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| Management Briefings
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Is finance rising to the challenge?: Nick Jarman, PwC (July 2010)
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Against today’s background of gradual economic recovery, CEOs are looking to the finance function to provide more insight
and advice. Yet according to a recent PricewaterhouseCoopers benchmark analysis of over 100 companies, only 11% of
finance personnel are now engaged in true business partner roles.
The PwC study examines whether finance teams are equipped to provide the levels of strategic insight, risk oversight and
other key aspects of the ‘partnering’ role now expected by many CEOs.
It also looks at how the best-performing finance functions – those in the top quartile of benchmark evaluation ratings – are able
to meet evolving business needs, balance being a business partner with their traditional responsibilities and ultimately deliver
real value to the enterprise.
What comes through clearly from the report is that while considerably more finance functions now regard themselves as true
business partners compared to a year ago, many organisations still lack the necessary capacity and capabilities to fulfil this
role.
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Pay as you grow: Haseet Sanghrajka, ST Consulting (February 2010)
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Software as a Service (SaaS) is being touted as the ‘pay-as-you-grow’ solution to companies’
current economic problems. But this market is in its infancy. Few organisations really
understand the implications of hosting – from security to data ownership, and service level
agreements to loss of control.
So while UK companies from SMEs upwards are understandably keen to embrace a method of
software acquisition that removes capital expenditure and promises consistent monthly bills –
just how can organisations ensure they are getting the service they are paying for? And are
these solutions really mature enough to support critical business functions such as finance? With apparently perfect timing, the maturity of communications and web-based technology has
created flexible, cost-effective application delivery just at a time of unprecedented economic
crisis. Reliable, high-speed and wireless broadband services are combined with web-enabled
applications to produce the Software as a Service model.
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CFO's search for business alchemy: John Bronjewski, Logica (November 2009)
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CFOs are increasingly under pressure to re-establish corporate trust and business integrity,
protect their company’s bottom line, enable profitable growth and shareholder value creation,
and do more with less by increasing the efficiency and quality of financial operations.
Yet some finance operations are still not adequately prepared to support the business in a
proactive way, because they have significant weaknesses in their existing organisational,
process and system design that tie too much resource to the daily operations. These
weaknesses include: too much finance resource spending too long every month producing numbers they don’t
trust, with little or no supporting qualitative analysis and decision support; sub-optimal finance functions characterised by high operating costs, financial control/risk
management issues, and regulatory and compliance challenges (SOX, SEC reporting, IFRS).
According to a recent benchmark study, the cost of world-class finance organisations is 2.4
times lower than at average firms.
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Setting a target: Jeff Herman, Blue-Plate Consulting (September 2009)
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“If you don’t know where you are going, you might wind up someplace else.” – Yogi Berra.
When an organisation embarks on radical change, it may need a representation of how it
intends to operate in the future, in the form of a target operating model (TOM).
Developing a TOM is a cross-functional team effort with, for example, the finance function
describing how financial processes and systems support the business and its regulatory
obligations. A fully developed TOM will usually comprise a graphical representation with
supporting explanatory documentation.
This article provides some ideas from practical experience of how to develop a TOM and the
particular issues for finance. It also covers why TOMs often have a completely different look
and feel from each other, despite using a common development framework.
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Quick wins: Michael Blythin, Adventus (July 2009)
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A number of major issues are confronting finance and accounting professionals as a direct
result of the credit crunch, or of the business culture that pervaded organisations prior to the
credit crunch. They include: how do you get purchasing right? How far should you push cost reduction? Why can’t we get BPM to work?
Until now, the mantra in many businesses has been that all problems can be solved by projects
and consultants. If the problem was particularly big, then just throw more consultants or
externals at it – and if the project starts to fail, then change the consultants!
But this behaviour is not sustainable in the current economic climate that demands ‘right result
first time’. This article explores what is needed to deliver successful projects in a cash and
resource-constrained environment.
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Rewriting the rules: I Heinz, J Niebuhr & J Pettit, Booz & Co (March 2009)
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The most unusual advice on mergers and acquisitions (M&A) that Mittal Steel
CFO Aditya Mittal has ever heard came from a Roman Orthodox bishop.
Mittal was considering how to turn around a newly acquired and struggling
steelmaker in Romania when the local bishop told him to build a church at the
entrance to the facility. “I’m telling you that will work wonders,” the bishop
said.
Mittal was taken aback, but decided to follow the advice. “We built a beautiful
Roman Orthodox church. All the workers got involved in it part time – and that
changed everything,” said Mittal, recalling how the integration barriers
dropped away and the plant’s workers embraced a new set-up. Thus a church
played a key part in the success that the company, now ArcelorMittal, the
world’s largest steelmaker, has had in Romania.
