Transforming Finance and Accounting through advanced operating models

Transcription

1 Transforming Finance and Accounting through advanced operating models Executives 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 1

2 About the research In 2014, Genpact commissioned a research project conducted by an independent research firm. The goal was to assess the potential of new operating models across a wide spectrum of industry sectors and functions. The respondents were executives selected on the basis of their ability to make or influence materially operating models decisions, and likely range from senior to top management. More than 900 senior-level executives completed the survey. This document EMEA presents findings drawn from more than 150 respondents engaged in the finance function 25% 10% APAC 16% 84% across a range of industries. 56% of the finance 65% 84% executives surveyed are based in North America, 10,000 + predominantly with large companies with more NAMER than 10,000 employees (see Figure 1). This 56% of respondents from North America analysis complements other research and insight derived from Genpact s experience designing, n=912 from all industries transforming and operating business processes and operations. Figure 1 Sample of more than 900 senior executives of whom 17% are from the finance function REGIONS SIZE* FUNCTIONS 5,001-10,000 16% 87% of respondents are from larger companies * Company size defined by number of employees Marketing Finance 15% 17% 13% Operations 40% Procurement 15% 46% of finance respondents from banking and financial services Risk 2

3 Abstract What are the most pressing company challenges? Regulatory compliance, risk management, and cost reduction are the biggest challenges confronting senior finance executives How can functions and related operations address them? Which functions are most effective at addressing these challenges? Improvements in the Financial Planning & Analysis and Master Data Management sub-functions have the biggest overall impact Are those functions mature? Are those functions ready to transform further? Executives from banking, financial services and insurance rate their F&A functions as mature and ready for further evolution. Can new operating models of those functions help them transform? Which models can do this? Advanced organizational structures support finance transformation. Advanced organizational structures have their greatest impact on mature Finance & Accounting sub-functions. When will the transformation start? What might the impact of that transformation be? Notwithstanding the power of advanced organizational structures, where applicable, radically improved use of technology is expected to generate the largest monetary impact

4 Abstract CFOs and other senior finance executives continue to face daunting challenges even as the economic recovery inches forward. Intense competition and slow growth in mature markets have magnified uncertainty and put pressure on costs, just as regulators demands are escalating. The finance function has the potential to help address some of these issues, but the level of maturity and preparedness varies widely across companies and industry sectors as well by subfunction. Specifically, Financial Planning and Analysis (FP&A) and master data management (MDM) emerge as two key spaces to watch. The three levers of operating model transformation technology, process re-engineering, and advanced organizational structures (shared services, business process outsourcing, and hybrids thereof) create impact differently. Using commissioned research, Genpact has examined these trends to understand how enterprises are driving transformation to achieve business impact. 4

5 Compliance and cost rated among the most important challenges for companies today Regulatory compliance, risk management, and cost reduction are the biggest worries confronting senior finance executives Regulatory compliance, risk management, and cost reduction are the most important concerns confronting senior executives across all functions. Survey respondents were asked to name the three most important challenges facing their company. The top response, cited by 56% of respondents across industries, was ensuring compliance with regulations. The challenges of reducing costs and increasing customer satisfaction ranked close behind, both with 48% (Figure 2). % of respondents from various functions stating challenge as among the Top 3 for their company Ensure compliance to regulations Increase growth and scalability Increase customer satisfaction Enable company s innovation Reduce capital and asset intensity Enable agility and adaptability Manage risk Reduce costs Finance Procurement Marketing Operations Compliance, risk and cost are key imperatives according to F&A executives CPOs share the cost and to some extent the compliance urgency COOs focus on compliance too n=912 Figure 2 5

6 Significant variation by function: Finance executives most concerned with compliance, risk and cost Executives in the finance function see a slightly different picture, with risk management (50% of respondents) ranked second to regulatory compliance (56%) but ahead of reducing costs (47%). Procurement executives, however, are most concerned about cost reduction (65%) far ahead of any other challenge, while marketing executives placed growth and scalability first at 59% (Figure 3). Importance of the challenge (% of respondents in specific functions across industries stating that the challenge is among the Top 3 for their company) Ensure compliance to regulations Marketing Increase customer satisfaction Procurement Finance Procurement Risk Operations Finance Marketing Risk Operations Reduce cost Risk Finance Marketing Procurement Operations Increase growth and scalability Procurement Operations Risk Finance Marketing Manage risk Marketing Procurement Operations Finance Risk Risk Finance Operations Marketing Procurement Enable company s innovation Risk Operations Finance Procurement Marketing Enable agility and adaptability Marketing Procurement Operations Risk Finance Reduce capital and asset intensity Figure 3 n=912 6

