Building a Best-in-Class Finance Function
Contents
Project Personnel and Copyright ……… 2
Partner Organizations ………....…………. 4
Introduction ………...……… 5
Chapter 1: The Strategic Purpose of the Finance Function …....………...…….… 13
Chapter 2: Talent and Organizational Structure ……… 21
Chapter 3: Continuous Improvement Initiatives ….……….. 29
Chapter 4: Tools and Techniques for Improvement ………....……….. 33
Chapter 5: Measure, Monitor, and Communicate ……….. 37
Case Study: Company A ……….…...…… 41
Case Study: Cintas Corp. ………....………... 47
Case Study: Discovery Communications Inc. ………...…. 57
Case Study: Intel Corp. ………...……..… 66
Case Study: ManpowerGroup ………...… 73
Case Study: Company B ………....………...…. 83
Case Study: The Office of the Comptroller of the Currency, U.S. Department of the Treasury ………..… 93
Building a Best-in-Class Finance Function
Project Personnel
PROJECT TEAM
Rachele Williams, SPHR, senior project manager, APQC Janis Mecklenburg, senior advisor, APQC
Sarah Hewson, consultant, APQC Irene Ngan, knowledge specialist, APQC SUBJECT MATTER EXPERT
Mary Driscoll, senior research director, APQC EDITORS
Paige Mowbray Irene Ngan
Building a Best-in-Class Finance Function
MEMBERSHIP INFORMATION
For information about how to become a member of APQC and to receive publications and other benefits, call 800-776-9676 or +1-713-681-4020 or visit our Web site at www.apqc.org.
COPYRIGHT
©2012 APQC, 123 North Post Oak Lane, Third Floor, Houston, Texas 77024-7797 USA. This report cannot be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, faxing, recording, or information storage and retrieval.
Additional copies of the report may be purchased from APQC by calling 800-776-9676 (U.S.) or +1-713-681-4020 or online at www.apqc.org. Quantity discounts are available.
ISBN-13: 978-1-60197-182-1 STATEMENT OF PURPOSE
The purpose of publishing this report is to provide a reference point for an insight into the processes and practices associated with certain issues. It should be used as an educational learning tool and is not a “recipe” or step-by-step procedure to be copied or duplicated in any way. This report may not represent current organizational processes, policies, or practices because changes may have occurred since the completion of this study.
Building a Best-in-Class Finance Function
Partner Organizations
Company A Cintas Corp.
Discovery Communications Inc. Intel Corp.
ManpowerGroup Company B
Building a Best-in-Class Finance Function
Introduction
The role of the CFO is analogous to the governor, an electronic device in automobiles installed to limit top driving speed. Current law in the United States holds CFOs of public companies personally responsible for what is analogous to not exceeding the speeding limit in a car—that is, vouching for the reliability of the firm’s accounting processes and financial reports. But the comparison ends there. A number of forces—from the dynamics of globalization to economic pressures in the United States and Europe—have converged to underscore the intense need for financial acumen in business decision-making. In many industrialized countries, the CFO’s role has evolved well beyond traditional stewardship duties. CFOs are now expected to play a central role in crafting strategy and creating value for investors and other key stakeholders. The CFO, and the professionals under his or her wing, do this by serving as strategic business partners. And that involves collaborating with operating leaders throughout the organization to identify, quantify, and compare opportunities and risks.
A key point of this collaboration is to navigate safely toward performance destinations with constant mid-course corrections that reflect fast-moving marketplace dynamics. The work is predictive and fact-based—and it’s enabled by advanced information technology tools and analytical techniques that are now the norm among large, complex organizations determined to compete effectively. But what does it take to get from A to B—to evolve the finance function at a large, complex organization into an effective business partner? It is neither intuitive nor easy, and it’s fair to argue that the majority of large organizations have more work to do. Although the topic of finance transformation has been around for more than a decade, APQC Open Standards Research still shows that there are significant gaps in cost-efficiency among finance organizations (Figure 1). The typical company, at the median, is spending almost 50 percent more on its finance function than the top performers.
Building a Best-in-Class Finance Function
Total Cost of the Finance Function as a Percentage of Revenue
Figure 1
Given that approximately 60 percent of the cost of finance can be traced to labor cost, the argument can be made that what’s holding finance back is the over-allocation of talent to low-value adding tasks such as manual data entry in core transaction processes such as procure-to-pay; order-to-cash; plan-to-re-plan; and close-to-disclose.
That’s the efficiency side of the equation. When it comes to effectiveness— providing strong analytical support to decision makers—APQC research conducted in July 2012 shows that most finance organizations realize they need to invest in appropriate training programs.1
CFOs Now Investing in Robust Process
Improvements
In April 2012, as a precursor to case study research, APQC conducted a survey that
0.62% 1.17% 2.15% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Top Performers Median Bottom Performers N = 519
Building a Best-in-Class Finance Function
finding was startling: eight out of ten organizations are now pursuing major financial management change programs. APQC defines a major program as one involving at least two of the following elements:
IT applications to strengthen the business analyses generated by finance,
process streamlining to boost labor productivity in a core transaction-based process,
process automation to speed cycle times and/or reduce cost,
an enterprise-wide effort to standardize accounting/reporting,
changes in organizational structure, e.g., a new or different type of shared services environment, or
concerted efforts to develop finance talent or leverage competencies to support decision makers.
The fact that eight out of ten organizations are now pursuing major process improvements is significant for three reasons. First, prior to the global financial crisis, CFOs by and large were mainly interested in incremental process improvements to save money. The slogan “do more with less” summed up the general attitude. But now we have strong evidence that CFOs want to deliver effectiveness—analysis that will help the organization meet financial performance targets when top-line growth is hard to come by. The overwhelming majority of survey respondents indicated they are now pursuing both higher levels of efficiency and effectiveness (Figure 2).
Most Important Goal for a Major Process Improvement Initiative
Figure 2 72.41% 15.86%
11.03% 0.69%
Both efficiency and effectiveness
Efficiency (improve finance cost/productivity profile, accelerate cycle speed, reduce error rates) Effectiveness (deliver more effective analytical support to the business) Don’t know
Building a Best-in-Class Finance Function
Second, due to the current patterns of consumer demand and competition, decision-makers realize they have to plan and reforecast at a very detailed level. They must know with certainty which customers, products, or regions deliver the highest net value. They must analyze the drivers of growth and profitability and devote more effort to modeling performance risks.
