Finance Transformation: Key Facts To Compare Your Operation

I have been amazed by the strength of the business cases for the F&A outsourcing deals I’ve led over the last few years. A number of things have happened to make them look so good.

First, the suppliers have really got their acts into gear. They provide clear, all inclusive pricing that makes a comparison very clear.

The market is not fully comfortable with transaction based pricing, but that is as much the issue of the Buyers as the Supplier. At an FTE/employee basis, the comparison is a lot easier for everyone, given the level of data required to price at a transaction level.

Second, what has happened on the Buyer side of things is that Shared Service Centers have experienced wage creep over the years, sometimes adding 1-2 layers of operation. Most Shared Service Centers have countered this in part by improved productivity, but this has not matched the similar gains made by the outsourcers.

Combined, these facts make the business case strong for most F&A outsourcing projects.

Key Fact 1. The average, fully laden cost of an outsourced finance team member is $34,000/£22,000 per year. This is the fully loaded cost, of staff who are fully trained, including all overheads and leadership costs.

From any Shared Service Centre I’ve seen in the US, UK and Europe, those are pretty much entry level salaries, regardless of all the additional employment taxes, operating costs, and management costs attached to every position.

These numbers translate into a very strong business case, and it is the main reason why CFOs push for a deeper investigation.

2. Amounts At Risk

Is your Shared Services Operation willing to risk its own money to underwrite delivery levels? Away from financially-based business cases, this is the most under-valued differentiator between an internal delivery model and an outsourced delivery model.

I have not yet seen an internal delivery model that creates any alternative to this. Yes, I’ve seen bonuses unpaid due to performance issues, but nothing that repays the business for failings that have impacted their own performance.

The chasm between the Internal and External model is only going to widen further as the Outsource Suppliers choose to adopt targets for business-critical areas such as Days Sales Outstanding. Failure there has a lot greater impact than in something like Customer Support, but it is an area that the Suppliers are stepping up to the mark on.

Key Fact 2. On a monthly basis, will the Shared Service team offer, from their own funds, rebates to the business of up to 15% of the cost of the services they deliver? While the exact amount at risk will vary between suppliers, they will offer significant discounts where service levels are not met. It is essential to note that a well constructed contract will lead to constantly improving service levels, so the bar will be raised quarterly, if not monthly.

3. The Cost Of Transformation

For many years, the outsourcers played a cost-only card. Regardless of whether the delivery was onshore or offshore, it was relatively easy to offer lower costs than most internal organizations. Come 2012 (and probably since 2010) the value proposition has moved on significantly.

Now the Suppliers come with a toolset – technology, people, and methodology – that drives “Big T” Transformation and “Little t” transformation. “Little t” brings the day-to-day change; “Big T” brings the headline-grabbing changes. Often this gives access to changes that were unlikely to be funded in any other way.

As an example, the biggest area of opportunity is in leveraging the Supplier’s investment in technology. One client had recently expected to invest a minimum of $500,000 to implement a automated reconciliation tool. Getting approval for that spend had taken almost 12 months, and was high on the list of programs that was likely to be cut from the Investment Plan. So delivering it at all was highly unlikely.

The deal that they were able to strike with the Supplier delivered their operational tools and also embedded it in the pricing, removing the road-bump that was preventing access to the improved, automated process.

To be honest, some of the home-built technology are not the prettiest of things, but they come at a price and an operational improvement that will make you focus on the value they drive, not how they look. Other suppliers, however, have bought third party technology companies that come with world class technologies that will be as good as or better than the ERP competitors.

Key Fact 3. You can work to build an outsourcing deal and delivery model that cuts the invest

Best in Class Finance Functions For Police Forces

Police funding has risen by £4.8 billion and 77 per cent (39 per cent in real terms) since 1997. However the days where forces have enjoyed such levels of funding are over.

Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable, and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high quality policing to the public.

The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships and people.

The finance function has an essential role to play in addressing these challenges and supporting Forces’ objectives economically and efficiently.

Challenge

Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is in part the result of over a decade of devolving functions from the center to the.divisions.

In order to reduce costs, improve efficiency and mitigate against the threat of “top down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.

Developing a Best in Class Finance Function

Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. With a renewed focus on efficiencies, there is now a pressing need for finance departments to transform in order to add greater value to the force but with minimal costs.

1) Aligning to Force Strategy

As Police Forces need finance to function, it is imperative that finance and operations are closely aligned. This collaboration can be very powerful and help deliver significant improvements to a Force, but in order to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.

Finance requires a clear vision that centers around its role as a balanced business partner. However to achieve this vision a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and to devise a way forward that can work for that particular organization.

The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers as was the case a few years ago) many have progressed within the Public Sector with limited opportunities for learning from and interaction with best in class methodologies. In addition cultural issues around self-preservation can present barriers to change.

Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change and even where they are of exceptional quality senior police officers often lack the commercial awareness to trust them.

2) Supporting Force Decisions

Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.

Maintaining Financial Controls and Managing Risk

Business Transformation Jobs Increase Demand for Executive Managers

Good news for executive managers in Australia. The top ASX listed companies are embarking on major transformation programs across Finance creating demand for accounting, finance, risk, compliance and IT professionals. After a 2 year drought of roles in the $200k – $350k salary band there now seems to be a very strong appetite to hire talent.wth through market share.

Business Process Transformation and Business Growth

With market conditions still tough many businesses are scrutinizing their current talent pool and have identified several skills gaps in their Executive Management teams. The skill identified as most lacking in current Executive Managers today is commercial acumen. With most businesses enjoying huge growth in the last decade there has been very little scrutiny placed on the ability to provide strategic insights. Post GFC, the cost of financing any non-organic growth is high and the opportunity to grow through acquisition minimal. The result is most businesses have to turn to innovation in order to increase growth through market share.

After consultation with most of the major financial institutions in Australia it is apparent that the focus is very much on maximizing customer spend. But with outdated systems and a reluctance from employees to utilize Management information systems this is proving difficult. Hence most of the majors institutions are embarking on ambitious transformation programs that will ultimately improve the quality of real time data to the business.

Business Transformation Jobs Will Increase in 2011

Of course the main key driver of any business transformation program is to ultimately reduce running costs and improve output. But if we look at where most of the major hires have occurred in the last 12 months the big 4 banks have been keen to attract Executive General Managers for product lines such as cards, mortgages and business banking. The wealth managers have also begun major changes and with all of the big 4 banks now having sizeable wealth management arms expect even greater competition over the next six months. Notably Macquarie have commenced a business transformation program which now means that Australia’s 5 major banks are all competing for the same people.