Building World-Class Finance and PerformanceManagement Capabilities

Keynote

The current economic environment creates new challenges for

finance executives. Constant pressures to excel in operating a

low cost finance organization while targeting new value

creation opportunities and acting as business advisors, sets

the bar high for expected performance. A combination of

trends may make the future economic environment even

more demanding.

Finance executives play several important roles in creating

shareholder value and building competitive advantage.

First, they must operate efficient financial organizations

capable of processing transactions, maintaining controls,

and reporting results at world-class levels of operating costs.

Second, they must create analytic capabilities to help

employees across the company understand the key drivers

and results of corporate performance in time to modify

strategies and influence events. Finally, finance executives

must concisely articulate a clear understanding of the

company’s economics in context of the industry, changing

macroeconomic environment, and strategic goals for

investors and other interested stakeholders.

Trends Impacting Finance OrganizationsAfter investing to increase productivity through the

‘90s, finance organizations sailed into the new century,

breezing through Y2K issues, and feeling well positioned

for the future. Basic process reengineering had been

successful, investments in new ERP systems promised

tremendous payback, and the first generations of shared

services delivered substantial cost reduction. Further,

business leaders wanted CFOs to put processes and

metrics in place to ensure that employees companywide

could measure and report results in time to make deci-

sions and take actions aligned with corporate strategies.

Heady growth over the last few years created an

environment of increased focus on capturing new

markets, expanding shares in existing markets, and

implementing new business models. Operational

cost leadership moved down the list of priorities as

companies took interest in growth opportunities.

The dot-com crash and ensuing economic malaise

changed CFO priorities. With weakness in the

global economy, attention has once again turned

to managing costs across the company. Finance

organizations are far from immune to the belt-

tightening. CFOs who failed to fully explore ERP, shared

services, and reengineering opportunities are now

feeling intense pressure to do so. CFOs already on the

forefront of these practices are again exploring cost

reduction initiatives.

Finance organizations must support the corporate

growth agenda. The trend to implement global or

regional operating models as opposed to country-

based operating models continues to accelerate.

Furthermore, intensified industry consolidation

and acquisitions aggravate ongoing efforts to build

appropriate financial operations and required

performance reporting capabilities.

www.CFOProject.com 13

Geographic expansion continues to

impact the finance agenda. Even rela-

tively small companies are pursuing

strategies to exploit new markets, such

as those in Asia-Pacific, which offer

access to economies with superior

growth prospects. Additionally, compa-

nies are taking advantage of labor arbi-

trage opportunities in low cost Eastern

European and Asia-Pacific countries as

shared service models are implemented

on a global scale.

At the same time finance organizations

are getting squeezed on costs, internal

customers are demanding more value.

This decade-old trend has business

leaders renewing their demands with

increased urgency. The pace of business

is accelerating and finance processes

must adapt to keep pace. Stakeholders

are interested in transaction reporting –

from the moment a business event

occurs until it is reported in consolidated

financial statements. Finance organiza-

tions are expected to have common

financial languages capable of speedily

reporting across geographies, languages,

and currencies.

Business leaders expect the finance

organization to function as a source of

impartial financial and management

information to provide analytical insight

and understanding of industry and

company value chains.To succeed, the

organization must recognize customer,

product, and channel profitability.

Corporate and financial risk management

are top priorities as companies face mount-

ing pressure to understand and manage

enterprise risk. In several industries, such

as energy and utilities, companies are

now required to operate effective trading

organizations in addition to managing

physical supply chains.Trade credit, long

managed with little attention, is now a

multi-trillion dollar issue in need of more

sophisticated solutions.

Successful transaction processing and

performance reporting is not enough. CFOs

must also communicate with the analyst

community, ensuring their company’s

full potential is reflected in the market.

Unfortunately, communicating with the

street is increasingly difficult. In the past

two years, numerous corporate governance

failures created an environment where

investors are flush with skepticism. As once

strong companies struggle, or even floun-

der under new economic rules, investors

learned that many employed aggressive

and sometimes questionable accounting

strategies that complicated or potentially

misrepresented results. According to The

Wall Street Journal, accounting restatements

soared in recent years from about 50 to

more than 150 in 2001. CFOs are now at the

forefront restoring the investor trust critical

to company valuations and efficient opera-

tion of capital markets.