7 Financial sector most concerned about compliance and risk management but results vary across industries The most important business challenges also vary substantially across industries with banking executives strongly focused on compliance and risk management (72% and 70%, respectively), as among their top three concerns. In contrast, cost reduction (64%) is the dominant concern in the consumer products sector, while 65% of high-tech/software executives worry most about increasing growth and scalability (Figure 4). Importance of the challenge (% of respondents in specific industries stating that the challenge is among the Top 3 for their company) High Tech Capital Markets Healthcare Banking Insurance Life Sciences CPG Manufacturing Ensure compliance to regulations Increase growth and scalability Manage risk Reduce cost Enable agility and adaptability Increase customer satisfaction Enable company s innovation No such thing as overall imperative High tech most focused on innovation, growth, agility Life sciences respondents focused on regulation, customer satisfaction, and to some extent cost and innovation Reduce capital and asset intensity n=912 Figure 4 7

8 Large enterprises worry more about compliance and risk while smaller enterprise focus on scalability Large companies with more than 10,000 employees assign different priorities to business challenges than smaller firms with 5,000 to 10,000 employees. Regulatory compliance and risk management are most important for larger enterprises while smaller firms are more likely to say that innovation as well as growth and stability are among their top three challenges (Figure 5). Importance of the challenge (% of respondents across industries stating that the challenge is among the Top 3 for their company) 10,000+ employees 5,001-10,000 employees Ensure compliance to regulations Increase customer satisfaction Manage risk Reduce cost Increase growth and scalability Gap between smaller and larger companies is limited Main exception of the growth challenge which is most acute in smaller firms Enable company s innovation Enable agility and adaptability Reduce capital and asset intensity n=912 Figure 5 8

9 Intensity of challenges generally consistent across geographies In contrast to the variability seen across job function, industry, and company size, the top business challenges are relatively consistent across geographies. For example, the proportion of executives who included compliance with regulations among their top three concerns varied only from 55% in North America to 58% in EMEA and APAC. Risk management was somewhat more variable, ranging from 35% in EMEA to 44% in North America (Figure 6). Importance of the challenge (% of respondents across regions stating that the challenge is among the Top 3 for their company) NA APAC EMEA Ensure compliance to regulations Increase customer satisfaction Reduce cost Small variations across regions Manage risk Increase growth and scalability Most variance attributable to industries and size of companies present in those areas Enable company s innovation Enable agility and adaptability Reduce capital and asset intensity n=912 Figure 6 9

10 FP&A and MDM seen as important in solving the most pressing challenges Improvements in the FP&A and MDM subfunctions have the biggest overall impact in addressing these business challenges To identify the best opportunities, executives were asked which sub-functions could impact each of the executives top three challenges. Function impact indexes were then calculated to reflect the combined importance of a business challenge with the relative impact that a finance sub-function can have on the challenge. This analysis identified Financial Planning and Analysis (FP&A) and finance master data management (MDM) as having the greatest overall impact (Figure 7). Function Impact Index* combining stated importance of challenges and stated ability of a function to address them Financial Planning & Analysis 147 Finance MDM Record-to-Report Impact of R2R, P2P and O2C less ubiquitous than FP&A and MDM Procure-to-Pay Order-to-Cash F&A However, these functions have significant impact on specific key imperatives * Impact of a function on company s challenges is defined as =, where is the % of respondents who believe that improvement in the function will have a material impact on the challenge ; is the % of respondents citing the challenge as among the 'Top 3' n=157 finance and accounting executives Figure 7 10

11 FP&A and MDM helps solve challenges most, R2R is still critical for compliance, P2P and O2C for cost, O2C for customer satisfaction In the case of managing risk, FP&A (64%) and MDM (49%) were far more frequently cited as having material impact than any of the other finance sub-functions. For regulatory compliance, MDM was virtually tied with record to report for highest impact, followed by FP&A. Similarly, FP&A and procure to pay have the biggest impact on reducing costs (Figure 8). Magnitude of challenge 1 Ensure compliance to regulations Reduce costs Increase customer satisfaction Increase growth and scalability Manage risk Enable company innovation Enable agility and adaptability Reduce capital and asset intensity F&A % of respondents stating function can have material impact on addressing challenge O2C R2R P2P FP&A MDM % of respondents stating it is one of the top 3 challenges in their company n=157 finance and accounting executives Figure 8 11

