0533 Cima Genpact Report v0 7

From efficiency to effectiveness
transforming the finance delivery mix
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introduction
CIMAs 2009 report, Finance transformation: the evolution to value creation, showed that finance functions have not been transformed into business partners as some commentators had seemed to expect. However, there is evidence of an evolution. Finance functions are still largely back office departments but they are becoming more business-facing. Some finance people are already being engaged in helping to create value for the organisation. We also reported that while some members of the finance team are moving towards a more collaborative business partnering role, most finance professionals still provide traditional accounting services. Finance will not necessarily move away from more traditional roles, such as transactional processing. It will not necessarily be physically moving out finance professionals into the business units to provide a business partnering service either. Instead, it is mainly helping to create value by increasing its own efficiency, improving business processes and providing better management information to support decision makers. CIMAs 2011 report, Finance and organisational performance: shaping the future, reported demand for more focus on management support and partnering activities, especially in larger organisations. The argument that working in management support helps the organisation to meet its objectives was endorsed by over 75% of 3,000 finance and senior management surveyed. The world is experiencing a long, slow recovery from the economic and financial crisis. The role of a value creating finance function in supporting an organisations recovery can be key. The need to understand the impact of finance transformation, how finance services are expected to be delivered in future, and how finance professionals can facilitate the required focus on management support and thus better meet organisation goals, has led CIMA to further investigate the following: How is the finance function transforming to better support value creation? To what extent are the finance services traditionally delivered by the finance function now being delivered by decentralised finance professionals internally by external providers shared service centres and outsourcers? What has been the effect of external provision on the effectiveness of the retained finance function and on the business partnering/management support services they provide? What criteria do organisations use when selecting external providers? Are the anticipated benefits of external provision borne out by experience? What is the best mix of external and internal provision? How are external provision and business partnering likely to develop into the future? How is the continued transformation of the finance function related to performance? The CIMA Centre of Excellence at the University of Bath School of Management was established for this purpose. It is researching best practice in the development of finance professionals in the context of finance transformation. This research project is being conducted in three iterative cycles over a five year period and on a global basis. We are trying to find the answers to such questions among others, and to determine best practice in the further development of the finance function. This report is based on the centres second research cycle and its analysis of a substantial volume of data sourced from more than 3,000 finance and senior managers through a global online survey. Further strategic context and insightful content for this report has been contributed by members of the senior global finance community. This has been sourced through interviews with senior executives and feedback from CIMAs Global Finance Transformation Panel of senior finance executives. Our thanks go to the 5,500 plus finance and management professionals who participated and engaged in this study throughout 2010 and early 2011.
contents
introduction and context

1.1 Executive summary
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options in the delivery of finance services

1.1 1.2 1.3 1.4 1.5 Introduction Organisational design for delivery of finance services Structural elements for finance service delivery Types of finance services Competencies required for delivering finance services
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11 12 12 13 14
delivery of finance services to the organisation: trends in the changing structure 16

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Introduction The extent of external finance service delivery Centralisation in internal finance service provision The effect of organisation size on centralisation The effect of external finance service provision on internal delivery Decentralisation of finance professionals in the future Contact with the business in service delivery trends Conclusions 17 17 19 19 20 22 24 25
delivery of finance services to the organisation: the changing service delivery mix 28
3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Introduction Externally provided services: today Externally provided services: future potential Types of finance service delivered by internal provision The individual perspective the focus on the business The individual perspective focus on the business in large organisations Internally provided services: changing finance to meet organisation needs Impact of external provision on internally provided services Barriers in leveraging the full benefits from external service provision Costs and benefits of internal delivery of finance services Conclusions 29 29 31 33 33 35 36 37 38 39 40
From efficiency to effectiveness transforming the finance delivery mix
finance service delivery and organisation performance

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 Introduction Finance function and organisation performance The high performer finance function a summary Best performing functions: internal and external provision Organisation performance and external delivery SSC use and performance return on investment (ROI) Outsourcing use and performance margin on revenue Conclusions
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the motivation and drivers for external service provision

5.1 5.2 5.3 5.4 5.5 5.6 5.7 Introduction Motivations for service transfer from internal to external provision The outsource supplier view Criteria for selecting outsource providers Importance of skills in the outsourcing relationship Demand for outsourced finance services: the suppliers view Conclusions
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next steps
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research methodology
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figures, charts and tables
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finance transformation insight

simon newton, vice President shared services, Kimberly-clark With nearly 140 years in business, Kimberly-Clark is the global leading consumer, professional and healthcare products organisation employing 57,000 people in 36 counties. Its brands are sold in more than 150 markets.
I think the shift to be more open to decentralised and external service delivery has been happening over a number of years now and was given a boost by the downturn in economic conditions starting in late 2008. The business partner role is the latest incarnation of what has been called management accountant or business analyst in the past. In truth the role has historically been mostly data integrity checking and reporting with a bit of advice based on strong personal or physical connection to a business unit thrown in. Typically the roles dont add any value at all in terms of hard cash what they do is identify where and how value is added in a business. The need for this insight continues to grow rapidly. The better partners have provided a stronger link between business planning and finance planning (tax, treasury and regulatory management) where real value can be added. The sheer volume of demand on this role is typically forcing work out to shared services or out through elimination. I dont distinguish between captive and outsourced shared services, they are two execution options of the same thing. Providing information whether management or the statutory and tax type that we are obliged to provide in set forms against set rules gets highlighted as a process and is best satisfied through an organisational unit dedicated to this and which can pull the levers of continuous improvement, consolidation and sourcing to add efficiency. I dont believe that many finance leaders dispute this the challenge is in executing the change and finding the right capability to make it work in practice. Based on the shift of the more administrative parts of a business partners role to shared services, there is a tendency to refer to the latter as the back office. I dislike this term intensely. With the information service there is a hard to quantify value in providing information that can be turned to insight. On the other hand, cash handling services or indirect tax services that are typically organised into shared services and away from the business partners are highly value-adding. At Kimberly-Clark (K-C) we commit to giving back our shared service cost base every year in cash generation improvements hows that for value. I firmly believe that while cost reduction is the fundamental bedrock of any outsourcing initiative, any scheme based mostly on this is doomed to ultimate failure. If and when better economic times return, this sort of model will begin to unravel. For example, the European version of shared services in K-C was built on the premise that we needed to operate in a highly consistent manner with a rapidly consolidating European retailer customer base. This rationale has endured even through the tough times on service and cost execution. If higher value processing supports the business imperative beyond cost then confident and self-aware businesses make the switch. At K-C, despite having a major manufacturing aspect to our business, we need our business partners focused on customer and consumer investment analysis which may create manufacturing investment. We have centralised monthly manufacturing reporting, product costing and first line cost analysis in order to free up our business partners to focus on the questions the business needs answers to. I think this is the sort of task that the BPO world calls higher value. Within our
K-C shared services world, we have developed a brand profile which effectually characterises our higher value offering: freedom to focus on growing your business. That is the value proposition that we strive to perpetuate and deliver against each and every day. I also firmly believe that connection with the business and insight into specific commercial contexts is something that can never be centralised or standardised. There is a limit to just how high in a process we can go. This limit will vary based on confidence and circumstance. I think that the logic of outsourcing focus and moving work to the best value talent, is irrefutable. The challenge is in the practice. Major change programs are always disruptive to the business. Often they can be handled better, but typically slower in-house. The business process outsourcing industry continues to enjoy phenomenal growth and is having to deal with the organisational and talent deployment challenges that this brings. I think finance functions are right to be cautious in evaluating the benefits and the implications of the change programs they may embark upon. I certainly expect the shared service model to grow dramatically. I think functional business partnering including the type conducted by finance will become even more tightly integrated with other business staff while more focused on identifying where and how value can be added. In providing information, cash, compliance and other administrative services to the business, I see more centralisation and a blurring of functional lines across services. For instance, there is nothing particularly different in the process to provide finance, marketing or logistics information. Staying with the same example, the business will demand ever faster, more accurate and more relevant information. This can only be provided through a shared service approach of process improvement, harmonisation and careful sourcing. Outsourced solutions will continue to grow where they offer good value talent or a faster route to achieving the desired result. Whilst I dont operate in the small and medium sized enterprise field, I would be excited by the possibilities that outsourcers may offer as they develop plug and play end to end process capabilities. The cloud concept can extend to whole standardised processes that may redefine the finance function for businesses that will be born in the future. Broadly speaking, I think larger organisations are too invested in their own end to end process and systems right now and I am not yet seeing too much rationale from the outsourcers that this will change any time soon.
executive summary
Transformation evolution: senior management foresee a need to switch finance function resources into management support and performance management services and away from accounting operations to better fulfil the organisations goals and objectives. Over 75% of respondents believe that when finance personnel work in management support they are more effective in helping the organisation achieve its goals. Generally, the central finance function remains the core provider of finance services to the organisation and is responsible for the full range of such services. On the whole, externalising service provision via outsourcing or shared service centres (SSC) does not appear to radically diminish the finance functions resources in terms of number of finance staff. However, for organisations not reducing staff when externalising services the challenge is to ensure there is a change in how and to what activities they are allocated to take advantage of the benefits a higher focus on management and performance support could bring to the organisations performance. The shift of this resource into value creating areas in management support is patchy despite this being one of the more cited explicit motivations for such change in how finance services are delivered. Using external service delivery for the more routine accounting operations seems to be the best prescription but the evidence is that this does not necessarily secure the advantage sought in terms of enabling greater attention on management support. There are some possible explanations: There is a management issue in that control of supplier work is substituted for work on the underlying processes. There is an allocation issue in that resources freed up are allocated to other tasks without sufficient focus on those activities which might add more value to the organisation. There is a skills gap in the finance staff that do the general accounting role and are not prepared suitably to undertake the higher value added activities. In a push for effectiveness in finance service delivery both the external provider and the customer need to better understand expectations and work outside just the process mapping, transfer, management and reporting to achieve and leverage the full benefits.
the changing mix of services delivered externally

Most organisations which use a SSC receive some finance services that extend to higher levels such as treasury and financial risk management and external reporting but the frequency of provision of these services is dominated by more routine services such as general finance and accounting and payroll processing. Where a SSC is used other than for general financial accounting, treasury and payroll support services are still most likely to be delivered via the SSC. Furthermore, no radical changes are anticipated in relation to the mix of services that is likely to be delivered in this way in the future. By contrast there is more variation in the finance services that are outsourced although the two most frequently being the same as for SSCs: payroll processing and general finance/accounting. Purchase to pay and sales order to cash processes figure lower in the ranking for outsourcing, input from interviews indicates a desire by the organisation to retain at least some control over the core cash-flow related processes within the function. This is particularly evident from feedback received from some senior executives that felt control of cash became even more paramount during the recent financial crisis. Furthermore, there appears to be an acceleration of moves towards the use of outsourcers for management reporting and budgeting/forecasting. Commentators and insight from MNC organisations explain this shift of transfer in higher level analytical services is happening as the outsourcing relationships mature, efficiencies have been leveraged and the outsource provider builds on the effectiveness of the relationship, knowledge of the business and trust.
The implication of this for outsourcers is that the staff employed to deliver these higher end services will increasingly need a better understanding of the qualities of useful management information and its applications. This seems to be reinforced by the client community on average rating the finance qualification status of the outsourcing suppliers staff as important in supplier selection. For outsourcers to become partners to their clients and facilitate the transfer of their internal resource to creating value, this move along the value chain will be critical. It appears that without a suitably qualified delivery finance team it is more unlikely that management will push along this value chain.
the high performer analysis

We looked at how the better performing organisations, as rated by respondents to our global survey, are structuring the changing mix in the delivery of services. Higher performers on financial measures, particularly amongst larger organisations, tend to have a lower proportion of their finance staff engaged in accounting operations and somewhat more in management support or partnering roles than do lower performers. Better performers are also more likely to display attributes associated with more transformed and collaborative finance functions. Similarly, those organisations using a SSC tend to display more of these attributes. While not necessarily a cause and effect relationship, this may show there can be a positive link between delivering some services externally facilitating finance in becoming more of a value creating function. In summary, the use of external delivery of finance services may enable organisations to focus more internal effort on management support activities and this could be seen to reinforce the finance transformation evolution, in the direction of a collaborative and business partnering function. In turn this may contribute to enhanced organisation performance in that the majority of professionals surveyed believe that the involvement of finance in management support helps meet organisation objectives, and those rating their organisation as financially high performing tend to focus more effort on management support and less on accounting operations. The effect is more pronounced in relation to SSC use rather than outsourcing. Organisations which outsource may not reduce the effort devoted to accounting operations as much as those using a SSC because they feel the need to maintain some controlling function over the work performed by the outsource provider. Commentary from finance leaders adds to this debate by highlighting the need to build trust and migrate processes effectively and over time in tandem with the need to move outsourcing relationships from a relationship focused wholly on efficiencies to one of effectiveness. 60% use or plan to use externally provided finance services

