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Statements on Management Accounting

P R A C T I C E O F M A N A G E M E N T A C C O U N T I N G

C R E D I T S

T I T L E

This statement was approved for issuance as aStatement on Management Accounting by theManagement Accounting Committee (MAC) of theInstitute of Management Accountants (IMA®). IMAappreciates the collaborative efforts of The Society ofManagement Accountants of Canada (SMAC) and thework of Dr. C.J. McNair of Babson College, who draftedthe manuscript.

Prior to his becoming a member of MAC, Randolf Holst,CMA was a SMAC staff manager and, in that capacity,supervised and monitored the project, which wasbrought to conclusion by SMAC staff manager ElizabethBluemke. Michael P. Bohan, CMA and IMA senior man-aging director, professional and academic relations,served on the focus group that provided significantassistance in shaping the final document. IMA thanksthe aforementioned individuals and members of theManagement Accounting Committee for their contributions to this effort.

Redesigning the Finance Function

Published byInstitute of Management Accountants10 Paragon DriveMontvale, NJ 07645www.imanet.org

IMA Publication Number 977324

Copyright © 1997 in the United States of America by Institute of ManagementAccountants and Arthur Andersen LLP

All rights reserved

ISBN 0-86641-261-1

Statements on Management Accounting

T A B L E O F C O N T E N T S

Redesigning the Finance Function


I. Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. Gaining Value Through Finance Redesign . . . . .2

IV. The Emerging Finance Function . . . . . . . . . . . .3

V. The Role of the Management Accountant . . . . .5

VI. Defining the Target: Finance Best Practices . . . .6Process Improvements and the Best- Practices Firm . . . . . . . . . . . . . . . . . . . . . . .7The Human Dimension of Finance Best Practices . . . . . . . . . . . . . . . . . . . . . .8The Information Technology Dimension of Finance Best Practices . . . . . . . . . . . . . . .9Finance Best Practices in Action . . . . . . . .11

VII. The Finance Function Redesign Process . . . . .14Stage I: Investigating . . . . . . . . . . . . . . . . .14

Defining the Business Issue(s) . . . . . . . .14Ensuring Senior Management Commitment . . . . . . . . . . . . . . . . . . . . .16Creating a Project Management Structure 17Selecting and Prioritizing Areas in Finance to be Investigated . . . . . . . . . . . . . . . . .18Documenting Own Finance Processes . . .19Researching and Identifying Best Practices in Finance . . . . . . . . . . . . . . . .20Assessing Current Staff Skills and Competencies . . . . . . . . . . . . . . . . . . . .21

Stage 2: Planning . . . . . . . . . . . . . . . . . . .21Developing a Future Vision for Finance . .21Creating a Strategy for Change . . . . . . . .23Developing a Business Case . . . . . . . . .26Planning for the Transition . . . . . . . . . . .27Building Momentum for the Change . . . .28

Stage 3: Implementing . . . . . . . . . . . . . . . 29Assigning Process Responsibility and Organizing the Process-Improvement Team(s) . . . . . . . . . . . . . . .29

Creating a Prototype of the Proposed Process . . . . . . . . . . . . . . . . . . . . .30Establishing a Human Resources Strategy for Finance . . . . . . . . . . . . . . . . . . . . . . . . . .30Rolling Out the New Program . . . . . . . . . . . . .31Monitoring Actions and Results of Finance Process Redesign . . . . . . . . . . . . . . . . . . . . .32

VIII. Organizational and Management AccountingChallenges . . . . . . . . . . . . . . . . . . . . . . . . . .32

IX. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . .33

Appendix A: Finance Performance Summary Statistics . . . . . . .34

Appendix B: Sources of Finance Function Benchmarks . . . . . . .34

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Exhibits

Exhibit 1: Activities Comprising the Finance Function . . . . . . . . . . . . . . . . . . . . . . .2

Exhibit 2: Analysis of Traditional Finance FunctionActivities . . . . . . . . . . . . . . . . . . . . . . .3

Exhibit 3: Reshaping the Finance Function . . . . . .5

Exhibit 4: Management Objectives for Finance-Function Redesign . . . . . . . . . . . . . . .15

Exhibit 5: Trigger Points for Change at Bell Canada . . . . . . . . . . . . . . . . . . . . . . .16

Exhibit 6: Project Management Structure . . . . . .17

Exhibit 7: The Visioning Process . . . . . . . . . . . .23

Exhibit 8: The Key Elements of a Strategic Vision for the Finance Function . . . . . . . . . . .24

Exhibit 9: Finance-Function Redesign in Context .25

Exhibit 10: Business Case Pro Forma . . . . . . . . . .26

I . RAT IONALEThe finance function is central to the successfuloperation of any organization. The finance pro-fessional, by working with the rest of the man-agement team to ensure that resources are effi-ciently and effectively acquired, maintained, anddeployed in the best interests of all of the orga-nization’s stakeholders, sustains the financefunction’s essential role in the business equa-tion. Yet changes occurring today in organiza-tions are creating the pressure to reduce thecost of basic business transactions whileenhancing the quality, reliability, and responsive-ness of the systems that provide information foruse both within and outside the company.Intricately involved in this change process,finance provides the basic tools, expertise, andinformation used to shape current and futurebusiness practices.

The finance function is not immune from pres-sures to enhance the value-creating ability of thefirm. Responding to the challenge to do morewith less and to become a business partner,finance professionals are attacking traditionaltransaction-processing systems and processes,finding innovative ways to use technology andprocess improvement to eliminate waste andfree up vital finance resources to support strate-gic and tactical initiatives. Faced with thedemand to increase their participation in theongoing activities and decisions of their organi-zations, and to provide more timely and relevantinformation to meet business needs, financeprofessionals are turning to re-engineering andfinance-process redesign as the primary meansto the desired end: value-added finance.

I I . SCOPEThis Statement provides practical operating prin-ciples and recommended approaches forredesigning the finance function. It is focused on

the three major activities comprising the financefunction: transaction processing, control and riskmanagement, and decision support, as illustrat-ed in Exhibit I.

Transaction processing involves the traditionalaccounting functions, including accounts receiv-able and payable, external reporting, payroll, andtax accounting. These activities are routine innature and historically have been people-intensive. Control and risk management encom-passes budgeting, internal audit, treasury man-agement, and management of short-term assets(e.g., cash), in addition to many other major inter-nal financial management activities. Strategicplanning support, cost analysis, and relatedtasks make up the decision support element ofthe finance function’s responsibilities.

All organizations undertake these basic financeactivities. General in nature, the concepts, tech-niques, and practical examples and case studiesincluded in the Statement are structured to beapplicable to:l businesses that produce a product or a

service:l all levels of an enterprise;l enterprises in all business sectors;l the public and private sectors; andl small and large organizations.

This Statement is addressed specifically toorganizations where the decision to redesign thefinance function has already been made. Ofnecessity, the information is both descriptive andprescriptive, and will help readers understand:l why organizations are redesigning the finance

function;l the emerging finance function;l finance function best practices;l the stages of a successful redesign program

for finance;

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l organizational and management accountingchallenges related to finance redesign;

l performance metrics for various finance func-tion activities; and

l sources of finance function benchmarks.

The information contained in this Statement willalso help management accountants comprehendtheir roles and responsibilities in leading theeffort to redesign the finance function and insuccessfully transforming themselves and theirorganization to these new roles.

I I I . GA IN ING VALUE THROUGHFINANCE REDESIGNRecent surveys show that process redesignapplications in North America overwhelminglyfavor finance as their top priority. Why is this?One reason is cost. Finance is an expensivefunction. Studies show that on average a typicalfinance function costs 1.4% of company rev-enues, with transaction processing and controlactivities consuming 84% of these costs. While

the range between the lowest and highest cost islarge, with first-quartile companies having costsas low as 0.4% and fourth-quartile companieshaving costs as high as 7.4%, the pressure toimprove performance and reduce transactioncosts is being felt by all. By redirecting resourcesto decision support, finance can do more for theorganization and it can do it for less.1

Another reason for the current finance-redesignmovement is that many firms that installed com-puters during the 1970s and 1980s failed eitherto integrate these financial and other resource-management-related transaction-processing sys-tems with their business strategy, or to keepabreast of technology changes. Developed in theera of mainframe programming languages, thesystems are troublesome to document, costly to

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Transaction Processing

● Accounts Payable● Accounts Receivable● Benefits Administration● Cost Accounting● Credit● Collections● Customer Billing● External Reporting● Fixed Assets● Freight Payments● General Accounting● Payroll● Tax Accounting● Tax Filing & Reporting● Time Collection● Travel & Expense

Central and RiskManagement

● Budgeting● Business Performance Reporting● Cash Management● Insurance Risk Management● Internal Audit● Outlook/Interim Forecast● Tax Planning● Treasury

Management

Decision Support

● Business Performance

Analysis● Cost Analysis● New Business/ Pricing Analysis● Strategic Planning Support

● Finance Function Management

EXHIBIT 1. ACTIVITIES COMPRISING THE FINANCE FUNCTION

Source: The Hackett Group, 1996.

1 According to findings from The Hackett Group’s ongoingbenchmark study, which includes more than 650 companiesof all types and sizes, this fully loaded cost includes process-ing of basic transactions such as payables, payroll, andreceivables as well as management reporting, budgeting, andactivities like tax, treasury, and financial analysis.

maintain, and difficult to change as businessconditions evolve. As a result, many financialsystems and processes have become awkwardstand-alone creatures within the organization’sbusiness processes.

A third reason for redesigning the finance func-tion is to release the value-creating potential ofthis often overlooked resource of the organiza-tion. As the finance function is redesigned, time-consuming transaction-processing is stream-lined or eliminated, freeing valuable financialresources for active participation in plotting thestrategies and tactics of the organization.Members of the management team making thistransition to value-adding normally requireretraining. Developing a human resources strate-gy is a critical element of effective finance-redesign programs.

A fourth impetus for finance function redesign isthe growing role of finance in supporting corpo-rate strategy. Focused on the need to create andenhance shareholder value, going concernsmust strive to improve their cash-generating abil-ities. Managing cash requires accurate and

meaningful financial reporting of current perfor-mance; it entails rigorous analysis and forecast-ing of the costs and benefits of new investmentsby business units. Finance can provide theframework for this analysis, ensuring that share-holder value is being created throughout theorganization.