Finance organizations confront more

choices in specific business capabilities

sourcing and delivery options. Service

providers offer many comprehensive

and sophisticated outsourcing options

and technology solutions for finance

organizations. Industry participants are

partnering to create private exchanges

capable of originating, processing, and

settling transactions independently from

internal business processes and systems.

Enhancements from ERP vendors are

leveraging new technologies to facilitate

information exchange between business

parties involved in a transaction using

common business language and process-

ing rules. These trends place pressure on

finance organizations and offer a variety

of options for improved capabilities in

the future.

CFO StrategiesFinance organizations – never idle in the

face of adversity – continue to try to lower

costs and raise service levels.

CFOs are looking once again to technol-

ogy; utilizing Web-enablement to con-

nect more directly with vendors,

customers, and employees. Many are

Keynote

1998 20021988

2.20%

49% 5%

1.12%1.06%

figure 1 Average finance cost as a percent of revenue. Source: Hackett Best Practices: Book of Numbers, 2002

14 www.CFOProject.com

turning to outsourcing as a strategy to

achieve increased efficiencies and control

over back-office costs. ERP, shared serv-

ices, and outsourcing are cornerstone

options for extending finance capabilities

to support business growth.

To deliver superior business performance,

CFOs are reasserting their role as owners

of management information and perform-

ance management processes. Concepts

such as the “virtual close” and “straight

through processing” are catching on as

companies optimize delivering critical

information to the right people in a time-

frame that allows room for responsive

action.The finance organization, because of

its traditional informational ownership, is

frequently considered the primary source

of reliable company data. Finance leaders

are using this position of credibility as a

foundation for building richer sources for

management information and as a launch-

ing point for introducing new performance

measures. Finance organizations are bring-

ing together customer, channel, competitor,

product, and financial data into a compre-

hensive management information frame-

work. This inclusive framework enables a

more robust understanding of available

business options across the enterprise.

Finance organizations help drive value

agendas across the business by explaining

value concepts and consistently delivering

analysis of fact-based financial information

oriented towards shareholder value

creation opportunities. The focus on

value targeting and fact-based analysis

allows the finance organization to apply

its unique competencies in identifying and

discussing value-creation opportunities.

The consequence of heightened atten-

tion to shareholder value is a trend

toward using value-based measures,

such as EVA®, ROI, and economic profit.

Finance organizations are leading

value-based measure efforts not only for

business decision-making, but also for

underpinning approaches to executive

compensation, strategic planning,

forecasting, budgeting, and measuring

on-going performance.

CFOs are connecting forward-looking plan-

ning activities with day-to-day performance

measurement to increase alignment

between corporate strategies and daily exe-

cution of the business.They are implement-

ing rapid planning processes with frequent

update capabilities that provide more

timely and accurate forecasts of future busi-

ness potential.Taken together, CFOs are

building important capabilities for restoring

the fragile confidence of today’s investor.

The Starting Point:Operational ExcellenceFaced with such an array of challenges and

potential solutions many CFOs ask where

to start. Of course, there is no one right

answer to this question. Many CFOs begin

by getting their own house in order and

then focus on championing value creation

across the company.They start by taking a

hard look at finance operations to under-

stand if they are serving customers with

the optimal mix of services at the lowest

possible costs. Typically, in answering

these questions it is discovered that the

services most valued (e.g., business analyt-

ics, performance information, and strategic

insight) are in need of improvement and

the services least valued (e.g., back-office

transaction processing) cost too much.

These two discoveries are deeply inter-

twined for at least three reasons. First,

many of the investments in systems

and capabilities streamlining back-office

processes are also important cornerstones

for improving information access and

deploying business analysis toolsets.

Second, bringing finance operations up

to world-class standards earns respect,

repositioning finance operations from an

accounting transaction processor to a

trusted business advisor. Third, the cost

savings from efficiency improvements

make funding investments for value-adding

skills and capabilities more palatable.

The cost savings are often substantial. A 30

to 50 percent reduction in cost is possible

for companies moving from decentralized

transaction processing operations to shared

services. Additional savings can be achieved

CFOs are connecting forward-looking planning activities with

day-to-day performance measurement. Connecting planning to

performance measurement helps align execution with business

direction. Taken together, CFOs are constructing important

capabilities for restoring the fragile confidence of today’s investor.

www.CFOProject.com 15

if outsourcing is considered. However, such

savings are not the only benefit. Companies

embarking on programs to transform

accounting transaction processing have

also reported increased integration of

acquisitions, increased uptake of new

finance technologies, faster access to

information, and improved service overall.