chris oshea, finance director africa, middle east & asia, Bg group BG Group is a leading player in the global energy market, with operations in more than 25 countries over five continents. The group employs over 6,000 staff globally. While its headquarters are in the United Kingdom, the company has over 60% of its staff based in other markets.
Over the next five years I expect to see a change in the way that finance will deliver services to the rest of the organisation and I think this will be a positive thing. We have an element of internal shared services in BG Groups finance function, and this allows different teams to focus on distinct areas. Business process operations is the backbone of an effective finance function and is something which can protect a huge amount of value doing it in the right way, with the right people, is very important. Undoubtedly BPOs can provide an effective framework within which a good business intelligence solution can grow. However, deep business knowledge is required to make business intelligence work for an organisation. In order to know how to use the information within a business to drive behaviours and increase value, you need to understand what your desired outcome is its essential that you need to start with the end in mind. Suppliers can be guilty of over promoting the benefits of outsourcing and finance can be too slow and unfocused on leveraging the benefits external provision can bring. Suppliers can be over-zealous when trying to win your work while at the same time organisations can think that outsourcing will solve all problems instantaneously. If you outsource something which is problematic internally, it will take time and effort to address the problem. Control can be retained whether activities are insourced or outsourced. Cost savings are attractive, but an outsourcing contract has to be a win-win situation and pushing a supplier too hard for cost savings could lead to a reduction in service quality. You need to understand what you want to outsource and what you want to retain. Information security is very important for example and understanding how that works with a BPO provider is critical. The top criteria for outsourcing in my view, should be efficiency increases labour cost arbitrage will eventually effectively disappear over time. The secondary nature of cost efficiencies also comes in where the quality of staff in a BPO or shared service is concerned. The skills of the staff employed by BPO providers are very important, as is a low staff turnover. Surety of good quality staff employed on your account is far more important than simply lower costs. Ultimately, efficiency and effectiveness are far more important than labour and cost arbitrage. Service providers tend to focus more on these items, with less being made of cost savings. Having well qualified staff is essential whether that is qualified accountants or analysts with MBAs depends on the tasks which need will be outsourced. Having BPO employees who understand your business is essential to move further up the value chain. However, in more complex industries such as oil and gas, you are unlikely to find deep industry knowledge in many BPOs. Strategic partnerships between BPOs and companies to ensure proper skills and knowledge transfer is likely to be the most successful model, but it can involve a huge investment on both sides.
Personally I dont believe that there are specific functions or activities which CFOs should ring-fence and retain internally. The question is how you want to run your function. You can outsource most things and keep business partnering in house. However you should not lose sight of the fact that well-rounded finance professionals should understand how the function works and therefore if you do outsource a lot, consider having your employees spend time working with the outsourced service provider. Otherwise, years down the line you risk having management who cannot conceptualise the end to end processes required to run your company, and this could hamper your ability to understand where your risks arise. As the outsourcing offering matures over time, the climb up the value chain is inevitable. In terms of what gets outsourced, I think that will vary from company to company. The key is whether you think a BPO can do your work cheaper and/or better, and also to understand the implications of outsourcing, which can be a reduction in process flexibility. Understanding what is important to you as a company is critical before you decide what to outsource a one size fits all solution is unlikely to be an effective offering.
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1.1 introduction
The modern finance function is at the centre of the successful organisation and is expected to play an active role in contributing to the fulfilment of the organisations goals and objectives. The function is expected to provide a series of services to the organisation undertaking a range of roles and responsibilities including: The provision of efficient and effective finance processes. Delivering the specialist services such as tax and treasury functions. Ensuring effective finance management of the organisation via control, risk and regulatory compliance. Providing the strategic insight to support decision making through the analysis of performance, finance and business information. Engagement with the wider business to support and implement the strategic initiatives. By the end of the first cycle of research into the changing finance function it was clear that the transformation of its role into a business partner or at least advisor, in the modern organisation was an evolutionary one, complementing rather than supplanting its traditional role in the other areas outlined above. The majority of respondents indicated that their finance function supported strategy and decision-making, for instance, by supporting the management of risk and complexity. About half reported the finance function was involved in leadership and non-routine reporting, such as initiating and leading change. And a small segment reported the transformation was such that the finance function had left its traditional roles of focusing mainly on financial information and on transactional accounting work behind. Cross-functional collaboration by finance professionals with the organisations business units was seen as most productive and generally welcomed where the focus was on creating value via improved internal processes and focusing on products and services, rather than just supporting cost efficiency, and where the finance professionals independence and skills were not compromised. We also found the transformation was having a profound effect on the finance functions structure. While the vast majority of finance professionals continued to be very much part of the finance function, even where this was the case they were often business-facing with front office duties, namely using their finance and accounting skills either in support of or actually with operating units. Purely back office finance professionals, engaged in general operations or specialist finance and accounting, were in the minority. Furthermore, we found it was primarily finance professionals with a front office, business-facing focus that had become decentralised from the finance function, so that they were working primarily or exclusively with operating units. The focus of our second round of research has been to see how far these developments in the delivery of finance services have continued and for this output in particular what role external service delivery has to play and impact organisational performance. Having a finance function that adds real commercial value and one that the rest of the business will pick up the phone and ask for advice is critical. That is not the future, it is already the present for successful companies. Paul venables, group finance director, hays plc cimas finance and organisational performance: shaping the future report 2011 CIMAs recent report Finance and organisational performance: shaping the future reported that 75.4% of global survey respondents, backed by interviews and feedback from the finance community, agreed that work in the management support area helps the organisation achieve its objectives. In turn, it reported evidence of a demand and pressure from business for increased allocation of finance focus and resource in management support areas, in particular from large organisations.
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figure 1.1 contribution of management support activities to organisational performance

Percent
60% 50% 40% 30% 20% 10% 0 0.7% Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree 24.7% 19.2% 4.8% 50.7%
When people work in the management support area they are more effective in helping their organisation achieve its goals
To this end, we have added in another dimension to the research for this report to better understand future service delivery and how it can allow finance to achieve this higher focus on management support. Namely how the use of external provision of finance services can be leveraged better to help the value creating finance function better meet its goals. Overall we have sought to establish what good practice in delivery looks like by identifying the models that the best-performing organisations, as rated by survey respondents, might be adopting. BPO and shared service centres are used for the purpose of driving efficiency in managing non-value added activities and freeing up finance resources to add value to the business. In this way they can dedicate more to providing analysis, insight foresight and impact to the business and delivering compliance that creates value for the business. Furthermore, BPO or shared service centres can help an organisation to drive standardised systems, processes, and workflow across borders where the end result is creating a dynamic, efficient and effective organisation. For me therefore, the role these external providers can be important in bringing more focus to the business objectives. KK ng, finance director asia Pacific, exact software cimas finance and organisational performance report 2011.
1.2 organisational design for delivery of finance services

Organisational design for delivering finance services can be broken down into three building blocks: structural elements types of finance service competencies.
1.3 structural elements for finance service delivery

The organisations needs for finance services services underpinned by expertise in finance and accounting can be met within a structure that comprises internal and/or external provision. Internal provision of finance services can be effected in two ways: By the finance function, that is a group of finance professionals and others who report ultimately to a finance director or similar position such finance professionals are denoted as centralised.
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By other finance professionals who are located inside the organisation but outside the finance function. There are two types: Those who have only a secondary reporting responsibility into the finance function partially decentralised. Those who have no reporting responsibility into the finance function at all decentralised. External provision of finance services can also be effected in two ways: By outsourced service providers often called BPOs or business process outsourcers which are independent organisations. By captive shared service centres (SSCs), which are related entities providing centralised finance services for a group.
1.4 types of finance services

There is a wide range of activities that fall within the umbrella term of finance services, including: General finance and accounting Treasury/cash/financial risk management Financial/regulatory reporting Budgeting/forecasting Indirect tax compliance Direct tax compliance Tax planning Payroll processes Purchasing to pay processes Sales to cash processes Non-current asset register Management report preparation and analysis Project analysis (including capital budget) Information systems support
Each finance service can be internally or externally provided to service users in the organisation. Furthermore, the research also defined broad categories of internal activities or services defined on the basis of results from previous research as representing groups of activities in terms of their importance and time spent on them. These include: Accounting operations and internal financial reporting transaction processing, accounts payable/ receivable, payroll, internal financial reports. Statutory reporting and specialist activities external reporting, corporate finance, treasury and financial risk management, regulation (internal audit, compliance with regulatory requirements, tax, ethical/CSR issues). Management accounting information and analysis preparing and interpreting management accounting information (e.g. forecasting, budgeting, costing, reporting on variances), cash flow management. Management support and performance management identifying and analysing strategic options, decision support, KPIs, benchmarking, strategic management accounting, business risk management. Accounting and management information systems developing, implementing and maintaining accounting and management information systems. Other activities not covered above, e.g. staff management, training others, administration. In addition, respondents were asked about the general category in which they saw their own duties as primarily focusing: general finance/accounting specialist activities (internal audit, tax, treasury etc.) finance/accounting supporting operating units other functions/units. The latter two categories are thus distinctive in being business-oriented or business-focused.
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1.5 competencies required for delivering finance services

Where a finance professional is situated within the organisational architecture and what activities they are called on to perform influence the competence set they should have. This set consists of not only technical knowledge but the range of skills needed to effectively operationalise that knowledge and trust. The idea that the effectiveness of the finance professional depends not only on the qualities they possess but also on service users perception of the value of those qualities. This perception is related to how independent the finance professional is seen to be. Trust is therefore a mutual relationship between the finance professional and the user of finance services rather than simply a quality of the individual finance professional (though it can be argued that procuring and maintaining service users trust in the value of the finance professionals qualities is in itself a skill).
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terry mcconnell, group head of operations finance, British american tobacco British American Tobacco (BAT) is the worlds second largest quoted tobacco group, with brands sold in more than 180 markets. The group employs over 60,000 people.
Finance has been a key member of cross-functional decision making in British American Tobacco for some time, supporting the business, along with marketing and operations in making decisions that add shareholder value. The implementation of shared service centres and above market supply chain service centres has positively changed the way finance services are delivered, by allowing commercial finance organisation the time to focus on added value activities, for example analysing pricing decisions, tax strategies and the cost of innovations. Many organisations have moved some service delivery externally (BPO and SSC) and seen cost savings and while weve not outsourced any services to external providers at this time, we moved to shared service centres for transactions finance for example procure to pay about four to five years ago. This has driven some efficiency gains through aggregation but more importantly has allowed the commercial finance/business partnering to focus on supporting the business and creating shareholder value. I believe that for finance functions whose end goal is to better support the business, and where the risk of implementation is managed appropriately, then I do believe there will be a marked change to how finance will deliver services. Maturing shared service centres and outsourcers will be able to manage more, higher value added services on behalf of the finance function. However for BAT, I feel this is more likely to be a continuation of the journey than a marked change from current strategies. Our productivity programme has been running for seven years now, so while weve taken the opportunity to review our cost base again for us its an ongoing process rather than an initiative inspired by the recession. Our prime focus within the finance function is on satisfying customer needs, then risk management; so once were certain that any internal or external aggregation of activities wont negatively impact our ability to service our customers then we look to drive efficiency. I think we will consider outsourcing in the future after weve optimised the gains we can obtain ourselves, then look for greater efficiencies through aggregating with other companies. Looking ahead, we have ring-fenced areas where we believe it is more effective to maintain internally within finance. For example, tax, treasury and decision support. However as the shared service centres have matured they are beginning to offer more higher and complex activities, such as tax returns specifically, and this trend may continue.
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delivery of finance services to the organisation: trends in the changing structure
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2.1 introduction
As part of a general business trend, in recent years it has become increasingly popular for routine finance services, along with other types of service required by an organisation, to be handed over to an external provider or business process outsourcer (BPO). At the same time, larger organisations have perceived the potential benefits of obtaining at least some finance services via a captive shared service centre (SSC), this is along with other services such as logistics and human resources for instance that can be reduced to processes and a standard set of services which are at base similar, particularly in the context of improved IT and data management. Reinforcing this trend, The 2011 FAO Annual Report produced by the Everest Group (in March 2011) found that annual contract value for multi-process finance and accounting outsourcing grew almost 15% in 2010 year and 10% in 2009. The report indicated that the finance and accounting outsourcing market is expected to grow 15 to 20% in 2011 and top $4 billion in annual contract value. The report declares this represents a $150 to $200 billion opportunity, split equally across third-party service providers and captives or shared services. We look here at the motivation for and actual extent of this trend, the split between usage of SSCs and BPOs, and the likely future developments in this area based on our survey work. We link it to the other aspect of non-centralised provision, namely how far finance services are delivered by finance professionals who are either partially or completely decentralised in the organisation. So they are either loosely linked to the finance function or have no responsibility to it. Finally we see how far service externalisation and decentralisation of finance professionals lead to reductions in the size of the finance function. 60% use or plan to use external delivery of finance services
14.8% considering using SSC in future
16% considering using outsourcing in future
2.2 the extent of external finance service delivery

Use of external provision for finance services is widespread of the organisations represented by respondents to our survey: 60% either use or plan to use one of the sources of external provision (Figure 2.1). Current usage suggests that the SSCs have the upper hand, with 31.2% of organisations currently using a SSC and only 20.2% currently outsourcing, though it is notable that 5.2% of organisations currently do both. However as far as planned future use is concerned, it appears that outsourcing is considered potentially desirable by a bigger proportion than current usage suggests, indeed it is more frequently contemplated than SSCs: 14.8% of organisations are considering using a SSC for delivering finance services. 16.0% are looking at outsourcing for delivery of finance services in the future.
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figure 2.1 Use of external provision

