Knowledge-based finance functions in service delivery
Why the rewards can be well worth the risks
Finance and accounting organizations are now looking at ways they can optimize resource deployment in the delivery of traditional knowledge-based functions including controllership, tax, treasury, internal audit, and compliance. Although the value drivers remain the same, optimization of these types of highly skilled functions offers qualitative and quantitative benefits, yet also introduces unique risks that need to be managed if this next round of service delivery model transformation is to be deemed successful.
The case for change
Just under 75 percent of CFOs queried in the 2015 Q4 Deloitte CFO SignalsTM Survey, where 112 CFOs responded during the two-week period ending November 20, 2015, indicated that increasing efficiency by reducing direct and indirect costs is a top priority. Additionally, more than 80 percent noted they intend to undertake substantial productivity/efficiency initiatives to increase their organizations’ profitability. To achieve these improvements, nearly half of those who plan to undertake efficiency initiatives noted they will work to lower and control labor costs. Macroeconomic conditions are compounding the pressure on these organizations to deliver greater value with fewer resources. Increasing competition, global economic uncertainty, and sustained mergers & acquisition (M&A) activity, along with the rapid pace of change that accompanies these factors, are all prompting CFOs to rethink the traditional role of the finance organization, the value it provides, and most importantly, how that value can be enhanced through innovation.
We’ve observed that the next wave of innovation and value creation involves rethinking how knowledge-based functions are delivered. For some time, alternative service delivery models, such as shared services, global business services (GBS), and outsourcing have been widely embraced for processing routine accounting transactions, such as general accounting, accounts payable, accounts receivable, and some financial planning and analysis. Typically, high-volume transactional processes were thought to be best suited for alternative delivery models since they offered the “biggest bang for the buck” in terms of cost savings through labor arbitrage and efficiency improvements through process standardization. However, finance organizations are now considering the viability of delivering knowledge-based functions, including controllership, tax, treasury, internal audit and compliance, through alternative models in order to achieve similar benefits.
Alternative versus traditional service delivery models
A service delivery model is a method through which organizations deliver functional and business-enabling processes to support the overall business strategy. For knowledge-based functions, the traditional model involves delivering services from an in-house unit that is proximate to corporate and business leadership. In contrast, an alternative service delivery model involves delivering an effective combination of shared services, outsourcing, automation, and off-shoring that works in conjunction with the retained corporate organization. Increased flexibility, scalability, and cost reduction, as well as greater standardization and control, are the primary benefits of adopting an alternative service delivery model. Through common processes and systems, the finance and accounting organization can additionally benefit from increased data transparency and consistency, which supports decision-making and enhances risk intelligence.
The leading edge
Eighty-one percent of respondents in Deloitte’s 2015 Global Shared Services Survey—which had representation from more than 300 organizations around the globe and provides data for more than 1,000 shared services centers globally—expect to increase the number of knowledge-based processes delivered by their shared services centers (SSCs) over the next three to five years. Most believe this work will be handled through their own SSCs, with only 27 percent expecting to transfer more knowledge-based processes to outsourced providers.
Why is this shift occurring now? We believe it is happening for two reasons. First, it is a natural next step for shared services and GBS organizations that are under pressure to contribute value back to the business and they’ve succeeded in doing that with transactional functions. Second, knowledge-based processes have started to become more consistent and more standardized. For some time, each knowledge-based activity was thought to be unique. Recently, finance and accounting organizations have started to categorize some of these activities and acknowledge consistencies among them. In short, knowledge-based processes are more adaptable and more suitable for delivery through shared services and outsourcing than they were even three to five years ago.
As more and more companies stand on the leading edge of moving knowledge-based functions to alternative delivery models, they must understand that this transition is a delicate undertaking and it requires a deliberate approach. The risks and rewards of the shift must be weighed on a different scale because the finance organization handles sensitive enterprise data that is required to meet stringent reporting requirements and to support complicated business decisions. While the benefits of getting the transition right can be substantial, so can the consequences of getting it wrong. Proper due diligence before making a change to an alternative delivery model requires examining both sides of the risks/rewards coin.
Find a foothold
As a finance leader, the task of evaluating alternative service delivery options for your organization’s knowledge-based functions can seem daunting. Breaking the effort into more manageable components can be helpful in finding a foothold.
As a starting point, here are a few areas to consider:
- Gain management buy-in: Challenges will be encountered in any transformation, no matter how well planned. When transforming mission-critical functions, expectations of a smooth transition are high, and tolerance for disruption is low. Leadership needs to be on board with the effort and provide resources and support to help reduce delays and resolve challenges quickly as they arise. It’s advisable to meet with leaders often and to be transparent with the planning effort. Alignment and buy-in should be assured before getting too far down the path. Once the implementation starts, stopping it can be difficult and costly.
- Define the team: Analyze the knowledge-based functions in your finance organization to identify where alternative service delivery models can make the most impact. Functions that are larger, geographically diverse and/or have a history of challenges make ideal candidates. Ultimately, settle on a scope that is manageable and tie off with leadership to make certain there is alignment.
- Build the team and plan the effort: Identify who will make up the core delivery team. Members should understand the subject matter deeply, but keep in mind that good change agents are needed. The work should be planned in conjunction with the business-as-usual milestones to ensure the project does not get derailed by prioritization debates.
- Evaluate the enablers: Assess existing systems and technologies to see if they can support the execution of an alternative service delivery model. Identify new systems and tools that will be necessary for centralizing and aligning knowledge-based processes across the global organization. Define design requirements and document functional specifications to ensure that the selected solutions meet the needs of all key stakeholders.
Service delivery transformation in action
Redesigning the service delivery model for the controllership of a global consumer products company
The controllership function within a wholly-owned subsidiary needed to change its service delivery model in order to withstand a number of internal and external pressures. Among them, the controllership had been experiencing some turnover, and the parent company
was implementing a common ERP system, along with placing greater demands on the finance organization.
Deloitte led an effort to help the organization optimize the service delivery model of its controllership function to align with the parent company’s requirements, streamline job responsibilities, and leverage new systems and outsourcing.
To accomplish these goals, the engagement team:
- Performed a detailed activity analysis to identify current service delivery challenges (i.e., role fragmentation, areas of overutilization, and span of control issues)
- Reviewed the performance of the existing outsourcing provider to ensure it was supporting the right processes and attaining the agreed upon service levels
- Designed and implemented the future state processes that were required by the parent company and the new ERP system
As a result of this effort, the controllership function now has highly focused units with clear roles and responsibilities that are articulated through an organization-wide RACI model (i.e., responsible, accountable, consulted and informed). Additionally, critical personnel were promoted in order to monitor and manage the rise in outsourced activities, which additionally enhanced productivity and improved job satisfaction. Overall, the organization is much better suited to satisfy the current and future demands of the business and the parent company.