For these reasons many finance organiza-

tions choose to focus on operational excel-

lence as a first step towards reinvention.

But which strategies work best to achieve

this goal? The answer to this question

has evolved dramatically over the past 15

years. In the late ‘80s, a company’s average

finance cost as a percentage of revenues

benchmarked at over 2 percent.

Measurable progress was made through

process reengineering,TQM, ABM, and

other improvement methodologies. In

the early ‘90s, finance costs benchmarked

at over 1.5 percent of revenues. SAP,

PeopleSoft, Oracle, and others entered

the market with client/server ERP systems

as strategies for finally achieving an

integrated technology environment and

standardized best practice processes.

The advent of ERP systems unlocked new

organizational models.Shared services

entered the lexicon as a way to describe a

range of organizational solutions that retain

consistently responsive customer service

without requiring physical proximity to

the customer.The shared services model

allowed organizations to rethink how

and where work was accomplished when

balancing cost and service requirements

across business lines and geographies.

By the late ‘90s, benchmarks indicated

that the average finance organization

operated at just over 1 percent of rev-

enues. Pushing through the 1 percent

barrier has proven difficult but compa-

nies are finding a combination of

solutions to achieve that goal.They are

also seeking the next big idea.

Companies with finance operating

costs below 1 percent of revenues are no

longer investing with cost reduction as

the primary goal. Instead, they invest to

create competitive financial operations

that allow the rapid generation and

communication of information required

to effectively manage working capital,

react within the year to reduce effective

tax rates, and provide profitability and

performance management information

in time to make a difference.

Some companies have turned to Web-

enablement to connect electronically

with vendors, customers, employees, and

managers.“Virtualization” is the ultimate

objective, an operating model where many

finance processes, like requisition-to-pay-

ment and order-to-cash receipt, proceed

without intervention from finance personnel

and Web-based tools provide all the neces-

sary electronic linkages.The role of the

accountant shifts toward managing the

process to ensure control rather than key-

punching transactions. Other companies

turn to outsourcing as a leapfrog strategy

to rapidly achieve world-class service

levels at lower operating costs or rapidly

implement new finance capabilities.

ConclusionAs new strategies for achieving operational

excellence evolve, the old ones are not

discarded. In this first volume of Accenture’s

CFO Project: Competitive Financial

Operations, we will explore the wide-rang-

ing approaches companies are exploiting

to achieve operational excellence. The

solutions stretch from new angles on

proven strategies to the latest big ideas.

Subsequent volumes will build on these

themes to further explore how CFOs are

addressing the other challenges they face

in bringing more value to their companies.

We hope you find the articles in this volume

worthwhile reading, and that you look

forward to future volumes as we continue

to share leading points of view on finance

and performance management issues.

Michael R. Sutcliff is the global managing partner for

Accenture's Finance and Performance Management

Service Line. He has extensive experience in strategy,

business architecture, systems integration, business

transformation, and outsourcing engagements across

multiple industries and geographies. His responsibili-

ties include developing new service offerings and

alliance relationships while managing Accenture's

combination of consulting and outsourcing services

of interest to senior finance executives.

Shared services entered the lexicon as a way to describe a range of

organizational solutions that retain consistently responsive customer

service without requiring physical proximity to the customer.

Keynote

16 www.CFOProject.com

Finance & Performance Management (F&PM) Service Line

The Finance & Performance Management Service Line can assist

in identifying critical issues, setting strategic direction, and delivering

complex change successfully. Solutions include:

• Internal and outsourced strategies for operational excellence in

transaction processing

• New analytic capabilities to facilitate and enable strategic

decision-making

• Effective enterprise-side performance management capabilities

to drive shareholder value

Areas of expertise are:

• Finance & Accounting Operations

• Finance Strategy

• Accenture Finance Solutions

• Value & Performance Management

• Treasury & Risk Management

• Next-generation Enterprise Solutions

For more information on Accenture Finance Solutions,

see us on the Web at

www.accenture.com/financesolutions

and/or email us at

finance.solutions@accenture.com

To be directed to the appropriate F&PM expert,

please call Accenture at

312.693.5900

and reference code FPM01

(7 a.m. – 6 p.m. Central Time)

For more information on Finance & Performance Management,

see us on the Web at

www.accenture.com/fpm

and/or email us at

fpm.service.line@accenture.com