transforming finance and accounting through …...operating model • senior financial executives...
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Transforming Finance and Accounting through advanced operating modelsExecutives believe there is untapped potential for advanced technology, process reengineering, and new organizational structures to improve the finance function’s ability to address the most strategic enterprise challenges
EXECUTIVE SUMMARY
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About the research
In 2014, Genpact commissioned a research project conducted by an independent research firm. The goal was to assess the potential for new operating models across a wide spectrum of industry sectors and functions. More than 900 senior-level executives completed the survey. The entire report sets out findings drawn from more than 150 respondents engaged in the finance function across a range of industries. This analysis complements other research and insight derived from Genpact’s experience designing, transforming and operating business processes and operations.
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Even as the economic recovery inches forward, organizations continue to face daunting challenges. Intense competition and slow growth in mature markets have magnified uncertainty and put pressure on costs, just as regulators are escalating their demands. CFOs and other senior finance executives believe that the finance function can play a key role in addressing some of these issues. However, its ability to impact these challenges depends on levels of maturity and preparedness, which vary widely across companies and industry sectors, as well by sub-functions. Specifically, Financial Planning and Analysis (FP&A) and master data management (MDM) have emerged as two key areas to watch. Finally, executives believe that the three levers of operating model transformation (technology, process re-engineering, and advanced organizational structures) create impact differently. Using commissioned research, Genpact has examined these trends to understand how enterprises are driving transformation to achieve business impact.
Introduction
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Strong differences among F&A executives: BFSI concerned with compliance and risk; others with cost and growth
Regulatory compliance, risk management, and cost reduction are the biggest worries confronting senior finance executives.When asked to name the three top concerns confronting their company, about 56% of respondents point to compliance with regulations, while reducing costs and increasing customer satisfaction rank close behind, cited by 48% of the respondents. However, the most important challenges vary widely across industries. Banking, financial services, and insurance (BFSI) executives include compliance and risk management among their top three concerns, respectively, in 72% and 70% of the cases (Figure 1). Executives in other industries are more concerned about innovation and growth.
BFSIOthers1 Overall
BFSIOthers1
BFSIOthers1 Overall
BFSI Others1Overall
BFSI Others1Overall
BFSI Others1
BFSI
Overall
Overall
Overall
Overall
BFSI Others1
Others1
Ensure compliance to regulations
Reduce cost
Increase customer satisfaction
Manage risk
Increase growth and scalability
Enable company’s innovation
Enable agility and adaptability
Reduce capital and asset intensity
0 10 20 30 40 50 60 70 80
Figure 1
Importance of the challenge (% of finance and accounting respondents across industry segments stating that the challenge is among the ‘Top 3‘ for their company)
Sharp differences between financial services and other industries
Manufacturing, life sciences and high tech companies more focused on innovation and growth
DIRECTIONAL
n=157 for finance and accounting executives 1Healthcare, life sciences, consumer goods, high tech and manufacturing
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MDM is important and has comparatively lower maturity and preparedness to evolve
•For managing risk, FP&A (64%) and MDM (49%) are far more frequently cited as having material impact than any of the other finance sub-functions.
•For regulatory compliance, MDM is virtually tied with record-to-report for highest impact, followed by FP&A.
•Although FP&A has the most impact, MDM deserves special attention because it is less mature and not all companies are well-prepared to make it evolve (Figure 2).
