Optimizing the Finance Function
The repercussions of expanding regulations and worldwide economic uncertainty continue
to resonate throughout the banking and financial services industry and negatively impact
the potential for improved profitability. To make strides in the current environment, financial firms need operating models that are designed to shave costs through enhanced
efficiency and provide margin improvements through greater productivity. When
determining where to focus efforts to optimize operations, some financial services
organizations have discovered the greatest opportunities in the finance and accounting
(F&A) function.
F&A is a critical component of any organization, and operational inefficiencies can
significantly impact the bottom line. Core activities – including accounting, transaction
processing, financial information management, tax, cash management and financial
controls, as well as mid-level functions like general management and control, and strategy
and risk – all provide ideal areas for optimization.
By reengineering or retooling current processes, implementing shared-services
capabilities, or outsourcing, organizations can implement operating and business models
that simplify work streams and deliver better results from internal data. These
approaches raise productivity and enhance process efficiency, resulting in lower costs and
improved operating margins.
Process Reengineering Improves
Performance and Productivity
Measurable improvements in efficiency can be
gained by reengineering existing processes to
improve operational effectiveness. Assessing
performance utilizing analytics-driven business
intelligence allows organizations to identify
gaps and inefficiencies, plan and model solutions and then determine the optimal methods
to improve productivity and effectiveness
while making the best use of technology enhancements and human resources.
The financial enterprises recognizing the greatest benefit from reengineering engagements
have often employed Lean and Six Sigma
methodologies to improve the reliability of
performance outcomes. Data from current
functions, such as accounts receivables, is
collected and analyzed to reveal gaps and
bottlenecks that lead to low productivity, long
cycle times and errors. Comparing current
process metrics to best-in-class standards
isolates inefficiencies at a granular level,
allowing for improvements that strengthen
process effectiveness and generate greater
process accuracy. Critical business process
improvements, including automation of key
steps, have accounted for a 20 percent
increase in capacity for some organizations.
Tighter Process Performance
Supports Compliance
As the remaining rules related to Dodd-Frank
are finalized, it is increasingly important for
controllers to have clear insight into their own
internal data and be assured of accurate
information to avoid issues with compliance.
The traditional method for storing and processing information required for reporting
often occurs in silos across banking product
systems.
Transferring data from one finance repository
to another can introduce inefficiencies and
errors. To ensure data quality, continuous
monitoring and multiple reconciliations are
required.
Reengineering can eliminate informational
silos and the process redundancies that drive
up error rates, reporting cycle times and costs.
Improved data access and tracking enables
cleaner and faster close-to-report cycles and
has reduced the delivery time on financial
reports by up to 20 percent in some cases.
Optimizing core functions enables CFOs to
make quicker and more insightful decisions
regarding business planning and regulations.
Tighter cost management through better
resource allocation and stronger reporting to
improve regulatory compliance will continue
to deliver significant value to banks and financial services organizations in the years to
come.
Shared-Service Models Prove Critical to Improving Operational Efficiency
In addition to reengineering, companies have generally tried one of two different approaches to
improving operations – either external outsourcing or internal shared services. These methods
help financial enterprises create a center of excellence to meet tactical requirements such as
accounts payable, accounts receivable, collections, etc., leaving the core team free to focus on
higher-level F&A functions that support the business and organizational goals.
Financial services organizations that move routine work to outsourced centers gain access to
dedicated specialists capable of completing tasks more efficiently, thereby reducing errors and
improving straight-through processing rates. The immediate advantage is seen in lower processing costs and stronger compliance, as well as in the added benefits associated with increased
capacity across internal teams and the ability
for CFOs to concentrate more fully on initiatives that drive growth.
ENHANCED
CONTROLLERSHIP
IMPROVED
PROCESS
STABILITY
BETTER
RESOURCE
ALLOCATION
Shared service centers (SSCs) offer many of
the same advantages as traditional outsourcing, but are seen as a way to more efficiently
manage core finance-related services as well.
Routine finance work and core functions
By providing F&A expertise to multiple divisions of the same company, the SSC delivers
excellence in critical process performance as
Business
Business
Business
well as access to top-of-the-line technology
Unit
Unit
Unit
at a reduced or “shared” cost. With a view
across more than one function of the bank or
financial services organization, SSCs standardize processes and can even make adjustments
where necessary to better accommodate up and
better resource allocation. These savings can
downstream functions in the operational flow.
Improved operational performance allows CFOs then be used to generate growth in other areas.
to reduce their operating costs and better plan
for improved profitability.
Aligning Business Objectives and
Shared Services
SSCs give global companies the opportunity to
centralize components of their operations for
faster and more efficient outcomes. Large financial institutions challenged with disjointed
reconciliation practices across divisions and an
uneven use of personnel benefit from the process standardization and staff consolidation that
comes through the implementation of the SSC.
Through improved skill matching, organizations
are able to allocate resources with lower skills
to perform more routine functions while highly skilled employees are tasked with analytical
processes. As a result, some organizations have
realized significant P&L impact resulting from
enhanced controllership, process stability and
Reducing Costs through Global
Business Services (GBS)
Initially, shared services and outsourcing delivery methods traveled down separate and
distinct paths. However, during the past few
years, many financial institutions have realized
tremendous benefit through implementing a
hybrid approach – referred to as global business services (GBS) – that exploits the best of
both sourcing options. GBS uses outsourcing
to harness the skills of F&A professionals who
are expert at standardizing and transforming
routine transaction processes, while employing
shared services to transform and standardize
finance-related processes that the company
views as too risky or too core to outsource.
In a GBS, all F&A operations, including processes that are internal, outsourced and those operated by a Shared Service Center, are brought under one internal umbrella. This alignment can
relate to a single business unit or incorporate multiple functions into its design such as human
resources and F&A. The primary advantage associated with a GBS model is the ability to get
an entire enterprise behind organizational goals and to implement process and technology
improvements with an overview of the needs of the entire organization. The ultimate result is
better alignment within the organization and with overall business objectives.
Because it is integrated into corporate strategies and shares a drive toward the same outcomes,
an F&A GBS model receives superior collaboration from across the enterprise. While not yet as
widely utilized as outsourcing and reengineering, those organizations that have mastered the
art of global business services have realized dramatic outcomes. When aligned with the
enterprise strategy, improvements in operational effectiveness of at least 15 percent have been
reported, leading to cost savings of as much as 23 percent.1
Results like these are noteworthy in an era when financial institutions grapple with increasing cost
complexities and slow revenue growth. The current regulatory environment, waning interest rates
and changing customer habits all take a toll on an organization’s ability to maintain market share
and meet customer demands. A GBS model affords the opportunity to reduce costs and improve
internal operating efficiencies across the enterprise. Through the support of an experienced management team and the implementation of clear goals, CFOs can help to gain a competitive advantage against continuing market challenges.
Achieving Transformation
While uncertainty still reigns over the economy as issues surrounding new and current regulations
continue to play out, CFOs are taking the situation in hand by implementing improvements that
allow them to operate more effective organizations while controlling costs.
F&A is critical to a bank or financial service organization’s overall health, but needs to be optimized in order to receive the best benefits and the greatest returns. Companies should consider
the pros and cons of reengineering and outsourcing as well as those related to implementing a
shared services or GBS model. By making strategic decisions based on a thorough understanding
of the expected results, financial institutions will be able to select the option most aligned to their
operational needs and business goals. This will allow them realize greater profitability by transforming the F&A function.
“Partnering for Successful Execution in Global Business Services,” Genpact, 2013, http://www.genpact.com/docs/resource-/partnering-for-successful-execution-in-global-business-services.pdf?sfvrsn=2.
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