Proportion of sample
50%
Organisation uses captive shared service centre
Key Organisation outsources No, we do not use currently nor plan to use in the future Yes, we currently use Yes, we plan to use in the future
No, we do not use currently nor plan to use in the future
40% 30% 20% 10% 0 50% 40% 30% 20% 10% 0 50%
40.0%
16.5% 7.3%
Organisation outsources
Yes, we use currently
9.8%
5.2%
5.2%
Yes, we plan to use in the future
40% 30% 20% 10% 0 4.2% 9.5%
2.3%
No, we do not use currently nor plan to use in the future
Yes, we use currently
Yes, we plan to use in the future
Shared service centres are more attractive to larger organisations: 37.7% of large organisations currently use them (compared to 31.2% overall, Figure 2.1). Only 44.7% neither use nor plan to use a CSSC (compared to 54.0% overall, Figure 2.1). Public sector organisations however lag some way behind: 62.5% of them neither use nor plan to use a CSSC. This would indicate scope for the public sector to consider the advantages perceived by the private sector, where standardisation could be even more advantageous to such large complex organisations. Outsourcing on the other hand is a strategy that can be adopted successfully by SMEs as well as large and public sector organisations. This is particularly the case in relation to specific services for which investment in own-resources is not worthwhile for the SME for example bookkeeping and tax. The smaller scale of the SME limiting the implementation of SSC. In addition, large enterprises may outsource whole service areas which the organisation has previously performed for itself. In fact we see that enthusiasm for outsourcing, while overall currently more muted than for SSCs, is quite widespread in non-public sector organisations: 20.9% of large organisations and 21.5% of SMEs currently outsource at least one service A further 18.6% and 13.4% respectively plan to do so. It is again the public sector organisations which are at variance; only 8.4% use outsourcing (though 14.5% plan to do so), which means 77.1% of them neither use nor plan to use outsourcing. It would appear therefore there is tremendous scope for both shared service use and outsourcing by the public sector in future, a possibility of considerable interest given the restrictions on the sectors funding arising from the financial crisis and its political aftermath, and the ongoing pressures for more efficiency.
18
As planned use in the public sector is at a comparable level to that of the other types of organisation, however it is possible that the situation may be in the process of changing and we shall soon see the public sector aligning with the private sector. The move towards using external finance service providers is pronounced therefore, with a greater movement so far towards shared services rather than outsourcing, but with considerable interest in plans for using outsourcing more in future. Insight from some large organisations indicates that initially the investment in SSC is to obtain cost and process efficiencies in-house before they then look to outsourcing some areas to use the suppliers expertise in leveraging further efficiencies. One may see going forward as SSCs mature, a shift to include more outsourcing as part of the delivery mix to leverage their specialism and gain these extra efficiencies. However, it should be borne in mind there is still some 40% of the sample overall that neither uses nor plans to use any form of external provision preferring to maintain provision at the centre of the finance function. This is the case for a larger proportion of SMEs where perhaps the benefits of externalising services are limited to bookkeeping and tax services, their smaller scale not providing a drive to externalise further services or processes as in the larger firms, and public sector organisations.
2.3 centralisation in internal finance service provision

Within the organisational architecture there are three sites within the organisation from which finance services can be delivered: from the centralised finance function from partially decentralised finance professionals who still report in part to the finance function from fully decentralised finance professionals located in and answerable to the business units. The split of internal provision is very stark when looking across all organisations, as shown in Figure 2.2: The vast majority (81.1%) of all finance professionals see themselves as centralised. A very small minority (7.6%) being fully decentralised. 11.3% being partially decentralised. figure 2.2 structure by reporting location of finance staff
8%
Key Centralised
11
Fully decentralised Partially decentralised
2.4 the effect of organisation size on centralisation

Increasing organisation size allows for increasing decentralisation of internal finance service delivery. Figure 2.3 summarises the size of centralised, partially and fully decentralised internal finance service delivery against organisation size. While even in the largest organisations most finance professionals are still centralised in the finance function, nevertheless a significant trend emerges and we see increasing numbers become more decentralised away from the finance function as organisation size increases.
81 %
19
Organisations with fewer than 50 employees generally only have between one and five finance professionals, and these are all fully centralised in the finance function. When an organisation has grown to between 51 and 100 employees, one finance professional becomes partially decentralised, taking on some reporting responsibility to a business unit or other function outside finance as well as some reporting within the finance function, with two to five finance professionals in the finance function. As organisation size continues to increase, more and more finance professionals become partially decentralised. When the organisation has grown to more than 500 employees we see in addition some finance professionals becoming fully decentralised, with no reporting responsibility to the finance function at all. figure 2.3 organisational location of finance professionals by organisation size
Median number of people
100+ 71-100 40.0% 51-70 31-50 21-30 11-20 6-10 2-5 1 0 Key People in finance function Professionals with some reporting responsibility to FF Professionals with no reporting responsibility to FF
1-10
11-50
51-100
101-250
251-500
5002,500
2,50010,000
10,000+
Employees in country
Increasing decentralisation of finance professionals reflects, at least in part the classical approach to efficient deployment of resources: In the smallest organisations, full centralisation means all the finance professionals lie within the span of control of a single director/chief who can direct effort most efficiently to the tasks in hand. As size increases, the number of specialist finance professionals stretches beyond the span of control of a single director/chief and it becomes more efficient and effective to partially or fully integrate those finance professionals who are most useful to the business within the business. Ultimately the organisation becomes so large that individual business units or functions have the resources and capability to retain and control their own finance professionals. In these cases, reporting to the central finance function becomes unnecessary and can be inefficient. The other factor at play however is the externalising finance service delivery, a strategy that we have seen is favoured more by large organisations, but that is still a serious option for young, growing businesses a trend we examine later.
4.2%
2.5 the effect of external finance service provision on internal delivery

While one would perhaps expect that moving finance services to BPOs and/or SSCs would lead to a reduction in the total number of finance professionals in the organisation, whether centralised or decentralised, on average the use of external finance service providers has little apparent impact on the size of their internal resource (Figure 2.4).
20
figure 2.4 size of internal delivery by organisation size when sscs/outsourcers are used
10 8 6 4 2 0 3 2 1 1 1 1 3 2.5 1 5 4 3 2 1 1 3 2
Currently uses CSSC No

Key 10 9 8 7 6 5 5 People in finance function Finance specialists with some reporting responsibility to FF Professionals with no reporting responsibility to FF
Yes
10 8 6 4 2 0 3 2 1 1-10 1.5 2 11-50 2 51-100 3 3 2 101-250 5 4 4 5 4 2.5 4 3 4 8.5 10 9
5.5
251-500
5002,500
2,50010,000
10,000+

10 8 6 4 2 0 3 2 1 1 1 1 1 3 3
Currently outsources No
10 9 8 7 6 5 4 3 2 1 3 3 2 3 5
Yes
10 8 6 4 2 0 3 2 1 1-10 1 11-50 51-100 2 2 3 3 2.5 5 3 1 101-250 251-500 5002,500 2,50010,000 10,000+ 4.5 3 3.5 3.5 10 9 8 7 6 6 6.5 5
21
Large organisations of 2,500-10,000 employees which outsource have considerably more partially and fully decentralised finance professionals (13.5) than ones that do not outsource (8). This is not a feature of the same size organisations which use a SSC, where there appears to be little effect. It would appear therefore that the opportunity for downsizing finance resource internally is limited when outsourcing and not experienced for those using SSCs. This failure to drive staff reductions might be concerning given respondents claim that a reduction in finance headcount is the first motivation for the transfer to a SSC and the second motivation in the case of outsourcing (Section 5). In fact, it seems to facilitate a shift in resource rather than a simple net reduction. We see cuts from the operational and transactional accounting activities and roles for an increased focus for the higher value ones of management support and performance management ones. Roles which are more often partially or fully decentralised from the central finance function due to their collaborative nature than the accounting operations ones. We explore more on this later.
2.6 decentralisation of finance professionals in the future

While larger organisations have continued to invest in business partnering by decentralising finance professionals from the finance function into the business, finance service delivery from the centre is expected to remain the dominant form as reported by senior finance managers. Where there is an expectation of growth in internal finance resource, much may be attributed to expected organisational and economic growth. On the whole, the finance function seems in a healthy state and it is certainly not the case that reductions in finance resource are anticipated. What is anticipated to happen to the number and deployment of finance professionals in an organisation gives some indication of the direction of decentralisation of internal provision of finance services. From Figure 2.5 we can see that where change is envisaged in the total number of finance professionals, numbers are expected to increase more often than they are expected to decrease. The extent of change diminishes as we move from centralised to full decentralised finance professionals. 54.8% of survey respondents do not expect to see a decrease in the numbers of finance staff 30.0% report an expectation that staff numbers in finance would actually increase. Outside the central finance function the dominant expectation is of no reduction in staff: 21.7% of respondents expect growth in partially decentralised numbers, where the finance professional has some partial reporting link to finance. 17.5% expect to see an increase in the number of completely decentralised finance professionals. e.g those in the business without a reporting link to finance. While expectations of cuts in finance personnel are very low, what is perhaps more telling is the analysis of where decreases are expected in relation to organisational location: Just over 15% of respondents expect centralised finance staff numbers to decrease. However when we look at partially or fully decentralised employees the CIMA survey shows that less than 10% expect any decreases in the numbers of staff in either group. Furthermore, where an increase in the size of the finance function is expected, it is not met with a corresponding reduction of finance personnel located outside of the finance function.
22
Only 1.5% envisages an increase in the number of finance function professionals accompanied by a decrease in the number partially decentralised. Furthermore, only 1.9% expect such an increase accompanied by a decrease in the number fully decentralised. Much larger proportions expect an increase in the size of the finance function being accompanied by no change (14.8%) or even an increase (13.7%) in partially decentralised finance staff. figure 2.5 expected changes in number of finance staff by reporting location
Partially decentralised with some reporting responsibility to finance
4.6% 1.2%
Centralised in finance function

6.1% 1.0%
Decentralised with no reporting responsibility to finance

Key
5.4% 2.0%
14 .2%
17
8.4%
7.0 %
Decrease substantially (by more than 50%) Decrease (up to 50%) No change Increase (up to 50%) Increase substantially (by more than 50%)
12
.1
.1
23.
9%
Overall, expectations are generally of either the status quo or of net increases in the numbers of finance professionals, particularly within the finance function. As we saw earlier, the increased use of external service delivery is not expected to affect the number of finance personnel in the finance function, no cuts are expected in the overall staff numbers. Some organisations intending to outsource may have some expectation that the number of employees will fall. However what seems to be happening is a shift in resource from accounting operations, where there is more expectation of likely cuts, to management support activities rather than net cuts in staff. This is further explored later. We can also attribute much of the phenomena on expectations of organisational growth: Smaller organisations (which can be expected to see prospects for future growth) have stronger expectations of an expanding finance function and are much less likely to foresee contraction. Organisations in regions with higher economic growth are more likely to expect an increase in finance function personnel. Results from the research survey and the feedback from commentators seems to point to many organisations valuing a close collaborative finance function moving and recruiting staff into partially and even fully autonomous roles. In these organisations where such decentralisation has already occurred, the strategy seems to have been successful, offering the organisation value. The rationale being that where finance staff cuts are expected, they are generally expected in the centralised roles within the finance function not at the expense of the more decentralised roles. This may indicate that they are offering the organisation value. There is clearly no plan to cut or centralise finance further by the removal and/or shift of finance staff away from the business integrated roles. Insights from the CIMA panel and finance peer group suggest the prevalence of centralised finance professionals at the top level can be linked to the need to maintain control of their activities and responsibilities, avoid issues of cross over and safeguard the independence of the finance professional by keeping them within the function.
54.8 %
68.6 %
73.5%
23
CIMA also observes that in larger organisations, a CFO or FD cannot be everywhere, therefore finance staff are needed to cascade the FDs influence throughout the business and filter up insights into performance. This acts as a percolator effect and it is an area where organisations need to engage their management support and accounting resource in these roles.
2.7 contact with the business in service delivery trends

Having identified it is centralised internal delivery that is still the most significant channel for finance services, we shall look briefly at the degree of contact between the finance function and the business. This will give us insight into the degree to which business partnering is progressing, and will also shed some light on what scope remains for moving non-contact delivery to SSCs and BPOs. The finance function shows its strongest degree of contact with the business when it is delivering accounting operations and management accounting/analysis services, and also when it is delivering management support services (Figure 2.6). Contact is least when the finance function is delivering services to do with accounting and management information systems, and statutory reporting and specialist activities figure 2.6 finance time in contact with business during service delivery
Mean time spent in contact Mean time with business spent in contact with business 50%
50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 39.1 39.1 27.4 27.4 24.6 24.6 19.0 18.9 19.0 18.9 11.4 SME SME 11.4 28.9 32.7 32.4 28.9 32.7 32.4 5 21.4 20.0 5 21.4 20.0 12.1 12.1 Large enterprise Large enterprise Public sector Public sector 35.3 35.3 40.2 40.2 29.1 25.4 29.1 25.4 17.3 17.3
Key Contact with business accounting operations and internal financial reporting Contact with business statutory reporting and specialist activities Contact with business management accounting information and analysis Contact with business management support and performance management Contact with business accounting and management information systems Contact with business other
37.5 37.5
figure 2.7 time Mean finance spending no time in contact with business during service delivery spent in contact Mean time with business spent in contact with business 80%
80% 60% 60% 40% 40% 20% 20% 0% 0% 74.1 74.1 45.6 39.4 33.1 39.4 33.1 20.4 33.0 26.6 39.1 20.2 SME 39.1 SME Large enterprise Public sector 20.4 Large enterprise 45.6 33.0 26.6 69.1 69.1 5 31.1 5 31.1 66.7 66.7
42.0 42.0 20.2
37.5 37.5 21.7 21.7 28.3 26.7 28.3 28.3 26.7 28.3 Public sector
33.3 33.3
Mean time spent in contact Mean time with business spent in contact with business 50
20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2
20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2
20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2 20.2
24