12 Executives from banking, financial services and insurance rate their F&A functions as mature and prepared to further evolve The ability to deliver potential improvements in each finance sub-function depends in part on the existing level of maturity but also on the preparedness of companies to further evolve each function. Looking first at overall maturity, executives in the banking, financial services, and insurance (BFSI) sector are more likely than their counterparts in other industries to rate their overall Finance and Accounting function as mature or very mature. They also reported higher maturity levels for the FP&A, procure to pay, and MDM sub-functions. This contrasts with other industries in which order to cash and record to report are considered mature more often (Figure 9). 12

13 Banking and financial services more mature in FP&A, P2P and MDM, while other industries ahead in O2C and R2R % of respondents stating that finance function in their organization is either very mature or mature F&A Others 1 Others 1 BFSI FP&A BFSI BFSI Others 1 O2C BFSI Others 1 R2R Others 1 BFSI MDM Others 1 BFSI P2P 1 Healthcare, life sciences, consumer goods, high tech and manufacturing n=157 finance and accounting executives Figure 9 13

14 Financial services organizations more mature than other industries with FP&A considered as most mature A closer look at the impact of each sub-function revealed that the BFSI sector stands out for especially high maturity of the FP&A function, which was rated very mature by 48% of the executives and mature by another 32% for a total of 80% (Figure 10). % respondents stating the maturity of the finance functions in their organizations Very mature Mature Somewhat mature/immature F&A FP&A O2C R2R P2P MDM n=75 finance and accounting executives from banking, capital markets and insurance Figure 10 14

15 Order to cash most mature for consumer goods, life sciences, high tech and healthcare In contrast, more executives in consumer goods, life sciences, high-tech, and healthcare rate order to cash as very mature or mature (77%), ahead of FP&A at 73% (Figure 11). Notably, a significant percentage of respondents from both types of firms rated MDM the other function with a high impact on key business challenges at the bottom of the maturity ratings. % respondents stating the maturity of the finance functions in their organizations Very mature Mature Somewhat mature/immature F&A O2C FP&A R2R P2P MDM n=85 finance and accounting executives from CPG, life sciences, manufacturing, high tech and healthcare Figure 11 15

16 Banking and financial services most prepared to transform the F&A function When it comes to preparedness for further evolving finance sub-functions, again the BFSI sector stands out with the highest proportion of respondents. Financial services executives said they are more prepared than their counterparts in other industries to evolve the overall F&A function and every sub-function (Figure 12). % respondents stating their organization is very prepared or prepared to mature the specific finance function F&A Others 1 BFSI O2C Others 1 BFSI FP&A Others 1 R2R Others 1 BFSI BFSI FP&A, MDM and R2R least ready to transform in manufacturing, life sciences and high tech P2P Others 1 BFSI MDM Others 1 BFSI 1 Healthcare, life sciences, consumer goods, high tech and manufacturing. BFSI includes banking, capital markets and insurance n=157 for finance and accounting executives Figure 12 16

17 Large companies have more mature F&A across the board and especially in FP&A Across all industries, larger companies are more prepared than smaller firms to mature their finance functions. This applies to the overall F&A function and to all sub-functions, especially FP&A and MDM (Figure 13). % of respondents stating that finance function in their organization is either very mature or mature ,000+ employees 5,001 10,000 - employees F&A R2R O2C FP&A MDM is the least mature function The difference between large and smaller organizations is statistically insignificant P2P MDM n= 157 finance and accounting executives Figure 13 17

18 In BFSI companies, MDM comparatively less mature; plans seem to be in place to transform further if needed These relative levels of maturity and preparedness among different finance sub-functions point to areas with high potential for immediate improvement. In the BFSI sector, although FP&A leads in maturity, MDM has the biggest potential because it is relatively immature and companies are well-prepared to make it evolve (Figure 14). % of companies stated as very prepared or prepared to mature in specified functions Size of the bubble proportional to impact of function on many strategic challenges MDM R2R P2P O2C FP&A % of companies stated as very mature or mature in the specified functions Size of the circle indicates importance of challenge and size of the slice indicates impact of improving the function on the challenge Manage risk Ensure compliance to regulations Reduce cost Ensure compliance to regulations Manage risk Reduce cost Reduce costs Increase customer satisfaction Manage risk Manage risk Ensure compliance to regulations Reduce cost Manage risk Ensure compliance to regulations Increase customer satisfaction n= 72 finance and accounting executives from commercial and retail banking, insurance and capital markets Figure 14 18