Finally, the business side, which needs to allocate resources precisely, is asking finance to step up and provide faster, fresher, and more granular analyses of vast amounts of data. The quality standard for business analyses has clearly been raised. Departing from the past, when the primary goal was cost-efficiency, finance improvement programs today will be judged successful based on the extent to which they help make the business an analytical competitor.
The Road to Financial Management Excellence
The best-practice organizations featured in this study are all committed to excellence in financial management. Some of the stories told in this study involve major finance transformation efforts that span a number of financial management processes. Others provide a close look at the maturity curve for a specific process such as procure-to-pay. Taken together, the case studies suggest that the journey to financial management excellence involves two dimensions: foundations and aspirations (Figure 3).
Building a Best-in-Class Finance Function
Foundations and Aspirations for Financial Management Excellence3
Figure 3
The foundations are conditions that must exist to ensure that (a) targets for financial management process efficiency and quality are always met and (b) process owners are able to pursue productivity gains each and every year. Organizations that have successfully moved up the financial management process maturity curve have organizational structures aligned to their internal customers’ needs for both transaction services and decision support. They tend to have designated process owners who drive for continuous improvement using reliable problem-solving and change-management methodologies. When it comes to enabling technology, these leading organizations have a good sense of what tools and platforms they have today and will need in the future.
Building a Best-in-Class Finance Function
The aspirational dimensions of the journey to excellence are characterized by clarity and commitment. The finance vision statement (some call it charter) is a powerful motivating force among the case studies presented. Employees know what their stakeholders expect from them, and their leaders provide them with the skills and knowledge needed to excel. There is clarity about what an effective partner does to provide analytical support to decision makers. And there is a deep and sustained commitment to talent development, knowledge sharing, and continuous learning. Clearly, it takes fortitude to drive an organization to pursue and sustain functional excellence. But the cases at the core of this research report prove that the challenge did not stop the leaders involved.
The Best Practices
The APQC project team analyzed the data collected and generated the following 14 best practices for building a successful best-in-class finance function:
1. Create a clear, visionary statement that finance can live by. 2. Embed finance into the business.
3. Earn a seat at the strategy table.
4. Make an unwavering commitment to talent development and offer innovative opportunities for learning.
5. Regularly assess talent development progress.
6. Clearly define the organizational structure within the finance function. 7. Leverage shared service centers for finance functions.
8. Streamline back-office processes. 9. Maintain strong governance structures. 10. Invest in technology and automation.
11. Use quality and process improvement methodologies to measure and track performance.
12. Measure key performance indicators frequently. 13. Benchmark internal and external performance.
14. Communicate regularly and clearly with internal business partners.
Standing individually, the identified best practices might seem like global platitudes. But it is the cohesive execution of sound strategies and tactics that is the difference
Building a Best-in-Class Finance Function
The Best-Practice Organizations
Below are brief overviews of the seven best-practice organizations. More details on each organization and its respective finance function can be found in the case studies at the end of this report.
COMPANY A
A large biotech company, Company A reported approximately $15 billion in revenue during 2011. Its products are sold across the world. This case study focuses on Company A’s approach to managing disbursements.
CINTAS CORP.
Cintas Corp. is a large company in the uniform rental industry. Acquisitions since 2000 have enabled Cintas to diversify into other businesses such as first aid and safety service/supplies, fire protection and inspection, and document management and shredding services. Cintas has also expanded into the facility services business by providing mats, restroom cleaning/supplies, and floor care. Cintas reported $4.1 billion in revenue in 2012 and has 30,000 employees. Through operations in North America, Latin America, Europe, and Asia, Cintas serves 900,000 customers in 430 locations.
DISCOVERY COMMUNICATIONS INC.
Discovery Communications Inc. is an international broadcasting organization based in Silver Spring, Md. Reaching 1.8 billion cumulative subscribers in 209 countries and territories, Discovery broadcasts nonfiction media in 45 languages through 149 networks. The company is well-known for its flagship offering Discovery Channel, which was launched in 1985; the parent became a publicly traded organization on the NASDAQ stock exchange in September 2008. Before this, when leadership decided that Discovery Communications should become a public organization, the financial reporting function was tasked with building the capabilities needed to generate the financial reporting required by the U.S. Securities and Exchange Commission (SEC).
INTEL CORP.
Intel is the world’s largest semiconductor chip maker based on annual revenue ($54 billion in 2011). Based in Santa Clara, Calif., Intel is a multinational technology corporation. Combining advanced chip design and manufacturing capabilities, Intel's platforms are used in a wide range of applications, such as personal computers, data centers, tablets, smartphones, automobiles, automated factory systems, and medical devices. Intel employs over 100,000 people worldwide with over 50 percent of those located in the United States.
Building a Best-in-Class Finance Function
MANPOWERGROUP
Based in Milwaukee, ManpowerGroup is a global organization that provides innovative workforce solutions, connecting human potential to the ambition of business. ManpowerGroup serves large and small organizations across all industry sectors through four main brands and offerings: Manpower, Experis, Right Management, and ManpowerGroup Solutions. A $22 billion company, ManpowerGroup operates a worldwide network of 3,900 offices in 80 countries and territories, with 80 percent of revenue generated outside the United States.
COMPANY B
Company B provides products, services, and integrated solutions in aerospace, electronics, and information services to government and commercial customers worldwide. Company B acts as a prime contractor, principal subcontractor, partner, or preferred supplier for technology programs.
THE OFFICE OF THE COMPTROLLER OF THE CURRENCY, U.S. DEPARTMENT OF THE TREASURY
Established in 1863 as an independent bureau of the U.S. Department of the Treasury, the Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks and federal savings associations. Headquartered in Washington, D.C., the OCC has four district offices in addition to an office in London that supervises the international activities of national banks. Federal branches and agencies of foreign banks also fall within the OCC’s supervisory authority and mission.