40 30 30 20 NEED FULL DATA 5
50 40
Management support services are recognised as the services delivered by a business partner, being a set of activities that entail the deployment of finance expertise in direct support of the organisations strategy and operations. While a type of finance service, management support is given special attention since it represents a critical transformation in the services expected of finance professionals and the finance function. The extent and nature of change towards business partnering is of interest in its own right and as a basis for assessing the impact of finance transformation on organisational success. It is surprising that large proportions of finance functions continue to spend no time in regular direct contact with the business (Figure 2.7), particularly in relation to business partnering. Around a third of finance functions claim to spend no time in contact with the business when delivering management support and performance management services. What we can perhaps conclude here is there is still considerable scope for the finance function to develop contact with the business when conducting its value creation activities.
2.8 conclusions
The external delivery of finance services is widespread with 60% either using or planning to use one of the sources of external delivery especially in large and commercial enterprises. The move towards using external finance service providers is pronounced therefore, with a greater movement towards shared services rather than outsourcing, but with considerable interest in plans for using outsourcing more in future. The public sector lags behind and there is an opportunity for both shared service use and outsourcing in future. This is potentially of considerable interest given the restrictions on the sectors funding arising from the financial crisis and its political aftermath, and the ongoing pressures for more efficiency. External delivery does not seem to drive staff reductions, often a high motivation for the transfer to a SSC or outsourcing. In fact nearly 55% do not expect to see a decrease in finance staff and 30% expecting numbers to grow. External delivery does seem to facilitate a shift in resource however, with cuts from the operational and transactional accounting activities and roles for an increased focus and resource for the higher value ones of management support and performance management ones. While overall the finance function remains a central function, these roles within management support are more often partially or fully decentralised due to their collaborative nature than the accounting operations ones.
25

shantanu ghosh, senior vice President for Practices, solutions and transitions, genpact. Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise and industryspecific services. It employs over 43,500 staff across 13 markets worldwide managing over 3,000 processes to over 400 organisations.
Moving finance and accounting (F&A) processes to external service providers is nothing new. As CIMAs research illustrates, business process outsourcing (BPO) has become common for many finance services, with companies turning to third-party vendors not only to cut costs, but also to transform F&A processes to make them more efficient and more aligned with business goals. The idea is that with better processes, and fewer processes maintained in-house, companies can liberate resources and time spent by in-house staff so that they can collaborate more closely with the rest of the business and turn their attention to activities of greater value. There has been significant impact from business partnering, says Shantanu Ghosh, Senior Vice President for Practices, Solutions and Transitions at BPO provider Genpact. Most of our clients in the finance and accounting space continue to upgrade the areas we are responsible for. Their confidence in BPO is growing, so they are looking more closely at what they need to do in-house and how to create the capacity to be a true business partner. We are playing a much bigger role in more of the higher end and contextual finance processes. There is growing desire among CFOs to streamline, optimise and change their business processes to drive core business goals, so they are looking beyond the traditional efficiency gains from labour cost arbitrage. They want better processes linked to business outcomes. Some buyers are very mature in that sense, but others are still focused on the cost side. The best of breed clients look at how to get more out of their finance function and our expertise. Having begun as a captive of GE before becoming an external service provider, Genpact has seen at first hand the evolution of outsourcing processes from the simple to the complex, from closing and reporting activities, statutory reporting and tax matters to decision-support tasks, including business planning and cost analysis. For Ghosh, this reflects the change in the main drivers of outsourcing from cost cutting to real process transformation. It is not necessarily all about labour costs, he says, especially if a process is hard to decouple. It is more about the skills and scale of external service providers, which, for example, can enhance the quality of analytics. Companies have more confidence now in the quality of service providers and believe that the BPO model adds capacity and skills. They are more open-minded and willing to leverage our competencies and capabilities and to invest continuously in developing the partnership. It is not just about substituting people. As Ghosh explains, The market is maturing, particularly among buyers of BPO services. They may start out with the goal of cost-cutting, but given the overall success of the model, customers are beginning to appreciate the full range of benefits they can receive, and to look for more from the engagement. BPO requires a big change management effort and hard savings in the bank to begin the journey. While 30-40% savings in labour
26
costs is impressive, after two years it may not be enough. The transformation agenda at that point begins to expand. In achieving transformation, Ghosh believes that BPO has distinct advantages over shared service centres (SSCs). A client should only choose an external service provider when that provider has more skills and experience than would be available in-house, he remarks. A BPO provider can build a bigger pipeline of talent, whereas a SSC has to obtain that expertise at a higher price. However, there is a big variation among BPO providers, so you must look at the core philosophy of how they manage client relationships and whether they act like a vendor or a partner. Some come from a consultancy or IT model, so they are very strong at the top end of the relationship and have a different view of process execution, and they may not be as transparent or consistent throughout the organisation. I am biased, but as we moved from being a division of GE to an independent service provider, our focus on driving innovation in our approach and instituting best practices changed dramatically with our exposure to multiple businesses and situations. We now have separate practice groups who focus on developing capabilities and competencies in all our service lines. turning BPo into value creation So, does BPO lead to a company turning its in-house finance staff towards more value-added tasks? That is certainly the opportunity and, often, the goal that BPO opens up, but outsourcing F&A processes is just the first step and offers no guarantees. Clients always need time and bandwidth for finance people to move to being business partners and trusted advisors to the rest of the business, notes Ghosh. They are usually struggling with tasks such as analysis and compliance, so BPO may be required. But, while BPO saves cost and time, that freed time may not necessarily be used effectively by the business. To gain maximum advantage from their investment, the retained organisation at the client also needs the skill set for more effective business partnering and to understand the strategies used in the different parts of the business. Recognising this, service providers have realised that they can play a part in helping their clients steer finance personnel towards higher end, value-add areas. Our responsibility includes helping with skill mapping and the redistribution of work, says Ghosh. But first the client needs to have a burning need to make this shift and commit to upskilling and repurposing people. Genpact reinforces the notion that once finance services are moved externally and a relationship is established with a service provider, there are opportunities for organisations to shift focus onto value creation. This is clearly not an automatic outcome. To gain such benefits, companies need to have a strategy from the start and focus from the top.
27
delivery of finance services to the organisation: the changing service delivery mix
i c vic s viices ser serv rrv service ese ices s vices es ser es serv ic es ervices servic v shared services; creating vaLue er vic s ser es services services servic
es
es vic ser ices s serv service
es ces c vi ervi r ss ces se ice rvi es erv s se c ice vi ices s v r se serv es ser es ices c
serv
es ic rv se
es vic ser
services
services
28
3.1 introduction
We have seen so far that there have been moves towards external provision but no actual or anticipated shrinkage in internal provision of finance services, not least because of the emphasis is on value creating activities. We now turn to an examination of what types of finance services are typically delivered externally in this way. We would perhaps expect external provision to be predominantly in respect of routine, process-based services for instance. In addition, while we know that internal finance professionals are increasingly used to provide value-added, business-oriented finance services to their organisations (principally represented by the services categorised as management support and performance management), we need to determine both whether this is set to continue and also how far it is a function of the degree of decentralisation that they experience, and how far it is a function of the particular duties they undertake. Finally we look to determine whether organisations which make use of value-added finance services are both higher performing overall and have finance functions oriented to management support. This helps us in to start determining the overall good practice configuration for finance service delivery.
3.2 externally provided services: today

The research survey looked into the extent to which the following finance services are provided externally today and plans for accessing this form of provision in the future: finance services: General financial accounting Payroll and/or employee expenses processes Treasury/cash/financial risk management Purchase to pay processes Financial/regulatory reporting Sales order to cash processes Budgeting/forecasting Fixed (non-current) assets register Information systems support Management report preparation and analysis Indirect tax compliance Direct tax compliance Tax planning Project analysis (inc capital budget analysis) Other services
Figure 3.1 shows the proportions of those using external provision for each of these services. Amongst those using a SSC, the most common services involved extend to higher level work (e.g. risk management, external reporting) alongside more routine services such as general finance and accounting and payroll processing, which dominate. The SSC provision is still dominated by more routine services such as general finance and accounting (64.8%) and payroll processing (64.0%).
29
figure 3.1 Finance service provided by ssc and outsourcing finance services
General finance and accounting Payroll and/or employee expenses processes Treasury/cash/ financial risk management Purchase to pay processes Key SSC Outsourcing
Financial regulatory reporting
Sales to order cash processes
Budgeting and forecasting
Fixed (non-current) assets register
Information systems support Management report preparation and analysis Indirect tax compliance
Direct tax compliance
Tax planning Project analysis (inc capital budget analysis) Other services 0% 10% 20% 30% 40% 50% 60% 70%
It appears therefore there is a degree of stability in finance service delivery by SSCs. They are found to be effective for some services and somewhat less so for others especially tax but overall the take-up is quite widespread. By contrast there is more variation in the finance services that are outsourced. These are largely routinised and process-based activities, the external provision offer organisations the greatest gains from improving process efficiency and liberating finance resources for other uses. This is also the case for highly specialised areas such as tax and IS, where it is more efficient to access external expertise than maintain internal specialist resource. No finance service is outsourced by the majority of organisations using this form of external service provision (Figure 3.2 ), but the two most frequently provided finance services are the same as for SSCs: payroll processing and general finance/accounting activities. It is notable that where there is external delivery of tax services, it is more likely to occur through outsourcing than a SSC. This reflects: the highly specialist nature of tax the fact that for many smaller organisations the costs of investing in specialist in-house tax specialists is not worthwhile.
30
We see a distinct difference in relation to the type of offshoring adopted between some finance services that are process-based such as the top two services for outsourcing, payroll processing and general finance/accounting and others, especially purchase to pay and sales order to cash processes. These figure much lower in the ranking for outsourcing when compared to how likely they are to be transferred to SSC provision. Consultations indicate this reflects a desire by the organisation to retain at least some control over the core cash-flow related processes within the group. rank for ssc Purchase to pay Sales order to cash 4 6 rank for outsourcing 8 10
3.3 externally provided services: future potential

Table 3.1 shows the most commonly cited services which are planned to be transferred to a SSC or outsourced by organisations which do not currently use a SSC or outsourcing respectively. table 3.1 top three services planned to be delivered externally shared service centre 1. Payroll and/or employee expenses processes 2. Purchase to pay processes 3. General financial accounting 57.8% 52.6% 51.7% outsourcing 1. Tax planning 2. Payroll and/or employee expenses processes 3. Information systems support 44.4% 35.7% 35.7%
The prospects for the services which may be transferred to a SSC in future, of those considering this option, are similar to those currently observed today (Figure 3.2). Whilst no radical changes are anticipated, we do see purchase to pay processes moving up somewhat compared to the current ranking. Similarly outside the tax area, future prospects for outsourcing follow a similar pattern to the present, with an emphasis on payroll, general financial accounting and information support which appear in the top three (Table 3.1).
31
figure 3.2Finance service services expected to be provided by ssc and outsourcing for those not currently using
General finance and accounting Payroll and/or employee expenses processes Treasury/cash/ financial risk management Purchase to pay processes Key SSC Outsourcing
Financial regulatory reporting
Sales order to cash processes
Budgeting and forecasting
Fixed (non-current) assets register
Information systems support Management report preparation and analysis Indirect tax compliance
Direct tax compliance
Tax planning Project analysis (inc capital budget analysis) Other services 0 20 40 60
Over the past five years the finance services outsourced have been relatively constant although demand for specific finance services such as budgeting and forecasting has tended to increase more than demand for general financial accounting services. Furthermore, there appears to be a move towards the use of outsourcers for management reporting and budgeting/forecasting rather than simply for transaction processing. Commentators and insight from MNC organisations highlight this shift to higher level analytical services as the outsourcing relationships mature, efficiencies have been leveraged and the SSC or outsourcing provider builds on effectiveness of the relationship, knowledge of the business and trust. The implication for outsourcers is that the staff employed to deliver these higher end services for their client base will increasingly need a better understanding of the qualities of useful management information and its applications. This is clearly linked with the client community rating the finance qualification of the outsourcing suppliers staff as important when selecting suppliers covered in section 5. For outsourcers to become true business partners to their clients and facilitate the transfer of their internal resource to creating value this move along the value chain will be critical. Without a suitably qualified delivery finance team it is more unlikely that management will push along this value chain.
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3.4 types of finance service delivered by internal provision

The research investigated the allocation of resources to different internally delivered finance services using two measures: the respondents work mix across the different service areas, and the FTEs (full-time equivalent personnel) allocated to those areas, as reported by senior personnel for their organisation. In both cases, the same set of service areas was used. As we detailed earlier, these were broad categories defined on the basis of results from previous research as representing groups of activities in terms of their importance and time spent on: Accounting operations and internal financial reporting. Statutory reporting and specialist activities. Management accounting information and analysis. Management support and performance management. Accounting and management information systems. Other. In addition, respondents were asked about the general category in which they saw their own duties as primarily focusing: general finance/accounting specialist activities (internal audit, tax, treasury etc.) finance/accounting supporting operating units other functions/units. The latter two categories are thus distinctive in being business-oriented or business-focused.
3.5 the individual perspective the focus on the business

Finance professionals in the finance function are much more likely to see their main duties as being in finance/accounting (generally or in supporting operations) than those who are decentralised (Figure 3.3). However, the majority of these professionals (61.9%) still see their duties as business-oriented. Those finance professionals who are partially or fully decentralised, out of the function, predominantly see their duties as mainly relating to other functions or units rather than finance, as would be expected. Just over 78% of this group see their duties as being focused on the business. As we would expect, centralised finance professionals are much more likely to have duties involving general or specialist finance/accounting or finance/accounting supporting operations (34.1% and 25.2%) than those who are partially or fully decentralised, where we see the front office duty of actually being part of other units operations predominates (Figure 3.3).
33
figure 3.3 finance professional duties and the degree of centralisation

Panel A centralised Panel B partially decentralised Panel C decentralised
Key
11.4 %
.1%
General finance/ accounting
36.
7%
% 4.1
6.5
% 8.8
7.7%
Specialist finance/ accounting Finance/accounting supporting operating units Other functions/units
16
4.
25.2%
0%
64
.1%
13.4
%
72 .2 %
As expected partially and fully decentralised finance professionals predominantly see their duties as front office 77.5% of partially decentralised staff see their duties as business facing. 79.9% of fully decentralised finance staff. It is notable that the majority of those in the finance function (61.9%, Figure 3.3, Panel A) also see their duties as primarily being business focused. In particular, a higher proportion of centralised finance professionals state their main duties to be relating to other functions/units than to general or specialist finance/accounting and supporting operating units. Analysing the nature of the duties that the finance function conducts for other functions/units reveals that the finance professional covers many other organisational activities even though the individual works in the finance function rather than as part of the business (Figure 3.4). These include specific activities of regulatory reporting and mixed financial and non-financial duties, as well as general responsibilities. The most significant of these activities is planning/strategy and operations, which together account for 40.1% of the total time spent by centralised finance professionals on other functions/units. figure 3.4 nature of finance function duties relating to other functions/units
Duties other functions/units
Planning/strategy Operations Head office/central administration General management Project management Sales/marketing Other Information technology Human resources Purchasing/procurement
0
21.6% 18.5% 11.5% 10.3% 10.3% 9.5% 8.5% 5.7% 2.2% 2.0%
5% 10% 15% 20% 25%
Proportion of other functions/units in finance function
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Finance professionals within the organisation report that the three accounting-based finance services operations, specialist services and management accounting are the principal ones in which they are involved (Figure 3.5), but no service is immaterial. While accounting-based activities remain at the core, management support activities occupy a significant 19% of effort. figure 3.5 time on different finance service areas
Mean proportion of time
Key 25% 23.7% 20% 21.2% 19.0% 15% Accounting-based services Management support Other
10%
12.1%
11.6%
12.5%
5%
0 Current time accounting operations and internal financial reporting Current time statutory reporting and specialist activities Current time management accounting information and analysis Current time management support and performance management Current time accounting and management information systems Current time other
The degree of centralisation affects how far the three accounting-based service areas predominate (Figure 3.5). In other analysis we see that finance function professionals spend a greater proportion of their time (58.7%) on accounting operations and management accounting than do those who are in any way decentralised (partially 52% and fully 43.1%). But while decentralised professionals still report appreciable proportions of time being spent delivering these finance services, they do not necessarily spend a greater proportion of their time on management support services. Service areas covered by the other category in Figure 3.5 are mainly staff management, training others and administration. Those who are at all decentralised from the finance function report higher focus in other activities that are not specific to finance. This can include project management, contract administration, business analysis and planning where they are actively working on the business or unit they work in or report to. At first it may be surprising that the proportion of time spent on management support activities does not increase substantially with increasing decentralisation, since the closer connection with the business that decentralisation entails might be expected to involve greater support activity. In fact instead of being engaged in management support activity, some of those outside the finance function spend a very high proportion of their time undertaking these direct business activities rather than simply supporting them.
3.6 the individual perspective focus on the business in large organisations