19 As noted earlier, improvements in MDM are also expected to have a strong impact on key business challenges, especially managing risk and ensuring compliance (Figure 15). % of respondents assessing maturity and preparedness Magnitude of challenge 1 Ensure compliance to regulations Manage risk Increase customer satisfaction Reduce costs Increase growth and scalability Maturity of process Preparedness to mature F&A O2C % of respondents stating function can have material impact on addressing challenge R2R P2P FP&A MDM Very mature or mature Somewhat mature or Immature Fully prepared or prepared Somewhat prepared or not prepared 1 % of respondents stating it is one of the top 3 challenges in their company n=72 for F&A executives from capital markets, banking and insurance Figure 15 19

20 MDM is important but least mature yet many aren t ready to evolve it further in life sciences, healthcare, manufacturing, CPG and high-tech The situation is similar in life sciences, manufacturing, consumer products, and high-tech industries. The current level of maturity and the preparedness to further evolve are highest for order to cash (Figure 16). % of companies stated as very prepared or prepared to mature in specified functions Size of the bubble proportional to impact of function on many strategic challenges MDM P2P FP&A R2R O2C % of companies stated as very mature or mature in the specified functions Size of the circle indicates importance of challenge and size of the slice indicates impact of improving the function on the challenge Reduce cost Ensure compliance to regulation Enable agility and adaptation Reduce cost Increase customer satisfaction Ensure compliance to regulation Increase growth and scalability Reduce costs Reduce cost Ensure compliance to regulation Enable agility and adaptation Ensure compliance to regulation Reduce costs Increase growth and scalability n= 85 finance and accounting executives from healthcare, life sciences, consumer goods, high-tech and manufacturing Figure 16 20

21 FP&A and MDM are both less mature and well-prepared to evolve, while also having a large impact on key business challenges (Figure 17). Magnitude of challenge 1 Reduce costs Ensure compliance to regulations Increase growth and scalability Increase customer satisfaction 4558 Enable company innovation 44 % of respondents assessing maturity and preparedness Maturity of process Preparedness to mature F&A % of respondents stating function can have material impact on addressing challenge O2C R2R P2P FP&A MDM Very mature or mature Somewhat mature or Immature Fully prepared or prepared Somewhat prepared or not prepared 1 % of respondents stating it is one of the top 3 challenges in their company n=85 finance and accounting executives from CPG, life sciences, high tech, manufacturing and healthcare Figure 17 21

22 Advanced organizational structures most frequently applicable among operating model initiatives Advanced organizational structures support finance transformation Financial executives gave advanced organizational structures the highest ratings for impact on the overall Finance and Accounting function. Advanced organizational structures include business process outsourcing (BPO) and shared service centers (SSC) as well as hybrid models that combine the two. About 59% of financial executives agreed that these structures can have material impact on the function. This impact is greater than for other operating model initiatives for F&A transformation, including business process re-engineering (40%) and radically improved use of technology (38%). Advanced organizational structures are also believed to have particularly strong benefits for FP&A and MDM, the functions that have the highest impact indexes. This shows the ability of advanced organizational structures to impact the most important business challenges (Figure 18). % of respondents stating the initiative can have a material impact on the function Radically improved use of technology Business process re -engineering BPO or SSC or hybrid Impact Index* F&A O2C R2R P2P FP&A MDM Technology quite important in FP&A and MDM More BFSI see advanced organizational structures as helpful for MDM *Function Impact Index combining stated importance of challenges and stated ability of a function to address them n=157 finance and accounting executives Figure 18 22

23 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 (SSC, BPO, or hybrid) for the FP&A function. About 83% said that such implementations are either in progress or will start within 12 months. This progress is more advanced than the 76% reported for implementation of radically improved use of technology and 74% for business process re-engineering. There is still considerable opportunity for further improvements in MDM, in which only 73% of the executives have advanced organizational structure initiatives in progress or planned, compared with 77% for improved technology and 75% for business process re-engineering. Record to report is another area with significant untapped potential (Figure 19). % 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. O2C R2R Currently in Progress Planned in next 12 months Planned after 12 months Not Considered Tech BPR SSC, BPO or hybrid Tech BPR SSC, BPO or hybrid P2P FP&A MDM Tech BPR SSC, BPO or hybrid Tech BPR SSC, BPO or hybrid Tech BPR SSC, BPO or hybrid n=157 for finance and accounting executives Figure 19 23