The OCC is funded primarily through assessments on national banks and federal savings associations. National banks and federal thrifts pay for their examinations. The OCC also receives revenue from its investment income, primarily from U.S. Treasury securities.
Building a Best-in-Class Finance Function
Chapter 1: The Strategic Purpose
of the Finance Function
Each organization in this study has created a best-in-class finance function that has a strong and clear charter for finance that is inevitably linked to the overall mission of the enterprise. The strategic purpose of finance is well-defined and is supported throughout all ranks of the finance function, from new hires to the CFO. Rather than existing as just an afterthought, the charter for finance for each of the studied organizations is pursued on a daily basis by each finance employee.
Create a Clear, Visionary Statement that Finance
Can Live By
In addition to having a clear charter for finance, the best-practice organizations from this study make the goals a part of the daily lives of the finance professional. Employees genuinely try to live the core values of the finance function every day. Not only does living and demonstrating the core values act as a constant reminder of the strategic role the finance function plays in the enterprise, but the values keep each finance employee aligned to the rest of the enterprise.
ALIGN THE FINANCE FUNCTION’S STRATEGY WITH THE ENTERPRISE
Regardless of business unit or geographic location, the
best-practice organizations in this study have a clear
finance function strategy that is closely aligned with the
enterprise.
Although widely differing in business scope and industry, Intel, ManpowerGroup, and the OCC are similar in aligning their finance function strategy with the goals of the enterprise. For example, the charter for the finance function at Intel is made clear through five strategic goals.
1. Keep Intel legal worldwide and maintain the highest standard of integrity. 2. Maximize and grow profits by exercising business expertise, independence,
influence and leadership.
3. Provide efficient world-class services.
4. Protect shareholder value through effective risk management and control. 5. Develop world-class finance professionals.
Building a Best-in-Class Finance Function
These five goals integrate the purpose of Intel’s finance function to three separate audiences: the external, regulatory environment; the internal, enterprise-wide stakeholders; and business unit operations. In fact, all five purpose-statement goals are aligned to Intel’s overall business strategy. Its focus on governance and shareholder value through financial analysis delivers enterprise-wide services through excellent financial execution.
The strategic role the finance function at ManpowerGroup plays is a result of a multi-year finance transformation effort. In 2007, ManpowerGroup realized that its finance function did not closely align to the business strategy. After identifying the areas in which finance fell short of business needs and expectations, ManpowerGroup formed six “Breakthrough Teams” focused on:
1. strategy and execution, 2. performance and decisions, 3. risk and capital,
4. transaction processing, 5. performance and metrics, and 6. talent and people.
Governed using specific value drivers and enablers, these teams were held to defined process improvement objectives and deadlines. A year later, ManpowerGroup formed a finance executive team that could capture and spread the successes and lessons learned.
The mission, vision, and core values of the finance function of the OCC are not only aligned to the organization as a whole, but they drive improvement initiatives (Figure 4).
Building a Best-in-Class Finance Function
Alignment of Mission, Vision, and Core Values
Figure 4
Finance’s strategic focus involves decreasing the administrative burden on customers and core-mission staff of the OCC. The three critical factors that the finance function relies on for success are customer satisfaction, highly engaged staff, and continuous improvement.
SET SHORT-TERM AND LONG-TERM ACTIONABLE GOALS Many organizations do have a business-purpose statement for their finance function; however, best-practice organization from this study have taken this a step further by defining specific, actionable goals that help finance live its purpose statement. Facing a large, seemingly abstract goal can be intimidating. Breaking down an overarching purpose statement into concrete, short- and long-term goals provides digestible, bite-sized guidance to finance professionals. Cintas, for example, sets out a four-step process that translates the organization’s vision for its finance function into employee actions (Figure 5).
Building a Best-in-Class Finance Function
The Leadership Process at Cintas4
Figure 5
The first step in the Cintas process states its purpose of connecting all partners to a common vision. The second step provides a road map that defines short-term goals that will help achieve the vision. Employees with ideas of how to achieve the second step in a better way are encouraged to submit their thoughts in the third step of the leadership cycle. Improvement initiatives are formed through presentations of new ideas, and the fact that every employee is encouraged to submit ideas demonstrates how individuals can directly impact the vision.
The fourth step in Cintas’s process recognizes employees’ efforts in achieving the vision through semi-annual luncheons and individual development plans—which are instrumental in determining pay raises and promotions—for employees involved in completed projects.
Similarly, ManpowerGroup developed an organization-wide strategic execution framework that its finance function uses to organize specific functional activities
Building a Best-in-Class Finance Function
ManpowerGroup Strategic Execution Framework Extract
Figure 6
ManpowerGroup defines both short- and long-term goals within each category with activities such as identifying talent needs and gaps, establishing partnerships, and growing profitable revenues by x percent. Because aligning the finance function’s goals with the rest of the organization’s strategy is so important, short- and long-term goals are reviewed and updated on an annual basis.
Beginning in 2007, the finance function at
ManpowerGroup achieved close alignment by defining
measurable objectives and strict deadlines surrounding
six value drivers and four enablers.
By comparing current performance levels with performance goals, the finance function at ManpowerGroup could easily identify gaps and establish concrete remedies. By 2008, finance was producing solid, measurable results by:
establishing best practices for days sales outstanding (DSO) improvement;
Building a Best-in-Class Finance Function
rolling out an extensive dashboard to countries with local key performance indicators;
defining standard order-to-cash, purchase-to-pay, and plan-to-report processes;
developing a finance competency and capability model;
defining a succession planning model and process; and
identifying key people to retain in the organization.
In 2009, ManpowerGroup’s global finance function set out strategic goals focused on efficiency, productivity, and culture change. This was executed by ensuring the right people were placed in the right roles, designing and implementing standard business processes, and leveraging standard technology.
The finance function at ManpowerGroup currently measures and reports monthly dashboard metrics for pre-determined benchmarking key performance indicators to keep business units accountable for their performance.
Embed Finance into the Business
Since the 2008 recession, finance organizations have become increasingly important to the overall business because of the value finance can bring to the strategy table. As a result, it is crucial that finance organizations truly understand how operations function. Best-practice organizations from this study have answered this call to action by embedding finance professionals into business units so that they can understand how the business operates and uncover the need for value-added analysis that can help business managers meet their performance targets. For example, the finance functions at Intel and ManpowerGroup embed finance professionals into various business units globally.
