Finance Transformation Gone Wrong - Inadequate Technology Investment

Note: Today's post is part of an ongoing series that looks at various pitfalls in finance transformation and what can be done to avoid them.

Many of the challenges in finance transformation, such as lack of senior management support or the lack of stakeholder engagement, must be overcome in order to have an effective transformation program. Technology support is one of those areas that isn't black and white.

I say this because I honestly believe that because there are opportunities to engage in continuous improvement without large expenditures in technology, but I know from experience that companies with significant transformation programs are committed to technology investments that support the transformation strategy.

I once had a client that was developing a shared service center in the Far East to handled a number of countries in that region.  The center would handled a number of transactional processes, such as accounts payable, customer invoicing, fixed assets and general accounting.  Overall it was a successful implementation that met it's goals.  One challenge, however, is that various countries such as Japan require that certain documents like vendor invoices be retained in country.  A scanning and workflow package would have worked very nicely to get the information to the SSC while retaining the original documents in the country.  Unfortunately, this particular client was spending millions to get the SSC in place but wouldn't spring for the relevant technology to scan and route documents.  Instead, they chose to have their people fax the invoices to the SSC.  Yes it worked, but it created an inefficiency in the process when the transformation effort should have been focused on optimizing processes across the value chain.

This is one small example.  Other companies consolidate processes but still operate off of multiple ERP systems.  This isn't insurmountable, and there can still be real benefits to consolidation and shared services without the perfect, one instance, global ERP platform.  But there's no denying that it helps.  So don't stop improving and transforming in ways that don't require large technology investments, but be realistic about what you can achieve over the long-term without a comprehensive strategy of IT enablement that supports the transformation vision.

Aligning IT investments with Finance priorities

It's no secret that technology plays a key role in the achievement of high performance in the Finance organization.  Technology is a strong tool in creating standard and efficient processes, and in driving cost out of those processes.  What may be a secret, at least to some people, is how technology investments in the Finance organization are prioritized, funded and monitored. 

I'm currently reading IT Savvyby Peter Weill and Jeanne Ross.  (By the way, it's an excellent read and I highly recommend it.)  In the book they discuss the BT Group, a global telecommunications company and how BT approaches IT funding.  According to the authors there are three areas of focus:

1. Establish clear priorities and criteria for IT investments,
2. Develop a transparent process for assessing potential projects and allocating resources, and
3. Monitor the impact of prior investment decisions

This is a useful framework for a company's Finance organization to use when evaluating IT investments.  Unfortunately, while most of my clients would agree with the framework, my experience tells me that many organizations find the execution of this model difficult.

Nothing happens in a vacuum, and Finance must be part of a broader governance structure that evaluates potential IT investments.  However, Finance must develop a position on its strategy and the technology required to implement that strategy.  Finance should be bringing their investment priorities to the IT governance committee(s).  In order to do that, Finance needs a clear vision of their IT priorities, and that can only come about if Finance has a strong and clear vision about its role in the organization and how it delivers value to the operating units.

Developing transparency in an organization is usually difficult.  However, it's important for all stakeholders of Finance to understand how decisions are made.  That means understanding the vision and how technology supports that vision, but it also means establishing criteria that objectively analyzes the advantages and disadvantages of a particular technology investment.  Every proposed initiative should have a business case that clear details the reason for the initiative, the anticipated investments and future cash flows, as well as the risks and assumptions of the initiative.  The criteria should be openly communicated so that everyone is approaching IT investments from the same perspective.

Perhaps more than the other two areas, the ability to monitor and accurately assess the value of IT investments is an area that companies struggle with.  In large part it's because these companies haven't made it a priority to formally assess returns on IT investments.  The smart companies have put a governance structure in place to monitor these investments and determine to what extent they have fulfilled the promises of the business case.  Learnings from this analysis create a feedback loop for future IT investments and the business cases that support them.

Every Finance organization should take the lead on developing a perspective around the technology investments required to execute on its strategy.  Working in a partnership with the IT group, Finance can ensure that its perspective on IT investments is properly represented, funded and monitored.

After the Go-live: Ten focus areas for effective Shared Service delivery - Part 4 - Standardize and Optimize Technology

Note: This is the fourth post in a series focusing on the continuous improvement of Shared Services. You can read Parts 1, 2 and 3 here.

4.  Standardize and Optimize Technology

Just as processes are not completely standardized during the transfer to the Shared Service Organization, technology may sometimes not be standardized as part of the move to Shared Services.  While it’s true that a Shared Service Organization is often created or enhanced as part of an ERP implementation or upgrade, there are times when the business case for shifting resources independent of a technology implementation makes sense.  This is particularly true when positions are moved to an offshore location. 

The strategy around optimizing technology will depend heavily on which strategy was used to transfer processes to the Shared Service Organization.  In a "Lift and Shift" transfer, the focus will be on rationalizing the core ERP systems to create a common technology architecture and standard processes.  If the processes were transferred as part of a "Transform and Shift" strategy, it's much more likely that the focus will be on the introduction of additional technologies as a bolt-on to the core ERP system(s) to enable process optimization.

If the "Lift and Shift" strategy was employed, it's likely that there is not a common ERP for all of the business units.  Shared Service Organizations in this situation are often required to support multiple ERPs and processes until the ERP systems can be rationalized.  In this case, the focus of the organization should be on selecting a single (ideally) ERP package with a single instance.  This of course is an issue much bigger than just the SSO and will involve a number of stakeholders.  In addition to the rationalization of the ERP packages, there needs to be a focus on creating a single set of master data, including the vendor and customer master records, the inventory master records and the chart of accounts.  By rationalizing the core technology platform and creating a single set of master data, it will be much easier to create a common set of processes.

If the rationalization of ERP platforms and the creation of a single set of master data occurs as part of a "Transform and Shift" strategy, then the focus in the Shared Service Organization will more likely focus on additional bolt-on technologies that can lead to the optimization of already standard processes.  Once example could be Optical Character Recognition around vendor invoices.  An even better step could be the implementation of an Electronic Invoice Presentment and Payment solution.  These types of bolt-on solutions should improve the efficiency of the SSO and can also facilitate the virtualization of the SSO so that activity can be shifted across Shared Service Centers based on changing business needs.

Technology support for Shared Services

It is often the case that the creation of a Shared Service organization coexists with the implementation or upgrade of an ERP package.  As the thinking goes, there must be an integrated and cohesive technology architecture before we can obtain value from a Shared Service Center.  While it would be ideal to have a single ERP system for the SSC and the business units it supports, it isn't absolutely necessary and a company could lose the benefits of moving to an SSC while it waits to implement a single system.

Deciding on the number of systems a Shared Service Center can and should accommodate will be different for every company.  It's clear that companies that have high performance focus on a single instance of a global ERP.  And yet a company with three or four different systems, or instances of the same ERP could still make the leap to Shared Services using the existing technology.  By doing so, they'll reap the benefits of scale and, to some extent, process standardization.  There are also intangible benefits such as better recruitment and retention of talent within the Center.

The real challenge comes when there are large disparities in the systems of the various business units.  This typically occurs over time when a company has grown through acquisition, but they didn't make the investment to move each business over to a common system in the period after the acquisition.  If a company finds itself in this situation, it could easily make sense to wait to launch a Shared Service Center until there is a merging of the existing technologies.