Finance function redesign is driven by all ofthese factors. Focused on shifting the emphasisof finance work away from transaction process-ing and toward decision support, as well asreducing the cost of finance work, financeredesign efforts are reshaping the very nature ofthe finance function.

IV. THE EMERGING F INANCEFUNCTIONAll organizations are under pressure to curb theircosts and enhance their productivity. They areunder pressure to reduce, if not eliminate, activ-ities that are nonvalue-adding for their cus-tomers. In many finance systems today, transac-tion processing and control and risk manage-ment account for over 84% of the total activitiesperformed as illustrated in Exhibit 2. This leaves

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4%12%

19% 65%

Decision Support• Business Performance Analysis• Cost Analysis• Strategic Planning Support

Control & Risk Management• Budgeting• Business Performance Reporting• Treasury Management• Internal Audit• Tax Planning• Cash Management

Management• Finance Function Management

Transaction Processing• Accounts Payable• Accounts Receivable• Travel and Expense• Fixed Assets• General Accounting• Cost Accounting• Payroll• Tax Accounting• Tax Filing and Reporting• Customer Billing

EXHIBIT 2. ANALYSIS OF TRADITIONAL FINANCE FUNCTION ACTIVITIES

Source: The Hackett Group, 1996.

little time for decision support or planning thefuture. In fact, a recent study discovered thatless than 4% of the available time and resourcesof the finance function are devoted to thinkingabout, or supporting analysis of, the future.

Increasing the value added by the finance functionbegins with the de-emphasis of its traditional roleas the organization’s scorekeeper. Successfullymaking this change demands that traditionaltasks such as reporting, measurement, control,compliance, and data generation be done excep-tionally well; and the need to expend resources inthese areas be reduced accordingly. These shiftsallow the finance function to become an advocatefor change within organizations, and in theprocess, a business partner in enterprise-widetransformation initiatives.

In other words, the emerging finance function isbecoming:l analytically, strategically, and value-added

oriented;l a consultative business partner and advisor;l a participant and leader in decision making;

andl focused on performance enhancement.

To achieve these objectives, companies areemploying new business designs to shape thedevelopment of the finance function into threebasic components: business consultants, busi-ness analysts, and technical specialists (seeExhibit 3). One person is not being asked to fillall of these roles. Instead, individuals are beingredeployed to those areas that reflect theirstrengths, ensuring that both the organizationand the individual benefit optimally from theredesign process.

Business consultants are most often associatedwith a core of shared-service corporate staff.

These individuals are specialists in specific pro-grams or models and provide advice and supportto business units attempting to implementchange.

Business analysts, on the other hand, areassigned directly to business units, serving asfinancial specialists on business unit teams.Many of the traditional controllership activitiesare found in this role, but much more is expect-ed of the business analyst than reporting onresults. The business analyst is expected to bea change leader—identifying opportunities forimprovement and assessing the optimal use ofscarce company resources.

Finally, technical specialists comprise a coregroup of individuals who are acknowledgedexperts in one or more of the technical areas.Providing the traditional core financial function,this group is expected to provide improved report-ing and control services while consistently reduc-ing the resources these activities consume.

Caterpillar Inc. is a classic example of a compa-ny that has radically changed the role of itsfinance professionals along these lines. Movingaway from its traditional emphasis on developingand maintaining core financial systems, financeis an active participant and driver of change incompetitive and business analysis, performancemeasurement, and the creation of new systems.These enhanced roles for finance extend farbeyond the boundaries of accounting to includechange management, new venture implementa-tion, and business modeling and scenario plan-ning. At Caterpillar the finance professional hasbecome a core member of the business team.

Businesses need people who reach beyondaccounting for costs to become leaders of multi-disciplined teams engaged in strategic and tacti-

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cal planning. Skill with numbers is not enough tosucceed in this new role. Finance professionalsof the future must be experts in the broad disci-plines of business, yet also be generalists whopossess a strategic business perspective, andwho can manage different disciplines, communi-cate with diverse individuals both inside and out-side the company, and motivate employees. In

the end, it is these challenges that the emergingfinance function must meet.

V. THE ROLE OF THE MANAGE-MENT ACCOUNTANTAchieving the new role of finance will requiremore than mastering a new skill or computer pro-gram. It will entail a change in mindset—away

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COMPONENTS ACTIVITIES

Global Economic BusinessMonitoringContinuous ImprovementBenchmarking

New Ventures

Strategic Analysis

Process RedesignProject Leader

Information Provider

Business Partner

AnalystPerfornamce Measurement

SBU ReportingCompetitor Analysis

Information Systems

General Ledger

AuditTax

Legal

ComplianceAccounts Receivable

Accounts Payable

Treasury

BusinessConsultants

BusinessAnalysts

FinanceFunction

TechnicalSpecialists

EXHIBIT 3. RESHAPING THE FINANCE FUNCTION

Source: Adapted from Financial Quality Network, 1995.

from the traditional control and transaction orien-tation to one that focuses on active participationin a company’s ongoing pursuit of competitiveexcellence.

Management accountants must take a leader-ship role in redesigning finance. This role willvary depending on the type of enterprise and thetype of job held. In general, managementaccountants have the opportunity for many kindsof involvement, such as:l contributing leadership in launching and imple-

menting finance redesign initiatives;3 identifying areas of greatest redesign

potential3 leading the design of alternative processes3 identifying the costs and benefits of current

processes and alternative processes3 being receptive to major changes in the way

finance activities are carried out3 participating in the implementation of new

finance processes and in developing amigration plan for the implementation

l conducting benchmarking studies to identifybest practices covering the entire spectrum offinance work;

l initiating or supporting the development ofintegrated information systems to reduce thecost and complexity of managing data through-out the organization;

l creating a measurement and reporting systemto monitor process productivity, costs, andtrends on an ongoing basis;

l integrating finance redesign with other strate-gic initiatives of the organization; and

l building relationships with their counterpartsthroughout the organization.

In becoming business partners, managementaccountants must build the culture of continuousimprovement and value creation into the fabric ofnew financial systems and methods. Involved in

shaping the direction and scope of their compa-nies, management accountants need to developdynamic, flexible accounting and decision-support systems that help managers create reli-able and timely financial information.

V I . DEF IN ING THE TARGET:F INANCE BEST PRACTICESRedesigning the finance function is a majorundertaking for any company or organization. Toensure that the benefits of the redesign processoutweigh its costs, and to build a solid businesscase for the redesign effort, it is helpful to under-stand finance best practices. Finance functionbest practices provide one target, or benchmarkstandard, for shaping finance-redesign effortsand measuring their success.

The objectives of finance-process redesign are toremove nonvalue-added work; to reduce the costof required transaction processing; to eliminateerrors that create costly rework; to employ vari-ous forms of technology to reduce the time,effort, cost, and complexity of finance work; andto enhance input to strategic decision makingand general business management. Reflectingthese objectives and defined within a cross-functional perspective, finance process bestpractices span three dimensions of potentialchange in the nature, focus, and structure offinance work, namely:l processes—correctly designed business

processes have the customer’s voice and per-spective built in. Every process should bedesigned to produce outputs that satisfy therequirements of the customer;

l people—the organization and management ofpeople—the degree to which they are empow-ered to do their work; the assurance thatthese individuals have the requisite mindset,skills, and competencies to do the requiredwork now and in the future—are key contribu-

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tors to the success of process redesign proj-ects; and

l information technology—information technolo-gy and related tools are both enablers andmeans of implementing process change.Computers and communications are essentialfor achieving widespread process innovation. Itis essential to keep abreast of changes andtrends to be able to assess the impact of infor-mation technology on the organization’s com-petitive position.

Each of these dimensions of potential changesuggest different means, measures, and toolsfor the finance-redesign process. To choose anoptimal dimension for the first phase andbeyond, finance-process-redesign efforts requirea solid understanding of each of these coredimensions and how they impact the customer,enterprise, and stakeholder.

Process Improvements and the Best-Practices FirmProcess improvement is one of the primary toolsin creating value-added finance. Shaped by asound knowledge of customer requirements, cur-rent business processes, and company objec-tives and strategies, process improvements arethe first step in any redesign effort. Ways inwhich performance improvements in finance arebeing created through processes include:l Organize work around results, not tasks.

Instead of dividing the work done in an areainto small tasks and units completed in asequential fashion by multiple “task experts,”best-practice firms are structuring work so thatit can be completed by one individual or oneteam. The shift away from fragmented to inte-grated work structures accomplishes twomajor goals: it eliminates the time wasted andpotential for error that occurs during the hand-off of tasks from one individual to another, and

it puts employees in control of the process.l Capture data only one time—accurately. Two of

the major forms of waste in transaction pro-cessing are multiple entry of data due to lackof integration of the information system andrekeying or correcting faulty data. By someestimates, analysts spend 80%2 of their timedigging for and transcribing data. To avoid thisproblem, data should be captured and struc-tured so that they have both a transaction andan information focus and usability. Supportingdiverse users requires accurate information ondemand.

l Incorporate controls into information process-ing. To fully garner the benefits of technology,controls must be built into the systems usedto gather and analyze data. Developed at thepoint of data entry, such controls seek toensure zero-defect information through the useof limits and ranges. These are developed viaexpert systems software that will identify out-liers and, by random sampling of transactions,identify internal control violations.

l Empower users to create, maintain, and usedata for decision making. Finance cannot bethe watchdog for accuracy in inventory transac-tions, Manufacturing Resource Planning(MRP), bill of materials, invoicing, receiving, orany of the diverse activities performed through-out the organization that affect the overallorder-to-payment process. The individuals whodo the work have to be given the responsibili-ty, authority, and accountability for the activi-ties they perform and the data that they createbased on these efforts. Finance is to integrateand analyze these transactions; to be a stew-ard, not originate them. These detail transac-tions summarize to the financial statementsfor which finance is responsible.