FINANCE MUST LEARN BUSINESS PARTNERING
The ultimate goal for embedding finance employees into
operations at Intel is to have finance serve as a full
partner in business decisions.
Building a Best-in-Class Finance Function
build strong business partnerships. In fact, the finance function at Intel has defined a stair-step model in which successful business partnering follows.5
At Intel, as the finance professional becomes more involved in operations, the more of an impact he or she can have on the business. Upon first starting within a business unit, the finance professional must earn the trust of the business unit. As the finance professional begins to provide valuable data that can solve operational problems, business unit employees begin to place more trust in the individual. The finance professional must begin to provide valuable analysis that causes decision makers within operations to take notice. The third level of business partnership is accomplished when the finance person is proactively included in decision-making conversations because his or her insights are viewed as vital. Business partnerships come to fruition when the finance professional is empowered to act with authority to lead certain business unit initiatives.
ManpowerGroup balances global resources with local expertise. The organization’s finance function successfully aligns itself to that strategy by embedding finance professionals into operations at a local level. Although ManpowerGroup gives finance professionals the flexibility to provide services according to local demands, they are still expected to adhere to certain standardized processes.
Earn a Seat at the Strategy Table
Although many finance executives have gained a stronger voice at the strategy table, the finance function still needs to prove its value by providing useful analysis and recommendations that lead to better decision making.
Finance functions at the best-practice organizations from
this study earn their seat at the table.
The finance function earns its seat by providing valuable decision-making recommendations based on reliable financial data and analysis.
At Intel, for example, the finance function does not own the decision. However, finance acts as though the responsibility of making a decision—however major or minor—falls on its shoulders. Because of its comprehensive understanding of both financial and operational data, the finance function at Intel is in a unique position to analyze and interpret that data to provide insightful decision-making support.
Building a Best-in-Class Finance Function
Conclusion
Taking time to define a clear charter for finance is critical for becoming a best-in-class finance function. Aligning the finance function’s strategy with the overall business enables a clear vision employees can understand.
Breaking down mission statements into measurable short- and long-term performance objectives help employees understand an oftentimes abstract goal. Best-practice organizations also ensure organizational alignment by embedding finance professionals into operations. Through business partnering, finance professionals not only learn the business from the operations point of view, but they also develop soft skills—such as communication and presentation skills. This hands-on soft-skills training is increasingly important as finance becomes more relevant in decision-making conversations.
Creating a clear charter for finance and communicating it throughout the finance function not only aligns finance to the rest of the enterprise, but best-practice organizations have leveraged the opportunity to increase the finance function’s role at the strategy table. The remaining chapters of the report provide more detail on how the organizations in this study created a best-in-class finance function.
Building a Best-in-Class Finance Function
Chapter 2: Talent and
Organizational Structure
The best-practice organizations in this study invest significant time and capital in developing and maintaining talent development programs that address both the needs of their finance professionals and the needs of the organization. These programs are so well integrated into the finance organization that, at times, it is hard to differentiate between functional performance and hands-on training and experience.
The talent development programs studied here tend to include traditional offerings such as course work and online lectures. However, finance talent development opportunities beyond the classroom are also crucial for recruiting and retaining best-in-class finance professionals. Rotational programs—between business units and between functional finance areas—and flexible career paths are both best practices widely used among the organizations in this study.
Make an Unwavering Commitment to Talent
Development and Offer Innovative Opportunities
for Learning
Best-practice organizations from this study invest a significant amount of time and capital in ensuring their talent development programs address the needs of their finance talent. Because each organization is unique and each finance professional is different, it is important that talent development opportunities are offered through a variety of media.
OFFER TRADITIONAL DEVELOPMENTAL PROGRAMS WITH FRESH CURRICULUMS
Several best-practice organizations from this study have developed effective and comprehensive developmental programs that are traditionally used for teaching. What sets these programs apart from average training programs is that the curriculum and material are kept relevant and up-to-date. Finance professionals are interested in learning more about what interests them and how to use that knowledge to advance their careers. Best-practice organizations ensure their development programs maintain relevant focus.
Classroom and Online Lectures
In the most traditional of settings, best-practice organizations turn to classroom and online lectures to teach both fundamental finance and accounting skills and organizational change and culture management. At Cintas, for example, finance
Building a Best-in-Class Finance Function
professionals are trained in Six Sigma. In addition to functional-based training, all senior management attends an emotional intelligence course. Cintas assists individuals to advance in their career. Reimbursement for independent studies for relevant course work is a well-known best practice.
Discovery Communications hosts quarterly professional development courses designed specifically for finance professionals. Through these courses, finance staff can stay up-to-date on accounting certifications (e.g., CPA). Course curriculums are set according to employee feedback on desired topics and training. During monthly lunchtime learning sessions, an expert within the finance function at Discovery presents his or her area over the course of one hour. An average of 25 percent of all finance employees at Discovery takes advantage of these learning opportunities. Intel University is an internal program that offers career training courses and learning opportunities, both in-person and online. However, this best-practice organization makes sure that finance-specific curricula such as ROI seminars and Monte Carlo simulation courses are kept up-to-date. In fact, the finance function is responsible for developing and refreshing its own finance-specific courses.
Finance talent at the OCC has the opportunity to obtain education and training in a variety of areas, including CPA and project management professional (PMP). The organization also provides additional educational opportunities on management, leadership, customer service, personal development, and technical topics through classes, book clubs, and lunch discussions.
On-the-Job Training
Another traditionally used method for training finance talent is teaching through mentorships and internships. Several best-practice organizations in this study utilize different forms of both to retain strong finance talent. For example, college-level new hires at Cintas are assigned a senior finance employee who helps mentor them to achieve personal success during their first years at the organization. Mentors, likewise, are chosen from a pool of management-track employees. Through the same program, mentors are able to develop essential soft skills needed for senior management.
Instead of mentoring person-to-person, Company B has a mentorship program between business units and between finance and business managers. For example, finance professionals from one business unit had perfected a sub-process within the area of payables management. The finance people were keen to share what they had
Building a Best-in-Class Finance Function
The OCC has a voluntary program that allows finance
talent to use a professional coach to facilitate personal
and professional development.
