How high-performing companies plan to globalise the finance function

Finance teams at large multinational companies can expect more and increasingly sophisticated tasks to come their way. The majority of those teams will have to perform those tasks with the same or fewer resources.

A survey by the Hackett Group, a US-based global business strategy consultant, found companies are increasingly focusing on reducing overhead costs and improving operating margins, cash flow and customer satisfaction. Only 10% of senior executives polled expected their budgets to increase relative to company revenue, while 75% anticipated their budgets to shrink this year. Only 28% of respondents expected more staff.

Meanwhile, demand for business services – finance, human resources, IT and procurement – continues to rise as companies of all sizes expand into new markets and establish operations worldwide. For finance teams, that means they probably need to become up to 10% more productive in 2013, according to the Hackett Group.

Outsourcing more services to vendors or shared services centres is one solution, especially for finance executives at smaller companies. In the US, for example, payroll is already outsourced 46% of the time and tax 30% of the time, according to a benchmarking report by professional staffing firm Robert Half and the Financial Executives Research Foundation. Accounts payable is emerging as a candidate for additional outsourcing.

Exploring multifunctional and borderless business services

Establishing multifunctional and borderless business services that follow standardised, customer-based processes is a solution that several high-performing multinationals have begun to pursue, according to an Ernst & Young report. Examples include Dutch electronics company Philips, German consumer and industrial products company Henkel and British drug maker GlaxoSmithKline.

• In 2011, Philips launched a comprehensive performance improvement and cost-reduction programme that is reshaping the finance function. Based on studies that had shown 85% of what the finance team did was not specific to any of the company’s three business sectors, Philips started to outsource much of finance’s transactional work to a vendor and focused its captive shared services unit on managing the vendor and front office activities. Also, the company established sector-based centres of expertise to control financial planning and analysis.
• Henkel established a global shared services unit with about 1,500 employees that works with finance, HR, IT and procurement, as well as with individual business units. The unit runs three captive centres, one each in Slovakia, the Philippines and Mexico, and an outsourced centre in India. The unit is in charge of routine tasks but also market research, customer service and supply-chain activities. “We are more efficient and flexible in reacting to changing market conditions and customer demands thanks to the standardization and simplification of our business processes on a global scale,” Kasper Rorsted, chairman of Henkel’s management board, wrote in the company’s 2012 annual report.
• GSK created a core business services unit with five functions – IT, real estate, 50% of procurement, 45% of finance and up to 20% of HR – and established the first multifunctional shared services centre in Malaysia. Two more are planned, one in the UK and another in North America. The reorganisation created clear reporting lines through one unit, according to Paul Fry, GSK’s senior vice president for finance services within the core business services unit.

Key finance issues

Finance executives at large multinational companies expect to have to deal with budget restrictions for a while, the Hackett survey found. With uncertainty and risk remaining in the global economy, they also expect to have to remain flexible and quickly respond to changing business conditions.

To prepare for quick action, they prioritise planning more comprehensive approaches:

Data. External and internal data and analysis of the data were the most crucial to derive value and come up with actionable strategies. Seventy-four per cent of respondents said improving the quality of the finance function’s data analysis and reporting capabilities was important, and 72% named improving analytical, modelling and forecasting capabilities. In pursuit of better data and more data analysis by the finance function, 74% of large multinationals are rolling out more web-based and self-service tools; 70% are implementing business intelligence and analytics applications; and 65% are establishing data stewardship, standardising master data and cleansing data.

Cost. Containing cost also ranked highly. Seventy-two per cent of finance executives said achieving and maintaining a competitive cost structure was a top priority.

Talent. Talent recruitment and management ranked fourth and fifth among key finance issues this year. Sixty-five per cent of respondents said developing leadership capability and a pipeline of potential future leaders was a key finance issue, and 60% named attracting and retaining high-calibre talent. To be able to work with other business units in the company, finance executives not only valued deep technical expertise in finance talent but also the ability to deliver a service. Also, HR is helping finance plan its workforce activities in many large multinationals.

Customer. Fifty-six per cent said it was important to have the finance organisation better align with internal customers, for example in regulatory, external reporting and compliance functions. Demands for more analytical and decision-support services while money and resources are limited are shifting the finance function’s focus to partnering with other business functions.

Standardisation. To boost the globalisation of the finance function in a multifunctional approach requires the use of a common language to describe and measure performance and common definitions for use in analysis and in providing feedback. Executives projected that several parts of the finance function will be at least twice as globalised in two to three years – KPIs and reporting (53% compared with 26% currently), technology platform supporting function (46% compared with 23% currently), process design and build (40% compared with 16% currently) and master data (38% compared with 19% currently).

Related CGMA Magazine content:

“Shared Services: The Keys to Success”: Shared services are no longer solely the preserve of large organisations. So what are the benefits for midsize businesses, and how can they manage a successful transition to shared services?

“Kaplan: Cost Shouldn’t Drive Decision on Shared Service Centres”: The decision to set up a shared service centre should not be motivated by lowering costs, according to one of the creators of the Balanced Scorecard. Robert S. Kaplan says business units should always question why they want to provide a service internally rather than using external suppliers.

“Don’t Set Finance Talent Adrift, Even If Business Is Going Offshore”: Core accounting remains a requirement in business, but as those duties are handled more and more by outsourced work, companies are seeking more strategic analysis from the finance department.

“Outsourcing Treasury Management”: The idea of being able to outsource all or part of the treasury management function is an attractive proposition to CFOs. But it only makes sense if the outsourcing partnership is well-planned. Experts offer tips on how to best execute the process.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.