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Transforming Finance and Accounting through advanced operating modelsExecutives believe there is untapped potential for advanced technology, process reengineering, and new organizational structures to improve the finance function’s ability to address the most strategic enterprise challenges

EXECUTIVE SUMMARY

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About the research

In 2014, Genpact commissioned a research project conducted by an independent research firm. The goal was to assess the potential for new operating models across a wide spectrum of industry sectors and functions. More than 900 senior-level executives completed the survey. The entire report sets out findings drawn from more than 150 respondents engaged in the finance function across a range of industries. This analysis complements other research and insight derived from Genpact’s experience designing, transforming and operating business processes and operations.

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Even as the economic recovery inches forward, organizations continue to face daunting challenges. Intense competition and slow growth in mature markets have magnified uncertainty and put pressure on costs, just as regulators are escalating their demands. CFOs and other senior finance executives believe that the finance function can play a key role in addressing some of these issues. However, its ability to impact these challenges depends on levels of maturity and preparedness, which vary widely across companies and industry sectors, as well by sub-functions. Specifically, Financial Planning and Analysis (FP&A) and master data management (MDM) have emerged as two key areas to watch. Finally, executives believe that the three levers of operating model transformation (technology, process re-engineering, and advanced organizational structures) create impact differently. Using commissioned research, Genpact has examined these trends to understand how enterprises are driving transformation to achieve business impact.

Introduction

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Strong differences among F&A executives: BFSI concerned with compliance and risk; others with cost and growth

Regulatory compliance, risk management, and cost reduction are the biggest worries confronting senior finance executives.When asked to name the three top concerns confronting their company, about 56% of respondents point to compliance with regulations, while reducing costs and increasing customer satisfaction rank close behind, cited by 48% of the respondents. However, the most important challenges vary widely across industries. Banking, financial services, and insurance (BFSI) executives include compliance and risk management among their top three concerns, respectively, in 72% and 70% of the cases (Figure 1). Executives in other industries are more concerned about innovation and growth.

BFSIOthers1 Overall

BFSIOthers1

BFSIOthers1 Overall

BFSI Others1Overall

BFSI Others1Overall

BFSI Others1

BFSI

Overall

Overall

Overall

Overall

BFSI Others1

Others1

Ensure compliance to regulations

Reduce cost

Increase customer satisfaction

Manage risk

Increase growth and scalability

Enable company’s innovation

Enable agility and adaptability

Reduce capital and asset intensity

0 10 20 30 40 50 60 70 80

Figure 1

Importance of the challenge (% of finance and accounting respondents across industry segments stating that the challenge is among the ‘Top 3‘ for their company)

Sharp differences between financial services and other industries

Manufacturing, life sciences and high tech companies more focused on innovation and growth

DIRECTIONAL

n=157 for finance and accounting executives 1Healthcare, life sciences, consumer goods, high tech and manufacturing

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MDM is important and has comparatively lower maturity and preparedness to evolve

•For managing risk, FP&A (64%) and MDM (49%) are far more frequently cited as having material impact than any of the other finance sub-functions.

•For regulatory compliance, MDM is virtually tied with record-to-report for highest impact, followed by FP&A.

•Although FP&A has the most impact, MDM deserves special attention because it is less mature and not all companies are well-prepared to make it evolve (Figure 2).

Improvements in the FP&A and MDM have the biggest overall impact in addressing these challenges

or not prepared

Mat

urity

of

proc

ess

Pre

pare

d to

m

atur

e

56 48 48 42 42

58 21 43 6458Overall F&A

23 43 37 18 17O2C

50 32 18 22 35R2R

25 53 27 9 22P2P

34 53 20 62 64FP&A

38 40 4949 27MDM

Ens

ure

com

plia

nce

to re

gula

tions

Red

uce

cost

s

Incr

ease

gro

wth

an

d sc

alab

ility

Man

age

risk

Very mature or matureSomewhat mature or immature

Fully prepared or preparedSomewhat prepared

Magnitude of challenge1

% of respondents assessing maturity and preparedness

% o

f res

pond

ents

sta

ting

func

tion

can

have

mat

eria

l im

pact

on

addr

essi

ng c

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Incr

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satis

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Importance of the challenge (% of respondents in specific functions across industries stating that the challenge is among the ‘Top 3‘ for their company)

