The Digital Finance Lab is an idea laboratory, a confidential and restricted space for sharing experiences, visions and convictions among peers. Talentia, which initiated the creation of this club, is an company that supports its clients in improving the efficiency of HR and finance functions.
What are the best practices in terms of improving the efficiency of the finance function? What are the contributions of digitalization in this respect?
What are the efficiency targets for the finance functions of medium-size companies ?
1) Definition of efficiency objectives for the finance function
The efficiency of the finance function is an important issue for mid-sized companies. Being constrained by cost structures and productivity targets, they need to determine priorities in their transformation processes (e.g. cash generation). ETIs can choose to focus on efficiency in the management of the company or to improve the efficiency of the back-office functions. The quality of reporting is a key factor in forecasting agility and determining the investments needed to develop the business. New tools and new ways of working need to emerge. Setting up a collaborative platform, intended for all the company’s partners, can be a good start.
Companies need to be able to anticipate their strategy for the next five years but also to manage the immediate future. In such a context, improving efficiency can be seen as a race to the finish line, but focusing on the urgent would be a mistake. The global overhaul of the company’s architecture, and especially of the finance department, implies a simplification of processes and the deployment of an integrated ERP. The implementation of digitalization projects has a virtuous effect since it allows a redesign of all processes and especially internal control. One company explains that it has launched a project to dematerialize payroll processes in parallel with the creation of a digital platform to facilitate the management of international payments. Generally speaking, data management is an essential issue for improving management and developing a customer-oriented approach.
Finally, acquiring modern and more efficient tools is also a good way of attracting new talent.
2) Stakeholders in the validation of objectives
It is desirable that the objectives be defined in partnership between senior management and the Finance Directorate. As part of the implementation of the project, they will work in conjunction with the HRD and ISD. Depending on the sector in which the company operates, digitalisation may also be carried out by the marketing department, as part of an approach to improve the visibility of the company’s offers to its customers.
For companies undergoing an LBO, the digitalization process can be driven by shareholders or banks, in order to better understand the changes in the business and the environment.
3) Recognized sources of productivity and information loss
a) A silo organization
Characteristic of companies that have been formed by successive acquisitions, the organization in silos is a brake on the flow of information. The new generations expect a modernization of exchanges and information circulation processes. Access to information must be facilitated for all company functions. In addition, the company must improve its knowledge of costs and margins, to be able to assess the profitability of accounts receivable.
b) Manual processing of certain informations
Some data is still entered manually, which increases the risk of error and does not make it easier to retrieve information.
c) An approach of continuous growth
Some companies are engaged in a process of continuous growth and acquisition of new market share. They are required to integrate several systems as a matter of urgency. They may then be tempted to do the minimum in terms of tool integration. From their point of view, building a global ERP would represent a cost far too high for an uncertain return on investment.
d) A juxtaposition of complex processes
Sometimes there are as many information systems as there are branches. Rather than trying to automate excessively, the main priority will be to simplify and harmonize processes.
Digitalisation as the main efficiency lever
1) Processes to be digitized as a priority
a) Access to information
In order to be able to analyse the figures, the data needs to be quickly transmitted to the finance teams. It is advisable to set up a common platform to collect all the data extracted from the different ERPs.
Finance departments often work on two-dimensional reporting. The transition to three-dimensional reporting – which is essential – consists of cross-referencing financial and operational data. The harmonisation and automation of financial processes is often driven by regulations. Automatic reconciliation systems must be put in place so that the finance function can refocus on data analysis. In industry, the installation of connected objects on machines will facilitate the dissemination of information and thus the capture of dashboards.
b) Tasks with low added value
Administrative tasks are those that need to be digitalized first, as well as repetitive tasks. In addition, companies are encouraged to dematerialize their suppliers’ invoices. To do so, they can use an external service provider, or build their own solution.
In determining priorities, the company should not rely on fads. The challenge is not to arbitrate between reliability and speed: who wants fast but unreliable reporting? It is important to put in place recurring and clear processes to facilitate appropriation.
2) How to adapt the dimensioning of one’s organization? How to accompany change and federate management?
The finance function must convince other functions to change their working methods to improve reporting processes, in conjunction with the IT department. In particular, it will have to raise awareness among operational teams so that this approach is not perceived as interference. A good way to get the operational teams on board is to enhance their ability to analyse their own data. The finance function must also ensure that this reporting task does not represent an additional workload, and therefore match the group’s needs with those of the subsidiaries. Pragmatism is required. The finance function is invited to position itself as being at the service of the operational teams.
The development of a common language will be a preliminary step in the redesign of processes, and will support the company’s strategy.
Effectiveness measurement and monitoring
The implementation of the project will be monitored through both quantitative and qualitative indicators. Among the quantitative elements, the company will monitor productivity gains, CAPEX, profitability… It is also important to compare structure costs to business costs to ensure that growth is absorbed.
Among the qualitative elements, the company will be able to evaluate the working comfort of the teams, their level of commitment or a renewed confidence on the part of customers. Human capital must truly be taken into account in order to build employee loyalty. Turnover has an indirect cost for the company, as any employee leaving represents a loss of knowledge. Modernizing tools is also a way to attract new talent.
2) Communication on the performance of the finance function
The finance function must strive to make data and analyses accessible to the greatest number of internal users in order to save time and encourage support for the digitalization project. The communication around the new processes will have to be carried out in coordination with the various activity managers. With regard to shareholders, the structuring of information also represents a major challenge.
Ultimately, the role of the finance function is evolving towards one of accompanying the transformation of the company’s economic model. The search for efficiency can be based on digitalisation, but digitalisation is not an end in itself. It must be carried out at the right time and in the light of a cost-benefit analysis.