In larger organisations, more time tends to be spent by internal finance professionals on management accounting information and analysis along with management support, while less time is spent on accounting operations and internal financial reporting. Thus time spent on accounting operations is replaced by increasing amounts of time on management accounting and management support as the size of the organisation increases.
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The rebalancing of finance service delivery with increasing organisation size presumably results from several factors: As regards accounting operations, with increasing size more resources are available for investment in technology and automated processes. Efficiencies derive from economies of scale and the use of clerical staff so that on average finance professionals need to spend increasingly less of their time in this area. Increasing organisational size also brings with it complexity, both in the organisational structure and in business operations, triggering the need for better management information. Similarly, the opportunities for and value of management support activities increases. Thus, the proportions of time spent on management accounting and management support increase accordingly. The increased use of SSCs and outsourcing that we observed earlier in larger firms also release resource and/or time away from operations to support activities.
3.7 internally provided services: changing finance to meet organisation needs

Finance functions and their senior management need to plan and structure to better meet the needs of their organisations. They need to understand what change will be required in the allocation and focus of finance staff to better meet these needs over the next five to ten years. To this end, the research surveyed senior management on this issue to identify which duties and activities would be expected to increase, decrease or remain the same if finance is to better meet their organisations objectives. As we saw earlier, SMEs expect their centralised finance functions to deliver more finance services in all areas going forward, with the greatest growth expected in the management support and management accounting areas. The main driver here is on value creation and the expected economic growth for this sector. Larger organisations also see these as the key finance services in respect to which more centralised internal effort is needed if they are better to meet the needs of the organisation, but here at the expense of other areas on average. Both see a need to reduce effort on accounting operations (Figure 3.6) and the role of external service providers can again come to play here to facilitate this. figure 3.6 change in centralised delivery of finance services to better meet organisational needs
Mean expected change
Key 0.4 Accounting operations and internal financial reporting Statutory reporting and specialist activities 0.2 Management accounting information and analysis Management support and performance management 0
Accounting and management information systems Other
0.2 1 = increase 0 = no change -1 = decrease
SME
Large enterprise
Public sector
36
As reported in CIMAs Finance and organisational performance: shaping the future report, we see that across all the different organisations, the largest change needed to improve finances contribution would be an increase in finance staff time as measured by FTEs in the management support and management accounting service areas. This would link in with the demand from the business and the need to engage finance further with the business and its products and services to create value for the organisation as a whole and drive effectiveness: 26.9% of large enterprises, 35.9% of SMEs and 14.2% of public sector expect to increase finance staff numbers in the management support area. We also see that only SMEs expect to see any increase in staff numbers within the accounting operations service areas. This again may be explained by overall growth expected by SMEs and the limitations of outsourcing for smaller firms where the restricted economies of scale do not allow for such potential externalisation. In fact large organisations and those in the public sector expect a cut in the numbers dedicated to the operations and transactional activities in the next five to ten years. Again this would seem to support the notion that organisations may chose to reduce resource in the accounting operations in order to shift focus on the more collaborative areas shifting from the efficiency to effectiveness areas. Information technology and the external delivery of the transactional and process driven activities have a continued and increasing role here by allowing organisations to maintain efficiencies in finance cost and process whilst liberating resource to drive effectiveness through management support and performance management.
3.8 impact of external provision on internally provided services

Having looked at delivery of finance services by both external and internal providers, we can now attempt to identify whether they are connected to identify the effect that moving delivery of finance services to external provision has on how services are delivered internally. We find that organisations which have transferred service provision to SSCs (Figure 3.6 and/or outsourcers Figure 3.7) expend less effort on accounting operations and, to some extent, on some specialist services such as tax. A more pronounced and a significant effect on internal effort on these finance services is seen in relation to transfers to SSCs than outsourcers. Use of external provision also leads to more internal effort being directed to management support activities, and this effect is again more pronounced in relation to SSC use than outsourcing. figure 3.7 internal effort per service area by cssc and outsourcing use
Mean proportion of FTEs
60% 50% 40%
37.5 50.8
Currently uses CSSC
Currently outsources
Key Other
48.4 43.6
Accounting and management information systems Management support and performance management Statutory reporting and specialist activities
30% 20%
16.5
10% 0
3.9
7.2
10.4 11.1
15.0 14.5 4.4 10.7
17.8 3.9 11.3 11.8 7.5
17.0 4.4 11.0 12.6 12.6
15.8
Management accounting information and analysis Accounting and management information systems
No
Yes
No
Yes
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Organisations that use a SSC show both a pronounced reduction in effort on accounting operations (fall of 13.3% points) and a pronounced increase in effort on management support as well as that on IS. Those which use outsourcing also show an increase in management support activities with a decrease in effort on accounting operations, albeit somewhat reduced. Consultations and feedback from the finance community point out that organisations which outsource may not reduce the effort devoted to accounting operations as much as those using a SSC because they feel the need to maintain more of a controlling function over the work performed by the outsource provider. Trust issues can come into play particularly in less mature relationships where the organisation may still feel the need to have close management and control of the supplier relationship. BPO and shared service centres can be part of creating the ideal finance structure however, let us never forget that finance has to control cost and operation and are responsible for any outsourced activity anyway. The outsourcing does not move away our responsibility. frank vitaglione, cfo europe, cBre investors cimas finance and organisational performance: shaping the future report 2011 It appears therefore organisations are finding both SSCs and outsourcing presenting a way of effectively allowing them to evolve the finance delivery model and function structure to better meet the needs of the organisation. This is achieved by allowing for the release of internal finance effort for management support and performance management activities.
3.9 Barriers in leveraging the full benefits from external service provision
We see later in section 4 that organisations report that freeing up finance personnel for value added activities is the third most important motivation to outsource and the fourth to move to a SSC. With this in mind, one might have expected the impact of using external service provision on the effort focused on the higher value areas, such as management support, would be even more pronounced. In discussions with finance professionals on this apparent mismatch we note the organisation, or customer, can often be at fault. There is a feeling that many organisations are slow and can expect the release of resource and effort to focus on collaborative activities and support to be automatic. Many believe that organisations do not always include objectives and milestones on this transfer, even when it may be one of the top motivations for outsourcing. Some go further and claim that organisations can be risk averse and put up barriers to leveraging the full benefits that external service delivery can bring, instead focusing more on the process and cost efficiencies alone and maintaining high levels of resource in these areas to maintain control of the relationship. Organisations may also be guilty of being over optimistic of the timelines and resource needed for the transfer to external delivery which in turn restricts the release of focus to higher value added activities for longer. It is a major change programme, but this is particularly the case for those that seek to use external delivery as a way of fixing and sorting out existing internal data problems or key process problems. In these cases, the finance function will be required to focus substantially and work with the supplier to solve such issues before any of the process efficiency benefits can be harnessed. This can then lead to a delay in any release of resource for management support activities. It may even impact on the trust with the external supplier given that some organisations may blame the supplier relationship for the delays. I was once advised that one should never outsource problem areas, only those that you do well, and this remains great advice. Before outsourcing, or establishing a service centre structure, it is essential to understand clearly the process subject to these arrangements and not to expect the act of outsourcing will achieve improvements of its own right. Phillip mclelland, finance director, UK asset resolution cimas finance and organisational performance: shaping the future report 2011
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In fact organisations can miss the simplest steps in the planning stage to leverage the release in resource for value creation activities that external provision can provide: including within the change programme objectives/KPIs identifying the areas in the organisation where support is needed identifying steps for project schedule and having clear milestones and responsibility for the transfer to management support appointing a lead responsible for ensuring that requirements for the changing skills mix are identified defining and implementing changes to training and recruitment strategies accordingly implementation of a communication plan cascading throughout the finance organisation and to its customer base. Indeed this would seem an area for focus and improvement at both the supplier and customer end to ensure that the efficiencies that external provision can provide are fully leveraged to support the finance function to become more effective and value creating. In my view finance functions tend to underestimate the change management effort required to fully leverage the benefits of offshoring. The benefits are there to be reaped, but it doesnt happen by itself. christian mller laursen, vice President and cfo, aPm terminals cima finance transformation insight 2011
3.10 costs and benefits of internal delivery of finance services

The desire to increase internal effort in the management support area exists even though there is some recognition that time in this area is more costly, indicating value in that the envisaged benefits of management support outweigh envisaged additional costs. Furthermore, we see that the accounting operations area is the least costly, where many organisations have already harnessed much efficiency already using IT advances and external provision. figure 3.8 the relation between cost and time in delivering finance services internally
Mean of cost in relation to time
Key 1 = cost % higher than time % 0 = about the same
0.12 0.09 0.06 0.03 0 -0.003 0.105
0.131
-1 = cost % lower than time %
0.059 0.026
0.060
Accounting operations and internal financial reporting
Other
Management accounting information and analysis
Accounting and Management information systems
Management support and performance management
Statutory reporting and specialist activities
39
1 = cost % higher than time % 0 = about same
Few organisations can afford a net increase in the cost of their finance organisation, unless they are lucky enough to be expanding very rapidly. Accordingly, increasing finance decision-support requires savings in routine processes; elimination of duplication across functions or leveraging financial expertise more efficiently through better decision support systems and processes. Jonathan Watts, director finance and control, saBmiller plc cimas finance and organisation performance: shaping the future report 2011
3.11 conclusions
The most common services delivered by SSCs is dominated by routine transactional services but can extend to higher level work (e.g. risk management, external reporting). The finance services that are outsourced are largely routinised and process-based activities, the external provision offer organisations the greatest gains from improving process efficiency and liberating finance resources for other uses, moving focus from efficiency to effectiveness areas. Going forward however, there appears to be a move towards the use of outsourcers for management reporting and budgeting/forecasting rather than simply for transaction processing. Many quote being reluctant to move decision support and cashflow activities externally due to the perceived lack of depth of understanding of the organisation and/or sector. Across all the different organisations and sectors the largest change needed to improve finances contribution would be an increase in finance staff time, as measured by FTEs, in the management support and management accounting areas. This is the case even though they are recognised as more expensive as they are thought to place finance as a value creating function. This apparent shift could mean the use of external service delivery in the full finance service provision mix is one key way in helping to achieve this. There is already evidence that those that use external delivery are leveraging this benefit, spending less effort on transactional activities and more on management support, particularly the case with SSCs. Several issues may block this shift in focus were identified for action to maximise the benefits from external delivery. There is a perceived need by some to maintain more of a controlling function over the work performed by the external provider, limiting the amount of effort that can be released. Many organisations can be slow, risk averse and expect the release of resource and effort to focus on the collaborative and support activities to be automatic when moving service delivery external without the adequate planning, support and leadership.
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vivek Kapoor, vice President finance, asia Pacific middle east africa & latin america, Pitney Bowes Pitney Bowes is the worlds leading provider of integrated mail and document management systems, services and solutions to over two million customers worldwide. It is present in 130 locations and employs over 36,000 employees.
I believe that the finance role has shifted from being about controls and managing books into being a strategic partner to the business. This has definitely created bandwidth issues within the finance function. One way to overcome this resource crunch, while maintaining the quality and timeliness, is to look at finding alternatives for transactional tasks. Business is under increasing pressure to do more with less and finance is no different. Finance teams will always have to find better ways to support business though analysis, reporting and managing their internal controls while being fully compliant. The only way to manage the increased expectations is to look for alternatives. Outsourcing is one of the best options we have today going forward to function better while maintaining costs and the quality of work. I definitely see outsourcing growing in times to come to be able to achieve this balance and provide more bandwidth. At Pitney Bowes we have moved towards outsourcing our transactional work. The analytical work is kept in-house which requires the business knowledge to enable meaningful conclusions and to assist business leaders to make decisions on strategy or on short term decisions. Many organisations which have moved some service delivery externally (BPO and SSC) have seen cost savings, but not always the shift in focus to higher end value-add activities that many BPO suppliers and consultants often promote. Though BPOs and outsource shops have relevant experience with high value-add activities, most companies in the Asia Pacific region are using them to address the transactional work, while the decision support is kept in-house. Possible reasons for this could be the confidentiality of long term strategy, lack of industry specific knowledge or the lack of a local market as the BPOs or the shared service centres tend to set up in cost effective locations. Also, outsourcing is not always about cost saving. I have noted in some cases, it costs more to outsource than to manage the process in-house but this is where other benefits may come into play. There are obvious many benefits from outsourcing (not always measured in dollars and cents) and this has been proven to be the case in my experience. Companies are often slow and even risk averse in taking the full benefits from outsourcing arrangements. The common perspective is that outsourcing is best for transactional and many often take a cautious approach by starting first with this nature of work. Once their confidence level and trust is stronger with their supplier, companies tend to transition towards more complex services. That said for me, decision support should be kept in-house as this requires a lot of knowledge about the business and market, along with the treasury and cash management functions. To consider increasing the provision of services externally I would need be sure they are able to assist in better supporting the business with analysis and reporting. Other drivers could be the further standardisation of processes. Cost wont be one of the top criteria for me; however it will be important expectation over the medium to long term.
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shared services; creating vaLue
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m nc or a nce rF rm e pe o rma rF rmanc rFo e o e p F e ep r c e anc an ance p m e rm orm For rmanc er Fo perF p rFo r nce pe nce pe
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4.1 introduction
Finally we look to determine whether organisations which focus more on the value-added finance services are both higher performing overall and have finance functions oriented to management support. This helps us to start determining the overall good practice configuration for finance service delivery. We can go some way towards arriving at a picture of what characterises high performer finance service delivery by focusing on performance measures in commercial organisations as a whole, as rated by survey respondents. Then assessing their association, if any, with how their finance services are delivered. Cause-and-effect is not necessarily implied but we can see how these higher performers structure and deliver finance services.
4.2 finance function and organisation performance

