The unexpected blow of the pandemic in 2020 sent organizations across all sectors scouting for strategies to counter the hit and emerge stronger. There was a resounding consensus on resilience being the need of the hour, along with framing long term strategies. Transformation projects accelerated in almost every industry. With that, the spotlight fell on the CFO’s role, to go beyond managing the immediate need for liquidity to leading initiatives and investments that strengthen financial planning and accounting, using a combination of strategy and technology adoption to generate business value. Organizations felt the need to find the right balance between efficiencies and cost cutting measures, which cannot be achieved without close collaboration between other executives and the historically siloed finance department.
Financial Planning and Analysis (FP&A) involves more judgment and finance experience than any other function in an organization. Therefore, it provides significant potential for savings using automation, centralization, standardization, and outsourcing. Several leading enterprises are exploring FP&A outsourcing to develop a competitive advantage by reducing cost and increasing efficiency amongst a traditionally high price, skill intensive set of finance activities. According to a survey by Grant Thornton, the opportunity for CFOs to establish the finance function as both a leading change agent and a source of competitive advantage has never been greater.
While there is widespread agreement that digital transformation is crucial for future resilience, strengthening digital capabilities in finance functions requires a fresh approach to standardization. Finance functions continue to rely on manual processes that are in dire need of automation. A lack of technical understanding coupled with disparate processes and systems are the most common challenges that finance functions face. Often, expansion into new geographies or growth through acquisition results in many challenges, such as nonstandard processes.
While outsourcing the FP&A process may resolve these challenges, organizations are reluctant to do so because of the complexity of their operations. For this reason, CFOs prefer to retain aspects related to strategic planning and other decision support activities that require customized analysis and knowledge of the business – such as tax policy, acquisition, divestitures, etc. However, budgeting, planning, and management reporting are good candidates for outsourcing, which can be centralized and standardized using both technology and process solutions, and can reduce traditionally high costs and resource intensive, long cycle times. The activities such as actuarial analysis, risk management, and specific aspects of asset management are generally retained in- house
How outsourcing helps strategize FP&A
As FP&A is decentralized, companies can incur high costs in terms of customized processes and experienced workforce. Decentralized FP&A functions where analysts work near the business means that companies are not optimizing their cost footprint. Labor arbitrage through centralizing headcounts in low cost locations continues to be a significant source of cost savings. Such an outsourcing strategy focuses on streamlining redundancies through process standardization and centralization. If done effectively, the number of FTEs required to perform FP&A activities reduces significantly.
A leading global technology company that Wipro partnered with had a large and decentralized global finance department. However, a lack of standardized processes and disparate financial systems fcreated a focus on administrative tasks rather than value added business insights. As a result, they faced challenges like an extended month close period, a lack of process documentation, and workflow, which resulted in high costs and low efficiency.
Creating a strongerFP&A function to build business value
Organizations must evaluate the opportunities mentioned below to overcome some of the challenges:
- Evaluate service delivery options, including a Center of Excellence (CoE), Shared Service Center (SSC), or hybrid outsourcing and CoE/SSC framework.
- Develop a clear strategy for transition including granular analysis of individual activities performed by the staff, and separate those that are predominantly transactional (example: journal entry) from those that are more analytical in nature (planning, forecasting, etc.).
- Focus on clearly defining both technology and knowledge transition.
- Work with a vendor to implement common data standards and consolidate retained FP&A processes into a single CoE. The consolidation will drive the economies of scale, and standardization and automation of the process across all back office work, thus freeing the front office team to focus on the CFO agenda.
- An end-to-end transformation approach requires a complete understanding of the processes, documenting business requirements, pain points, and the costs and resources required to perform FP&A activities. This will not only reduce bottom line costs but also support top line growth with better quality/more effective and faster management information.
- Such transformation can be achieved through workflow automation, processing, measurements, analytics, reports, audits, and controls.
Working with the global technology company mentioned earlier, Wipro consolidated key processes to offshore its CoE location. We developed a clear transition strategy that included a granular analysis of individual activities performed by the staff and separated those that were predominantly transactional. We also worked with the client to implement common data standards and consolidated the retained FP&A process into a single CoE. This consolidation drove the scale and standardization of their operations. With this, we delivered 40% potential cost efficiency over a period of five years, and 99% of month end close activities delivered on time. They also achieved a 100% NPS and Top2 Box.
Digitizing FP&A is a crucial part of finance transformation. This involves an integrated automation solution that brings together cognitive, machine learning, big data, and artificial intelligence (AI) to provide:
- Predictive and prescriptive data analysis on past, present, and future performance
- Warning signs
- Real time monitoring for compliance, and
- An understanding of the critical business metrics
While the pandemic has changed the way businesses operate, it has brought to the fore the need to create a faster, more flexible, more competitive, and ultimately, a more profitable organization. In this respect, CFOs will play a key role in creating a more innovative, efficient, and cost effective FP&A function.