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Finance that is fit for pupose

IN MANY WALKS OF LIFE, and business, throwing money at a problem is often the surest way of achieving a satisfactory conclusion. This, however, is anathema to finance functions.

As a consequence of the new economic landscape, finance budgets have risen to meet the demands of a rapidly changing business environment. But spending more doesn’t necessarily mean spending better.

Despite increased resources, most finance teams are struggling to deliver the sharper and more proactive management information needed to enhance reporting, risk management and decision making.

According to a benchmark report of more than 200 companies by PwC, businesses that spend the highest proportion of their overall revenue aren’t the best performers. In fact, the finance functions that rate highest across insight, efficiency and control tend to run at a lower cost as a percentage of revenue.

Finance cost graphAndy McCorkell, director in Saratoga, PwC’s benchmarking and measurement practice, explains top-tier finance teams are operating at lower costs as a percentage of revenue because they’re not only more efficient, but their insights are also helping the revenue for their businesses to grow quicker than their running costs.

“If you look at the total cost of finance functions, the leading finance functions cost less despite investing more in business insight,” he says. “They have streamlined and standardised their processes.”

This improved efficiency is driven in part by an increase in the use of shared service centres and the use of multi-functional shared service centres – companies such as Procter & Gamble and GSK have opted for this approach – that integrate finance with other support functions such as IT, HR and procurement; not to mention the use of hybrid sourcing models that combine outsourced and captive operations.

Finance is often located in a number of inshore and offshore locations, depending on the role, with many companies now “developing centres of excellence in areas such as reporting and tax”, McCorkell says.

Other efficiencies are driven by achieving faster reporting to gain more time for analysis. PwC states leading finance teams report 30-40% faster than typical functions. The end game is twofold: to deliver more for less – leading finance teams operate at about 40% lower cost (percentage of revenue) – and to allow finance teams to shift their effort towards greater decision support.

New insight

Finance effort graphBut the capabilities required by finance professionals are evolving and many traditional career paths are no longer an option. Companies are looking for people with the commercial acumen and interpersonal skills needed to work with different parts of the business.

The cost of ‘insight professionals’ continues to rise and is higher than the rewards for finance personnel overall. According to PwC’s benchmark survey, the annual cost for average finance professionals is now £54,000, whereas the average cost of insight professionals is £85,000.

“We see clear evidence of organisations focusing more on business insight and it costs more,” says McCorkell. “The challenge organisations face is the traditional route to develop talent is no longer there.”

But companies that are managing talent effectively aren’t necessarily paying more to attract the right people – they are developing plans for what skills will be needed, how to develop them, and how to track delivery.

“Global companies are considering how they develop talent. They will put in place a structure, with effective training, plans and finance academies,” says McCorkell.

Such skills – a combination of business and analytical capabilities – are important in developing business partners. While the number of dedicated business partners has remained largely unchanged over the past year, PwC says business partnering is also coming to be seen as a core competency.

The findings from its data suggest business partnering has yet to live up to expectations. More than 80% of participants are actively promoting partnering with the organisation, but only about 50% feel the finance function plays a role in business strategy. ?

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