Why Does Finance Transformation Matter for Mid-Market Companies?

The economy is slowly recovering from the impact of COVID. Organizations are now recognizing the important need for transforming every aspect of their organization – including finance.

Companies typically spend between 0.50% to 2.00% of their revenue on finance. For example, a company that has an annual revenue of $500MM would spend between $2.5MM to $10MM annually on its finance function. In a survey conducted in 2022 by American Productivity & Quality Center (APQC), the median annual spend on finance is about 1.1% or $5.5MM.

Finance transformation defined

At Arthur Lawrence, we define finance transformation as strategic projects and initiatives that drive the following outcomes:

1) reduction in operational cost,

2) improved organization effectiveness, and

3) risk mitigation through improved controls and governance. 

These projects typically impact the finance organization’s operational framework, including team hierarchy, accounting policies, enabling technologies, and delivery options.  Examples of finance transformation projects include Operating Model Design & Implementation, Shared Services, Working Capital Optimization, Fast Close, ERP Design & Implementation, Procure-to-Pay (P2), and Order-to-Cash (O2C) Optimization.

In our experience, effective finance transformation will impact all facets of the operational framework. An ERP implementation project will not only impact technology but will create opportunities to update accounting policies, realign organizational hierarchy, and transform ways of working.

Impact of finance transformation

The tangible and measurable benefits of successful finance transformation initiatives can be far-reaching beyond cost reduction. Finance organizations can better align their priorities with those of the organizations. Improved controls will safeguard the company’s assets, and optimized processes will allow employees to move away from transactional work, giving more time for strategic work. 

Additionally, redundant or obsolete policies and processes can be eliminated, thus making the organizations more effective. Through automation, repeatable processes can be performed by ‘bots’, thus freeing up valuable employee time. In addition to providing significant labor-saving, offshoring and outsourcing can also create opportunities to implement best practices. 

Where to start

Successful transformation projects typically include a project charter with executive support. Arthur Lawrence recommends an assessment project to identify transformation opportunities and build the individual business case to improve the likelihood of getting that support. The assessment project should have the following phases:

– Project team onboarding:  In this phase, the finance transformation team is mobilized with a firm understanding of requirements and expectations.  Subject matter experts (SMEs) with a good understanding of the business should be a part of the team. Once the team is mobilized, the overall scope should be confirmed and communicated to relevant stakeholders. Finally, the team should take time to prepare interview/workshop and data collection templates.

Data collection:  The next phase of the engagement is data collection. In this phase, relevant stakeholders are interviewed (and workshops are conducted as needed). Financial and operational data are also collected. This phase is critical to the transformation initiative’s overall success since the data collected can be used to provide insights and build the relevant business cases and financial models.

Analysis:  Data collected is validated and analyzed. Validation is an important step that is often overlooked. A few questions should be asked in this phase, including: Does the data look reasonable in the context of what is known about the business? Is the data complete? What is the right source for the data? It is recommended that extreme outliers be removed from the data set to be analyzed. Followups are often needed to confirm interview and workshop findings.

– Roadmap development:  In the final phase of the assessment project, transformation projects are identified and prioritized. A business case should be built for each project. An important aspect here is that a benefits realization framework should be established to track measurable business benefits.

Also Read: Dealing With Labor Shortage In Finance: Offshore Staff Augmentation Vs. Transformational Outsourcing

It is highly recommended that a project charter be developed for the high prioritized project. The charter should detail the goals of the project, overall scope, a high-level list of activities, dependencies, due dates, desired outcomes, and benefit measurements. 

If you have questions or need help with your finance transformation project, please contact Susan Primm at susan.primm@arthurlawrence.net. Alternatively, you can also reach out to Susan at 713.858.6483.