Finance Transformation within the Irish Corporate Market
ProStrategy’s Perspective on why Irish Finance Functions are changing, and the practical steps they are taking to modernise.
Traditionally finance functions focused on cost control & reduction. However best-in-class finance functions also focus on capabilities that create competitive advantages, fuel sustainable, profitable growth and enhance enterprise value. This requires a new, agile and differentiated approach to finance operations and the ability to work as a proactive, collaborative business partner however many finance functions remain largely focused on cost optimisation rather than enabling enterprise growth and increasing value.
ProStrategy is working with finance functions at many of Ireland’s leading companies to enable them to raise their capabilities, performance and ultimately increase their value. Our clients deliver value through their ability to:
- Reduce costs and redirect savings to higher-value activities
- Meet enterprise objectives for driving and achieving profitable growth
- Release cash through sustainable cash flow management practices
- Collaborate in new and more effective ways with LOBs and suppliers
This Blog outlines our perspective on why finance is changing, and the practical steps being taken by Irish Corporates to modernise.
The Chartered Global Management Accountant (CGMA) and The Association of International Certified Professional Accountants (IACPA) combined with over 800,000 members have commenced a comprehensive research project to synthesise a picture of the finance function of the future. They state “the Finance Function is undergoing rapid evolution but there isn’t a composite picture for the future yet” [i]
They find that when you peel back the layers of the finance function, at its heart you will find four basic activities of assembling information, analysing for insights, advising to influence and applying for impact – the function’s DNA. Whether you are assessing finance risk, reconciling accounts or compiling management information reports, the process activities remain constant. These basic activities are the backbone of the changing mandate.
With these foundations finance should be confident embracing a broader, more strategic mandate, where finance defines, enables and articulates how an organisation creates and preserves value.
The future finance function will manage a ‘value matrix’ with the following dimensions:
- Finance, as a trusted source of the management information, provides data integrity
- Finance, as a commercial analyst, provides the insights into the drivers of organisational value
- Finance, as the subject matter expert and steward, contributes to strategic decision-making, including defining objectives with regards to developing the business model
- Finance, through partnering, uses insight to address performance issues and create value.
The research highlights three key enablers for finance to achieve the desired objectives:
- Make use of the latest technologies to release the full capacity of the finance function
- Widen the remit of finance to cover a broader range of management information, generating new insights and business solutions
- Provide and empower finance professionals with new competencies and growth mindsets to help your organisation create and preserve value.
While most finance leaders agree on the direction finance is headed, the real challenge is plotting a route which ensures the continued quality delivery of current responsibilities while developing the broader strategic remit while managing the organisation costs.
EY suggests CFOs meet these challenges by equipping their function with the right tools and surround themselves with the right team.[ii] They highlight technologies’ ability to reduce costs, manage risks and increase insight and call on finance leaders to challenge their assumptions, take calculated risks and encourage experimentation.
The Hackett Group have benchmarked finance functions across global companies and report that as finance develops from Administrator to Partner; the operating model evolves with a leaner business unit and corporate role. They have found the cost of finance as a percentage of revenue in best-in-class organisation being less than .6% by comparison to 1.15% in less mature organisations. [iii]
Hackett find high performance is built on strong data and analytic capabilities which enable the following:
- 33% less time collecting data
- 28% faster ad hoc query requests
- 25% faster annual plan cycle
- 3 times more accurate in forecasting
- 19% fewer line items forecasted
- 59% fewer performance reports
McKinsey’s experience find companies are still in the early stages of applying digital technologies to finance processes in ways that will create more efficiencies, insights, and value over the long term [iv] . However, CFOs and their teams are the gatekeepers for the critical data required to generate forecasts and support senior leaders’ strategic plans and decisions—among them, data relating to sales, order fulfilment, supply chains, customer demand, and business performance as well as real-time industry and market statistics.
McKinsey suggest adoption of the below four digital technologies to reshape the finance function.
ProStrategy’s experience working with Irish corporates is consistent with the research outlined. Irish organisations who are successfully transforming finance are:
- Adopting the latest EPM, FP&A, Analytics & Data Integration technologies to release the full capacity of the finance function
- Widening the remit of finance to cover a broader range of management information, generating new insights and business solutions
- Empowering finance professionals with new competencies and growth mindsets to help create and preserve value.
Confidence in decision-making is being enabled by linking finance and operational performance insight with many organisations re-thinking their Enterprise Performance Management approach. To achieve the required integration and holistic perspective of organisational performance, companies are:
- Creating a collaborative culture between Finance and Business
- Aligning Finance and Operational Performance via driver-based modelling
- Creating an integrated Finance and Operational data model yielding performance insight
By building a solid finance driven analytic data foundation, the following results are being achieved:
- Spend five days or less on month end close
- Have a high degree of system integration delivering a standard chart of accounts
- Produce higher quality and faster internal & external reporting
- Have confidence in processes resulting in stakeholder confidence
- Have a high degree of automated processes
- EPM is enabling clearly defined, integrated processes linking
- Planning, budgeting and forecasting
- Performance reporting
- Profitability and cost analysis
- Annual Budget is prepared within 3-4 weeks
- Quarterly forecast iterations are fully integrated with actual data produced within 2/ 3 weeks
- Forecasts incorporate scenario modelling that include;
- Macro-economic assumptions; and
- New Product Profitability etc
- Plans are based on a driver-based model for all P&L lines
As outlined above, adoption of analytics within finance is becoming a mature disciple in leading organisations. More advanced analytic capabilities such as Robotic Process Automation (RPA) and Artificial Intelligence (AI) are seen as tools to yield even greater potential efficiency gains if applied to areas of process redundancy or bureaucracy. Presently the adoption of RPA & AI capabilities are in the early adopter phase. Small pilots are helping organisations understand the blend of people, process and technology competencies required for success. Many believe the accountant’s role as an advisor is much more important than the role of number cruncher. Automating the number crunching will allow accountants to spend more time in business-management roles strengthening relationships and driving strategy.
In conclusion we see that Irish Finance Functions are on a journey with different organisations at different points, where some companies stand today is the future for others. In this digital era with a continuous necessity to evolve, data and more particularly the ability to create insight will be a key measure of performance. To embrace a more strategic role Finance is enabling staff through enhanced data and analytics capabilities.
ProStrategy has been delivering Enterprise Performance Management Analytics, ERP & CRM solutions to Irish Corporates for 30+ years. Our Team of 60+ Consultants have delivered solutions to 150+ Irish Corporates across all sectors.
About the Author:
John Lyons is the Sales & Marketing Director with ProStrategy and is a passionate Analytics and Technology business leader. For over 20 years John has worked with clients helping them drive business change through the application of Analytics and Technology. John has held leadership roles with both SAS and IBM where he led client engagement in Banking, Insurance, Telco & Public Sector. He holds a Master’s in Management Practice and Post Grad Diplomas in Business Finance & Marketing Strategy.
[i] CGMA – The changing role and mandate of finance – https://www.cgma.org/resources/reports/changing-role-and-mandate-of-finance.html
[ii] EY – Is the future of finance new technology or new people – https://www.ey.com/au/en/issues/managing-finance/ey-is-the-future-of-finance-new-technology-or-new-people
[iii] IBM sponsored IMA webinar hosting Hackett Group – Linking Financial and Operational Planning to Steer Business Performance – https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=ASV12547USEN
[iv] Memo to the CFO: Get in front of digital finance – or get left back https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back