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Company Matters
14 February 2010
QUESTION
I am the chief executive of a large Irish manufacturing company. I have become unhappy with the performance of my finance department and want to make changes to ensure it adds value to the business in terms of competitiveness and efficiency. How can I do this?
ANSWER
In the early part of the last decade, a number of international accounting scandals forced finance departments of large companies to become more focused on increased regulatory compliance and control requirements.
Finance staff became preoccupied with meeting the demands of the Sarbanes-Oxley Act, and local and international fiscal and regulatory compliance.
In recent years, however, the focus has shifted to efficiency and effectiveness and how the finance department can contribute to supporting the business and its performance.
This change in focus occurred as companies entered the recession and the demand for more efficient processes and insight into company performance has taken centre-stage.
Efficiency in finance means performing tasks in a timely and cost-effective manner, which can involve using new approaches, reporting tools and sourcing shared services or outsourcing.
You want your finance department to become more robust, agile and scalable to support the business. It should be able to turn the data it handles - from management information to business analytics - into action to support improved competitiveness and financial results.
During the boom years, many companies made only nominal demands on their financial staff. However, the recession has seen the role of finance elevated in companies, with financial controllers and their staff being called on to provide more insight and advice.
The underlying challenge for finance departments is how to balance all the demands on them to deliver the most value to the business.
Research that PricewaterhouseCoopers has undertaken indicates that the following key hurdles will need to be overcome to enable companies to obtain the full value of their finance functions:
* ensure the finance department has the expertise, credibility and commercial focus to evaluate business options and inform strategic decision-making;
* ensure management information is clear and forwardlooking enough to identify opportunities;
* standardise processes and harness technology to effectively match capacity and demand, while freeing resources for value-added tasks;
* take an agile approach which is capable of accommodating business expansion and/or divestment of some interests.
Increased focus is also being placed on how finance departments operate. More companies are now looking to structure the duties and responsibilities of their finance function into front-middle-and back-office, instead of the traditional structures of accounting and controlling.
The new approach clarifies the scope of the finance unit and how its various elements interact.
The function of the front-office is to create value by turning data into information and insights into action. This team should be closely aligned to operating business units and have significant commercial experience, well-developed negotiating skills and strong financial, analytical skills.
The middle-office functions will include treasury, risk management, planning and forecasting, and tax. These typically require specialised skills to support their work.
The focus is on value protection by delivering against the financial strategy of the organisation.
The functions of the back office typically focus on transaction processing, including the process cycles of order-to cash, purchase-to-pay and recordto-report. These need to be structured to deliver value for money through optimised processing.
In summary, you need to redefine and restructure the role of your finance department and arm your staff with the necessary tools and skills to support your business operations.
This may involve outsourcing some functions and focusing on the higher-knowledge positions that can contribute to the decision-making in your company.
Each week, financial, legal and business advisers will answer your questions on a range of small business issues. If you are facing a business dilemma or simply need a sounding board, contact Company Matters.
Questions should be sent to:
Company Matters, The Sunday Business Post, 80 Harcourt Street, Dublin 2. E-mail: companymatters@sbpost.ie
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