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2 The Hackett Group.

l Work in parallel instead of sequentially, thenintegrate results. Parallel work flows allowinformation and insight to be shared, process-es and programs to be piloted without disrup-tion of operations, and feedback to be incorpo-rated into the system in far less time than tra-ditional systems would allow. For example, dur-ing finance redesign, teams focusing onpayables, receivables, and order fulfillmentshould work in parallel to implement EDI-basedinformation systems. This ensures that theneeds of each group are accommodated in theinitial design, that rework is minimized, andthat the maximum use of data is made.

l Treat geographically dispersed resources asone. Changes in technology and managementapproaches allow companies to bridge geo-graphic boundaries without the need to physi-cally travel or locate related activities withinone facility. Shared databases, telecommuni-cations networks, and standardized process-ing systems now make it possible to gain thebenefits of scale and centralization (such asquantity discounts) while maintaining theadvantages in flexibility and service that comefrom being dispersed and close to the cus-tomer. Gaining these advantages without cre-ating excess cost and redundancy is the goal.

l On-line approvals and queries. Companies arespeeding up expense reimbursement routinesand related transactions through on-lineapprovals. Queries for customers are also beingconducted on-line with the support of flexibledatabases or data warehouses and automatedtracking and recording technologies.

The various methods available to attack theprocess and improve its performance have onegoal in common—the elimination of waste wher-ever it occurs in the organization. Processimprovements focus on removing bottleneckcosts, redundancy, rework, excesses, unneces-

sary work, unnecessary movements, and relatednonvalue-added activities from the work flow,replacing them with effective tools and approach-es that allow individuals across the organizationto take control of their own work, improve theirperformance against customer expectations,and reduce the cost and complexity of the trans-actions completed by the firm.

The Human Dimension of Finance BestPracticesAchieving best practice in the management of anorganization’s most vital resource, its people,starts with an acceptance that traditional waysof structuring, managing, and measuring the per-formance of finance professionals has led tomany of the current weaknesses in the financefunction. Creating value-added finance meansmore than changing job titles; it means findingnew ways to utilize the skills of existing employ-ees, to enhance these skills through training, tocreatively tap into nondedicated human andorganizational resources when justified, and torealign management and measurement methodsto reinforce the goals of the new finance. Waysin which performance improvements in financeare being created through people at best-practice firms include:l Creating business partnerships. Companies

such as Caterpillar and Motorola are creating abusiness partnership with their employees uti-lizing “pay at risk” or “pay for performance”approaches that provide individuals with incen-tives to improve processes and performance.Frigidaire and many other companies haveturned to “gainsharing” programs to achievesimilar results. Best-practice firms are findingthat engaging their people in the changeprocess requires a clear and significant tiebetween individual and organizational success.

l Self-directed work teams. Self-directed workteams are being used by best-practice firms to

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eliminate layers of management and the costand complexity these layers create. Membersof self-directed work teams typically handletheir own job assignments, plan and schedulework, make production-related decisions, andtake action on problems. Flattening the orga-nization improves communication, reducesrequired headcount, supports process andquality improvement efforts, increases produc-tivity, improves morale, and leads to long-termperformance gains.

l Education and development. Improving theskills and competencies of existing employ-ees, including teaming skills, knowledge of thebusiness, and improved decision supportcapabilities, is allowing best-practice firms totap underutilized human resources and toredeploy individuals freed from transaction ornonvalue-added work.

l Balanced scorecard. Creating measurementsthat link the activities, objectives, and resultsin the finance function to the strategy and tac-tics of the organization is an important ele-ment of finance redesign in best-practicefirms. Focused on a balanced set of measure-ments, including quality, cost, productivity,responsiveness, delivery, human resourceeffectiveness, and innovation, a balancedscorecard system improves communication,reduces the risk of dysfunctional behavior, andsupports the implementation of process-driven, cross-functional management.

l Freelance management. Companies are utiliz-ing freelance management experts and net-work services for temporary executive support,to support projects, and to meet targetedstaffing needs on a just-in-time basis. Freefrom the cost, complexity, and transaction-intensive focus of traditional human resourceacquisitions, companies usually arrange pay-ment for freelance management services on aflat-fee basis that minimizes the paperwork

and tax filing costs for the firm. Freelance man-agement resources are being used effectivelyto reduce the long-term cost inherent inresponding to many random, or one-time, busi-ness events and to supplement existing staffon project teams.

l Outsourcing. Organizations employing financebest practices are outsourcing the executionof transaction-intensive operations includingcheck writing, payroll, mailing, bank reconcilia-tion, clearinghouse activities, electronic datainterchange, and Fedwire services. Lockboxnetworks and related transaction-based out-sourcing options eliminate costly activitiesfrom the finance function and reduce finance-based transaction costs. Before outsourcingtakes place, inefficiencies, errors, and nonvalue-added activities should be identifiedand removed from the affected process. Theorganization may find it will pay too much tooutsource an inefficient process, or better yet,it may decide to keep a function in-house oncethe inefficiencies are removed.

l Consolidation. An alternative to outsourcing aset of transactions is consolidation under ashared-services model. Large organizationswith multiple divisions or units often discoverunnecessary redundancy in basic transaction-processing areas. Consolidating these activi-ties in a central location allows the company toachieve economies of scale, reduce complexi-ty, improve performance, and increase the pro-ductivity in such areas as accounts payable,payroll, and accounts receivable.

The Information Technology Dimension of Finance Best PracticesPerformance improvements in the finance func-tion are often driven by the development andapplication of new technologies. The relationshipbetween information technology (IT) andprocess-based structures is reciprocal; process-

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es require information to achieve radical change,while harnessing the capabilities of informationtechnology in a cross-functional, performance-driven manner requires a process view. The waysin which best-practice companies are using tech-nology to shape finance-process-redesign effortsinclude:l Networking. Networking multiple computers

into a linked operating system is providing aplatform for engaging many individuals in proj-ects, teams, and improvement efforts whileavoiding the need to bring these individuals tothe same physical location. The vision of aconnected environment includes suppliers,customers, or any other interested party thatmay have business to conduct with the organi-zation. Networking is accomplished not only byconnecting the company’s infrastructure ofcomputers, but also by using a hook-up to apublic service or an Internet provider.

l Groupware. Software created especially foruse on the network by a group of people work-ing together is called groupware. Providing thebasis for electronic meetings, groupware orgroup decision support systems (GDS) allowindividuals in remote locations to participatedirectly in meetings managed by a facilitatorlocated at another site. Groupware systemssupport alternative evaluation, rating, voting,brainstorming, idea organization, issue analy-sis, strategic planning (such as the develop-ment of mission statements or identification ofcritical success factors), analysis of sub-groups, stakeholder identification, and groupwriting.

l Neural networks. Artificial intelligence (Al)-based systems are changing the way in whichaccounting is practiced and internal controlsare structured in many organizations. Neuralnetworks utilize Al in a pattern-matching mode.They are currently being used by banks toensure compliance with bank policies and to

detect fraudulent trading transactions. Neuralnetworks can also be used by companies forforecasting future sales and prices, estimatingfuture costs, and planning future schedulesand their related levels of expenditures. Somecompanies are beginning to use neural net-work technology in training new and existingemployees.

l Graphical User Interfaces (GUI). Operating sys-tems that allow users to employ pictures andmenus to enter commands are making sophis-ticated computer applications accessible toeven novice computer users. GUIs give a“friendly face” to an operating system, replac-ing text-based prompts (e.g., c:\>) with win-dows, menus, and icons that represent com-mands. GUIs are the key to increasing theaccessibility and use of computer-based appli-cations across the organization.

l Virtual office. Companies are creating virtualoffices that utilize information and telecommu-nications technologies to link individualsacross the globe. Teleconferencing and video-conferencing drastically reduce travel costsand the lost productivity associated with busi-ness trips, while laptop computers provideinstant access to company e-mail, databases,and support services.

l Electronic Data Interchange (EDI). EDI is a coretechnology being used by best-practice firmsto eliminate paperwork and speed up theirorder-to-payment processes. Linking suppliersand customers via telecommunication net-works, EDI is being used to replace paper-based purchase orders, shipping releases,invoices, and payments on accounts.

l Database architecture. Flexible database struc-tures, such as relational databases, are help-ing best-practice firms break the rule of the filefolder while allowing multiple people access toinformation at different times and from differ-ent places. Relational databases and related

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technologies allow users to pull informationout of two or more files at once in order to cre-ate reports, update information, and analyzetrends and results in multiple dimensions.

l Image processing. This revolutionary technolo-gy converts an image into digital data using anoptical scanner and then stores, manipulates,and/or outputs it. Image processing using opti-cal disks allows a company to eliminate reamsof paper while drastically improving its informa-tion processing efficiency. Image processingcan be used to perform several major datafunctions: input, index, manage, store,process, output, and communicate. Major com-panies are realizing significant cost savings,improved data security, increased processingefficiency, increased customer satisfaction,and product differentiation resulting from theirimage processing initiatives.

l Executive information systems (EIS). Relying onmany of the above technologies for their imple-mentation, EIS provide top management withthe ability to analyze current business results,drilling down into various levels of detail toobtain answers to specific questions.Reaching across the multiple levels of thefirm, EIS also support strategic planning andanalysis, tactical planning, andbudgeting/operational reviews. Providing anintegrated software solution that combinestext tiles, spreadsheets, and graphic files eas-ily and effectively, EIS also provide one-stopshopping for the development of presentationsand business reviews.

Each of these information technologies can pro-vide the opportunity for reducing the cost andcomplexity of completing work within the financefunction. Used in combination, these technologyenablers are proving to be the primary means ofimplementing finance redesign programs. Inaddition to process changes, best-practice firms

are utilizing information technology to achieveefficiencies in their operations once the “simplify—eliminate—automate” improvementcycle has been completed.

Finance Best Practices in ActionImprovements on the human, information technol-ogy, and process dimensions of the finance func-tion are triggering changes for the better in orga-nization after organization. While the potential forimprovement lies everywhere, best-practicefinance functions are targeting several key areasto achieve their performance objectives. Thoseareas currently under attack include:l invoiceless accounts payable;l electronic accounts receivable lockboxes;l bar-coded cards for payroll;l same day, automatic soft general ledger close;l compressed budget cycle;l on-line analysis and reporting; andl shared services.