The story underlines an important point: not every deal is done by the same
rules, and no one strategy fits every company. There are many ways to
succeed at M&A, a fact made clear in interviews with CFOs of leading companies recently published in the strategy+business
Reader, ‘The CFO as Deal Maker: Thought Leaders on M&A Success’.
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Getting serious about service: Mike Holmes (February 2009)
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Once they have established their own automated accounts processes – like procure to pay
(P2P), the subject of my previous article – finance directors will clearly need to measure the
overall efficiency of such systems.
This efficiency is defined in service level agreements (SLAs) and measured using key
performance indicators (KPIs).
So how should the FD practically establish individual SLAs with the other departments in their
organisation? The agreement should include the following core elements: introduction and purpose; service(s) to be provided. This expounds on the concept of ‘quantified tasks’ and their
associated quantified services. All services to be delivered should be considered in these
terms; performance, tracking and reporting. This provides details of the organisation, benchmarking targets and metrics, service
monitoring, reporting and the framework for SLA meetings.
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Perils and profits of P2P: Mike Holmes (January 2009)
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The procure-to-pay (P2P) process can be defined as the steps that need to be taken between
someone in your company first making a decision to buy goods or services, and finally making
the payment for those goods or services.
This end-to-end process includes all departments within the business, overseen by the
accounting & finance or procurement function. The process runs as follows:
1. User departments will raise requisitions for goods or services from preferred suppliers and
the relevant user department manager will need to authorise the requisition.
2. The procurement department will raise a purchase order, based on the requisition details,
and forward this to the preferred supplier.
3. When the goods or services are received, the user department will be responsible for
producing a goods received note (GRN), thereby receipting the goods.
4. Once the invoice is received from the preferred supplier, assuming it matches the purchase order price and GRN details, the
finance accounts payable people will be responsible for ensuring it is paid.
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Best of enemies?: Grant Waterfall & Tom Gunson, PwC (October 2008)
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Earlier this year, the CFO of a major company asked PwC to investigate what he believed were some major shortcomings in
his business’s IT function.
The CFO was holding back from signing off on a major technology-dependant investment because he had concerns about IT’s
ability to adequately support the business to deliver such investment. Over the previous couple of years, IT had been
managing or was heavily involved in a series of failed projects, and was not delivering the quality of support, infrastructure and
services that finance needed to do its job properly for the business.
However, when the consultants went in, the situation turned out to be more complex than it first appeared.
On the one side, the CFO was indeed very disenchanted with IT’s performance and delivery against his (which he considered
to the one and the same as the business’s) objectives. But on the other hand, while there was recognition of some
‘challenging’ projects in the past, the IT function in general – and the CIO in particular – had no idea that it was regarded as
failing.
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Biting the BPM bullet: Robert Gill, Parson Consulting (August 2008)
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Recent consolidation in the business performance management (BPM) software market has
raised a number of questions for CFOs and other finance professionals.
All the leading vendors claim to provide solutions which are able to integrate smoothly with any
data warehouse, ERP and operational system, whilst also promoting ‘enhanced’ levels of
integration with their own product family. But can both positions be true? And what are the key
considerations for organisations investing in a BPM solution at a time of significant market and
application change?
First of all, let’s examine what has happened in the market. Last year witnessed a dramatic
consolidation as software giants SAP, Oracle and IBM together acquired five of the biggest
BPM players – Business Objects, Hyperion, Cognos, Cartesis and OutlookSoft.
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Neither fish nor fowl: Alasdair Gill, James Gill & Co (May 2008)
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Most organisations spend more on developing, using and maintaining spreadsheets than they need to. One reason why costs
get out of control is that spreadsheets are taken for granted and hence forgotten – nobody is paying attention to how they are
used or to their total cost of ownership.
In part, this is because spreadsheets are neither fish nor fowl. IT departments tend to provide only limited support for them
because they are seen as a business tool. Business users on the other hand tend to assume that the IT department is
responsible for them because they are software.
Spreadsheets are, however, ubiquitous. Even in companies that run Oracle, SAP or Sage as their primary accounting and financial
reporting software, there is often some residual spreadsheet use: at the board meeting of one former client, just before sending the
annual report to the printers the chairman wanted to have one last look at the summary spreadsheet – ‘just as a check’.
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Tips to improve change: Martin Taylor, Allasso Consulting (March 2008)
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My first tip for improving the implementation of financial & accounting systems dates back to my
earliest experiences in this area.
I was working in the finance department of a FTSE100 company, on a site that employed over
3,000 people. The company ran its three financial ledgers on three different systems, at three
different locations.
The general ledger comprised hand-written ledger cards; bought ledger details were entered
into an ICL system that produced a payments schedule on disk that was sent to London for
processing; and the sales ledger was operated by a different division on another site. Financial
reporting was a long manual process, with the final schedules produced on a typewriter…those
were the days!