Figure 2

DIRECTIONAL

n=157 finance and accounting executives

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Advanced organizational structures most frequently applicable among operating model initiatives •Advanced organizational structures include business process outsourcing (BPO) and shared

service centers (SSCs) as well as hybrid models that combine the two.•Financial executives give advanced organizational structures the highest ratings for impact on

the overall F&A function, with about 59% stating that they can have material impact.•This source of impact is considered material more frequently than other operating model

initiatives, including business process engineering (40%) and radically improved use of technology (38%).

•Advanced organizational structures are also frequently believed to have particularly strong benefits for FP&A and MDM (Figure 3).

Overall F&A 5940

Business process re-engineering

123MDM 503246

Radically improved use of technology

140

FP&A 413842 147

R2R 442928 93

P2P 492928 79

Impact Index*

38

O2C 4823 7829

BPO or SSC or hybrid1

Figure 3

Importance of the challenge (% of respondents in specific industries stating that the challenge is among the ‘Top 3‘ for their company)

Technology quite important in FP&A and MDM

More BFSI see advanced organizational structures as helpful for MDM

% of respondents stating the initiative can have a material impact on the function DIRECTIONAL

* Function Impact Index combining stated importance of challenges and stated ability of a function to address them1 BPO – Business Process Outsourcing, SSC – Shared Services

n=157 finance and accounting executives

Advanced organizational structures support finance transformation

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Figure 4

Many organizations believe advanced organizational models can have impact; more so for mature F&A functions

•For every F&A sub-function, the proportion of financial executives who rate advanced organizational structures as having material impact is significantly higher among organizations with mature functions.

•This contrasts with radically improved use of technology and business process reengineering where there is little difference in impact among firms with mature and immature sub-functions (Figure 4).

Advanced organizational structures have the greatest impact in mature F&A sub-functions

Overall F&A

P2P

O2C

R2R

FP&A

MDM

Business process re-engineering

Radically improved use of technology

634038

494138

603326

302318

493028

352727

512926

392527

453742

314343

523043

483451

MatureNot mature

BPO or SSC or hybrid1

% of respondents stating the initiative can have a material impact on the function

DIRECTIONAL

n=157 finance and accounting executives; Mature=119, Not mature=38

1 BPO – Business Process Outsourcing, SSC – Shared Services

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Not ConsideredPlanned after 12 months

Planned in next 12 months

Currently in Progress

SSC, BPO or hybrid1

151315

58

BPR

28

513

54

Tech

23711

59

SSC, BPO or hybrid1

16911

64

BPR

32

810

50

Tech

15

15

67

SSC, BPO or hybrid1

151311

62

BPR

151015

60

Tech

185

13

64

SSC, BPO or hybrid1

135

11

72

BPR

18811

63

Tech

168

19

57

18

SSC, BPO or hybrid1

107

65

BPR

24

14

14

48

Tech

21

1213

54

O2C R2R

P2P FP&A MDM

Figure 5

n=157 for finance and accounting executives

DIRECTIONAL

At least one third of the companies have not initiated the transformation of their operating model •Senior financial executives have made substantial progress in implementing advanced

organizational structures for the FP&A function.•About 83% say that such implementations are either in progress or will start within 12 months,

compared with 76% reported for technology and 74% for business process reengineering.•There is still considerable opportunity for further improvements in MDM, where a comparatively

lower 73% of respondents have advanced organizational structure initiatives in progress or planned (Figure 5).

% of respondents; Width of the column indicates the % of respondents who believe that the operating model initiative will have a material impact on the function.

Advanced organizational structures are being implemented most rapidly

1 BPO – Business Process Outsourcing, SSC – Shared Services

9Figure 6

Mature organizations expect more impact than less mature ones from technology and BPR

•Advanced organizational structures are considered to have impact by more executives than other approaches for finance process improvement.