Invoiceless accounts payable. At the IndustrialProducts Division of Lord Corporation, a systemwas installed that would automate the matchingof purchase orders with receipts and invoicesprior to issuing checks. This led to a quantumimprovement in performance when processredesign efforts stepped outside of the currentparadigm and set specific results-based objec-tives. Relying on the input of a cross-functionalteam, the accounts payable group at LordCorporation cut in half the cost and timerequired to complete this process.3 Some of theactivities undertaken to achieve these objectivesentailed cross-functional changes as follows:l there was computer-based matching of receiv-

ing and purchase order data;

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3 Details for this example can be found in “PaperlessPayables at Lord,” by Jean L. Pavlinko, ManagementAccounting, July, 1993: 32-34.

l a vouchering program was developed to auto-matically generate a voucher upon receipt ofgoods;

l procedures were developed to ensure theaccuracy of the price in the purchase order fileand the accurate and timely handling ofreceipts;

l expense items were recognized by a systemupon receipt;

l freight, setup, tooling, and related chargeswere included in the special bid price; and

l the check stub was changed to reflect thepacking slip number rather than the invoicenumber.

Electronic accounts receivable lockboxes. At KellyServices an in-house manual payment collectionsystem was converted to an automatic lockboxnetwork. Serving over 185,000 customersthrough more than 920 branch offices in 50states and 10 foreign countries, this companyfaced significant obstacles in streamlining itscollection process. The finance re-engineeringeffort resulted in the creation of a lockbox net-work, utilizing the services of three separatebanks to capture receivables information as thebanks collect payments for deposit. This infor-mation is transmitted to Kelly headquarters forelectronic application to the accounts receivablefiles. Payment collection points are located inthe Northeast, the South, and the West, whereover 25,000 payments per week are handled bythe three designated banking partners. Theresulting automated receivables process haseliminated 15 clerical positions on the corporatestaff and is conservatively expected to save over$750,000 per year, while providing superior ser-vice to customers.

Bar-coded cards for payroll. At Bradford SoapWorks, a medium-sized manufacturer of privatelabel bar soap with annual sales in excess of

$40 million, employees wear badges bearingtheir photograph on the front, and a bar code onthe back that reveals who they are, what functionthey perform, and related relevant personal data.When employees enter the plant in the morning,they do not punch in. Instead, they report direct-ly to their workstations, where they scan theirbadges into the operating system. The systembegins recording the workers’ time directlyagainst a specific machine and order, integratinglabor information with real-time, machine-baseddata being monitored through a series of opticalsensors. The benefits from bar coded payrollcards at Bradford include a reduction in clericalsupport in the payroll department from threededicated clerks to one part-time position, anincrease in accuracy in recorded labor data (errorrate down to 1 per 10,000 transactions from 50per 1,000), and improved shop-floor control andscheduling capabilities. In addition to thesedirect benefits, the company can now tap into areal-time database to support its cost system,job-quote activities, customer-service opera-tions, and management-reporting functions.

Same day, automatic soft general ledger close. Akey area for finance redesign is the ledger-closing process. In company after company, sig-nificant reductions in the time and resourcesconsumed by this activity are being achievedthrough the development of soft-close proce-dures. Motorola, Inc. employs soft-close meth-ods to complete monthly reporting requirements,reserving the traditional fully allocated, detail-driven close for quarterly statements. Some ofthe significant features of a soft-close environ-ment include:l heightened focus on data accuracy at the point

of entry, reducing the time required to com-plete reconciliations and to post results;

l use of estimating routines to derive inventoryand related account balances;

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l focused investigation of discrepancies basedon materiality thresholds;

l real-time posting and updating of all ledger andsubledger accounts;

l elimination of all timing-related accruals, suchas inventories in transit;

l raised materiality level of intercompany andcross-country consolidation and eliminationentries;

l running of cost accounting and billing systemsindependently of the general ledger;

l utilization of a common general ledger andledger package across all company locations;and

l collapsed level of detail of postings.

Compressed budget cycle. While planning is criti-cal in any firm, expending excess resourcespushing detailed budgets through layer afterlayer of management is not. Owens-Corning hascut its budgeting process from about four to twomonths, is now capable of closing its books infour days versus 18, and has created a singlefinancial report for its 10 global divisions. Thetotal savings from these changes is estimated atover $20 million per year. Compression of thebudget cycle was achieved by reducing the levelof detail in specific areas, employing integrateddatabase designs to enter revisions automatical-ly across multiple levels, using expert systemsmodels to project the impact of changes acrossthe organization, eliminating budgeting at thechart of account level, and reducing the numberof iterations in the budget process.

On-line analysis and reporting. One of the majorbenefits provided by relational databases andnetworked systems architectures is the ability todo on-line analysis and reporting. At Frito Lay,information systems provide real-time informa-tion on daily sales by store, region, product, andproduct line, as well as competitive information

regarding shelf placements, shelf space, pricingpolicies, and promotional efforts. The data arecollected at the store level by the Frito Lay deliv-ery driver and immediately transmitted to thecentral data warehouse, where they are instantlyaccessible by the management team. Due to thenature of Frito Lay’s products, on-line analysis ofdaily sales trends provides the company with acompetitive advantage that ripples directly to theplant where daily production schedules can bemodified based on current sales patterns. Themanagement team has ready access to all ofthis information, as well as key data and meas-urements from production facilities, distribution,and support functions.

Shared services. Centralizing transaction pro-cessing or the delivery of specialized services,such as process analysis of the order-to-paymentcycle, is often a major source of improvement forbest-practice firms. Centralization allows foreconomies of scale, improved utilization ofprocess experts, reduction in costs due to redun-dancy, and improvement in service quality. AtElectronic Data Systems (EDS), centralization ofits accounts payable function provided an oppor-tunity to review the entire process used to payinvoices. Based on brainstorming sessions andbenchmarking results, EDS finance managementdecided to implement a paperless on-lineaccounts payable system out of a central loca-tion in Dallas. When goods are received at anyEDS site, they are entered into the system andautomatically compared with the appropriateorder. If they match the order, a check is dis-patched and the account immediately updated.These changes have allowed EDS to cut itsaccounts payable staff in half, to 250 people, aswell as provided a 75% reduction in cost due toconsolidation and improved efficiencies.

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Taken together, these best-practices examplesprovide proof of the power of finance redesign.Whether performance improvements are gainedthrough human resources, information technolo-gy, or process-redesign efforts, the goal remainsthe same: to make finance a value-adding mem-ber for the management team. Knowing whatfinance redesign means and putting it into oper-ation are very different things indeed; attentionnow turns to the issues and processes thatdefine finance function redesign.

V I I . THE F INANCE FUNCTIONREDESIGN PROCESSRedesigning finance typically involves consolidat-ing accounting centers, standardizing policiesand practices across business units, simplifyingprocesses and eliminating outdated or irrelevantactivities to improve the flow of work, and lever-aging technology. While the way in which processredesign is implemented will vary across organi-zations, there are distinct stages present in allsuccessful finance function redesign efforts:

Stage 1: InvestigatingStage 2: PlanningStage 3: Implementing

Recognizing that finance redesign is a journey,not a destination, this cycle of investigating,planning, and implementing repeats, creating theprocess of continuous improvement that definesbest practice firms. Each of these three stagespresents unique challenges, as companies striveto change not only methods but mindsets in thequest for performance improvements.

Stage 1: InvestigatingStage 1, or investigating, focuses on identifyingthose activities or processes that would mostbenefit from the redesign process. Starting froman analysis of existing activities and practices

within a firm, the objective of Stage 1 is to under-stand existing processes and identify an externalbest-practice standard of performance for theprocess. Within the finance function, investigat-ing focuses on documenting current methodsused for handling transactions, measuring thetotal resources dedicated to this activity, and set-ting a cost target for the activity as a whole, oron a “per transaction” basis.

To redesign the finance process requires an in-depth knowledge of the organization and how itswork is currently done. Acquiring that knowledgeconsists of the following activities:l defining the business issue(s);l ensuring senior management commitment;l creating a project management structure;l selecting and prioritizing areas in finance to be

investigated;l documenting own finance processes;l researching and identifying best practices in

finance; andl assessing current staff skills and

competencies.

Defining the Business Issue(s)Finance process redesign initiatives usuallyattempt to achieve four fundamentally differentmanagement objectives: strategic, informational,transactional, and infrastructural. Exhibit 4depicts these different objectives and their rela-tionships. While it may seem unlikely that oneproject can perform on each of these dimen-sions, the very nature of finance functionredesign requires that this broad-based view ofthe business and its critical issues be taken.

Exhibit 4 illustrates that finance redesign isabout more than reducing transactions.Reducing transaction complexity and quantity isthe means used to support strategic initiatives

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to improve competitiveness. The benefits ofimproved transaction processing includeenhanced quality and quantity of financial infor-mation and infrastructural improvements suchas reduced finance costs. In attacking thesource of nonvalue-added activity and cost,finance redesign efforts enhance the value-creating ability of the entire organization.

Process redesign initiatives usually occur when acompany reaches a specific trigger point. Typicaltrigger points can be: decreasing profitability,increased competition, company mergers oracquisitions, changing regulations, changingdemographics and customer needs, aging legacysystems, and advancing technology. Thesegeneric trigger points are often preceded by oneor more of the following symptoms:l external/internal customer problems and/or

complaints; l identification of high cost processes; l identification of long cycle-time processes;l knowledge of a process improvement already

in use in other companies;

l knowledge of the availability of new technologies;

l lack of interest or demand for the output of theprocess; and

l increasing costs with little or no increase involume of, or improvements in, service.

Exhibit 5 illustrates the key trigger points thathave caused Bell Canada to make significantchange in its finance function an urgent priority.

In the finance area usual trigger points forchange include these systems and general busi-ness drivers, as well as changing managementexpectations, business process redesign occur-ring in other parts of the company, and changingprofessional demographics.

Process redesign does not occur in a vacuum.Whether driven by current performance shortfallsor initiated in response to company-widechanges, finance-process redesign is meaningfulonly if it improves the business in ways that areconsistent with the firm’s overall strategy. Thealignment of strategies and processes is an

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• Increased Control• Better information• Better integration• Improved quality

• Increased profitability• Competitive advantage• Competitive necessity• Market positioning

• Business integration• Business flexibility• Reduced marginal cost of business unit• Reduced finance costs• Standardization

• Cut costs• Increase throughput

INFORMATIONAL STRATEGIC

TRANSACTIONAL

INFRASTRUCTURAL

EXHIBIT 4. MANAGEMENT OBJECTIVES FOR FINANCE-FUNCTION REDESIGN

Source: Adapted from Luftman, 1996.

essential element of radical change in modernorganizations.