This situation could not continue as the company had expanded and become extremely profitable, so one of the accountants
initiated a review of available software and a proposal was presented for introducing an integrated financial system. This would
negate all the duplicate data entry and provide a single unified view with the promise of a report writer to automate the financial
schedules.
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MiFID: surviving or thriving?: Dillow/Leggett/Smith/Sodhi, Atos (January 2008)
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The Markets in Financial Instruments Directive (MiFID) sets the stage to make Europe a more attractive market for investors.
Change is underway, even though parts of Europe are still running late in amending national laws to incorporate MiFID. New
trading venues, such as Chi-X, are emerging to create more competition. Trade volumes are increasing while the trade size is
decreasing.
Research by Atos Consulting on how prepared financial organisations were before MiFID came into effect last November
revealed a prevailing ‘wait and see’ attitude.
But to thrive now MiFID is in force, organisations need to differentiate their execution policies and demonstrate ‘best execution’
through publication of trade statistics. They also need to maximise order flow volume and reduce marginal transaction costs to
ensure competitive advantage.
This article looks at what financial firms can still do to gain and retain competitive advantage and so become one of the
winners in the new market that is now emerging.
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United front: Robin Hollington, Peapod Consulting (November 2007)
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The cost and impact of regulatory compliance is rising. Even conservative estimates predict that
compliance expenditure will rise by 22% year-on-year for the next five years.
Faced with this, it is not surprising that some organisations have reported failures in meeting
their projected financial targets due to the impact of compliance, both on expenditure and the
unhealthy inward focus.
The scale of the problem requires finance and other managers to take a fresh look at how they
address and measure compliance: a unified approach is the only way ahead.
Many companies do treat compliance very seriously but, in the main, their laudable efforts are
conducted in silos of activity – leading to different approaches, disjointed activities and, at times,
conflicting data capture. As they address different compliance activities, there is much repetition
and little co-ordinated visibility across the organisation.
In order to achieve unified governance, companies have to take an holistic approach to the challenge.
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Snapshot of IFRS: Ian Dilks, PwC (September 2007)
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The adoption of International Financial Reporting Standards (IFRS) by European companies
was a major development in corporate history. Now elsewhere around the world, more countries
are also showing support for IFRS, with Korea a recent example. The Securities and Exchange
Commission also appears to be warming to the international standards.
There is some way to go before US domestic registrants might be allowed to use IFRS, but this
is no longer a fantasy. The removal of the IFRS-US Generally Accepted Accounting Principles
(GAAP) reconciliation requirement would be a step on the way and give the International
Accounting Standards Board a further boost.
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Hidden gem: Keith Rodgers, Webster Buchanan Research (July/August 2007)
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How strategic can you really get about expense management? Frequently seen as
something of a tactical side issue, it’s usually viewed as an administrative and compliance
matter – a fairly simple end-to-end process that starts with the submission of a claim and
ends with the preparation of payroll data. As far as financial activities go, it’s not exactly one
of the most complicated – and it’s certainly not the first thing organisations think about
automating.
That common perception, however, ignores a bigger picture. Manual expense management
systems tend to be both fallible and wasteful – they eat up administrative resource when
spreadsheet data has to be re-keyed into financial systems, and they rely too heavily on
overworked line managers to monitor them. As a result, errors – deliberate or otherwise – tend
to get missed, and the audit trail can be hard to follow.
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Conformance vs performance: Jon Fuller, Centrix (May 2007)
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Probably the most common complaint in business today is that the burden of conforming with a
raft of related corporate governance directives – Sarbanes-Oxley/SAS99, Basel II and The
Freedom of Information Act – distracts management from dealing with real business matters.
However, while regulation and compliance may feel like a burden to some, it is designed to
protect all stakeholders and reduce risk. The proof is in the long-term success of those
organisations that work hardest at compliance.
Everyone needs good governance but in a fast-moving world, senior executives need to strike
the right balance between conformance and performance. In order to do this, CEOs need to
take a more sophisticated approach to managing risks in their operations and focus their
attention on areas of the business where they may have previously abdicated responsibility,
such as their financial & accounting technology.
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Becoming an ideal partner: David Ketchin, Parson Consulting (March 2007)
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At many companies, the finance function is constantly challenging itself to enhance the value it can add to the business. At the
same time, however, finance often finds itself stretched thin in diligently performing its routine activities, reducing its ability to
focus on ‘value add’ or strategic work.
This article highlights finance business partnering and how it can be implemented effectively in any business. A number of organisations are choosing to adopt a specialised operating model for finance. This model separates roles that
have traditionally worked within a single structure and with somewhat blurred responsibilities. The aim is to reduce duplication
and cut the cost of operations while allowing those working in commercial roles to remain focused on what really matters. Business partnering means bringing insights, challenges and analysis from a finance perspective into the business decision-making
process.
