GUEST BLOG: Finance modernisation vs transformation (part one)

By John O’Rourke, VP of Product Marketing, Host Analytics

Transformation – it’s a term that has been used for many years to describe any changes being adopted in businesses to make them more effective and efficient.

In the case of finance transformation, it’s often talked about in terms of re-engineering people, processes and systems to reduce costs, reduce cycle time, and make finance more strategic, ‘transforming’ it from a back-office scorekeeper function to a true business partner to the CEO and to the organisation.

This topic is so broad, I’ve divided the information into two articles. In this part, I touch on the traits of modern CFOs, then define finance transformation vs modernisation and how the two work hand-in-hand.

TRAITS OF MODERN CFOs AND FINANCE ORGANISATIONS

As a former accountant and marketer who focuses on supporting the needs of finance organisations, it seems like we’ve been talking about the changing role of the CFO and finance for about 20 years now.

The notion has always been about moving the CFO and finance from back-office ‘bean counter’ or scorekeeper, to a more strategic role.

More recently, some viable models have emerged to describe the various roles the CFO and Finance need to play. I especially like the one from Deloitte described below.

• Steward – Protect and preserve the critical assets of the organisation and accurately report on financial position and operations to internal and external stakeholders
• Operator – Balance capabilities, talent, costs and service levels to fulfil the finance organisation’s core responsibilities efficiently
• Strategist – Provide financial leadership in determining strategic business direction, M&A, financing, capital market and longer term strategies vital to the future performance of the company
• Catalyst – Catalyse behaviours across the organisation to execute strategic and financial objectives while at the same time creating a risk intelligent culture

The first two roles, steward and operator, are more traditional roles for the CFO and finance. The main twist now is making finance operations as efficient as possible.

The strategist role is really about the CFO being the right-hand man to the CEO, the trusted advisor. It’s that pragmatic, non-emotional, numbers-driven executive who can provide advice and guidance to the CEO and the management team about strategic decisions.

The catalyst role is one that’s getting a lot more focus lately. It’s the CFO and finance playing the role of business partner to other functions and departments, helping them to more effectively plan and manage their parts of the business, while staying aligned to finance.

Then there’s a new role that I’m seeing more discussion about in the industry. That’s the role of the CFO as ‘innovative technologist’. While this role has historically been attached to the CIO, in today’s world CFOs are taking a more active interest in how their organisations leverage technology to support the business.

FINANCE TRANSFORMATION AND MODERNISATION

So where does finance transformation fit in? It’s a vague term, which begs the question – transforming from what to what? Most industry experts and practitioners refer to finance transformation as the reengineering of finance to get from where they are today, to the modern finance model described above.

They also highlight the importance of focusing on transforming the people, processes and systems used in finance to help reduce costs, reduce cycle time, and make finance more strategic and valuable to the organisation.

From a process standpoint, many finance organisations have been focusing on reviewing and updating their core business processes to make them more efficient. This includes transactional processes such as accounts payable, accounts receivable and purchasing – as well as enterprise performance management (EPM) processes such as budgeting, forecasting and financial reporting.

From a people standpoint, we’ve seen changes in the skill sets that CFOs are looking to add to their finance staff. This includes adding staff with more analytical and communication skills needed to support the expanded role of finance as business partner to other departments and functions.

And we’ve also seen the additional of technical people in finance, to directly manage the new systems and technologies needed to support more efficient finance processes.

And speaking of financial systems, this is where the ‘modernisation’ concept comes into play. As finance organisations re-tool key business processes in order to get maximum impact from the process change, they typically need to upgrade their application systems.

The modern CFO and finance organisation needs to support traditional stewardship and operator roles as well as being a strategist and catalyst for the organisation

In the case of transaction processing, this has included standardising or consolidating ERP systems, to better support shared services models and streamlined processing. It includes standardising and centralising human capital management (HCM) as well as customer relationship management (CRM) to gain a single version of the truth and process efficiencies.

And then there’s the enterprise performance management (EPM) system, which supports key management processes that span multiple departments and transaction systems – modelling, planning, consolidation, reporting and analytics.

In EPM, finance organisations have been reducing reliance on spreadsheets, or replacing legacy applications used for budgeting, planning, forecasting and financial reporting with more modern EPM applications and suites that can integrate directly with ERP and other systems.

The EPM systems that have been around for the past 15 years have supported user access via web browsers, integration with Microsoft Excel and Office, as well as mobile access to certain functions.

The modern CFO and finance organisation needs to support traditional stewardship and operator roles as well as being a strategist and catalyst for the organisation. Transformation is a strategy that helps finance become more efficient in its traditional roles, while shifting the focus to the newer roles. And this means re-engineering key processes, re-tooling people and their roles, and modernising finance systems in order to maximise the impact.

In part two of this series we’ll take a deeper dive into the modernisation of finance systems and the strategies that organisations are using to successfully make the leap.

Photo (above): GotCredit

To read part two in this series, click here.