Ensuring Senior Management CommitmentDefining key business issues and responding tothem are the bases for successful redesignefforts and provide the foundation for garneringsenior management support. Obtaining andretaining the commitment of the CEO, the CFOand the senior manager of the affected businessunit is crucial for these reasons:l redesigning finance can be expensive in terms

of financial resources as well as the necessary

managerial attention that must be paid to it;l redesigning finance can be a lengthy process.

Ongoing executive-level commitment andenthusiasm are necessary to ensure thatfinance redesign activities do not falter whenmore pressing short-term priorities arise;

l finance redesign is cross-functional andrequires involvement from multiple levels andfunctions. Senior management commitmentwill ensure that alignment is maintainedacross functions and that the necessary com-munication, coordination, and cooperation are

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• Increasing competition• Decreasing• profitability

Economic

Bell Canada

Pol

itic

al Finance• Aging legacy systems• Availability of new technology

Technological

Social

• Changing Workforce demographics

• Changing regulation

• create value for the organization• support business

changes• reduce financial processing costs

• replace aging legacy systems• provide timely and consistent information

• provide customer service

• satisfychangingexternalreportingrequirements

EXHIBIT 5. TRIGGER POINTS FOR CHANGE AT BELL CANADA

Source: Bell Canada, 1995.

obtained and retained from the relevant levelsand areas;

l there must be sufficient authority to changereward and recognition systems so that theyare consistent with new values and have suffi-cient influence to induce possibly resistantmanagers to cooperate; and

l it is inevitable that finance redesign will resultin either staff redeployment or staff reduc-tions. This issue and other politically sensitiveimpacts of finance redesign make it imperativethat top management support the changeeffort.

In addition to senior management commitment

there should be strong enthusiasm for finance-function redesign among other senior financialand business unit managers. Support is criticalto developing an effective project managementstructure.

Creating a Project Management StructureR.J. Reynolds began its accounts payableredesign efforts with a 10-member paymentteam that included all accounts payable man-agers and supervisors, as well as several leadsystems support personnel from the informationsystems (IS) department. During the course ofthe project, individuals from purchasing, theplant controller’s office, traffic, and audit were

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Project Sponsors

• CEO• CFO• Chairman of the Board

• CIO• President

Core Design Team

Process Implementation Teams• Process Supervisors• Responsibile Middle Managers

• “Best and Brightest”Senior Managers

• Functional Specialists• Process Specialists

Design Support Team• Business Process Redesign Specialists• Special Skills as Needed

Senior Management Task Force/Steering Committee• Senior Vice-Presidents Operations, etc.• Board Members• Key Stakeholders

EXHIBIT 6. PROJECT MANAGEMENT STRUCTURE

Source: Adapted from Carr, et al., 1992.

asked to participate in brainstorming sessionsto develop creative ideas and solutions for theidentified problems. Supplementing the coreproject team with experts on an as-needed basisprovided depth to the analysis and solutions cre-ated, increased commitment to the changeprocess, and ensured that key issues wereaddressed.

As was the case at Reynolds, most companiesfind that a successful method for major processredesign efforts is to build three to five levelsinto the redesign team structure: project spon-sors, steering committee, core design team,design support team, and process implementa-tion teams (see Exhibit 6).

The steering committee consists of senior exec-utives and managers of the organization’s oper-ating and staff functions. The primary focus ofthe steering committee is to provide overall guid-ance and support to the firm’s redesign efforts.

The core design team, which is responsible foractually managing the process redesign project,determines the objectives of the redesign initia-tive, creates baseline measures for evaluatingthe project’s effectiveness, and sets the scope,time line, and list of deliverables for the project.This team is also responsible for developing achange management plan that includes a com-munications and commitment strategy, outliningwhat will be communicated to each stakeholdergroup, what communication vehicles (memos,meetings, banners, etc.) will be required, and themethods to be used to solicit stakeholder con-cerns/inputs on an ongoing basis. Whereas thecore design team draws from technical, process,and organizational experts, the process imple-mentation team draws upon individuals from thearea to be redesigned.

In small to medium-sized firms, the finance-project-management structure will be much sim-pler than that suggested in Exhibit 6. While thesame activities will need to be performed, indi-viduals may be involved in many different stagesof the redesign process. In many cases one coreredesign team may suffice, with support frominternal and external experts being selectivelyused whenever the team or management feelsadditional insights and knowledge are required.Even in large firms external expertise may provebeneficial.

Once a project-management structure has beenchosen, and key stakeholders that will requirerepresentation and participation in the redesignprocess have been identified, attention can turnto selecting and prioritizing specific finance activ-ities for potential redesign.

Selecting and Prioritizing Areas in Financeto be InvestigatedTo appropriately select and prioritize areas infinance for investigation, the core design teamhas to understand the critical success factors ofthe finance function, the business environment,and the major information requirements of inter-nal and external customers. Selecting the areasto be investigated is a critical step in redesignprojects. A lot of effort can be wasted, and theredesign program can be put in jeopardy,because of perceived lack of interest and pay-back if the wrong processes are selected.

The following list details some major criteria tobe used in setting priorities among financeprocess redesign targets:l the overall strategy of the enterprise and how

critical each process is to its success;l the competitive advantage that will result if the

process is redesigned, or the competitive risk

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that will result if the process is not redesigned;l the impact of potential improvements on the

customers’ perceptions of value;l the interfaces between processes (a process

that produces something other processes usemay need to be redesigned first);

l the scope of the proposed project (it should bebroad enough to provide significant benefit butnarrow enough to control easily);

l the extent to which there are opportunities for“quick hits”; and

l the likelihood of success (processes wherefinance managers are strong champions ofredesign and employees are receptive tochange are preferred).

In view of this list of criteria, the accountspayable process is an area often chosen as aprototype project. The driving forces for thischange are everywhere, starting with the recogni-tion that there are better ways to do the work,the low risk–high cost nature of many accountspayable activities, and the increasing availabilityof new technologies to support the redesignprocess. Regardless of which finance process ischosen for the prototype project, it is necessaryto document the existing practices.

Documenting Own Finance ProcessesBefore designing a new process, it is necessaryto study the existing process(es) it will replace.Unfortunately, most business processes are notdocumented. Even when documentation is avail-able, the process may not operate in the way laidout by the process diagram. Due to the fact thatthe current process is going to undergo signifi-cant change as a result of the redesign effort,the resources and time committed to document-ing existing processes should be constrained bythe benefits this knowledge will provide.Studying and documenting existing processesinvolve the following:

l describing the current process;l identifying the reason for the process’s

existence;l measuring the current process;l identifying the critical success factors for the

process;l identifying major inputs and outputs to the

process;l documenting customer requirements against

current process functions;l identifying process activities that are focused

on quality control, error recovery (rework), orcompensating for process disconnects;

l validating the data collected; andl identifying the design constraints.

In documenting finance processes, the coredesign team needs to pay particular attention tohow the finance processes link with the firm’sbusiness strategy. Significant disconnectsbetween activities within these processes,between functions, or in the processes’ incorpo-ration of current strategies and priorities, needto be immediately addressed. Some of thepotential problems that may be identified duringthe documentation stage include:l systems that fail to provide the information

needed to support tactical and strategic deci-sion making;

l multiple databases for similar data, includingoff-line systems maintained by personnelbecause of dissatisfaction with the informa-tion generated by the formal system;

l rework, or re-entry of information, modificationof paperwork, changes in data structures, orrelated nonvalue-added activities created bythe current process;

l redundant data entry due to disconnects insoftware applications;

l physical preparation of reports, or utilization ofPC-based report writers, due to fragmentation

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of required data across multiple databasesand servers; and

l complex hand-offs and transaction-handlingroutines due to legacy systems.

Identifying obvious breakdowns, and the primarydrivers or causes for these shortcomings in cur-rent processes, provides a rapid way to createnoticeable improvements and gain cost and per-formance benefits from the redesign process.The resulting documentation provides a solidplatform for change.

Researching and Identifying Best Practicesin FinanceResearching and identifying best practices infinance can be a major challenge. Done correct-ly, identifying best practices establishes a quan-titative and qualitative baseline that can be usedto measure the effectiveness and efficiency ofcurrent processes and to evaluate the progressof the finance redesign effort. However, obtainingand analyzing data can be costly. Care should betaken to ensure that the required data areobtained at a reasonable cost.

While many different approaches can be used togather best practices in finance data, severalmethods have gained popularity due to their reli-ability, feasibility, and cost effectiveness:l database-driven benchmarking;l in-person interviews to obtain process struc-

ture and performance information;l mail or phone survey instruments;l targeted site visits of best-practice firms.

In recent years, several organizations have devel-oped extensive benchmarking databases in thefinance area. Using the prescribed diagnostictools and comparing the results of internalassessment of the targeted finance process’seffectiveness with that of other companies in the

database provides a quick read on the currentstatus of the organization.4 A large benchmark-ing database distills the best practices of manyparticipants. This broadened frame of referenceencourages organizations to think “out of thebox.”

Using a set of finance database performancemetrics, the core design team can perform aquick self-diagnostic to determine the efficiencyand effectiveness of their finance organization.Analysis of the information obtained from thebenchmarking database should lead to thedetermination of current performance againstbest in class results. This difference, or perfor-mance gap, which can be positive, negative orzero, measures the difference between internalperformance and the best in class.

If the resulting performance gap is negative, themotivation for finance redesign is clear. When azero or positive performance gap is identified,the drive for finance redesign becomes strategicas the company strives to find ways to turn its“best-in-class” position into a competitive advan-tage. Where a competitive advantage is notdesired, management can make decisions toshift resources away from the activity, or findways to improve the value created by the commit-ted resources. In addition to providing a meas-urement of the performance gap, a properly con-ducted benchmarking study should identify thecauses of the current performance gap. Processimprovement comes from attacking the gap byeliminating the root causes for excess cost andeffort in the structure and operation of thebenchmarked finance process.

Databases are quick and inexpensive to use inthe finance-redesign process, but they also have

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4 Appendix B provides sources for finance-function benchmarks.

inherent flaws. Firstly, the information in thesedatabases may not exactly capture the issuescritical to the firm. Secondly, data accuracy andtimeliness of information in published databasescan be an issue; careful assessment of the data-base’s reliability is essential before extensive useof the available data is made. Finally, databasesonly provide information on currently measuredresults and cost distributions within a set of com-panies—they cannot detail what needs to bechanged to achieve best-in-class performance.