The performance measures tested in the research, from the perceptions and views as given by respondents in the survey on their organisations performance, include: Business performance measure Return on investment Margin on revenue Capacity utilisation Customer satisfaction Product quality New product Market share development
Organisations with higher levels of partnering report high performance highly transformed finance functions, showing collaborative or business partnering attributes, report higher average business performance. In previous research CIMA identified a list of key attributes involved in the collaborative finance function or business partner to determine the link with performance and intended to reflect a perspective on the performance of the finance function in particular in terms of attributes associated with the modernised, or transformed, finance function. A critical finding in the research is that for the vast majority of the attributes 20 their presence is associated with a significantly higher performance on all seven of the performance measures tested, as above. Thus, for example, organisations in which the finance function provides timely, useful information to management (the first ranked attribute) on average report better business performance than in others where this is not the case. The 20 attributes are ranked in descending order of strength of association between the attribute and the performance of the organisation in Table 4.1.
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table 4.1 the 20 attributes that are found in the more successful organisations ranked by proportion of use rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 the finance function provides timely, useful information to management is valued by other parts of the organisation for the support that it gives to their activities supports the management of risk and complexity is measured on its efficiency and/or effectiveness sets challenging objectives to ensure the business is run in the long-term best interest of the owners is pro-active in generating forward looking information to influence business strategy is a training ground for future business leaders uses automated accounting processes subject to continuous improvement and standardised throughout the organisation is active in developing financial awareness and expertise wherever necessary in the organisation plays an active role in decisions on the business portfolio advises on and supports decision making throughout the organisation is usually involved in the development and implementation of strategy provides professional objectivity to ensure ethical business practices are implemented throughout the organisation drives cost reduction strategies both within finance and the rest of the organisation always advises managers on the business implications of data it produces helps ensure remuneration policy supports long term value creation initiates and leads innovation and change is involved in reporting on the organisations environmental, social and governance performance leads in the identification and assessment of new business opportunities is involved in developing the organisations response to environmental and social issues
4.3 the high performer finance function a summary

The CIMA research reported in Finance and organisation performance: shaping the future paper sought to identify trends in the shape, structure and focus of the finance functions in the best performing organisations, as rated by survey respondents. Here we detail a brief summary of the key findings to allow us to see the context and drivers of the changing mix in the delivery of finance services. The CIMA research reported in Finance and organisation performance: shaping the future shows a positive relationship across a range of firm performance measures, such as ROI, indicating that better performing firms tend to exhibit a wider range of the transforming finance attributes as listed in the table above. While not a cause and effect relationship, the trends would suggest a more direct link in transforming and partnering functions being able to input to organisational success in certain areas. This reinforces the notion that these functions proactively add to value creation, as explored in CIMAs previous research in 2009-10 and by our panel and interviewees. The majority of the 20 attributes positively linked with high performance, on the table above, are also part of the management support/partnering role. This again reinforcing that organisations that have more focus on this area are rated as being high performers. More effort evidenced on management support by higher performers CIMA research shows that increased finance function performance tends to be associated with less effort devoted to accounting operations and somewhat more to management support activities. As such, models of service delivery that allow the function to shift resource and focus on these management support activities and roles such as the use of SSC and outsourcing may be able to facilitate better performance.
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Wider information responsibility in high performers when looking at organisation performance via ROI, we see a direct link with information responsibility. Higher performing organisations on average provide more responsibility to the finance function for both financial and also for non financial and forward looking data.
4.4 Best performing functions: internal and external provision

As far as internal provision is concerned, altering the degree of decentralisation of staff in finance service delivery does not seem to affect finance function performance either way. But in the better performing finance functions there are fewer finance professionals engaged in accounting operations and more in management accounting and management support, where there is closer contact with the business. In terms of external provision, both SSCs and outsourcing accompany higher finance function performance and this is more significant in the case of SSCs. Those finance functions operating with outsourcers may be continuing to devote finance resources to monitoring the work of the provider rather than channelling them towards management support activities, increasing the finance function performance. Where a SSC is used for more routine accounting services the finance function shows a higher finance transformation, and in particular scores more highly on the finance function attributes associated with transformation (Figure 4.1). In practice it seems that using a SSC can free finance resources for more value-creating activities therefore. figure 4.1 finance attributes more common in those using a ssc
Currently uses a SSC No
Is measured on its efficiency and/or effectiveness Leads in the identification and assessment of new business opportunities Set challenging objectives to ensure the business is run in the long-term best interest of the owners Is involved in developing the organisations response to environmental, social and governance performance Is involved in reporting on the organisations environmental, social and governance performance Is a training ground for future business leaders Is usually involved in the development and implementation of strategy Doesnt undertake all the organisations transactional accounting work
0
Yes
73.7% 88.9% 68.9% 77.5% 86.3% 60.0% 71.6% 69.5% 85.4% 92.1% 22.1%
51.5%
47.7% 59.9% 52.3%
6.8%
10 20 30 40 50 60 70 80 90 100
10 20 30 40 50 60 70 80 90 100
Proportion with attribute %
However, for organisations that outsource services only two of the finance transformation attributes to do with leading change and being a training ground for future business leaders are significantly more common (Figure 4.2).
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figure 4.2 the finance attributes improved by outsourcing

Currently outsources No
Initiates and leads innovation and change Is a training ground for future business leaders
0 20
Yes
72.0% 72.0%
61.4% 55.1%
40 60 80 100 0 20 40
60
80
100
Proportion with attribute %
4.5 organisation performance and external delivery

Overall there is limited evidence to support the idea either that higher performing organisations are more likely to engage external service provision, or that the actual type of finance service being provided externally affects performance directly. That said, we see that ROI is on average higher for organisations that use a SSC and margin on revenue for those that outsource (Figures 4.3-4.5).
4.6 ssc use and performance return on investment (roi)

Those firms that use a SSC are more likely to report above average or well above average performance (Figure 4.3). 57.8% of organisations that currently use a shared service centre for the provision of finance services report above average ROI, compared to 43.8% for organisations that do not use SSC. When looking at large organisations (with more than 250 employees) we see a more marked trend with over 15% points difference in relation to performance and the use of shared services. 61.8% of large firms that use a SSC report above average ROI 61.8% of large firms that use a SSC experience above average ROI, compared to only 46.5% of large firms that do not use a SSC. figure 4.3 Performance by use of a ssc roi
Proportion of group
60% 57.8% 50% 40% 30% 20% 10% 0 16.3% 10.4%
Below average Average Above average
Currently uses CSSC

Key 61.8% No Yes 46.5% 39.1% 31.8% 29.3%
39.9%
43.8%
14.4% 8.9%
Below average Average Above average
Return on investment
Return on investment (large enterprises only)
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4.7 outsourcing use and performance margin on revenue

Again those using external provision by outsourcing tend to report statistically significantly better performance, primarily due to a much greater proportion in the well above average category (Figure 4.4). 56% of organisations that outsource report on the above average performance ratings in terms of margin on revenue. We see that over 8% more of organisations that report well above average margin on revenue use outsourcing to deliver finance services. figure 4.4 Performance by use of outsourcing margin on revenue
Proportion of group
Key 60% 50% 40% 30% 20% 17.4% 10% 2.2% 0 2.3%
Well below average
56% of firms that outsource report above average performance on margin on revenue
No Yes
39.0%
36.4%
38.4%
38.6%
11.7%
5.3%
Average Above average
8.7%
Well above average
Below average
Margin on revenue
Interestingly when looking at those organisations that are planning to use SSC or outsourcing we find that the link with improved performance is maintained. Firms using or planning to use either form of external provision tend to report a higher ROI than others who are doing neither, with the difference more marked in the case of SSC use than outsourcing. This points to being less of an association with measures of operating performance (i.e. improved ROI does not result from better profitability or business performance), the implication is that the higher ROI reflects a higher focus on and better management of costs, the efficiency element, as does the use of SSC and outsourcing. This is where the association to performance and benefit of externalising provision seems to be most in play.
4.8 conclusions
The better performing firms, as rated by respondents, tend to exhibit a wider range of the transforming finance attributes. These attributes are also part of the management support/partnering role. Increased finance function performance also tends to be associated with less effort devoted to accounting operations and somewhat more to management support activities. Models of finance service delivery that then allow the function to shift resource and focus on these management support/partnering activities and roles such as the use of SSC and outsourcing may be able to facilitate better performance. When directly looking at organisations using external provision by SSC or by outsourcing we see that there is limited evidence linking with higher business performance. They do tend to report better performance in ROI in the case of SSC and margin on revenue in those that outsource.
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Zarin Patel, cfo, BBc and non-executive director, BBc Worldwide tanuja Pandit, head of decision support, BBc The BBC is the largest broadcasting organisation in the world. It is a public service broadcaster, established by a Royal Charter and funded by the licence fee that is paid by UK households.
There is certainly a relentless drive for efficiency in the operating cost of finance, and to drive effectiveness in supporting the financial management of our business. For BBC Finance, cost efficiency was achieved through a major transformation programme that was initiated in 2005. It reduced the delivered cost of finance by 50% by restructuring finance processes, creating an in-house shared service capability, and transitioning to a second-generation finance and accounting outsourced provider, over a two year period. At the same time we were able to create a number of finance partnering roles with the intention of delivering a higher value service to our business stakeholders. The quest for effective business partnering has been a challenging one. You have to get it right up and down the value chain by ensuring in the first instance that the shared service centre (SSC) has a good understanding of the business issues and is a trusted partner to business managers. This releases embedded finance partners to focus on high value and high risk decision support activity in the divisions. Weve found that the roles and responsibilities between our SSC and the divisional teams have become a bit blurred and there isnt always capacity in the divisional teams to deal with all big ticket issues. Our commitment to business partnering is undiminished and we are now considering ways in which we can create a more agile and responsive finance organisation. Certainly, further outsourcing of transactional activity is always on the cards as we continue to drive our operating costs down and to reinvest some of the gains in better partnering. To date our outsource focus has been on cost efficiency. We are now evaluating the scope for inclusion of further activity in the outsource model. Suppliers have to demonstrate that they can provide rigorous and reliable financial control processes to support risk management of our business. They also need to demonstrate coherent and innovative system and process strategies to leverage further benefit. In our view you will see a variety of finance functions emerge as finance continues its transformation in the way it delivers services. These will range from a partnership focus at one end to a compliance and control focus at the other. The partnership focussed organisations will inevitably make a bigger investment in finance capability and the finance function will probably benchmark in the median quartile in cost terms. Command and control will be the bare minimum finance service from statutory reporting, to dealing with accounts payable/receivable, payroll and compliance.
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At the BBC we are committed to driving a value added partnership model tempered by the realism of a tighter licence fee settlement and the need to drive efficiency and effectiveness. We will deliver efficiencies by increased self service and reporting automation through investment in reporting tools and upgrading systems. Our effectiveness drive is around delivering better financial management information, improving capability, streamlining processes and ensuring clarity of roles and responsibilities between our SSC, outsourced and embedded finance teams. Further outsourcing, to the extent that there are cost arbitrage opportunities, and the services lend themselves to this approach, will play a part in driving down the operating costs of core finance so we can continue to shift focus on the value creation piece. Where finance functions sit on the continuum between partnership and command and control will depend very much on the nature of their business/industry and the relative value ascribed to professional services within their organisations. In our view those CFOs that have proven the case for the value added through investment in business partnering will be closer to the partnership focused model. Regardless of industry, and the nations economic health, the drive to reduce the operating costs of all support functions, finance included, will continue to be a key driver and nobody will be exempt. Our top drivers to extend the outsource footprint in finance are the continued need to ensure efficiency and simplicity in our transactional processes and other defined execute processes with clear output and activity rules. This will support our drive to focus proportionately more effort by our retained staff on advisory, decision support and control activities. The management and wider transformational and delivery experience of the outsource providers are critical. Clearly the skill base among the suppliers service delivery staff is a crucial factor. Effective partnerships with suppliers are certainly the way forward and a key plank of the BBCs strategy. In practice, enacting this through contract terms is challenging and calls for significant investment in building relationships and trust on both sides. Organisations that have included incentivised savings terms in contracts have usually struggled to define and achieve them in practice. Major procurement exercises tend to be so long drawn out and resource intensive that this clause tends to be more of an aspiration than one that is a big focus. We believe the situation with benefits sharing is evolving and conversations will get more sophisticated over time.
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Paul Blackburn, group financial controller, glaxosmithKline GSK is the research-based pharmaceutical and healthcare company with a share of around 5% of the worlds pharmaceutical market. The group employs 96,500 people in over 100 countries.
Finance is the gatekeeper of financial information and people need ready access to that information. We have talked about value creation for years, but we have been hindered by the need to get the basic information out. So, at GSK we have been centralising and standardising those services. We have been looking at people whose job titles could be interpreted as being business partners, but spend 70% of the time getting, reporting and analysing data. They are delivering services rather than adding value. For the last year we have been moving towards the creation of a service delivery organisation for the different parts of the business, which will handle processes like reporting and analytics, to free up business partners to focus more on different business channels. Two years ago we started our finance academy to re-skill the finance organisation to support value creation as it moves away from standard analytics. Historically, weve been decentralised and everyone has different standard reports and there is a huge cost associated with that kind of service delivery across multiple businesses. If you look at the basic and core processes, like process-to-pay and record-to-report we were historically very fractured, so many people were working on the same things. Our strategy now is to put standard processes in as few locations as possible, which gives us strategic agility because it helps us to integrate new acquisitions if we are using standardised technology and data. We use business process outsourcing (BPO) provider Genpact in India for those processes and that has driven better productivity and standards. In Europe, however, we are running SAP in 15 countries productivity on process-to-pay, for example, is way below best-in-class. We want to co-locate processing activity there because we have seen from our US operation that we could triple our productivity. We cant be reinventing the wheel 15 times in Europe. We need those standard processes to be super-efficient, invisible and as automated as possible. That means putting them in one place, with one leadership implemented across multiple geographies. That could be through a captive or a BPO provider we are not wedded to either solution. The key for us is people adding value. Five years ago we went with BPO primarily for labour arbitrage and our relationship with our supplier has exceeded our aspirations in all dimensions. We get the best audits we have ever had. We treat the supplier as another part of GSK, we invest in the people and work together to lower attrition rates and to increase the effectiveness of services. This is the key issue with BPO, managing attrition. For some companies, the delivery of finance services has been affected by the financial crisis, but pharmaceutical companies are relatively crisis-proof. However, we have changed our priorities somewhat. Record-to-report and process-to-pay were our priority, but now we are looking at things like internal and external reporting as well as tax, to identify elements where we need to be close to the customer and what segments can be done elsewhere. More processes will go to service centres. The real change for us is that we are moving towards managing our teams, including finance, on a global basis, not just by country or region. Our functional costs are down 20% over the last three years, and that can only be done on a global basis.
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Outsourcing can bring economy of scale and intelligence. The service centre approach, when applied to routines that are repetitive and require high levels of control to be exercised, can clearly be performed more cheaply by a focused function, be that outsourced or not. The business partners can then deal with the job of communication of the financial information and supporting their customers knowing that the overall service provided by finance is efficient and well controlled. Therefore, BPO is not an enabler in its own sense but can add value in the right circumstances. Phillip mclelland, finance director, UK asset resolution cimas finance and organisation performance: shaping the future report 2011
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shared services; creating vaLue
t mo tion motiva
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m motivat ivat tion m n ot ivation motiva io t m mot iva ion

