Periodic Reassessment, Continuous Improvement of Finance Operations A well-considered and executed transformation roadmap can help finance keep pace with emerging technologies and service delivery models, as well as advance key business objectives.

Executive SummaryThe ever-changing needs of the business and its operating environment make it imperative for organizations to continuously reassess their core processes, including those that pertain to finance. Doing so will ensure that processes can meet any new business requirement and support the organization through needed change. This has led to a growing trend in recent years for finance groups to conduct rigorous assessments and develop multiyear transformation roadmaps. A well-constructed and well-executed transfor-mation roadmap will address the wide swath of process, people and technology issues. This will put companies on a path to become best in class and stay ahead of their peer group.

This white paper discusses the factors that mandate a transformation plan update and pro-vides a framework for a comprehensive assess-ment and roadmap.

Creating, Extending a Transformation RoadmapFinance transformation roadmaps are strategic in nature and built for a multiyear timeframe. They set the transformation agenda and direction for the organization. The critical information require-

ment for developing a transformation roadmap is a detailed operating landscape map, including an in-depth understanding of the “as-is” process, available talent, organizational structure, technology landscape and levels of automation. Once an in-depth understanding of the current landscape has been developed, analysis can be performed and alternative future-state scenarios developed to begin building the enterprise trans-formation roadmap.

A transformation roadmap needs to be dynamic and continuously updated. Current operations need to be reassessed in light of changes to the company and its environment, including:

• Availability of new software tools and solutions.

• Maturing of outsourcing options.

• Finance operations performance.

• The advance of globalization.

• Evolving best practices.

• The changing role of finance.

By continuously evaluating and updating the transformation roadmap, companies will be able to take advantage of the latest developments in technology solutions for finance. New software

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tools can be leveraged to increase levels of automation, eliminate non-value-added activities and help create an organization of the future with best-in-class processes.

Technology EnablementSoftware applications are available that lend a degree of automation to all finance processes. These software technology enablers almost fully automate the process, as in the case of accounts payable invoice processing, or improve the effec-tiveness of the function, such as financial plan-ning and analysis (FP&A). Examples of finance processes for which mature technology offerings are available include the following:

• Invoicing: Eliminate invoice processing with Web-based solutions that connect buyer and supplier.

• Order management: Optimize order manage-ment, billing and collection functions with Web-based solutions.

• Cash application: Automate credit card and cash applications by leveraging auto-matching of bank feeds with ERP.

• Recurring entries: Automate booking of re-curring expenses and allocations by leveraging existing ERP functionality.

• Travel expenses: Optimize travel expense pro-cessing by integrating expense reporting with corporate travel cards.

• Reconciliations: Optimize reconciliations by auto-matching multiple feeds.

• Consolidations: Optimize ledger consolida-tions.

• Reporting: Standardize financial planning and reporting by creating system-generated auto-mated reports that are available centrally.

• FP&A: Build custom views of data and provide analytics.

FAO OptionsTransformation roadmaps also help companies objectively evaluate whether to retain processes or take advantage of the lower labor cost and shared investments of working with a service provider. This can be achieved by comparing offerings and providers with existing cost structures and service levels.

The offerings of finance and accounting outsourc-ing (FAO) providers are changing and maturing rapidly, moving from the provision of rules-based transaction processing to complex judgment-based work. In the early days, the FAO scope was limited primarily to accounts payables work. Successful delivery of cost savings and quality improvement from accounts payable outsourcing quickly led to the outsourcing of other transac-tion processing work, such as accounts receivable, fixed assets accounting, cost accounting and routine reporting. Over time, as FAO became a more accepted and proven business practice, companies expanded their outsourced work to include complex reconciliations, ad hoc reporting, Sarbanes-Oxley compliance work and selected treasury activities (see Figure 1).

Source: Everest Research Institute (2011)Figure 1

Degree of Outsourcing of F&A Processes Over Time

Emerging Mature

Accountspayable

Generalledger

Accounts receivable

FP&A

Regulatoryreporting &complianceInternal

audit

Payroll

Tax

Low High

Low

High Pioneer

Frequency of Inclusion(Percentage of transactions)

Transaction-intensive processes 2009-2010 2007-2008

Judgment-intensive processes 2009-2010 2007-2008

Depth of Outsourcing Scope(Degree of process

ownership transferred to FAO service provider)

During the past few years, FP&A scope evolution was driven more by the increasing depth of scope than the frequency of inclusion of FP&A processes in FAO contracts.

Sample size: 580 multiprocess FAO contracts signed as of 2010Note: For more information, please refer to “Moving Beyond Transactional FAO:The Rise of FP&A Outsourcing,” Everest Group, December 2010.

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Service Level ExpectationsIn-house levels of service performance also change over time, for better or worse, as do per-formance requirements. Several factors can drive the need for a change in service levels, including new expectations, accounting standards and technology, as well as changes in the operating or regulatory environment. If current process performance levels are not meeting the new demands, this calls for a process reassessment in order to achieve compliance.

Consider the following scenario: The end-to-end cycle time for Company XYZ, from request receipt to order fulfillment, is 12 working days. The best-in-class cycle time is four days. The company, therefore, must reassess the process with a target of getting close to best-in-class to stay competitive.

Globalization also impacts the finance transfor-mation roadmap. As companies expand globally to access new markets, or get closer to the existing markets they serve, the demands on finance change. In the traditional model, organi-zations tended to create infrastructure and back-office support in new markets, including finance. With the maturity of today’s FAO offerings, it is no longer a requirement to build all of the necessary support. Organizations are now able to operate in multiple new markets with minimum investment by partnering with established providers that offer global F&A services. Companies that have successfully adopted this model are able to quickly ramp up in new markets, get closer to the markets they serve and focus on core business.