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Playing by the rules?: Cliff Mills, PMP Research (January 2007)
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In November 2005, Chancellor Gordon Brown announced the abolition of the Operating and Financial Review (OFR) reporting
requirements for listed companies. Many companies heaved a sigh of relief – however, the move did not eliminate the need for
them to produce additional information on their company’s performance.
The OFR was a specific implementation of the European Union Accounts Modernisation Directive (EU AMD) which requires
directors to produce an enhanced directors’ report incorporating a ‘Business Review’. The new Companies Act 2006 (formerly the
Company Law Reform Bill) has consolidated existing company legislation and encompasses the requirements of the EU AMD.
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Green guidelines: Simon Thomas, Trucost (January 2007)
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The UK Companies Act 2006 has entered the statute books and what all company directors
should be clear on is that they will face increased environmental management obligations.
The DTI has warned directors that it will not be sufficient to pay lip service to such obligations,
and in many cases they will need to take action to comply.
In fact, the Companies Act 2006 requirements are an extension of the wider EU Accounts
Modernisation Directive (EU AMD) and the UK Government has developed guidelines to help
companies meet these obligations. There is considerable confusion surrounding the reporting requirements of environmental
issues, particularly after the abolition of the Operating and Financial Review (OFR) by Gordon
Brown in November 2005.
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A new frame of mind: Peter Moller, Deloitte (October 2006)
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There’s no doubting the current war for talent. Demand for skilled, qualified accountants is high. To recruit and retain the best
you must offer an exciting career proposition.
In part, this means reforming your finance function into an effective team that combines four core elements – strategist (helping
to develop the business), custodian (taking care of corporate governance and risk management), operations chief (ensuring
streamlined transactions processing and production of reports and accounts) and catalyst (leading from the front in ensuring
that any stewardship, operations or strategic activity is executed effectively and delivered on time).
This model requires the streamlining of back-office activities and the creation of shared service centres, giving central finance
and the FD time to concentrate on higher-level strategic issues, in particular how to increase shareholder value.
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Transforming your finances: Simon Tennant, PA Consulting (August 2006)
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Business complexity is increasing. This is driven by a range of factors including greater governance, regulation and intensifying
competition brought about by globalisation and emerging technologies. Chief executives feeling the pressure to deliver are
looking towards their CFOs to enable their organisation to succeed.
As a result, today’s financial management is much more than a series of transactional processes. The finance function is an
integral part of any organisation’s decision making, as it plays a central role in positioning the organisation to deliver its
strategy.
CFOs have begun to restructure their operations and capability by reducing the administrative burden, driving out cost through
standardisation and introducing integrated systems. However, it is clear that no one solution fits all. To become a true business
partner finance must implement the correct balance of interrelated sourcing options, processes, capabilities and technology in
line with the organisation’s goals.
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Making compliance 'business as usual': Liz Gower, Atos Consulting (June 2006)
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The majority of companies affected by Sarbanes-Oxley have achieved SOX compliance. Yet
regulation continues to represent a challenge for the finance function, both in terms of spiralling
costs and increased workloads – leaving CFOs with less time to focus on the important ‘value-added’
aspect of their roles. In fact, a recent survey by Atos Consulting found that even in the
areas of corporate governance and risk reduction, the regulatory burden is not helping seven
out of eight European CFOs increase the strategic value that they add to their companies.
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Sending the finance function offshore: LogicaCMG (February 2006)
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In an increasingly competitive market, CEOs and CFOs are looking for ways to minimise cost and maximise competitive
advantage. Many have identified inefficient working practices within their finance functions and have explored options to
increase productivity. These include the creation of a finance shared service centre (FSSC), which is increasingly seen
as an effective way of addressing the inefficiencies and freeing up valuable management time to focus on core
functions.
Within this, a recent phenomenon has been a drive among companies to move their FSSCs offshore – which has been
growing by 74% a year, according to NelsonHall. The driver behind this has been increased competition: the
requirement to reduce headcount, salary and location costs further, as well as to improve competitive advantage.
Certainly, moving the transactional elements of the accounts payable department offshore has been particularly
successful with, in some cases, headcount and location-related cost reductions of up to 30% compared to onshore
costs.
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The case for new financials: Mike Holmes (January 2006)
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A business case can be defined as a structured proposal used to justify commitment of resources to a project. It is a
working document prepared in order to convey, to the senior management decision makers, the proposed project’s
costs, risks and benefits, so they can decide whether to approve funding for the project.
In essence, when it comes to selecting new financial and accounting software – and other systems – the business case
should contain sufficient information to enable the organisation’s decision makers to support the go-ahead of the
project. It will form the framework for decision making.
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