In-person interviews can yield accurate, currentinformation, but completing this type of bench-marking project will consume time and money.Site visits of best-practice firms can be used toobtain in-depth knowledge about the structureand operation of best-practice processes, espe-cially if they include a candid discussion withsenior management about the successes or fail-ures encountered and insights gained during thefinance-redesign process. Such visits can becostly to complete, and should only be donewhen precise questions about the targetedfinance process can be formulated. Finally, mailor phone surveys can provide in-depth informa-tion, but are only as good as the questions theycontain.5

Assessing Current Staff Skills and CompetenciesFinance redesign efforts can only reach their fullpotential if the skills and competencies of theexisting staff are matched to the demands of thenew environment. Since it is unlikely that theexisting finance staff will possess all of the req-uisite skills to function effectively within theredesigned process, assessing these abilities isa crucial part of the investigation stage.

The skills and competency assessment can drawfrom many sources, including past performancereviews, 360 degree evaluations performance (acombined evaluation by superiors, subordinates,and peers), self-evaluations, as well as a varietyof externally available testing and assessmenttools. Whatever method of evaluation is used,the identified gap between current abilities andthose required for the future must be formallyaddressed in the design, planning, and imple-mentation of the selected process.

Stage 2: PlanningAchieving the benefits promised by a financeprocess redesign project begins with a clearplan. The planning stage of finance processredesign is critical because it will define the com-ponents of the redesign effort, as well as estab-lish the company’s goals, philosophies, andtimetables for implementation. Once a clearvision of the future role of the finance functionhas been established, the planning phaseinvolves detailed analysis and review of thecosts and benefits of the redesign effort and theidentification of the optimal implementation pathgiven the unique nature of the company, itsstrategies, and challenges. Although fluid innature, the activities undertaken during the plan-ning stage include:l developing a future vision for finance;l creating a strategy for change;l developing a business case;l planning for the transition; andl building momentum for the change.

Developing a Future Vision for FinanceThe needs of the organization, senior manage-ment, and customers and suppliers of theprocess must be taken into account in the gath-ering of information, focusing of the process,identification of objectives, and creation of a

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5 For additional information, the reader should refer to IMAStatement on Management Accounting, EffectiveBenchmarking.

plan for change. Productive change in thefinance function is driven by a clear vision of itsfuture role in the organization. As suggested inExhibit 7, the visioning process begins with anexploration of the question, “How can we bestserve the organization?” Key steps in the vision-ing process include determination of key processcharacteristics, development of performancemeasurements and objectives, identification ofunique business requirements, and detailing ofcritical success factors for the project.

An effective vision statement consists of specif-ic, measurable objectives and attributes of thefuture process. Providing the framework for theredesign process, the finance vision supportsthe development of a targeted strategy for thechange process. Bell Canada’s vision for itsfinance function, as described in the following, isan example of such a vision statement.

Without a strategic context and a clear, far-reach-ing process vision, finance redesign efforts canfail or yield marginal results at best. Terms suchas “process simplification” and “process ration-alization” describe situations where vision is notpresent. In these cases the ultimate goal of theredesign is the elimination of obvious inefficien-cies and bottlenecks. To achieve the radical shiftin focus and results expected of the financefunction in the future, incremental change andsimplification are not enough.

As suggested by Exhibit 8. the key elements of astrategic vision for the finance function includestructure, skills, technology, information, andprocess.

Focused on providing information to the customer within, the new finance becomesthe information source, not its gatekeeper.

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Planning & Budgeting......will create value by providing a flexible environment which supports the efficient development of integrated financial

and non-financial plans. It will drive the definition of strategic goals and results in the specification of operational tactics

and value measures by accountable business units to meet stakeholder requirements.

General Accounting......will create value by ensuring that quality accounting information is captured, validated, maintained, and stored at the

lowest possible cost and is made available in a timely, flexible, and integrated manner to meet customer requirements.

Reporting & Analysis......will create value by providing integrated, timely, flexible, and relevant financial/non-financial information and analysis

to enhance the company’s competitiveness and shareholder value. A streamlined and cost-effective process will embed cus-

tomer service, financial leadership, value added involvement, and sophisticated knowledge of the business.

Source: Bell Canada, 1995.

Developing relevant information and teach-ing the organization and its managers howto create, use, and apply this informationcorrectly is a major challenge for the futurefinance professional. Finally, as suggested inExhibit 8, the vision of finance change has tobuild continuous improvement into the fabric offinance work. Constantly seeking ways to simpli-fy, eliminate, and automate finance transactionsis an ongoing process of improvement, not a one-time effort.

As the vision is developed, individual skill require-ments typically change. These shifts in skills and

competencies need to be clearly defined. Builtinto the training and development of the financefunction, new skills and competencies for thefinance professional should encompassimproved decision-making and decision-analysisskills, in-depth business knowledge, interperson-al skills, as well as an up-to-date understandingof the technologies that will be used to enablethe change process.

Creating a Strategy for ChangeOnce the vision for finance is defined, the coredesign team needs to develop a strategy forchange to achieve the new finance function

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Initialvision

statement

“How will it work?”

Keyprocess

characteristics

Performancemeasures and

objectives

Criticalsuccessfactors

Potentialbarriers to

implementation

“How well will it work?”

“What thingshave to go right?”

“Why mightthey not goright?”

• Overall process

• Flow• Output• Performance• Organization• Technology

• Cost• Quality• Cycle time• Responsiveness

• People• Technology• Product

• Resource allocation• Organizational, cultural• Technical• Product factors• Market/environment

EXHIBIT 7. THE VISIONING PROCESS

Source: Davenport, 1993.

goals. There are two basic paths that can be fol-lowed: modest and radical. In modest changeprocesses (see Exhibit 9), the level of change isincremental. The resulting project starts withexisting processes, focusing on reducing thecomplexity and cost; the process itself is left inplace.

As suggested in the exhibit, such incrementalchange has a narrow scope and relatively lowimplementation cost. Technology may play a role

in these changes, but it is unlikely that majortechnology investments will be made if incremen-tal change is the goal. Modest change programsare narrowly defined and of low to moderate risk;they are the natural result of the cultural changeenabled by the continuous improvement paradigm.

In contrast, radical change is normally a majoroverhaul of existing processes that starts with aclean slate. While these projects are often high

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Structure

Process Skills

Information Technology

FinanceVision

• Clear and aligned authority, accountability, and responsibility• Customer focused organization• Minimal organizational levels• Process focused

• Clearly defined competency requirements• Focused training programs• Composite skill sets• Improved decision- making abilities

• Continuous improvement focus• Simplified and automated activities• Flexible and responsive• Minimized or eliminated non-value added activities

• Relevant for decision making• Easily accessible, high quality• Timely, accurate, consistent• Shared

• Integrated applications• Cost effective• Flexible• Seamless technology

EXHIBIT 8. THE KEY ELEMENTS OF A STRATEGIC VISION FOR THE FINANCE FUNCTION

Source: Deloitte & Touche Consulting Group.

risk in nature, may take a long time to complete,require senior management leadership, arecross-functional in nature, and rely on informa-tion technology to attain their objectives, it isalso possible to achieve radical change with min-imal resources, time, and effort. The key to thisparadox lies in the nature and scope of the proj-ect as well as in organizational resistance to theproposed change. Radical change efforts havean impact on all aspects of the firm and its activ-ities. Consequently, they can result in a very highpayoff, or quantum leap in performance, for theentire organization.

Understanding what degree of change is neededto achieve the finance vision is critical to devel-oping a clear strategy for change, including iden-tification of specific tactics for implementing thestrategy. Some common tactics used in financeprocess redesign are:

l centralizing transaction-processing functions;l outsourcing transaction-processing functions;l decentralizing the decision-support process;l implementing leading-edge-technology

enablers;l redesigning, simplifying, eliminating or stabiliz-

ing a process; and/orl integrating activities across multiple functions.

Quantum improvements begin with stepping “out-side the box,” and discarding all assumptionsabout how the work should be done, as well as allcurrent process and technical constraints. In theend, the choice of redesign strategies will bebased on the results of the investigating stage ofthe process redesign and the projected degree ofimprovement needed to meet or exceed best-in-class performance. Once a strategy for changehas been chosen, the focus of the redesign teamturns toward developing a business case.

25


ImprovementGoalsModest Radical

CrossFunction

Scope

Task

ImplementationCost

Low High

Fundamental

Role ofTechnology

IncidentalStatusQuo

IncrementalProcess

Improvement

FunctionRedesigning

Cross-FunctionalProcess Redesign

FundamentalBusiness

Transformation

EXHIBIT 9. FINANCE-FUNCTION REDESIGN IN CONTEXT

Source: Deloitte & Touche Consulting Group.

Developing a Business CaseSenior management must be convinced that theenvisioned changes are more than a conceptual“pie-in-the-sky” program in order to give approvalfor any sizable investment of financial resources.Picking the “low-hanging fruit” is one way for aredesign project to gain momentum and the nec-essary top management support. Commitmentcan be gained through the development of abusiness case that documents the projectedbenefits of performing reengineering and justi-fies the resources required to complete the proj-ect. A living document, the business case shouldpresent the following perspectives:l Strategic

4 competitive advantage4 critical transformation enabler

l Economic4 risk,6 payback, and discounted cash flow

analysis

4 opportunity cost4 composite cost elements4 revenue/savings (perpetuity)

Building a compelling business case requirescoverage of personnel reduction savings, sys-tems integration costs, re-engineering/changemanagement costs, facilities and travel costs,and severance, as well as specification of howproject benefits will be tracked. In building thebusiness case for a redesign program, it is bestto bundle together the anticipated savings andadditional costs and examine them as a wholeas illustrated in Exhibit 10.

26


6 Risk assessment identifies potential problem areas andquantifies the risks of the redesign project. Examples of riskare lack of active and sustained senior management commit-ment, loss of continuity in leadership, selection of inappro-priate IT solutions. lack of involvement from project stake-holders, etc.