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motivation
motivation
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5.1 introduction
Having examined the characteristics and requirements of best practice for delivery of finance services, we turn now to an analysis of the role in best practice of external provision via SSCs and outsourcers. In particular, we examine the motivations for transferring provision from internal resource, whether centralised or decentralised, to external providers and, in the case of outsourcing, whether these motivations are in balance and understood by outsource providers. We look too at the criteria employed by organisations in selecting outsource providers and again at how well these are understood by the providers. For greater depth we also look at the changes in demand for specific services that have been experienced by outsource providers to better understand the evolution of external delivery.
5.2 motivations for service transfer from internal to external provision

For both use of a SSC and outsourcing (Figure 5.1), the principal explicit reasons for an organisation to transfer services are based on leveraging efficiencies through labour costs and process efficiencies and timeliness: to reduce or reallocate finance function personnel 43% of those transferring to a SSC 31.2% of those outsourcing. to improve process efficiency and timeliness 40.9% of those transferring to a SSC 36.6% of those outsourcing. BPO requires a big change management effort and hard savings in the bank to begin the journey. While 30-40% savings in labour costs is impressive, after two years it may not be enough. The transformation agenda at that point begins to expand. shantanu ghosh, svP for Practices, solutions and transitions, genpact cima finance transformation insight 2011
I firmly believe that while cost reduction is the fundamental bedrock of any outsourcing initiative, any scheme based mostly on this is doomed to ultimate failure. If and when better economic times return, this sort of model will begin to unravel. simon newton, vice President shared services, Kimberly-clark cima finance transformation insight 2011 Only a third were motivated by a SSCs supposedly superior expertise in processes and even fewer (20.9%) by their technical or technological expertise. For those moving to an outsourced delivery model, releasing staff to focus on higher value added activities is also a key motivator, it is the third rated motivation, demonstrating the recognition and requirement within the client side in shifting focus from the transactional and routine based areas to the higher decision-support and management support ones. Standardisation of processes across the organisation is also highly important in the SSC case, less so for outsourcing.
53
figure 5.1 motivations for transferring services to a ssc and outsourcer

CSSC
Reducing finance headcount Improving process efficiency/timeliness Standardising finance systems/processes Freeing up finance personnel for value-added activities Accessing process expertise Reducing nonpersonnel costs initiating broader change Accessing technical expertise and/or improved technology Transferring risk of failure Other benefits 43.0% 40.9% 40.9% 38.7% 33.3% 26.9% 22.6% 20.4% 15.1% 11.8%
Outsource
Improving process efficiency/timelines Reducing finance headcount Freeing up finance personnel for value-added activities Accessing process expertise Accessing technical expertise and/or improved technology Reducing non-personal costs Standardising finance systems/processes initiating broader change Transferring risk of failure Other benefits 36.6% 31.2% 29% 26.9% 21.5% 18.3% 16.1% 11.8% 10.8% 5.4%
10
20
30
40
50
10
20
30
40
Proportion citing reason
We need those standard processes to be super-efficient, invisible and as automated as possible. That means putting them in one place, with one leadership implemented across multiple geographies. That could be through a captive or a BPO provider we are not wedded to either solution. The key for us is people adding value. Paul Blackburn, group financial controller, glaxosmithKline cima finance transformation insight 2011
5.3 the outsource supplier view

On the other hand, organisations that provide outsourcing services tend to ascribe a wider range of motivations. Whilst the importance that clients place on the improvement of process efficiency and timeliness is in line with the supplier community, outsourcing providers appear to have mismatch in the ranking of other important motivations for outsourcing to those of the customer community: Outsourcers rank lower than their clients the importance of looking to the transfer to help them reduce or reallocate finance function personnel. They also seem to overestimate the importance to their clients of access to their technical expertise and technology by ranking higher than the customers.
54
figure 5.2 outsource providers views of the motivations for outsourcing

Improving process efficiency/timelines Accessing technical expertise and/or improved technology Accessing process expertise Reducing non-personnel costs 89.7% 86.7% 80.0% 77.3% 70.8% 68.4% 57.1% 100% 96.4% 96.4%
Transferring risk of failure Other benefits Standardising finance systems/processes Reducing finance headcount Iniitating broader change Freeing up finance personnel for value-added activities
0% 20% 40%
60%
80%
100%
5.4 criteria for selecting outsource providers

As for the criteria used in selecting outsource providers, service reliability and trust in the service supplier are rated as most important across the board, but there is again a gap between the position of the client and the outsource providers view (Figure 5.3 ) in relation to the other criteria. It appears that clients value the financial health of the supplier and their knowledge and understanding of their business. So experience of working with similar organisations then also comes into play as an important selection criterion.
55
figure 5.3 criteria in selecting outsource provider

CSSC The client view
Service reliability Trust in the supplier Financially secure Understanding of the organisations business Availability of service level guarantees Track record in servicing similar organisations Capability to improve processors Staff have an accounting/finance qualification sufficient for understanding accounting/finance processes Acceptability to organisations external auditor Capability to introduce innovation in the organisation Staff have a broad accounting/finance qualification that covers more than accounting/finance processes Lowest cost provider Staff have a qualification in process management and improvement Geographical location close to the organisations time zone International/global presence Other criteria 4.26 4.03 3.98 3.87 3.83 3.81 3.72 3.54 3.45 3.34 3.22 3.12 2.97 2.71 2.54 1.92
CSSC The supplier view

Key Service reliability Trust in the supplier Capability to improve processors Availability of service level guarantees Track record in servicing similar organisations Understanding of the organisations business Financially secure Capability to introduce innovation in the organisation Lowest cost provider Geographical location close to the organisations time zone International/global presence Staff have an accounting/finance qualification sufficient for understanding accounting/finance processes Staff have a qualification in process management and improvement Staff have a broad accounting/finance qualification that covers more than accounting/finance processes Acceptability to organisations external auditor Other criteria 1.67 3.73 3.57 3.53 3.47 3.43 3.30 3.23 3.13 3.03 2.63 2.57 2.57 2.50 2.43 2.40 5 = critical 3 = important 1 = irrelevant
Mean importance
Mean importance
A client should only choose an external service provider when that provider has more skills and experience than would be available in-house. A BPO provider can build a bigger pipeline of talent, whereas a SSC has to obtain that expertise at a higher price. shantanu ghosh, svP for practices, solutions and transitions, genpact cima finance transformation insight 2011
5.5 importance of skills in the outsourcing relationship

Finance skills and qualification are important for outsourcing selection as the graphs above demonstrate. Providers clearly think their clients place high value on their ability to manage and improve processes yet attach much less importance to their staff having their skills reflected in any form of qualification. In fact, the client places great value on the providers staff being suitably qualified, with an accounting/ finance qualification sufficient for understanding accounting/finance processes being more highly valued than a qualification that is broadly related to process management and improvement. Customers ranked this as the eighth most important selection criterion whereas suppliers only ranked 12th. Furthermore, the customers mean rating was above three = important, for the outsource suppliers it was below this threshold, reinforcing the value to the organisation and mismatch between the customer and vendor communities.
56
In the consultations CIMA has carried out the importance of the relevant technical knowledge of the outsource providers was further reinforced and the skills and on going training of the outsourcing staff pool clearly comes out as an important area in the selection process. This area is seen by many as one that will grow in importance as the relationship with outsourcers mature and delivery of higher value work is transferred to gain further process and cost efficiencies whilst further releasing resource for the support and partnering roles. We see this trend already emerging in the next section, 5.6. The management and wider transformational and delivery experience of the outsource providers are critical. Clearly the skill base among the suppliers service delivery staff is a crucial factor. Zarin Patel, cfo and tanuja Pandit, head of decision support, BBc cima finance transformation insight 2011
5.6 demand for outsourced finance services: the suppliers view

Over the last five years demand for outsourcing has seen on average a slight increase in respect of each type of finance service (Figure 5.4). There is no evidence of any radical change in the types of service being outsourced in this period, although: demand for specific finance services such as budgeting and forecasting has tended to increase more than demand for general financial accounting services there appears to be an acceleration of moves towards the use of outsourcers for management reporting and budgeting/forecasting rather than simply for transaction processing. Commentators and insight from MNC organisations highlight this shift to higher level analytical services as the outsourcing relationships mature, efficiencies have been leveraged and the SSC or outsourcing provider builds on effectiveness of the relationship, knowledge of the business and trust. The implication of this for outsourcers is that their staff will increasingly need a better understanding of the qualities of useful management information and its applications. Given the high ranking customers put on suitable qualification when selecting suppliers, this appears to be a call to action for the outsourcing community. For outsourcers to become true business partners to their clients and facilitate the transfer of their internal resource to creating value this move along the value chain will be critical. Without a suitably qualified delivery team it is more unlikely that the client management will push along this value chain. In a push for effectiveness in finance service delivery both suppliers and clients need to better understand expectations and work outside just the process mapping, transfer, management and reporting to achieve long term success.
57
figure 5.4 change in demand for outsourced services

Key Management reports Budgeting/forecasting Purchase to pay Sales to cash Payroll Indirect tax Other services Financial reporting Direct tax Treasury management Project analysis Tax planning IS support General financial accounting Fixed assets
0 1.5 2
2.46 2.45 2.44 2.36 2.36 2.27 2.27 2.23 2.22 2.20 2.18 2.11 2.11 2.09 1.89
2.5
3 = increase 2 = about the same 1 = decrease
Mean change in demand
5.7 conclusions
The principal reasons for an organisation to transfer services are based on leveraging efficiencies through labour costs and process efficiencies and timeliness. For those moving to an outsourced delivery model, releasing staff to focus on higher value added activities is also a key motivator, reinforcing the shift in focus from the routine based areas to the higher decision-support and management support ones. Outsourcing providers appear to have some mismatch in ranking some motivations for outsourcing to those of the customer community, such as the importance of looking to the transfer to help them reduce or reallocate finance function personnel. Service reliability and trust in the service supplier are rated as most important when selecting an outsource supplier. But outsource suppliers can underestimate the value to the clients of the financial health of the supplier and their knowledge and understanding of their business. There appears to be an acceleration of moves towards the use of outsourcers for management reporting and budgeting/forecasting rather than simply for transaction processing. This shift to higher level analytical services comes as the outsourcing relationships mature, efficiencies have been leveraged and the SSC or outsourcing provider builds on effectiveness of the relationship, knowledge of the business and trust. Finance skills and qualification are important for outsourcing selection. This area is seen by many as one that will grow in importance as the relationship with outsourcers mature and delivery of higher value work is transferred to gain further process and cost efficiencies, whilst further releasing resource for the support and partnering roles.
58

