLICATION PLATFORMS Most finance organizations operate within a complex system environment that hinders information flow and is short on functionalities. Finance needs to rationalize its architecture by disposing of, consolidating and replacing legacy systems.

IMPROVE FINANCE PERFORMANCE MANAGEMENT CAPABILITY Finance needs to update the metrics it uses to assess its own performance, evaluating it from the perspective of the business it serves. The new KPIs must be aligned with the more strategic mandate it desires to fulfill.

IMPROVE FINANCE ANALYTICS CAPABILITY It is a concern that finance organizations put improving analytics capability at the bottom of their list of key issues for 2020, because strength in this area is essential for operating as an advisor and business partner. Finance needs to develop its analytics talent and adopt advanced analytics solutions.

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1 6

2 7

3 8

4 9

5


Support enterprise cost-efficiency improvement: Cost-efficiency is a perennial corporate objective, made more important by prospects of a slow economy or even a recession some time in 2020. Finance can leverage its role as the orchestrator of the company’s annual plan to target pockets of waste, re-baselining and benchmarking its process costs, and continuing to apply proven and sustainable cost management methodologies.

Support enterprise growth: Today’s cost-reduction strategies cannot be like the slash-and-burn approaches of the past. Competition is fierce, and organizations must continuously invest in product and services innovation. Finance can help by contributing advice and formulating strategies with the business.

Enable enterprise analytics capabilities: To make tough choices about how to balance cost cuts with continued growth, management needs quick and reliable insight into market trends. Finance can help by adopting advanced analytics solutions that run multiple scenarios quickly and predict the impact of operational decisions on future financial results.

Enable enterprise digital transformation: Greater adoption of smart automation technologies will help companies become more efficient, yet continue to innovate. Finance can help by hastening its own digitization process, while working more closely with the information technology (IT) function to help it assess the return on investment (ROI) of technology investment alternatives.

Support enterprise customer-centricity: Brutal competition and rising customer expectations are putting pressure on organizations to redefine their stakeholders’ experience. Finance can help by tailoring customer-facing processes (like order entry) to the specific needs and consumption habits of different customer segments.


Finance has a lot on its plate in 2020. With limited resources, the function must systematically prioritize its improvement efforts. Fig. 1 maps finance’s most common 2020 objectives based on the size of the gap between their importance and the function’s ability to address them.

Some objectives are already well-supported. These are typically more tactical areas such as financial risk management and optimizing working capital. In other cases, there’s still room for improvement. However, six of those fall into the red zone, i.e., objectives with the biggest gaps between their importance level and finance’s ability to deliver on business expectations. That is where finance must focus its attention first.

FIG. 1 Finance key issues in 2020


Addressing finance’s critical gaps in 2020

Improvement opportunityWell-supported Critical development area

Secure data and systems

Improve risk management

capabilities

Enhance compliance and controls

Optimize the company's tax structure

Improve working capital management

Leverage new technologies

Improve efficiencyAct as a strategic

advisor to the business

Optimizedeployment* of

finance resources

Modernizefinance application

platform(s)

Develop better business partnerships

Integrate data and planning

Redeploy capacity to value-adding work

Align skills/talent with business needs

Improve performance measurement

capabilities

Improve analytical capabilities

Improve agility

EFFECTIVENESS OBJECTIVE EFFICIENCY OBJECTIVE* Across business units, corporate, GBS, center of excellence


Redeploy capacity to value-adding work: Hiring more staff is generally out of the question. Therefore, the only way to create more capacity is by shrinking the amount of routine activities staff must perform by migrating more work into GBS organizations and automating more processes.

Improve finance performance measurement capabilities: It is imperative that the function develop new KPIs to assess how it is doing in new areas, for example, acting as a strategic advisor to the business or advancing enterprise agility by measuring the share of staff time spent on business-partnering activities, or the percentage of calls initiated by stakeholders actively seeking finance’s input on major decisions.

Leverage new technologies: Finance is still early in its digital transformation efforts. Our 2018 Digital Transformation Performance Study revealed that over one-half of organizations are still developing their digital strategy. However, to optimize process efficiency and create new, value-driving services, it must take advantage of digital solutions.