Discount @ X% to Perpetuity

Personnnel Reduction Savings

Systems Integration Costs

Implementation Relational Software PC Tools and Upgrades Technology Charges (net) Contracted Training

Re-engineering/Change Management Costs

Facilities and Travel Costs

Severance Costs

PROJECT NET PRESENT VALUE

Cash Flow

$800

(160)

(105) (40) (10) 5(10)

(105)

(25)

(80)

NPV

$

$

$

$

$

$

EXHIBIT 10. BUSINESS CASE PRO FORMA

Source: Adapted from Deloitte & Touche Consulting Group.

Streamlining accounts payable transaction pro-cessing at Johnson & Johnson was driven byobvious cost savings that could be quantifiedusing activity-based costing methods. Buildingthe business case for the radical shift to ashared-services model in this highly decentral-ized company began with documenting the cur-rent cost of performing the activities making upthis process. Each activity was then reanalyzedusing the projected shared-services structureand its resulting costs, including the investmentthat would need to be made to improve the infor-mation technology abilities and skill set of theexisting payables workforce. Along with an esti-mate of the benefits such changes would create,this analysis provided the basis for gaining topmanagement support for the redesign process.

Having created a business case that details thestrategic and economic improvements thefinance redesign effort will provide, the coredesign team shifts its attention to planning forthe transition.

Planning for the TransitionIn developing a plan for the transition to the newprocess, it is important to recognize that how theproject is structured, presented, and used toenact behavioral and personnel changes in theorganization can spell ultimate success or fail-ure. Scoping the redesign project, that is, settingclear objectives and timetables for their comple-tion, is a critical first step in planning for the tran-sition. Accompanied by a detailed overview ofthe change process, the scope document shouldclearly and concisely state the reason for theproject and the manner in which success will bemeasured.

Planning for the finance-redesign process takesplace within the limits set by the project’s scope.A key planning task is to detail the recommend-

ed process and its central features—new jobdescriptions, software and hardware, file struc-tures, desktop procedures, and the implementa-tion sequences. In summary, the plan for thetransition should set out:l clear measurable objectives and a timeframe

for their completion;l the main tasks involved;l who will be involved, when, and why;l the roles and responsibilities assigned to

participants;l mechanisms for measuring and reporting

progress, and reviewing the status quo on aperiodic basis;

l a risk management plan;l means for identifying and pursuing unanticipat-

ed improvement opportunities;l mechanisms such as ongoing monitoring to

ensure that the gains are held and that theorganization does not simply drift back to theold ways; and

l a communications strategy.

A significant part of the planning process shouldbe dedicated to understanding the obstacles tochange and to ensuring that the finance processredesign effort will be successfully completed.While the number and type of issues that need tobe considered are different in each organization,the basic change process needs to consider:l what aspects of the area’s work are affected

by regulatory or legal constraints?l what does the customer see as the “product”

of this process?l what are the essential tasks that need to be

performed to meet customer requirements?l what things are we doing that seem to have no

real basis in concerns for the customer or forinternal control? Where does history (we’vealways done it this way) begin?

l where are the hidden barriers to change as wemove from one task to another or from one

27


functional area/department to another?l who will be affected by the changes made to

different parts of the process?l if nonvalue-added work is eliminated, how will

freed-up resources be used?l is “best-in-class” performance, or a more

conservative/ambitious target, the goal?l what are the long-run implications of the

redesign project? Does the company need toconsider changes in its structure, products,services, or marketing strategy?

Any change that is perceived as a threat, or cre-ates potential “losers” if successful, will createmajor political and behavioral side effects. Theimpact of redesign efforts on the culture, powerstructure, and informal control system of thecompany or function must be identified. Findingways to reduce the potential negativity of theseimpacts, or to identify and deal with staff thatcannot or will not support the proposed change,is critical to the success of finance functionredesign.

Building Momentum for the ChangeWhether a quick fix is used to gain support, or aradical project is undertaken to reach aggressiveperformance targets, one of the key tasks offinance-redesign-project managers is to buildmomentum for the anticipated changes. Effortsto change the way of work have immediate,direct consequences for organization members.Not by chance is resistance to change overcome,nor a groundswell of support for the new processand its benefits created; careful planning andanalysis of the impact of the change process onthe organization, and its formal and informalstructures, as well as the morale and dedicationof the people who do the work are the key ele-ments in making desired changes a reality.

Building the momentum for change in thefinance-process-redesign area requires a criticalmass of impacted individuals or groups whoseactive commitment is necessary to provide theenergy for the change to take place. Project lead-ers may spend up to 40% of their time selling theproject.7 A commitment plan is a strategy,described in a series of action steps, that helpsthe project leader secure the support of the indi-viduals or groups that are critical to the changeprocess. The steps in developing a commitmentstrategy are:l identifying target individuals or groups whose

commitment is needed;l defining the critical mass needed to ensure

the effectiveness of the change;l developing a plan for getting the commitment

of the critical mass;l initiating an active, broad-based communica-

tion plan to provide feedback, guidance, andinformation to all affected and interested indi-viduals; and

l creating a monitoring system to assess theprogress.

Charting the level of resistance to change andthe commitment gaps, and creating a changeprocess that will support individual adjustmentand movement through the stages of resistanceare crucial to the success of the project. A fail-ure to recognize the human element in thefinance-redesign process is a fatal error that can-not be overcome by good intentions.

The goal is not to achieve total commitment fromeveryone, but rather to obtain a critical massnecessary for success. A critical mass may ormay not include all the members of a particularlevel or constituency; it is defined instead, as thesmallest number of people and/or groups whomust be committed to a change in order for it tooccur.

28


7 The Hackett Group.

Early initiatives, such as the centralization ofaccounts payable, can often run counter to theculture of the organization. In breaking the cultur-al barrier, participation, brainstorming, educationand training, a guarantee of out-placement ser-vices, and ongoing support of strong projectsponsors can prove effective for those individu-als who cannot fit into the new environment.Changes do not take place overnight; a majorredesign effort can take up to two or three yearsto complete.

Stage 3: ImplementingThe final stage in the completion of a specificfinance-process-redesign project is the imple-mentation of the identified process and structur-al changes. There are five major components ofthe implementation process:l assigning process responsibility and organiz-

ing the process-improvement team(s);l creating a prototype of the proposed process;l establishing a human resources strategy for

finance, including training programs to upgradeskills and competencies of existing staff;

l rolling out the new program; andl monitoring actions and results of finance-

process redesign.

Assigning Process Responsibility and Organizing the Process-ImprovementTeam(s)A common failing of finance-process-redesignefforts is the absence of effective process own-ership. Without credible process ownership,implementation of critical cross-functionalredesign programs is unlikely to be successful.Achieving ownership begins at the top; the CEO,CFO, and other senior managers must exhibitongoing support of the process redesign if indi-viduals lower in the organization are to take thechange process seriously. Senior management

must reinforce the importance of the redesignprogram, ensure that the resources are commit-ted according to the established priority, supportthe leaders of the redesign efforts in theirsearch for cooperation, and provide the neces-sary funding.

While top-level support is critical to success, thestructure of the process improvement teams andthe type of individuals chosen for participationare equally critical. Whereas the core designteams focused on recruiting influential andknowledgeable senior managers, functional spe-cialists, and process specialists, the processimplementation team(s) need to recruit highlyeffective process supervisors and responsiblemiddle managers. Focused on carrying out theimplementation plan developed during the plan-ning stage, and setting new performance indica-tors into place, the process implementationteam(s) should be cross-functional in nature,using specialists as needed to ensure a smoothtransition to the new structure.8

At Cummins Engine, the structure of the teamused to implement EDI-based finance redesignefforts was spearheaded by the manager of thecredit system. The process improvement teamincluded representation from top management,marketing, payables, receivables, invoicing, andorder processing. In addition, individuals whorelied on the paper trails were included, such asinternal and external auditors, legal staff, treas-ury personnel, and individuals involved with keybanking relationships. Systems and data pro-cessing individuals played a central role in theoverall effort. Beyond the boundaries of theorganization, Cummins also included its “tradingpartners” in the redesign process.

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8 For additional information, the reader should refer to IMAStatement on Management Accounting, Managing Cross-Functional Teams.

Creating a Prototype of the ProposedProcessA major issue in the implementation stage ismanaging the disruption caused by the changesand the inevitable resistance to these changes.Whenever organizational buy-in is the issue, aprototype of the process is the best implementa-tion method. The choice of a prototype siteshould be based on the following factors:l site management is interested in the redesign

process and faces the types of problems tar-geted by the project;

l its managers are respected by their peersthroughout the organization:

l site management works well together, withminimal cross-functional silos and infighting;

l site management is aware at the basis of thenew approach, the commitment required, andthe benefits that can reasonably be expected;

l site is of a reasonable size, allowing for com-prehensive study in a limited period of timeand a high potential for effective implementa-tion with promised benefits.

At first, the process prototype should operate inparallel with the existing system in order toensure that it is operating effectively. Paralleloperation should be planned for the minimumtime required to ensure integrity and control aresufficient in the redesigned process: a longerperiod is necessary if the system is integral tofirm operations. Parallel processing is an intri-cate part of any finance redesign effort. Thefinance function safeguards the internal controlsand related “paper trail” of the organization. It isimportant that the prototype focus on ensuringthat these safeguards remain in place.

Establishing a Human Resources Strategyfor FinanceThrough professional development, financialmanagers learn about a range of business and

financial issues. The idea is to provide a broad-er and deeper base of business knowledge.Financial managers need to understand the tech-nological and competitive changes in their busi-ness and to be aware of the financial implica-tions. The true measure of a professional devel-opment program is the impact that trained finan-cial managers have on their business units andthe decisions that shape them.

The importance of an effective, comprehensivehuman resources strategy for finance-processredesign is hard to overstate. Finance work ispeople-driven; competent staff is the essentialingredient in defining the quality, effectiveness,and efficiency of finance processes. Yet toooften this critical area is overlooked in creatingthe implementation plan for finance-processredesign; this results in downstream failure or asignificant shortfall in achieving targetedimprovements.

A human resource strategy for finance beginswith assessing the current skills, and competen-cies of the finance staff against the projectedshort-, intermediate-, and long-term objectives ofthe finance function. When the assessment iscomplete, attention should turn to the creationof training and development programs to improvecurrent skill levels and create new competencieswithin the finance organization. Individual careerdevelopment profiles should be developed joint-ly between individuals and function manage-ment, with clear goals, objectives, and measure-ments to ensure desired improvements areattained. Tying compensation to specific achieve-ments is the final link in the finance humanresources strategy, providing ongoing incentivesfor continuous improvement, learning, and skill-building.

