The Changing Role Of Finance Function: Why Change & What if Not ( Part 1)

IMPORTANCE of business partnering instead of transaction processing

In this constantly changing business environment where globalization & increased competition are the key notes, we need to re-examine our role as Finance specialists.
Unfortunately to say, we still encounter many finance specialists considering their key result area being mainly in the transaction processing area whilst a small portion is on reporting and a little on internal controls. Many still do not lay emphasis on business partnering role with the other operating managers.

Anyway, let’s look at why we need to change or what are the drivers that makes us need to change?

The drivers of change includes the following:

• Globalization & increased competition
• New organisation structures & requirements
• The “information economy”
• IT & their impact on business processes

Append below is the quick snapshot of the Drivers of Change:

Impact Of Globalization & Increased Competition

With the impact of globalization and increased competition, the finance function must constantly be alert and strategises on different matters like tax implication, currency fluctuation, inter-companies Billings, contractual Agreement, supply Chain Management, regional / overall Credit limit ,etc
Impact Of New Organization Structure & Requirements:

Impact Of Information Economy

Impact Of Computers/IT On The Business Processes:

Once we understand why the finance role needs to be transformed, the next stage is to ask the ugly questions of what if we do not want to change.
Before the answer is given, let’s us review the following trends:

• Average finance costs as a percent of revenue are dropping every year . Top management are constantly looking into the value added function of finance vs finance costs. ( Financial surveys conducts reveal that finance cost is approximately 1.2% of revenues for large industrial companies.)

• Outsourcing has moved beyond payroll to many other finance areas,

• Banks or other service providers are constantly searching for more outsourcing fees which are turning transaction procession roles like accounts payable & other transaction-based processes into “ lights out” operation for the finance specialists.

• Many multinational companies are looking into their own share service center by reviewing the “core competencies/expertise of their finance function.

Therefore, looking at the above-said trend, the answer is pretty clear: if finance role does not change, we might be viewed as the dinosaurs from the past. We might even find our jobs at stake with shared service providers            ( whether within or without) or banks offering our employers similar tedious and meticulous services at one half of the price of our staff costs.
If we are still perceived by top management as a transaction processing department namely still playing the same old traditional role like the following, we shall be in a less than favorable situation:
(1) transaction processing like input, payments, collection, etc and reporting which occupies about 80% of their time;
(2) measuring & controlling financial accounting risk –another say 10% of their time
(3) and the balance into trying to add value by interacting with other operating managers in the company.
This sad state is aggravated by the having the following paradigm of limited mindset:-
· risk Assessment is ad hoc
· only finance, treasury and internal audit are responsible
· every function should do its own thing
· control should focus only on financial risk and results
· errors should be detected and corrected
· people are the primary source of risk
Not realizing that finance role needs to be in the value-added process of “ partnering” with other business operating managers, we still see that quite a number of financial specialists putting up almost all their key performance areas & indicators towards meeting time line and accuracy of transaction processing functions. They fail to understand that these transaction processing, yes they must be done but contribute only to making sure that essential basic services are rendered .
On the other side of the coin, we can see up to date business partnering finance specialists constantly focusing into areas like
· cost-effective support services;
· managing business risks;
· support growth opportunities;
· developing key performance measurement tools and
with a paradigm shift in their mindset where they are constantly looking at:

• risk Assessment is continuous
• everyone is responsible
• risk assessment is focused and coordinated
• controls should focus on business risks of all kinds
• errors should be prevented
• processes are the primary source of risk.

So which group would we like to be?
A role of transaction processing, reporting and limited role in internal control, risk mitigation leaving in the dream that forever the finance department will always be there for us
Or
to constantly re-train ourselves so as to gain more knowledge and more core competencies and moving towards assisting or advising our external and internal customer which are other business unit operating managers.