Improve finance agility: Finance needs to shorten its decision-to-action cycle; our research reveals it significantly lags a cross-functional set of “agility top performers” (as identified in our Agile Operating Model Performance Study, 2019) in multiple metrics. It is therefore imperative that finance embrace sophisticated analytics solutions that let it develop real-time insights and implement decisions quickly.

Align talent with business needs: To become strategic advisors, executives need to not only enhance their business acumen but also strengthen their negotiation and influencing skills. The onus is on finance to prepare staff for the skills of the future through formal and experiential training.

Improve analytical capabilities: Finance must also augment its analytics capabilities in order to be a strategic advisor and partner to the business. Because capacity to respond to demand for insight remains an issue, finance must focus on deploying user-friendly self-service and interactive visualization tools.

Finance objectives with critical performance gaps


The finance agenda is shaped by enterprise strategic priorities and operational plans, which in turn are driven by economic and business conditions.

Demands on the finance organization continue to rise, while executives anticipate further contraction in its operating budget – by 3.4% in 2020 over 2019. Thus, management expectations in the coming year may outstrip finance’s resources. Fig. 2 shows the five big enterprise “asks” from finance this year.

What companies expect of their finance organization in 2020

FIG. 2 Top five enterprise goals that finance must support in 2020


0 20 40 60 80 100

86%

82%

82%

75%

64%

Support enterprise cost-efficiency improvement

Enable/augment enterprise analytics capability

Enable enterprise digital transformation

Support enterprise customer-centricity

Support enterprise growth strategies

Percentage of respondents ranking as highly important


There is no single way to address finance’s critical development areas. Rather, the function must embrace a holistic approach to its transformation that includes all elements of its service delivery model, or SDM. Fig. 3 shows which SDM elements Key Issues Study respondents cited as most important to achieving finance’s transformation goals.

FIG. 3 Service delivery model elements: 2020 priority ranking by finance executives

1 Analytics and information management

2 Technology

3 Service design

4 Organization and governance

5 Human capital (people and skills)

6 Service partnering


Leveraging the finance service delivery model for effective change


Without advanced analytics capabilities to underpin accurate data, management cannot make informed decisions about resource allocation or respond with urgency to unforeseen changes in the business environment. Making quick decisions and executing them swiftly is essential to success in a digital economy. Finance is often the analytics engine of the organization. It is therefore imperative that it enhances, its analytics acuity. Fig. 4 illustrates what actions finance plans to take in 2020 in order to do so. These involve speeding up the delivery of critical insight, presenting it in an easily digestible format, enhancing finance’s analytics competency and ensuring the integrity of data.

Analytics and information management1

FIG. 4 Top five strategies for improving finance’s analytics capabilities


64%

54%

50%

46%

46%

Developing analyticscompetencies internally

Expanding the use of datavisualization solutions

Increasing internal and external analyticstraining resources/time allocation

Enhancing data quality and accessibility

Providing self-service analytics tools


Many finance organizations are in the early stages of digital transformation; thus, they continue to rely heavily on legacy applications and are even adding a small number of new seats (Fig. 5). However, legacy systems exhibit the lowest score for meeting or exceeding business expectations, such as ROI, shortening cycle time and enhancing customer experience.

The areas where most growth is expected in the coming year are RPA and advanced analytics. These also exhibit the highest projected growth rates compared to 2019. Next are cloud-based finance applications and data visualization tools. The year-on-year growth rates indicate that finance is moving quickly up the digital curve.

2 Technology

CURRENT ADOPTION 2020 GROWTH PROJECTION1 BUSINESS OBJECTIVES REALIZATION2

LARGE-SCALE DEPLOYMENT*

PILOTS/SMALL-SCALE DEPLOYMENTS**

FELL SHORT OF EXPECTATIONSEXCEEDED EXPECTATIONSMET EXPECTATIONS

Legacy finance applications

Next-generation, cloud-basedcore finance applications

Robotic process automation

Business processmanagement tools

Best-of-breed point solutions

74%

23%

12% 69%

27% 31%

15% 42%

58%

11% 85%

81%

81%

58%

57%

26%

20%

24%

13%

3%

12%

52%

71%

73%

67%

87%

13% 39%48%

26%

33%

13%

71%

5% 68%

7% 60%

80%7%

29%

FIG. 5 Process automation technology adoption, projected growth and objectives realization in 2020


* The technology is used on a limited scale in isolated use cases. ** The technology is used at scale in applicable use cases. 1 Year-on-year percentage change in applicable adoption metric for each technology. 2 Some examples include ROI, payback, cycle-time improvement, quality of service improvement and customer experience improvement.