In addition, the OCC has an established internship program that introduces college students to the daily activities of a finance professional. As interns are exposed to financial management duties, the OCC is able to identify high potential performers who can be selected for recruitment after graduation.
DEVELOP EFFECTIVE ROTATIONAL PROGRAMS
Best-practice organizations are increasingly integrating rotational programs into their finance training experience. Best-practice organizations from this study find that when finance talent rotates between business units and functional areas, both the individual and the organization greatly benefit. Individuals are able to better understand the operations side of the business, build strong business partnerships, and increase their expertise in different finance functional areas. The organization benefits because the finance function is able to provide more relevant value-added analysis to the business while reducing the risk of finance talent flight.
Between Business Units
Rotational programs for finance professionals traditionally involved spending from one to two years embedded in a single operational business unit. This is normally enough time for finance professionals to learn the operations of that business unit, provide relevant, value-added analysis, build a strong business partnership, and remain passionate about their contribution to the business through finance.
Cintas, for example, has developed a regional-based model that connects finance with operation partners in the field. Finance professionals teach the operations side of the business the value finance can bring to the business with analysis, building strong relationships across regional business units. This structure enables finance at Cintas to be true business partners.
Discovery has a rotational program designed to encourage finance employees to move around within the organization. With finance professionals holding their functional position for an average of four years, the rotational program at Discovery has employees shift through key roles every two years. Discovery stresses that not every move needs to be considered a “step up,” but that lateral moves can build personal breadth.
The finance function at Intel is a pillar for finance talent development. Embedding finance professionals within operations is a major technique Intel uses to teach finance talent how to build strong business partnerships through relevant,
value-Building a Best-in-Class Finance Function
added financial analysis. Finance rotates among different business units every eighteen months to two years at the lower levels and at slightly longer intervals at the higher levels. Intel has found that, in general, rotational programs result in a diverse array of experiences and input, which bring in new ideas for the challenges of different business units within Intel.
Between Functional Areas
Rotating between functional areas in finance is also a technique best-practice organizations in this study encourage. Prior to transformation, finance professionals at Cintas felt they were constrained to perform routine transactions, becoming less motivated about building a best-in-class finance function. With not enough time to provide value-added analysis and support, finance professionals do not feel they had the power to become an “upwardly mobile financial leader.” Therefore, Cintas implemented a functional rotational program that encourages its employees to learn and take on a broad range of finance tasks. Within a specific region, finance professionals are responsible for a wide range of finance functions, from financial planning and analysis (FP&A) and evaluating capital investment decisions to preparing financial statements and auditing.
In addition to its rotational program within business units, Intel also allows finance professionals to rotate in and out of different finance functions. This gives people opportunities to gain expertise and to explore different aspects of finance.
ALLOW FOR FLEXIBLE CAREER PATHS
Instead of forcing individual finance professionals down a pre-determined, traditional career path, best-practice organizations from this study encourage their employees to develop their own unique career paths. The finance organization at Cintas encourages finance professionals to explore difference functional areas within finance. In fact, it is not uncommon for finance professionals to experience working in FP&A, AP, general accounting and reporting, and internal controls during their career at Cintas.
At Intel, the Unlock Your Potential program mentors finance professionals on how to develop the skills critical to excelling. Such skills include business partnership; action orientation; goal setting; and analytics, management, and leadership. Feedback from this program helps spark professional development discussions. Finance professionals can use this feedback to assess in which areas within finance they did well and what they would like to see more of to develop a future career at
Building a Best-in-Class Finance Function
initiatives that result from these assessments are properly implemented. All the best-practice organizations in this study have a regularly scheduled process or dedicated team in place to assess their finance talent development programs.
Finance professionals at Cintas meet with their leadership at least twice a year to discuss individual career goals, current skill sets, and an action plan to close skill gaps through training and experience. Leaders are involved in a formalized succession planning process that reviews an employee’s background, skills, and performance to determine individual career advancement. In addition to assessing personal development, Cintas also focuses on designing training programs that will build a strong pipeline for the next generation of senior finance leaders.
Intel has a dedicated people development management
review committee.
This people development management review committee is made up of finance leaders who are responsible for understanding how the finance function is evolving, what issues exist, and how to respond to changing needs. The committee uses internal and external data and analysis related to people development to keep the organization efficient, evolving, and relevant.
The OCC places a great deal of importance on its assessments of its talent development programs. Because strong finance talent is necessary for creating a best-in-class finance function, the OCC strives to create an environment conducive to employee engagement. For example, the OCC conducts an annual assessment of employee engagement and satisfaction using Gallup’s “Q12 Meta-Analysis.”6 This assessment examines factors that beneficially contribute to work and learning environments. This, in turn, enables finance professionals to identify and leverage unique individual talents. In addition, the management team at the OCC hosts a regular meeting to assess its own talent pipeline, discussing potential internal promotions.
Clearly Define the Organizational Structure Within
Finance
Organizational structure is clearly defined and communicated in the best-practice organizations from this study. Finance professionals who understand the finance organization’s management structure can understand how the finance function fits into the enterprise-wide strategy and can better plan their own career development
6 Gallup Inc., “Q12 Meta-Analysis: The Relationship between Engagement at Work and Organizational
Building a Best-in-Class Finance Function
and goals. Company A, for example, made a conscious decision to create two roles within its AP department; one team is dedicated to processing while the other focuses on customer support. The customer support professionals drive disbursement performance, including reducing invoice-dispute times. By defining different roles within its AP department, Company A is able to provide better customer support to the business, thus establishing a stronger partnership with various business units at Company A.
The finance function at Discovery is built on three main aspects of control: financial control, operational control, and strategic control. Instead of an employee trying to learn all three disciplines, Discovery has separated finance roles to focus in one of the three areas. Employees focused on financial control are dedicated purely to the accounting and compliance aspects of finance (e.g., journal entries, account reconciliations, general ledger transactions, etc.). Finance professionals working in the operational control environment are responsible for a combination of back-office processes and business support (e.g., affiliate revenue). Finance professionals who work in strategic control focus on organization-wide FP&A. These professionals partner with the business to offer strategic advice on topics such as capital allocation, contract terms, and negotiation.