Improvements in the FP&A and MDM have the biggest overall impact in addressing these challenges
or not prepared
Mat
urity
of
proc
ess
Pre
pare
d to
m
atur
e
56 48 48 42 42
58 21 43 6458Overall F&A
23 43 37 18 17O2C
50 32 18 22 35R2R
25 53 27 9 22P2P
34 53 20 62 64FP&A
38 40 4949 27MDM
Ens
ure
com
plia
nce
to re
gula
tions
Red
uce
cost
s
Incr
ease
gro
wth
an
d sc
alab
ility
Man
age
risk
Very mature or matureSomewhat mature or immature
Fully prepared or preparedSomewhat prepared
Magnitude of challenge1
% of respondents assessing maturity and preparedness
% o
f res
pond
ents
sta
ting
func
tion
can
have
mat
eria
l im
pact
on
addr
essi
ng c
halle
nge
Incr
ease
cu
stom
er
satis
fact
ion
Importance of the challenge (% of respondents in specific functions across industries stating that the challenge is among the ‘Top 3‘ for their company)
Figure 2
DIRECTIONAL
n=157 finance and accounting executives
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Advanced organizational structures most frequently applicable among operating model initiatives •Advanced organizational structures include business process outsourcing (BPO) and shared
service centers (SSCs) as well as hybrid models that combine the two.•Financial executives give advanced organizational structures the highest ratings for impact on
the overall F&A function, with about 59% stating that they can have material impact.•This source of impact is considered material more frequently than other operating model
initiatives, including business process engineering (40%) and radically improved use of technology (38%).
•Advanced organizational structures are also frequently believed to have particularly strong benefits for FP&A and MDM (Figure 3).
Overall F&A 5940
Business process re-engineering
123MDM 503246
Radically improved use of technology
140
FP&A 413842 147
R2R 442928 93
P2P 492928 79
Impact Index*
38
O2C 4823 7829
BPO or SSC or hybrid1
Figure 3
Importance of the challenge (% of respondents in specific industries stating that the challenge is among the ‘Top 3‘ for their company)
Technology quite important in FP&A and MDM
More BFSI see advanced organizational structures as helpful for MDM
% of respondents stating the initiative can have a material impact on the function DIRECTIONAL
* Function Impact Index combining stated importance of challenges and stated ability of a function to address them1 BPO – Business Process Outsourcing, SSC – Shared Services
n=157 finance and accounting executives
Advanced organizational structures support finance transformation
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Figure 4
Many organizations believe advanced organizational models can have impact; more so for mature F&A functions
•For every F&A sub-function, the proportion of financial executives who rate advanced organizational structures as having material impact is significantly higher among organizations with mature functions.
•This contrasts with radically improved use of technology and business process reengineering where there is little difference in impact among firms with mature and immature sub-functions (Figure 4).
Advanced organizational structures have the greatest impact in mature F&A sub-functions
Overall F&A
P2P
O2C
R2R
FP&A
MDM
Business process re-engineering
Radically improved use of technology
634038
494138
603326
302318
493028
352727
512926
392527
453742
314343
523043
483451
MatureNot mature
BPO or SSC or hybrid1
% of respondents stating the initiative can have a material impact on the function
DIRECTIONAL
n=157 finance and accounting executives; Mature=119, Not mature=38
1 BPO – Business Process Outsourcing, SSC – Shared Services
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Not ConsideredPlanned after 12 months
Planned in next 12 months
Currently in Progress
SSC, BPO or hybrid1
151315
58
BPR
28
513
54
Tech
23711
59
SSC, BPO or hybrid1
16911
64
BPR
32
810
50
Tech
15
15
67
SSC, BPO or hybrid1
151311
62
BPR
151015
60
Tech
185
13
64
SSC, BPO or hybrid1
135
11
72
BPR
18811
63
Tech
168
19
57
18
SSC, BPO or hybrid1
107
65
BPR
24
14
14
48
Tech
21
1213
54
O2C R2R
P2P FP&A MDM
Figure 5
n=157 for finance and accounting executives
DIRECTIONAL
At least one third of the companies have not initiated the transformation of their operating model •Senior financial executives have made substantial progress in implementing advanced
organizational structures for the FP&A function.•About 83% say that such implementations are either in progress or will start within 12 months,
compared with 76% reported for technology and 74% for business process reengineering.•There is still considerable opportunity for further improvements in MDM, where a comparatively
lower 73% of respondents have advanced organizational structure initiatives in progress or planned (Figure 5).
% of respondents; Width of the column indicates the % of respondents who believe that the operating model initiative will have a material impact on the function.