As the World TurnsBest practices are changing rapidly. In response to changing technologies, maturing of outsourc-ing and changing regulations, approaches and activities that were best practice just a year ago may no longer hold that status. Organiza-tions are leveraging the power of information and developing a greater understanding of the finance back-office function and converting it into value for the organization. This has led to a new trend, in which back-office functions are trans-forming into revenue-generating functions:

• Order management: This function is now used by companies to cross-sell and upsell prod-ucts and services. This has a direct impact on revenue. The processes and skill sets of the people managing this function are changing

to accommodate the expanded agenda. Order management is transforming itself from being a back-office function to a front-office sales channel.

• Accounts payable: Improving discount capture and recovering debit balances are now increas-ingly being built into the standard accounts payable process and are key deliverables for most accounts payable managers.

• Sourcing: With changing expectations, sourcing teams are now being measured on actual savings delivered. They are expected to leverage spend analytics and new technologies to take advantage of scale and negotiate better rates and terms of credit.

The goals and aspirations of finance are also changing over time. As finance organizations are transformed, goals are evolving from predict-ability, efficiency and accuracy to business impact, predictive analytics and business partnering. These evolving goals also force revisions to finance’s transformation roadmap. Increasingly, corporations want finance to not only record trans-actions and report accurately but also be a true business partner supporting overall enterprise strategy and growth.

A final factor is the progress toward the existing transformation roadmap itself. Progress may be lagging or exceeding the original plan; if it is lagging, what are the factors that are slowing progress? Was the original plan realistic? If the answers are no, then the plan needs to be revisited and updated to ensure that the objectives are met.

FAO providers are also not immune to the need to reassess operations and revise transformation plans. A service provider that only implements the transforma-tive changes identified at the start of the rela-tionship is failing its client. For all of the afore-mentioned reasons — technology, regulation, performance, etc. — FAO service providers must also step back and periodically reassess.

With changing expectations, sourcing teams are now being measured on actual savings delivered.

As finance organizations are transformed, goals are evolving from predictability, efficiency and accuracy to business impact, predictive analytics and business partnering.

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Figure 2

Creating a Transformation Roadmap

The required periodic reassessment of finance is not a cursory, surface-level activity; it must be both objective and comprehensive. At a minimum, a reassessment must include:

• Benchmarking internal costs against the market price of external service providers.

• Benchmarking performance (productivity, accuracy, timeliness, cycle time, stakeholder satisfaction, etc.) against the performance of external service providers.

• Assessing finance operations against leading best practices.

• Assessing the deployment and effective utiliza-tion of technology.

Getting StartedA disciplined, successful implementation of the finance transformation roadmap will enable organizations to build financial organizations of the future with best-in-class processes at

an optimized cost. Based on our experience with large global companies, a well-drafted and executed transformation roadmap can reduce program costs by 30% to 50% over a three- to five-year timeframe, as was achieved by one large hospitality industry client (see Figure 2).

Any business that has not reassessed its finance organization and revised its transformation roadmap within the past 24 months needs to get started. To truly achieve an objective and rigorous review, and a roadmap that is actionable and pragmatic, outside assistance is recommended. When seeking help with assessing and transform-ing finance, we suggest choosing a partner that not only provides consulting but also operates large-scale financial operations for others. A provider of finance and accounting outsourced services will be best positioned to know the real timeframes, costs, benefits and risks associated with alternative transformation initiatives.

Client: Large U.S.-based hospitality chain

Challenges:

• Large-scale operations with complex fran-chising and refranchising relationships.

• Fragmented financial processes and systems.

• Poor knowledge management; highly resource centric.

• No formal business metrics program.

• High process variation from one business unit to another.

Our Approach:

• Current-state assessment (people, process, technology).

• Analysis of multiple future-state scenarios.

• Development of transformation roadmap and business dcase.

Client Benefits:

• Five-year transformation roadmap, with identified quality and business impact benefits.

• Identification of 35% savings on current total cost.

• Identification of 5% year-over-year ongoing productivity improvements.

About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

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About the AuthorsPaul Nowacki, CFA, is Leader of Finance and Accounting Transformation Services, within Cognizant’s Business Process Services Business Unit. In this role, Paul oversees all F&A consulting activities. He also serves as a thought leader in F&A and helps identify market trends and shape new Cognizant offerings. He is a frequent conference and webinar speaker and author of numerous articles and white papers on various finance and accounting topics. By combining his industry experience in IT and finance leadership roles with a background in transformational consulting, Paul looks holistically at finance and accounting organizations and blends process and systems with an organizational design perspec-tive. He has a B.S. in quantitative business analysis and an M.B.A., with a concentration in operations research. Paul also holds the Chartered Financial Analyst professional designation. He can be reached at Paul.Nowacki@cognizant.com.

Mathew George, CPA, is a Solutions Leader within the Finance and Accounting Practice of Cognizant’s Business Process Services Business Unit. In this role, Mathew works closely with clients on strategic finance and accounting deals. He also leads strategic assessments and develops optimal solutions that focus on the redesign and reengineering of critical processes. Moreover, Mathew has led the global con-solidation and standardization of F&A processes across multiple countries and languages, into offshore and near-shore delivery centers. He is a Chartered Accountant, a Certified Public Accountant and a Certified Internal Auditor and holds a certified Six Sigma Green Belt from GE. Mathew can be reached at Mathew-3.George-3@cognizant.com.