Company B has a very mature shared services function, delivering financial services—including payroll, general ledger, billing, credit management, fixed asset accounting, and travel and entertainment processing—to 85 percent of the organization. Company B’s model for shared services is considered a hybrid shared services center because it also provides services beyond traditional finance operations, including an employee call center and HR.
Dubbed enterprise shared services, Company B’s finance and accounting shared services center has evolved into its own business unit. The shared services organizational structure is seen in Figure 7.
Building a Best-in-Class Finance Function
Company B Enterprise Shared Services: Service Lines
Figure 7
Company B saw the benefits in cost savings through efficiency and effectiveness using a shared services model.
The finance function at the OCC is a bureau under the U.S. Department of the Treasury. The OCC’s finance function reports to the OCC Office of Management under the direction of the senior deputy comptroller for management and the CFO. Within the four functional finance departments (budget, policy and internal accounting controls, accounting, and acquisition management), finance professionals are clear on the reporting relationships (Figure 8).
Building a Best-in-Class Finance Function
Finance Organizational Structure at the OCC
Figure 8
Even though the finance function’s organizational structure is clearly defined as shown in Figure 8, the culture at the OCC empowers finance professionals to continue to cross-collaborate and work across traditional functional silos.
Conclusion
By offering a variety of talent development opportunities, best-practice organizations in this study empower their finance professionals to take control of their careers without feeling the need to leave the organization. These same organizations are diligent in keeping learning opportunities and curriculums refreshed and up-to-date. This not only helps develop and retain finance talent, but it is also an increasingly important factor in recruiting strong new hires.
A clearly communicated definition of the finance organization’s structure and management is highly valued. Finance employees appreciate a transparent view of the finance organization and how they fit into the overall strategy of the enterprise, using that information to plan their own career goals.
Building a Best-in-Class Finance Function
Chapter 3: Continuous
Improvement Initiatives
In July 2012, APQC conducted a study to better understand trends in finance. The study found a staggering gap between the potential value of the finance organization and its actual value. Only five percent of survey respondents believed that their finance organization was delivering game-changing value while a staggering 42 percent believed that finance has the potential to deliver game-changing value.7 The best-practice organizations in this study have used a variety of continuous improvement initiatives to ensure they are delivering superior value. A number of improvement initiatives across the showcased organizations led to increased productivity and cost-efficiency, higher quality of information and analysis, and stronger risk management and internal controls, among other advantages.
Leverage Shared Service Centers for Finance
Functions
Many of the best-practice organizations highlighted in this study invested in Shared services centers. APQC research has shown that shared services centers contribute to improvements in profitability and productivity and allow finance more time for higher-level analysis and reporting. Shared services centers provide a centralized point for financial transaction processing, process standardization, increased processing speed, and accurate and timely closings.
Discovery Communications has a shared services center in each of its regions—the Americas, Europe, and Asia—that uses a centralized model for transactional processing for AP, accounts receivable (AR), and payroll. Current improvement initiatives for its Shared services centers include benchmarking performance and reviewing location suitability.
Moving almost all of the finance function’s transactional processes to a shared services center was a large improvement initiative at Intel. The move was such a success that Intel is now considering transferring higher-order finance functions to shared services centers, such as aspects of FP&A. The move will take the least-liked aspects of the FP&A role off finance professionals’ plate and increase.
In order to support its dynamic organizational structure and decrease operating costs for standard practices and systems, Company B created a centralized shared services center in the 1990s. With 95 employees, Company B’s shared services
7 APQC. “What Is One Thing You Would Change? - Trends in Finance.” APQC Knowledge Base, September
Building a Best-in-Class Finance Function
center initially serviced the $2.5 billion integrated systems sector, which represented between 15 percent and 20 percent of total sales. Today, Company B’s shared services function is a separate business unit named enterprise shared services. This business unit employs 3,000 professionals to perform material accounting, cost accounting, and labor accounting. Enterprise shared services currently provides about 90 percent of the financial services to Company B.
Enterprise shared services adheres to five value areas for performance improvement including decreasing delivery cost, optimizing services, aggregating sourcing and buying, improving quality, and fostering teamwork and collaboration (Figure 9). Under the continuous improvement mind-set, finance professionals are always searching for opportunities to improve existing processes and best practices.
Shared Services Value Areas to Improve Performance
Building a Best-in-Class Finance Function
The best-practice organizations conduct a “post-mortem”
analysis on all improvement initiatives to identify
strengths and weaknesses, and they continuously evaluate
current processes to find areas for improvement.
Using IT enhancements and outsourcing, Company A automated its vendor approval process and tackled low match rates (the level at which invoices and purchase orders are matched error free the first time). Company A hopes to continue this trend by upgrading its payroll system to standardize the process. Company B has embraced paperless transactions, with 75 percent of invoices processed without human intervention. Company B uses an approach commonly known as evaluated receipt settlement. Receipts are electronically received, and after a two-way match, the system automatically creates a payment. Invoices are not required for any transactions within the evaluated receipt settlement system. Vendors must meet strict qualifications to participate in the evaluated receipt settlement system.
Maintain Strong Governance Structures
Best-practice organizations govern process improvement initiatives by clearly defining roles and responsibilities, typically set by a steering committee or a formalized project management office. These governance structures guide new improvement initiatives from conception through implementation and ensure process improvement initiatives align with the organization’s strategic goals.
Sound governance models for process improvement and
clearly defined roles and responsibilities ensure that
finance professionals know exactly how they contribute to
the broader, enterprise-wide goals.
Many of the best-practice organizations in this study use tools such as Six Sigma and change management.
Cintas has one of the most formalized governance structures to support process improvement initiatives. Its Kaizen action teams are responsible for soliciting ideas for process improvement projects across the finance function and reviewing proposals to determine whether they support its vision. With large projects often use Six Sigma, employees are encouraged to enroll in Six Sigma training.
Building a Best-in-Class Finance Function
The OCC employs a full-time change management specialist to help successfully guide and implement process improvement initiatives. The change management position plays a major role in helping the finance function with project support and daily operations. The role provides change management to support employee development, customer satisfaction, communications, branding, and other initiatives.