Advanced organizational structures are being implemented most rapidly
1 BPO – Business Process Outsourcing, SSC – Shared Services
9Figure 6
Mature organizations expect more impact than less mature ones from technology and BPR
•Advanced organizational structures are considered to have impact by more executives than other approaches for finance process improvement.
•On the other hand, the research has found that (when applicable) improved use of technology is believed to provide the biggest monetary impact, especially for mature organizations (Figure 6).
There are important variations among mature and immature finance organizations, as well as across industries, sub-functions, and company size.
Notwithstanding the widespread opportunity represented by advanced organizational structures, radically improved use of technology is expected to generate the largest monetary impact
BPR
$ 158m
$ 82m $ 83m
Tech
$ 110m
$ 178m
BPR
$ 295m
TechBPRTech SSC, BPO,Hybrid1
SSC, BPO,Hybrid1
SSC, BPO,Hybrid1
$ 268m
$ 155m
$ 103m
OVERALL MATURE IMMATURE
Average $ impact
Annual $ impact is the impact of operating model initiatives in US$ per annum including reduction of cost, capital required, improvement of cash and revenue growth 1 BPO – Business Process Outsourcing, SSC – Shared Services
Average $ impact, bar width proportional to percent of respondents stating that the initiative will have a material impact
n=157 (Mature=119, Not mature=38) finance and accounting executives
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CFOs and other senior finance executives believe that the finance function plays a strategic role in addressing the daunting challenges that are still prominent in times of slow economic recovery, continued uncertainty, and heightened regulatory demands. This research examined how those challenges can be tackled by three levers of operating model transformation: technology, process re-engineering, and advanced organizational structures.
The related transformation of operations is an untapped strategic lever for the CFO as well as the CEO. However, it is sometimes seen as a formidable undertaking. Few understand the “IT + analytics + process operations” nexus sufficiently. Technological excesses of the past (such as ERP or data warehouses) are well documented. Some technologies are unproven, some uses of analytics are unclear, and older technologies are rigid and expensive to evolve. Finally, it is frequently a struggle to scale deep analytics throughout the enterprise.
Our experience of advanced operating models, accumulated over 15 years, clearly indicates that there are agile and practical ways to transform. The key is to design, transform, and run the processes that power advanced operating models so that they closely align with measurable business goals, thereby avoiding saddling the company with unnecessary and often unmanageable complexity.
This approach focuses more rigorously on the sources of impact and deliberately disregards any practice that does not yield material outcomes. It also takes a more objective and holistic look at technology, analytics and organizational practices. It leverages now-mature “system of engagement” technologies that complement “system of record” technologies. It treats analytics (the arc of data-to-insight-to-action) as a process and determines how to embed insight at scale into the fabric of other enterprise processes; it does not take the typical approach of viewing analytics as a task and a set of technologies. Finally, it harnesses the process and organizational levers available from established disciplines, such as re-engineering, shared services, outsourcing, and global delivery.
We think that there is a smarter way to transform operating models and address the most complex strategic challenges. This is a way for CFOs to make their enterprises more intelligent and generate material impact.
In conclusion
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About Genpact
Genpact (NYSE: G) stands for “generating business impact.” We are a global leader in digitally-powered business process management and services. Our Lean DigitalSM approach and patented Smart Enterprise ProcessesSM framework reimagine our clients’ operating models end-to-end, including the middle and back offices – to deliver growth, efficiency, and business agility. First as a part of GE and later as an independent company, we have been passionately serving strategic client relationships including approximately one-fifth of the Fortune Global 500, and have grown to over 70,000 people. The resulting domain expertise and experience running complex operations are unique and help us drive choices across technology, analytics, and organizational design.
For more information, contact, [email protected], and visit, www.genpact.com/home/solutions/finance-accounting/
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© 2016 Copyright Genpact. All Rights Reserved.
Genpact Research InstituteThe Genpact Research Institute is a specialized think tank harnessing the collective intelligence of Genpact – as the leading business process service provider worldwide - its ecosystem of clients and partners, and thousands of process operations experts. Its mission is to advance the “art of the possible” in our clients’ journey of business transformation and adoption of advanced operating models.
www.genpact.com/research-institute