•On the other hand, the research has found that (when applicable) improved use of technology is believed to provide the biggest monetary impact, especially for mature organizations (Figure 6).

There are important variations among mature and immature finance organizations, as well as across industries, sub-functions, and company size.

Notwithstanding the widespread opportunity represented by advanced organizational structures, radically improved use of technology is expected to generate the largest monetary impact

BPR

$ 158m

$ 82m $ 83m

Tech

$ 110m

$ 178m

BPR

$ 295m

TechBPRTech SSC, BPO,Hybrid1

SSC, BPO,Hybrid1

SSC, BPO,Hybrid1

$ 268m

$ 155m

$ 103m

OVERALL MATURE IMMATURE

Average $ impact

Annual $ impact is the impact of operating model initiatives in US$ per annum including reduction of cost, capital required, improvement of cash and revenue growth 1 BPO – Business Process Outsourcing, SSC – Shared Services

Average $ impact, bar width proportional to percent of respondents stating that the initiative will have a material impact

n=157 (Mature=119, Not mature=38) finance and accounting executives

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CFOs and other senior finance executives believe that the finance function plays a strategic role in addressing the daunting challenges that are still prominent in times of slow economic recovery, continued uncertainty, and heightened regulatory demands. This research examined how those challenges can be tackled by three levers of operating model transformation: technology, process re-engineering, and advanced organizational structures.

The related transformation of operations is an untapped strategic lever for the CFO as well as the CEO. However, it is sometimes seen as a formidable undertaking. Few understand the “IT + analytics + process operations” nexus sufficiently. Technological excesses of the past (such as ERP or data warehouses) are well documented. Some technologies are unproven, some uses of analytics are unclear, and older technologies are rigid and expensive to evolve. Finally, it is frequently a struggle to scale deep analytics throughout the enterprise.

Our experience of advanced operating models, accumulated over 15 years, clearly indicates that there are agile and practical ways to transform. The key is to design, transform, and run the processes that power advanced operating models so that they closely align with measurable business goals, thereby avoiding saddling the company with unnecessary and often unmanageable complexity.

This approach focuses more rigorously on the sources of impact and deliberately disregards any practice that does not yield material outcomes. It also takes a more objective and holistic look at technology, analytics and organizational practices. It leverages now-mature “system of engagement” technologies that complement “system of record” technologies. It treats analytics (the arc of data-to-insight-to-action) as a process and determines how to embed insight at scale into the fabric of other enterprise processes; it does not take the typical approach of viewing analytics as a task and a set of technologies. Finally, it harnesses the process and organizational levers available from established disciplines, such as re-engineering, shared services, outsourcing, and global delivery.

We think that there is a smarter way to transform operating models and address the most complex strategic challenges. This is a way for CFOs to make their enterprises more intelligent and generate material impact.

In conclusion

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About Genpact

Genpact (NYSE: G) stands for “generating business impact.” We are a global leader in digitally-powered business process management and services. Our Lean DigitalSM approach and patented Smart Enterprise ProcessesSM framework reimagine our clients’ operating models end-to-end, including the middle and back offices – to deliver growth, efficiency, and business agility. First as a part of GE and later as an independent company, we have been passionately serving strategic client relationships including approximately one-fifth of the Fortune Global 500, and have grown to over 70,000 people. The resulting domain expertise and experience running complex operations are unique and help us drive choices across technology, analytics, and organizational design.

For more information, contact, cfo.services@genpact.com, and visit, www.genpact.com/home/solutions/finance-accounting/

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Genpact Research InstituteThe Genpact Research Institute is a specialized think tank harnessing the collective intelligence of Genpact – as the leading business process service provider worldwide - its ecosystem of clients and partners, and thousands of process operations experts. Its mission is to advance the “art of the possible” in our clients’ journey of business transformation and adoption of advanced operating models.

www.genpact.com/research-institute