“Adding the change management position was a game
changer for us.”
- Gary Crane, deputy CFO of the OCC
Most of the best-practice partners in this study use change management methodologies in their finance organizations. Although product and process are important, change management ensures that results are embraced by various stakeholders.Conclusion
All best-practice organizations from this study keep a sharp focus on improvement initiatives. Continuous improvement is core to their corporate culture, and being best-in-class is an enterprise-wide goal. Best-practice organizations have strong governance structures to make sure improvement initiatives align with the enterprise’s strategic aims—projects are supported to ensure successful implementation.
Building a Best-in-Class Finance Function
Chapter 4: Tools and Techniques
for Improvement
When investing in IT tools, this study’s best-practice organizations focus on people, processes, and technology—in that order. IT tools must seamlessly fit into employees’ routines. IT implementation was, in many cases, augmented with change management strategies to ensure buy-in from finance. Technology must integrate well with existing finance tools.
Invest in Technology and Automation
Best-practice organizations report that IT investments have allowed them to reach process improvement goals, including high rates of paperless transactions. Technology and automation liberates finance’s time to provide more value-added analysis to the enterprise.
INVEST IN BACK-OFFICE TECHNOLOGY AND IT SOLUTIONS Best-practice organizations from this study credit investments in back-office technology with driving success in reporting and process improvement. Investments in technology centralize data collection, decrease risk, and reduce cycle times. Best-practice organizations often make a smaller initial investment in an IT solution before evaluating the system over time. Only when the results are favorable do best-practice organizations invest in additional modules.
Many best-practice organizations value a single enterprise
resource planning (ERP) platform or performance
management tool globally.
The finance function at Cintas has been able to reduce cycle times for key processes using IT solutions. The solutions integrate accounting processes in the flow of work and eliminate most manual reconciliation processes. The finance function at Cintas created a data warehouse that gives easy access to operational and financial data. Accountants use these reporting tools to quickly report trends, benchmarks, and key performance indicators to the field. Accountants now spend less time finding and consolidating data from a variety of disparate systems and data files to obtain financial data.
Building a Best-in-Class Finance Function
A data warehouse provides data governance capabilities
that are helpful in ensuring the integrity of the accounting
function.
In 2012, the finance function at ManpowerGroup developed a global chart of accounts and standard back-office processes, including time collection, customer invoicing, collection support, AR, AP, and general accounting. The finance function at ManpowerGroup has a standardized global back-office system that each regional office is obligated to adopt when it needs new back-office technology. Unless there is a highly compelling reason that dictates otherwise, countries must use this standard system for back-office processing.
The implementation of this back-office technology is done by an established governing body. Although the independent governing body at ManpowerGroup reviews special situations in which an exception to implementing the global technology makes more sense (e.g. local regulations dictate the use of other technology), local business units must use a standard system.
Previously, the OCC used a customized mainframe application that was cumbersome and decentralized to process expense reports. The finance function chose to focus on increasing customer satisfaction through claims and reimbursement improvement. Representatives from all stakeholder groups who were impacted—policy, legal, records, customers, and management—were involved in designing a solution. Using this change management technique of stakeholder involvement from the beginning made the final solution easier to implement. The finance function enhanced the existing functionality of the core financial system by adding the needed features and functions. The system included built-in calculations and many other built-in controls, resulting in a reduction of the error rate from 50 to 60 percent to below 15 percent.
WORK TOWARDS ACHIEVING PAPERLESS TRANSACTIONS The best-practice organizations in this study are striving to increase their percentages of paperless transactions. Paperless processing reduces cycle times and the number of full-time equivalent employees (FTEs) needed to perform the process. One best-practice organization estimates saving more than 24,000 hours
Building a Best-in-Class Finance Function
transaction to the general ledger. Once there, the vendor can be paid. Between 50 percent and 60 percent of Company A’s invoices pass through the automated invoicing process without incident. If there is an issue with an invoice, the automated workflow will send a message to an AP employee. Finance is able to see when an invoice has reached the general ledger through automated notification, very helpful information for the accrual process.
Company B has embraced process automation with enthusiasm. For example, 75 percent of invoices are processed in a touch-less fashion. As described earlier, Company B uses an approach called evaluated receipt settlement. NCG also uses procurement cards to make payments, an approach that adds further process efficiency (disbursements are not bogged down by paper checks).
Use Quality and Process Improvement
Methodologies to Measure and Track Performance
Many best-practice organizations highlighted in this study use Lean, Six Sigma, and Kaizen to evaluate financial processes. Finance employees are often encouraged to enroll in Six Sigma courses. Two best-practice organizations have permanent governance structures that evaluate process improvement initiatives using Six Sigma and Kaizen action teams.
Company A’s AP function uses Six Sigma principles to identify root causes of failed matches. As a result, Company A’s AP function works with suppliers to eliminate the root causes of document error and to increase first-time matches. The AP department trains its employees in Six Sigma and utilizes the internal enterprise-wide Six Sigma team.
Using Lean management tools, Intel eliminates many extraneous aspects of the FP&A process, producing better forecasts. For example, instead of preparing all aspects of the financial forecast for review, the FP&A function realized it was more efficient to prepare only the material needed for each upcoming review (since there was never enough time to cover all details of the forecast in any given review). Detailing what was needed at specific times and removing superfluous information from the messages presented to the CEO resulted in increased clarity and drove better decisions.
The OCC has three Lean Six Sigma programs: Business Process Improvement, Quick Wins, and Personal Productivity Improvement. Together, these three programs aim for $600,000 in annual savings.
The OCC reinvests its cost savings to cover the cost of
Lean Six Sigma training.
Building a Best-in-Class Finance Function
As a result of reinvesting its cost savings into Lean Six Sigma training, the finance function at the OCC has 15 employees with varying levels of Six Sigma certification. The OCC manages projects through a centralized intranet site that is accessible to all finance employees. Employees are responsible for identifying and submitting ideas for process improvement in areas such as financial reporting, AP, and acquisitions.