christian mller laursen, vice President and chief financial officer, aPm terminals APM Terminals operates a global port, terminal and inland services network of 22,000 employees in 64 countries including interests in 60 marine facilities and 131 inland services locations.
There is no doubt the finance function is being called upon to take much more active role in driving improved business results. To meet this challenge, senior finance leaders need to be an intimate part of the executive decision making teams at all levels of the organisation, which clearly calls for a more decentralised structure of the finance function. This is great news for everybody working in finance it is more interesting to report into a business leader in a region or division, than into a hierarchical finance functional structure. At APM Terminals, the off-shoring of accounting and reporting routines has enabled finance in the business to change focus towards driving improved performance, and in general the finance function has taken advantage of this and grabbed the opportunity to lift themselves to become true business partners. So for us it has been a positive experience. In my view finance functions tend to underestimate the change management effort required to fully leverage the benefits of offshoring. The benefits are there to be reaped, but it doesnt happen by itself. Finance need to manage the off-shoring to make this successful, then let go and lift itself up to take the wider partnering role and earn recognition in the business. My sense is that most prominent organisations have exploited many of the benefits of outsourcing. Some further offshoring and outsourcing will take place, but probably not at the same high pace as seen over the past few years. The economic crisis has been a catalyst for all kinds of cost savings and efficiency drives including offshoring and outsourcing initiatives. For APM Terminals, offshoring had been initiated before the crisis, but we would probably not have progressed as far without the crisis as a further catalyst. The ability of our service centre organisation to demonstrate the ability to continuously improve processes and proactively suggest areas for further improvement is what I need to see to expand the scope of our offshored activities going forward. Many seem to regard the need to have effective results orientated outsourcing relationships and services, rather than efficiency in terms of labour and cost arbitrage. Offshoring has improved our process quality and enabled our senior finance executives in the business to devote more time to driving improved business performance. For me decision support and other functions where a significant degree of judgment is involved need to be retained within finance. However much we seek to embrace the service centre professionals, the physical distance will always remain and for some activities you simply need to be closer to the action. One of the challenges has been to integrate the finance professionals in the service centres sufficiently into the business. You need, at all levels in a finance function, to have a certain understanding of the business and its priorities in order to see the wider context and thereby make the right decisions on a daily basis. Embracing the service centre professionals into the finance function is therefore key to successful offshoring.
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next steps
e ss ctiv iven ness ness eFFe Fect e e eF iviven ess Fective t ss eF ecectn en ectivene v shared services; creating vaLue eFeFeticti ess eFF F ceFFven eness eFFectiveness eF FF eFFectiv
t es ec n s eFF ve ss nes ti e ec tiven tive F eF FFec FFec s e ss e es ss e ne en iven iv ctive t t ec eFFe eFFec FF iveness s e es ect
ss ne
ss ne ve ti ec F ess eF en iv s
eFFectiveness eFFectiveness
eFF
60
The CIMA Centre of Excellence at the University of Bath School of Management is continuing to research finance transformation best practice in the development of the finance function. Key areas that the centre will be exploring include: How to shape the finance functions personnel portfolio to meet the needs of the organisation. What measures can be used to define best practice in the finance function. How the finance function has adapted to the recent financial and economic crises, and how it can support the organisation through and out of these crises. Looking further into the future, how finance roles and structuring of the finance function is changing. Benchmarking best practice for developing the finance function and its people. get involved To participate in upcoming research, or find out more information about the centre and its work, please email: transformation@cimaglobal.com
about the centre of excellence at the University of Bath school of management The CIMA Centre of Excellence at the University of Bath School of Management is undertaking a five year programme of research into the changing nature of the finance function and its implications for finance professionals. Its director is Dr Philip Cooper, a senior lecturer in accounting in the school. He is a chartered accountant and worked for 15 years in the City before returning to academia.
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7. research methodology
The research on which this report is based involved both stakeholder consultations and also a large-scale international online survey. The consultations informed the design and analysis of the survey which was employed to acquire data on the current and future position in practice across a full range of organisations globally. It was conducted through a web-based self-administration format in 2010. Views were canvassed from individuals outside the finance function as well as those within it. To accommodate the differing perspectives of respondents, particularly as regards their role within/outside the finance function and seniority, and to target questions appropriately, the respondents path through the questionnaire was structured according to previous answers. As such, all questions were not directed at all respondents some were confined to senior personnel, others to finance professionals, others to senior non-finance personnel. The survey was predominantly carried out in English but translated versions were also used for respondents in China, France and Germany. CIMA wishes to thank the finance professionals and senior executives that have participated in the global survey that has fed into this paper. We would also thank those that shared their experience and insights via a series of interviews and feedback through the CIMA Global Finance Transformation Panel and CIMA events and roundtables. references to survey instrument and abbreviations For ease of reference, terms and definitions used in this report are as follows: centralised (finance professional) (C)SSC decentralised (finance professional) FF finance function firm non-senior (finance) partially decentralised (finance professional) senior finance senior non-finance member of finance function (captive) shared service centre accounting/finance specialist with no reporting responsibility into the finance function finance function includes all accounting and finance staff whose sole or main reporting responsibility is to a manager or director within finance organisation mainly operating outside the public sector persons whose main position is best described other than as senior finance (ibid.) or senior non-finance (ibid.) accounting/finance specialist with some reporting responsibility into the finance function persons whose main position is best described as: finance director, CFO, or head/chief/VP of accounting or finance persons whose main position is best described as: chairman, non-executive director, managing director, CEO, managing partner, director (other than of finance), COO, partner or head/ chief/VP (other than of accounting or finance) small or medium-sized enterprise (a firm with up to 250 employees in the respondents country where they mainly work)
SME
sample size Total completed sample 3,048. Additional uncompleted sample 2,384. Data from those who did not complete all questions in the survey have been included in the analysis where relevant.
62
A summary of the characteristics of respondents and their organisations is given below: respondent characteristics Complete:
Count
2,500 2,000 1,500 1,000 500 0 199 Senior non-finance Non-senior finance 614 Senior finance 2,235
Incomplete:
2,500 2,000 1,500 1,000 500 0 240 Senior non-finance Non-senior finance 1,256 589 Senior finance
Duties
Role
General finance/accounting 757
sample by main duties offinance/accounting finance professionals Specialist 144

Finance/accounting supporting operating units Complete: Consulting/outsourced services 53 579
Duties
SSC Other functions/units General finance/accounting Specialist finance/accounting Finance/accounting supporting operating units
73 757 144 579 1,243
Consulting/outsourced services 53 SSC Other functions/units 73 1,243
Incomplete:
General finance/accounting Specialist finance/accounting Finance/accounting supporting operating units Consulting/outsourced services 30 75 358 513
SSC 53 Other functions/units General finance/accounting Specialist finance/accounting 0 75 Finance/accounting supporting operating units 200 358 30 400 513 600 797 800 1,000 1,200
Count
geographical analysis Consulting/outsourced services region UK Americas Europe Asia Sub-continent MEA
Principal countries/criteria Other functions/units

Count USA, Canada, Caribbean countries, South America
SSC 53
797 1,000 1,200
UK mainland, Northern Ireland, Channel Islands, Isle of Man 0 200 400 600 800 EU, EEA, western former USSR (excluding UK)
Asia (except sub-continent), eastern former USSR, Australia, New Zealand India, Sri Lanka, bordering countries, e.g. Pakistan Middle East, Africa
63
research methodology
Count Status
Region where respondent mainly works

Count
1000 800 1200 600 1000 400 800 200 600 0 400 200 157 0 1200 1000 800 1200 600 1000 400 800 200 600 0 400 200 131 0 MEA 153 Sub-continent 216 327 228 327 228 157 542 650 542 650 1002 1002
1200
Status
Completed
806
Incomplete
357 131 MEA 153 Sub-continent 806 329
Asia
Europe
Americas 329
UK
Region
216
357
Asia
Europe
Americas
UK
organisation characteristics
Region
Sector in which respondents organisation mainly operates Complete:

Sector
Agriculture, forestry, fishing Oil, gas, mining Manufacturing Utilities Construction Wholesale, retail, trade Transportation, storage Accommodation or food service activities Information, communication Financial, insurance services, investment Real estate Outsourcing services Professional/consulting services Other services Public sector Arts, entertainment, recreation Charitable, voluntary, not for profit Education Other 70 73 132 227 120 260 51 68 222 49 162 432 115 64 99 228 30 114 534
Status
Agriculture, forestry, fishing 21 Oil, gas, mining Manufacturing Utilities Construction
66 302 50 60 64
64
Wholesale, retail, trade 156 From efficiency to effectiveness transforming the finance delivery mix Transportation, storage Accommodation or food service activities 27 Information, communication Financial, insurance services, investment
98 333
Oil, gas, mining Manufacturing Utilities Construction Wholesale, retail, trade Transportation, storage Accommodation or food service activities Information, communication Financial, insurance services, investment Real estate Outsourcing services Professional/consulting services Other services Public sector Arts, entertainment, recreation Charitable, voluntary, not for profit Education 70 73 51 68 49 64
114 534 99 228 115 162 432
222 120 260
Sector in which respondents organisation mainly operates227 Other Incomplete:

Agriculture, forestry, fishing 21 Oil, gas, mining Manufacturing Utilities Construction Wholesale, retail, trade Transportation, storage Accommodation or food service activities 27 Information, communication Financial, insurance services, investment Real estate Professional/consulting services Other services Public sector Arts, entertainment, recreation Charitable, voluntary, not for profit Education Other 0 100 38 55 83 193 200 300 400 500 600 82 147 34 51 167 Outsourcing services 19 64 98 333 50 60 156 66 302
132
Count
Count
Size of respondents organisation by number of employees

600 559 497 559 298 248 298 248 243 243 317 315 317 315 497 503 503 500 600 400 500 300 400 200 300 100 200 0 100 0
Status
Count
Status
Completed
600 500 600 400 500 300 400 200 300 100 200 0 100 0 228 1-10 193 11-50 153 51-100 166 101-250 157 251-500 501-2,500 2,501-10,000 283 228 193 153 166 157 283 273 234
Incomplete
273
234 10,000+
Employees in respondents country

1-10 11-50 51-100 101-250 251-500 501-2,500 2,501-10,000 10,000+
Employees in respondents country
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8. figures, charts and tables

figures 1.1 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 4.1 4.2 4.3 4.4 5.1 5.2 5.3 5.4 Contribution of management support activities to organisational performance Use of external provision Structure by reporting location of finance staff Organisational location of finance professionals by organisation size Size of internal delivery by organisation size when SSCs/outsourcers are used Expected changes in number of finance staff by reporting location Finance time in contact with business during service delivery Finance spending no time in contact with business during service delivery Finance services provided by SSC and outsourcing Services expected to be provided by SSC and outsourcing for those not currently using Finance professional duties and the degree of centralisation Nature of finance function duties relating to Other functions/units Time on different finance service areas Change in centralised delivery of finance services to better meet organisational needs Internal effort per service area by CSSC and outsourcing use The relation between cost and time in delivering finance services internally Finance attributes more common in those using a SSC The finance attributes improved by outsourcing Performance by use of a SSC ROI Performance by use of outsourcing Margin on revenue Motivations for transferring services to a SSC and outsourcer Outsource providers views of the motivations for outsourcing Criteria in selecting outsource provider Change in demand for outsourced services 12 18 19 20 21 23 24 24 30 32 34 34 35 36 37 39 45 46 46 47 54 55 56 58
tables 3.1 4.1 Top three services planned to be delivered externally The 20 attributes that are found in the more successful organisations ranked by proportion of use 31 44
66
2011 CIMA All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise without the prior written permission of the copyright owner. The opinions expressed in the publication are those of the individuals and not necessarily those of CIMA. While every effort has been made to ensure the accuracy of the publication, CIMA cannot accept responsibility for errors or omissions.
notes
notes
notes
isBn: 978-1-85971-702-8 (Hard copy)

May 2011 Price: 50 chartered institute of management accountants 26 Chapter Street London SW1P 4NP United Kingdom t. +44 (0)20 7663 5441 f. +44 (0)20 7663 5442 e. transformation@cimaglobal.com www.cimaglobal.com/effectiveness
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From efficiency to effectiveness

transforming the finance delivery mix

eFFiciency; eFFect iveness;

se Fun es e nce en Lu Fina tiv va y c c ction Fe e eF Lu ien e Fun ed s va ic c

y a L ct va icienc centr d deF eF raLise e-cent ervices is d raL es shared s

cy ien FFic ction e cy un

introduction and context

options in the delivery of finance services

delivery of finance services to the organisation: trends in the changing structure 16

From efficiency to effectiveness transforming the finance delivery mix

finance service delivery and organisation performance

the motivation and drivers for external service provision

figures, charts and tables

finance transformation insight

From efficiency to effectiveness transforming the finance delivery mix

the changing mix of services delivered externally

From efficiency to effectiveness transforming the finance delivery mix

the high performer analysis

finance transformation insight

From efficiency to effectiveness transforming the finance delivery mix

options in the delivery of finance services

From efficiency to effectiveness transforming the finance delivery mix

options in the delivery of finance services

figure 1.1 contribution of management support activities to organisational performance

1.2 organisational design for delivery of finance services

1.3 structural elements for finance service delivery

From efficiency to effectiveness transforming the finance delivery mix

1.4 types of finance services

options in the delivery of finance services

1.5 competencies required for delivering finance services

From efficiency to effectiveness transforming the finance delivery mix

finance transformation insight

delivery of finance services to the organisation: trends in the changing structure

r ru e trust u shared services; ture c uuct t creating vaLue ruscrture struc r st t s

ctu tructu ructure s ucture st str stru

r re tu uctu ure c r t u t tr ture s ruc s st e uc

u ur tr ct ure s u ct ure r ct st stru ru e

From efficiency to effectiveness transforming the finance delivery mix

14.8% considering using SSC in future

16% considering using outsourcing in future

2.2 the extent of external finance service delivery

delivery of finance services to the organisation: trends in the changing structure

figure 2.1 Use of external provision

Organisation uses captive shared service centre

No, we do not use currently nor plan to use in the future

Yes, we use currently

Yes, we plan to use in the future

40% 30% 20% 10% 0 4.2% 9.5%

No, we do not use currently nor plan to use in the future

Yes, we use currently

Yes, we plan to use in the future

From efficiency to effectiveness transforming the finance delivery mix

2.3 centralisation in internal finance service provision

Fully decentralised Partially decentralised

2.4 the effect of organisation size on centralisation

delivery of finance services to the organisation: trends in the changing structure

2.5 the effect of external finance service provision on internal delivery

From efficiency to effectiveness transforming the finance delivery mix

Currently uses CSSC No

Median number of people

delivery of finance services to the organisation: trends in the changing structure

2.6 decentralisation of finance professionals in the future

From efficiency to effectiveness transforming the finance delivery mix