While current large-scale deployments of most data-related and emerging technologies are rare, a substantial portion of finance organizations are running pilots and small-scale implementations. These are tangible indicators of future adoption (Fig. 6).

CURRENT ADOPTION 2020 GROWTH PROJECTION1 BUSINESS OBJECTIVES REALIZATION2

LARGE-SCALE DEPLOYMENT*

PILOTS/SMALL-SCALE DEPLOYMENTS**

FELL SHORT OF EXPECTATIONSEXCEEDED EXPECTATIONSMET EXPECTATIONS

26%

18%

8%

5%

36%

12% 58%

48% 84%

70%

7% 37%

29%

44%

29%

Data visualization tools

Advanced analytics

Cognitivecomputing/AI

Virtual assistants/chatbots

13% 39%48%

26%

33%

71%

5% 68%

7% 60%

29%

65%

53%

58%

71%

15% 50%35%

42%

29%

47%

8% 50%

71%

47% 6%

Data- related technologies

Emergingtechnologies

FIG. 6 Data and emerging technologies adoption, projected growth and objectives realization in 2020


* The technology is used on a limited scale in isolated use cases. ** The technology is used at scale in applicable use cases. 1 Year-on-year percentage change in applicable adoption metric for each technology. 2 Some examples include ROI, payback, cycle-time improvement, quality of service improvement and customer experience improvement.

2 Technology


The old paradigm for service design was the standardization of processes and services. While such best practices remain foundational, finance is increasingly taking a more customer-centric approach, which means becoming more attuned to its stakeholders’ business requirements and information consumption habits. For finance, this new paradigm requires that it move past one-size-fits-all offerings. Transactional and knowledge-based processes designed to maximize value must be supplemented by new processes designed from the outside in, i.e., the user’s needs and preferences. We see this trend in the growing emphasis on the adoption of self-service tools (Fig. 7).

3 Service design

FIG. 7 Percentage of finance respondents with large/very large skill gaps

Source: The Hackett Group, Digital Skills Poll, 2018

Analytics and modeling

56%

30%

49%

20%

45%

20%

47%

10%

45%

10%

Technology savviness

FINANCE TOP PERFORMERS

Service design Creativity and innovation Data savviness


Finance is redistributing where work gets performed, migrating more activities into GBS organizations and centers of excellence (Fig. 8). The benefits of consolidating work and people go beyond cost savings. By bringing like processes together, companies improve service quality through standardization, yet can still create bespoke solutions for different customer segments when there is a business case for doing so. They can also develop new career paths and magnify the effects of a handful of experts, for example, data scientists.

4 Organization and governance


* All transactional, knowledge-based and managerial processes in scope of the GBS organization**Previously outsourced work moved back in-house*** Captive only, excludes outsourced

FIG. 8 Workload distribution and projected change in 2020, by organizational placement

0 20 40 60 80 100

0 2 4 6 8 10

0 20 40 60 80 100

Decrease

PROJECTED CHANGE IN WORKLOAD

GBS*

Corporate supply chain

Business unit

Centers of excellence

Outsourced

Insourced**

Offshored***

Self-service

38%

33%

23%

44%

35%

15%

38%

56%

27%

15%

4%

4%

8%

8% 3.6%

3.0%

2.1%

3.7%

3.4%

0.8%

0.3%

-0.6%

Increase

(Percentage of respondents citing increase or decrease)

PROJECTED CHANGE IN WORKLOAD

(Percentage of change)

0%

0%

Decrease Increase


People are at the core of finance’s transformation efforts, a fact that is too often overlooked, and is one of the critical development areas for finance in 2020. Not only must employees be open to change, they must also acquire new skills to be able to fit within the new finance operating model, leverage new technologies and have strong interpersonal skills so they can work closely with business partners.