24 Many organizations believe advanced operating models can have impact; more so for mature F&A functions Advanced organizational structures have their greatest impact in mature F&A subfunctions The potential of advanced organizational structures to support finance function transformation is particularly promising for F&A sub-functions that are already mature. For every sub-function, the proportion of financial executives who rated advanced structures as having material impact was significantly higher among organizations with mature functions (Figure 20). This contrasts with radically improved use of technology and business process re-engineering where there was little difference in impact among firms with mature and immature sub-functions. % of respondents stating the initiative can have a material impact on the function Radically improved use of technology Business process re-engineering BPO or SSC or hybrid F&A O2C R2R P2P Mature Not mature Organizations with mature F&A functions are more likely to believe advanced organizational structures can have a material impact on all sub-functions FP&A MDM Technology and BPR perception is instead not dependent on maturity of process n=157 finance and accounting executives; Mature=119, Not mature=33 Figure 20 24

25 Already mature functions also more prepared to evolve This is consistent with other survey findings demonstrating that already mature functions are also more prepared to evolve, enhancing potential for transformation (Figure 21). Respondents rating their company s functions as Mature Not mature % respondents stating the preparedness of their organization to mature a finance function F&A 88 FP&A MDM O2C P2P R2R Prepared 12 Somewhat prepared/not prepared n=157 finance and accounting executives; Mature=119, Not mature=38 Figure 21 25

26 Notwithstanding the power of advanced organizational structures, where applicable, radically improved use of technology is expected to generate the largest monetary impact Genpact research has found that advanced organizational structures such as SSC or BPO are being deployed more frequently than other approaches for improving finance processes. SSC or BPO or a combination of the two organization structures can also exert material impact on key business challenges, according to the majority of the finance executives. However, the research has shown that there are important variations among mature and immature finance organizations, as well as across industries, job functions, company size, and the applicability of radical improvements in technology when applicable improved use of technology can provide the biggest monetary impact, especially in the BFSI sector (Figure 22). 26

27 Improved use of technology, when applicable, is seen as providing largest monetary impact - especially in BFSI Annual $ impact is the weighted average of the total estimated positive business impact of all operating model initiatives in US$ per annum including reduction of cost, capital required, improvement of cash and revenue growth Others 1 10,000+ employees average Others 1 10,000+ employees average Technology BFSI Others 1 BFSI 10,000+ employees average BPR Advanced organizational structures (SSC, BPO or hybrid) BFSI Advanced organizational structures seen as more frequently deployable but having less standalone impact Impact in financial services consistently seen as higher than in other industries 1 Healthcare, life sciences, consumer goods, high tech and manufacturing n=157 finance executives Figure 22 27

28 Mature organizations expect more impact than less mature ones from technology and BPR Moreover, the monetary impact is higher for mature organizations across all operating models, especially for improved use of technology (Figure 23). Average $ impact, bar width proportional to percent of respondents stating that the initiative will have a material impact Average $ impact OVERALL MATURE IMMATURE $ 295m $ 268m Tech $ 155m BPR $ 103m SSC, BPO, Hybrid 1 Tech $ 178m BPR $ 110m SSC, BPO, Hybrid 1 $ 158m Tech $ 82m $ 83m BPR SSC, BPO, Hybrid 1 Advanced organizational structures seen as more frequently deployable but having less standalone impact Impact in mature organizations consistently higher than in the rest 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 n=157 (Mature=119, Not mature=38) finance and accounting executives 1 BPO Business Process Outsourcing, SSC Shared Services Figure 23 28

29 In conclusion 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. 29

30 Genpact Research Institute The 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. About Genpact Genpact Limited (NYSE: G) is a global leader in designing, transforming and running business processes and operations, including those that are complex and industry-specific. Our mission is to help clients become more competitive by making their enterprises more intelligent through becoming more adaptive, innovative, globally effective and connected to their own clients. Genpact stands for Generating Impact visible in tighter cost management as well as better management of risk, regulations and growth for hundreds of long-term clients including more than 100 of the Fortune Global 500. Our approach is distinctive we offer an unbiased, agile combination of smarter processes, crystallized in our Smart Enterprise Processes (SEP SM ) proprietary framework, along with analytics and technology, which limits upfront investments and enhances future adaptability. We have global critical mass over 65,000 employees in 25 countries with key management and corporate offices in New York City while remaining flexible and collaborative, and a management team that drives client partnerships personally. Our history is unique behind our single-minded passion for process and operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for more than 16 years. For more information, contact, cfo.services@genpact.com, and visit, Follow us on Twitter, Facebook and LinkedIn Copyright Genpact. All Rights Reserved. 30