Conclusion
There are a number of tools and techniques an organization can use to become a strong partner to the business. The organizations highlighted this study use a variety of techniques and tools to achieve excellence; most notably, investment in back-office technology and IT solutions, paperless transactions, and Lean and Six Sigma methodologies in order to measure and track performance. A common theme among best-practice organizations is a continuous focus on evaluating business processes and, when new tools and techniques are proposed, fitting them into existing systems and processes.
Building a Best-in-Class Finance Function
Chapter 5: Measure, Monitor,
and Communicate
The best-practice organizations in this study realize the importance of maintaining strong lines of communication with business units. These organizations use a variety of tools to communicate financial information with business units, among of which involves embedding finance employees into operations.
Measure Key Performance Indicators Frequently
Best-practice organizations know the importance to conduct a lessons learned session to assess the success or failure of a program, project, or process. Best-practice organization use both traditional (e.g. balanced scorecards) and non-traditional tools to display data within dashboards.
Measured and reported monthly, dashboard metrics—sourced from both internally and externally benchmarked key performance indicators—help the finance executive team at ManpowerGroup hold different countries and business units accountable. The executive dashboard, presented per country or region, includes local key performance indicators for order-to-cash, purchase-to-pay, and close-to-disclose processes.
Company A’s AP function uses audit trails within its software system to instantly view metrics that identify high-performing professionals and employees who need additional training. Company A also uses the data to gauge the size of AP backlogs and to ensure internal customer needs are met. Every quarter, Company A uses a balanced scorecard to review major functional metrics. key performance indicators on the balanced scorecard include financial controls, voice of internal customer, operational measurements (e.g., cost per FTE, cost per invoice, and error rates), and people and projects (e.g., how much training has staff received, where is AP against project milestones).
Cintas routinely measures selected key performance indicators across locations. The finance function uses data from its software solution to create a group of standard analytical reports. Initially called the profitability toolbox, these reports are accessible to other accountants on a shared drive. Displaying trends, analyzing sales and costs, and benchmarking performance across business units, these reports identify underlying trends and business drivers. With these standard analytical report, operation managers are equipped to make strategic business decisions. Company B uses comprehensive dashboards to monitor current status and goals. Dashboards track individual’s and the finance function’s performance. Dashboards
Building a Best-in-Class Finance Function
for quality goals are posted in visible locations, facilitating employee conversations about recent progress and future goals (Figure 10).
Company B Enterprise Shared Services Scorecard Quality Dashboard
Figure 10
Benchmark Internal and External Performance
Using available IT resources, several of this study’s best-practice organizations benchmark their performance against their own performance from previous years and against external organizations.
Company B conducts most process productivity benchmarking under the supervision of a corporate executive board’s shared services roundtable. Benchmarking supports Company B’s goal to continue to reduce costs, and data obtained through benchmarking motivates managers and employees to improve processes that reduce those costs.
The OCC uses benchmarks as part of its balanced scorecard strategy. The organization has annually benchmarked itself since 2006. The OCC also performs peer-to-peer benchmarking with finance functions at other federal agencies, such as the U.S. Immigration and Customs Enforcement.8
Building a Best-in-Class Finance Function
Communicate Regularly and Clearly with Internal
Business Partners
Best-practice organizations highlighted in this study hold regular meetings and use knowledge sharing strategies to maintain robust lines of communication with business units. As a result, these best-practice organizations have a seat at the table in strategic business decisions.
The finance function at Cintas communicates with its operating managers through a variety of channels in an effort to remain a strong business partner. The finance function holds regular meetings with general managers from operations to discuss financial performance and to highlight key trends. Controllers are also involved in presenting financial information to vice presidents in operations. Accountants attend operation field meetings to gain a deeper understanding of the business. The finance executive team at ManpowerGroup meets monthly to define and modify how the finance function communicates internally and externally. The team reviews ideas and best practices that will advance the function’s strategic execution framework. For example, the finance executive team discusses how billing occurs in the United Kingdom because the same best practices can be applied to billing in the United States, Mexico, and Israel.
A communication and knowledge-sharing structure helps
to align the finance function with the organization’s goals
and promotes efficiency and productivity.
Company B places a large emphasis on sharing best practices internally. Company B finds further value by streamlining processes using an end-to-end view. For example, through a partnership with procurement and AP, the financial service center has achieved a success rate of 90 percent of invoices paid on time compared to previous performance of 70 percent.
Conclusion
Best-practice organizations leverage IT infrastructure to generate metrics and to track performance so that internal and external customers can be better served. Dashboard key performance indicators measure and communicate current performance levels. In addition, best-practice organizations benchmark performance both internally and externally. These organizations use benchmarks to motivate managers and employees to reduce costs and improve processes. With the wealth of information that the finance function collects, strong communication with business
Building a Best-in-Class Finance Function
units is crucial for properly analyzing the data. Finally, best-practice organizations frequently communicate using a variety of different types of meetings.
Building a Best-in-Class Finance Function
Case Study: Company A
Company A is a large biotech company with reported $15 billion in revenue for 2011. Company A sells its products across the world. This case study focuses on this organization’s approach to managing disbursements.
The Strategic Purpose of the Accounts Payable
Function
Company A realizes its AP function is a key contributor to the success of the CFO and the enterprise, it reported to APQC. The AP function oversees all transactions related to dispensing money in North America. This includes AP, travel and expense, procurement cards, corporate credit cards, and payroll. For some smaller, newly penetrated markets, until the market is better established, Company A uses a contractor for the AP function. The AP function currently processes 600,000 invoices annually and pays 15,000 employees across the globe.
Over the past few years, Company A’s AP function has moved from a decentralized, multiregional model to a shared services center model. The organization’s two Shared services centers are highly automated and handle all of Company A’s global disbursements. Company A reported the following benefits for its new model:
lower processing costs,
movement of staff from low-value to high-value roles,
reduced cycle times,
fewer manual data entries,
more early payment discounts, and
a better transaction audit trail.
In fact, AP costs were reduced by approximately 50 percent from 2008 to 2012. Company A reported it was able to achieve this large return while becoming a best-in-class AP function.
Talent and Organizational Structure
Company A’s AP function maintains tight control over its cost structure and pushes for continued productivity gains. The function has found a way to reduce work force costs while increasing productivity and strategic presence of its staff.