5 Human capital

Finance has traditionally outsourced a small percentage of its work, but there are some signs that its strategy is shifting. As we saw in Fig. 8, finance executives expect a 2.1% increase in the amount of work executed by business process outsourcers in 2020. The difference between previous outsourcing arrangements and today’s service-partnering approach is that the latter is more strategic in nature. Increasingly, conversations include leveraging business process outsourcing (BPO) technology and aligning digital transformation strategies, as well as the quality and customer experience of the services the BPO provides.

6 Service partnering


Understanding the hurdles that prevent finance’s transformation

FIG. 9 Greatest hurdles to transformation progress in 2020

1 Overcommitment*

2 Skills deficiencies and/or capacity constraints

3 Technology and process complexity

4 Inadequate funding and resource allocation

5 Finance staff’s lack of critical skills**

6 Organizational resistance to change


7 Data-related issues***

8 Organizational complexity

* Having more initiatives on the agenda than can be realistically executed.** Some examples include, analytics, emerging technologies, process redesign, design thinking and change management.*** Some examples include, deficiencies in data quality, data security, master data management and data governance.

According to our 2019 Finance Transformation Poll, less than one-half of finance transformation initiatives consistently meet or exceed management expectations. Fig. 9 lists the biggest obstacles to transformation success, according to finance executives, beginning with overcommitment or trying to do too much too fast. As finance gets pulled in many different directions, it is less likely to realize its diverse transformation agenda. The second-greatest challenge exposes the critical relationship between finance and the IT organization. IT must have the skills and time to assist finance in leveraging technology to support its own transformation efforts, or progress is impossible. In third place is technology and process complexity. To speed up its transformation progress, finance must first get its house in order by consolidating, decommissioning or upgrading its system architecture and harmonizing processes so they can be automated effectively.


Finance has an aggressive agenda for 2020, dominated by the pressure to cut cost and add greater value to the enterprise through better and faster insight. By rationalizing its system architecture and embracing new technologies, finance can reduce process cost while developing new capabilities to support strategic decisions. In order to execute on its dual mandate, finance organizations must also overcome persistent hurdles to transformation success by prioritizing carefully, advocating for improving IT skills and increasing IT resources, and simplifying system and process complexity.

Strategic implications


NILLY ESSAIDES Senior Research Director

Nilly Essaides has over 25 years of experience researching, writing, and speaking about finance and treasury issues, with a focus on the way finance adds value to the enterprise through excellence in financial management and planning processes. Previously, she worked at the Association for Financial Professionals, where she led the Financial Planning and Analysis practice. Nilly, a prolific blogger with thousands of LinkedIn followers, writes for external publications such as Digitalist. In addition, she co-authored a book about the internal transfer of best practices, If Only We Knew What We Know (Simon & Schuster, 1998).

TOM WILLMAN Associate Principal and Global Practice Leader, Finance Executive Advisory Program

Tom Willman has over 20 years of experience helping chief financial officers and other senior finance executives transform their organizations by deploying more efficient and effective processes, service delivery models, and enabling technologies. Areas of expertise include planning and forecasting, close and consolidations, management reporting and analysis, and the design and implementation of shared services organizations. Previously, he spent 10 years with IBM Global Business Services and PricewaterhouseCoopers, consulting in their Finance Transformation practices, and several years in the Audit and Assurance practice at Coopers & Lybrand.

About the authors


JIM O’CONNOR Global Practice Leader, Global Business Services and Finance Advisory Programs

Jim O’Connor has over 20 years of both industry and consulting experience, focusing on finance transformation. He has particular expertise in strategy and organization design, business process design, strategic cost reduction, reporting, planning and performance management, business intelligence and financial systems, shared services, and outsourcing. In these roles, he has advised client executives in a wide range of industries, including consumer products, financial services, higher education, manufacturing, retail and utilities. Previously, he led the CFO Services practice at North Highland, a global consulting firm, and before that focused on finance transformation and strategy at Archstone Consulting, now a part of The Hackett Group.

About the authors

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balancing cost reduction with adding value · 2020-01-11 · 2020 the hackett group, inc. all ights...

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