FinTechAutomationChasing Success in the Transformation of Finance

Chasing Success in the Transformation of Finance

Most enterprise transformation programmes that result in centralising key activities via inhouse or third party models begin with a broad vision and strategy. However, the transformation is often executed on a more limited scope and in a piecemeal manner, which can result in delay, cost overrun, unrealised benefits and a failed business case.

This piecemeal approach in execution occurs because the thinking generated in the strategy and planning sessions fails to flow through to execution. This tends to be due to limited or no management oversight, budget constraints and limited thinking and planning for execution. Consequently, the scope of the transformation is often reduced unnecessarily as strategy moves towards execution. While this may be acceptable in terms of absolute business activities that are transformed and their ensuing reduction, it also leads to unnecessary shortcuts in process terms in the key activities that are selected to be transformed. This reduction is detrimental and is easily avoided when working with experienced banking partners who understand and are committed to your organisational roadmap.

Many transformation programmes start with finance as a key driver of change and often result in various degrees of structural change such as centralisation, centres of excellence and outsourcing across functions. Success of these structural changes is highly dependent on adopting a holistic approach for strategy and execution. Simple process standardisation programmes alone are inadequate in driving efficient change. Simply removing unnecessary steps from processes while well intentioned, without a holistic view, will amount to little.

An all-round approach to finance transformation focuses not only on the activity or function, but also the immediate and retained organisation and focusses on all elements of related third party activity to finance. However, this approach seldom finds itself transcending into execution, which is critical. Most business cases and objectives are built upon the strategic intent, not strategic and actual execution. And herein is where the missed opportunity and failure to obtain real benefit sets in.

Today’s Reality and Moving Beyond the Transaction

Organisations tend to look at process in transformation in a segmented manner. Focusing only on individual transactions, they rarely extend the view of the process beyond the enterprise or function. For example, the payables process is often where many organisations start the finance transformation journey. They look at the process from within the enterprise. They may, for example, consider the number of accounts and banking partners with a view towards a reduced number, but they rarely take a holistic view that proactively involves a broader view of the company’s business model and supply chain.

A holistic view would consider reducing transacting entities and centralising procurement, then reducing bank accounts and rationalising account structures accordingly. Subsequently, the number of banking partners would be reduced, and independently a reduction of payment files by switching to industry conforming payment formats. This is all coupled with automation and consolidation and the removal of manual data entry, which would lower headcount requirements for serving remaining payment files. This will reduce inherent cost in the entire end-to-end payables process regardless of whether third party or in house solutions are used. Using a third party in the end could bring additional process benefits such as on demand capacity requirements rather than working through a fixed usage outsourcing contract.

A successful transformation demands such holistic process thinking; however, it is rare that this level of thinking occurs initially in finance process transformations. Many organisations prefer to delay such activity, believing it is overly complex in the early stages. However, with the right partners and thinking at the outset and through execution, the above benefits could be brought to bear early on, helping to seed a transformation process that is more holistic, robust and likelier to reach objectives.

A 360-degree approach to process change and transformation can quickly drive thinking beyond the boundaries of just the transaction or even just the process. No single transaction process exists for its own sake; however, many transformation initiatives fail to move beyond individual transactions. Being bound only to the transaction causes inefficiencies and challenges further along the process. Transforming it piecemeal also reduces the opportunity for input and improvement from a third party, which could contribute from experience unavailable within the organisation.

Entity rationalisation follows as a key part of an overall successful transformation, reducing risk and cost, while driving efficiency. Many organisations are unaware of the total number of entities (and hence bank accounts and associated costs they incur) involved in particular end-to-end processes. Very few organisations practice the mantra ‘one business unit, one entity’, or initiate programmes to drive entity rationalisation. Rationalising legal entities is not easy and in many cases has significant regulatory implication, but doing nothing at an early stage leaves problems for later.

What About the Rest of the Organisation?

Retained organisation design and thinking doesn’t receive the focus it deserves through the strategy and execution phases of transformation. Again the piecemeal thinking prevails; that retained organisation and related activities can come later. This again portrays the often myopic view of processes living only within one part of the organisation, showing a disregard for the entire process cycle.

Trade finance is a key area where there is room for a 360-degree approach. As clients of service companies look increasingly at procuring full turnkey solutions, service companies will potentially need to shift significant procurement costs onto their balance sheet. This will require a step change in not only their trade finance arrangements but also a need to reengineer the entire supply chain and related organisation. Running the supply chain through a tax optimised structure and rationalising procurement and supply chain into one integrated function will be vital to manage this in the supply chain process and required financing.

Without a holistic approach, the financing is often changed but not the supply chain. Tax and operational efficiencies are lost. With the potentially large amounts of capital involved, the opportunity cost could be significant.

A Better and Differentiated Approach

Failure to meet clear business objectives in finance transformation and not moving the discourse along the entire value chain of the process can be avoided by following a clear sequential step approach that captures and includes all key elements from strategy through execution vital to a successful transformation.

Step one: any strategy must have very clear executive sponsorship. It must include all stakeholders to the process and activities under consideration, not just the immediately obvious ones. Once the strategy is agreed and all stakeholders consulted, an initial business case should be produced with the headline numbers and overall direction of cost, benefit and return on investment (ROI). This is then re-circulated to the key stakeholders, for further input. It may be useful at this stage to involve a third party, to balance the views and inputs.

Step two: this is vital in linking strategy to execution and ensuring what was signed off at the strategy stage is executed. The execution plan must be drawn up, detailing what will be implemented, how, when and the steps required. A far more detailed business case that builds on step one must be then developed that links strategy and execution plan and then ties intended objectives together. This all-round approach forms the basis of the blueprint of starting the transformation and reaching objectives. It also means that those who sign off on strategy and those who sign off and are responsible for execution are on the same page.

While any transformation programme has inherent risk, the above holistic thinking is more likely to ensure that the strategy that is planned is followed through execution, with a higher chance of meeting business objectives.

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