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NYNEX has a comprehensive professional devel-opment program for its financial managers. Theobjective of the program is “to promote compre-hensive human resource development resultingin a world class financial management organiza-tion that is strategically linked to NYNEX goalsand objectives.” It is open to the 1,700 NYNEXmanagers working in the accounting, finance,and financial management functions. As current-ly structured, the program has three compo-nents: professional development, professionaltraining, and career management. It is directedby a team of three managers who work closelywith coordinators in each NYNEX business unit.Sessions are offered a la carte: financial man-agers choose which of the program’s offeringsare valuable to them, although curriculum recom-mendations are provided by level of responsibili-ty. In combination, these professional develop-ment efforts are providing NYNEX with a powerfulcompetitive tool: a highly competent, efficient,value-adding, and effective finance function.

Rolling Out the New ProgramOnce major problems are resolved, and theorganization has switched over to the newprocess for the prototype site, roll out to otherregions or customers may take place using aphased-in approach. Essential elements of aneffective roll out of a finance-redesign projectinclude setting clear expectations, communicat-ing, allowing active participation and feedback,identifying and supporting change leaders,changing measures and incentives, educatingeveryone involved in the change process, andproviding ongoing support for individuals strug-gling to make the transitions required.

The roll out of a finance redesign program at aspecific company provides the best illustration ofthe major issues and challenges in the roll-outstage. At Baxter Healthcare Corporation, the

accounts payable re-engineering project wasrolled out in two phases. In phase one, the com-pany strengthened its internal controls in thereceiving area to remove the need to duplicatethe matching of purchase order, receiver, andinvoice in the payables group.9

In phase two, Baxter’s redesign team shifted itsfocus to a one-way matching approach wherevendors would be paid after “receiving” hadmatched the purchase order with the goods. Theflow in this redesigned process begins in pur-chasing when an order is sent to suppliers viaED!, triggering an automatic entry into the com-pany’s on-line database. As goods arrive at thereceiving dock, on-line verification that an openorder exists triggers acceptance of the goodsand posting of a receiving transaction into thesystem. No matching is required, since the sys-tem automatically performs these functionsplus, using electronic funds transfer (EFT) tech-nology, releases payment directly to the vendor.

The roll out process at Baxter focused on improv-ing every stage of the accounts payable process,eliminating the need for duplicate review of doc-uments, manual transaction processing, andmanual completion of key activities through theuse of an integrated order-to-payment database.Including all affected partners in the redesignprocess, ensuring that the integration wouldincorporate important vendor concerns and data,and pursuing a two-phase implementation weremajor features of the roll out. Coupled with edu-cation and negotiation on key parameters, thechange process provided a logical, smooth pathfor transitioning the accounts payable functionfrom its traditional, transaction-intensive modeto a streamlined, technology-enabled solution.

31


9 For further discussion of this point, see Singhvi, 1995.

Monitoring Actions and Results of Finance-Process RedesignWhen roll out is completed, the performance ofthe new processes should be evaluated to deter-mine the level of improvements made. To assessthe extent to which the actions and results of theredesign correspond to those specified in theoriginal plan, the information gathered during anex-post review of the project should focus on:l benefits gained against plan;l costs against plan;l unanticipated problems and their impact on

implementation;l unanticipated solutions and their impact;l management challenges moving forward;l weaknesses or desired changes in the re-engi-

neered process;l adherence to schedule with reasons for

delays;l customer-defined success of the change

process;l measurement of pre- and post-performance on

key criteria;l assessment of impact on culture and individ-

ual behavior and attitudes;l identification of future projects or extensions

and the costs and benefits they represent; andl assessment of the adequacy of training and

communication during the project.

These assessments should not wait until theproject is completed. Ongoing assessment ofthe project’s progress against milestones andobjectives plays an important role in keeping theproject on track and allowing for midstreamadjustments in the plan, measures, or methodscreated. Ongoing and active feedback, as well asan objective assessment of delivered projectbenefits, are vital elements of the continuousimprovement process that lies at the heart of allfinance-redesign programs.

Attention may be focused on action-based ele-ments of the project (time, or meeting of dead-lines; cost against budget; quality, or meeting ofobjectives; or effectiveness, the support gar-nered for the program); on the results of theredesign process assessed against the originaland revised measures; or on the assumptionsthat drove the process. In any case, the goal ofthe assessment is not to place a grade on theproject or to provide a basis for reward or punish-ment of involved individuals. However, ongoingand post-implementation reviews provide fororganizational learning and sustainable improve-ments, the ultimate organizational and manage-ment accounting challenge.

V I I I . ORGANIZAT IONAL ANDMANAGEMENT ACCOUNTINGCHALLENGESThe pressure on finance to reduce its costs willcontinue as organizations recognize that theycan no longer afford expensive processes thatdo not provide direct value to the customer.Finance staff will be reduced, and those individ-uals that remain will be refocused on higher-value activities. Finance productivity will greatlyimprove through streamlined processes, poli-cies, and practices. These changes are not neg-ative, they are not to be feared, they must beembraced. The future finance function will beintegrally involved in the organization, serving aspart of the management team. In this rapidlyexpanding set of opportunities, finance processimprovement will become a way of life, themeans by which resources are found to take onnew challenges.

Given that change is a way of life, rather than anoccasional disrupter of organizational life, it isclear that one major challenge for managementaccountants is that the finance-process-redesigneffort will never cease. The future promises ever

32


more rapid and continual change. Thesechanges will require that finance keep in touchwith its customers and be aligned with the corpo-rate strategy. Continual change is about everyindividual being empowered to act in an orderly,responsible, and accountable way to instigateand make the ongoing changes needed to keepthe organization competitively viable.

Continuous improvement is the ultimate goal ofprocess redesign efforts. Since continuousimprovement is a journey with an unknown desti-nation, management accountants must stay con-stantly focused on identifying opportunities forimprovement as:l customer expectations and requirements

change;l new methods and technologies become avail-

able and cost-effective;l the business environment changes;l employees within the process develop new

capabilities and find more effective ways ofdoing things; and

l uncared for, unattended processes degradeover time.

If a finance redesign program is done well, andthe finance function is adopting best practices,then it will acquire the skills and learning need-ed to achieve continual change.

For management accountants to rise to full busi-ness partnership, they need to change their tra-ditional internal and historical focus. While main-taining their financial capabilities, managementaccountants must build new requisite skills suchas broadened business knowledge, expert ana-lytics, and team building and partnering expert-ise. Specifically, a management accountant’schallenges are to:l develop a marketing orientation—understand-

ing who the players are in the market and with-

in the organization as well as what customerswant;

l develop a product orientation—knowing whatproducts to address, what prices and costs areneeded to be the industry leader, and whatcompetitors’ prices are;

l develop a business perspective—understand-ing where the organization adds value andwhat tasks it should and should not be doing;thinking like an owner/director;

l provide a higher level of financial analysis—pro-viding analytics, such as value chain cost man-agement, target costing, and economic value-added, that are strategically important to over-all business leadership; and

l offer strategic planning, budgeting and controlleadership—overseeing the evolution from con-trolled environments to empowered environ-ments that operate in control.

IX . CONCLUSIONThe challenge for the world class finance func-tion is to focus more resources on decision sup-port, strategic analysis, competitor analysis, costanalysis, and the entire range of new or existingactivities that add greater value to the organiza-tion and its customers. To achieve these goals,financial managers are being asked to providethe same or higher levels of service in transaction-intensive areas, while using fewerresources. The resources freed up by theseimprovements, or new resources obtained as tra-ditional costs drop, are being put to new usesthat provide opportunities for the finance func-tion and add value to the organization it serves.

These new opportunities require a rethinking ofthe role of finance and a radical redesign offinancial processes. Redesigning allows financeto do things better, faster, and cheaper.Implementing the continuous improvement

33


philosophy, whether in an evolutionary or revolu-tionary manner, is the first step on the road toworld-class performance and value-addedfinance.

APPENDIX A : F INANCE PERFORMANCE SUMMARY STAT IST ICS

Overall Finance Organizationl total finance cost as a percent of revenuel finance cost as a percent of revenue by

processl shared servicesl span of control by processl total finance headcount (also known as FTEs)

as a percent of total business unit headcountl total finance span of control

Travel and Entertainment Accountingl total T&E cost as a percent of revenuel annual number of T&E reports processed per

FTEl frequency of employee expense report

submissionl total cost per T&E report

Billingl total billing cost as a percent of total revenuel percent of billing adjustments processedl percent of EDI utilizationl percent of invoices with inquiriesl average elapsed time between shipment and

billingl total billing cost per customer invoice

Financial Budgeting and Analysisl total financial budgeting and analysis cost as

a percent of revenue

l annual number of financial budgets developedl cycle time to prepare budgetsl FTEs devoted to the process as a percent of

total business unit headcount

Fixed Assets Accountingl total fixed assets cost as a percent of revenuel minimum capitalization valuel total cost per fixed assets transaction

Taxl total tax department cost as a percent of rev-

enuel penalties, fines, and interest as a percent of

total cash taxes paid

APPENDIX B: SOURCES OFF INANCE FUNCTION BENCHMARKS10

The Hackett Group—Best PracticesBenchmark Study1742 Georgetown RoadHudson, OhioU.S.A. 44236Contact: Christine A. Gattenio, Vice PresidentTelephone: 216-656-3110 Fax: 216-463-5471

APQC—International Benchmarking ClearingHouse123 North Post Oak Lane, Suite 300Houston, TexasU.S.A. 77024-7797Contact: Marci RinkoffTelephone: 713-685-4654 Fax: 713-681-4020

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10 For additional sources of finance function benchmarks,the reader should refer to The Society of ManagementAccountants of Canada’s, “Benchmarking InformationReferral Service” This booklet lists over 50 benchmarkingorganizations worldwide. It is intended to quickly and effi-ciently track down services, partners and databases thatare useful for benchmarking studies.

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Drexel, Steven R. 1993. Kelly’s automated lock-box network. Management Accounting (July):28-31.

Drtina, Ralph, Steve Hoeger, and John Schaub:1996. Continuous budgeting at the HONcompany. Management Accounting (January):20-24.

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Singhvi, Virendra. 1995. Reengineer thepayables process. Management Accounting(March): 46-49.

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