The control of the chief financial officer (CFO) is continuing to expand and change, driven by business and regulatory demands and a need to better leverage IT. External businesses, IT services, and service providers will play key roles in addressing such challenges.
META Trend: In 2004, public firms will accelerate business and IT projects to ensure they are in compliance with Sarbanes-Oxley (SOX) and other regulatory edicts (IAS, Basel II). During 2005/06, firms will consolidate global compliance initiatives within a corporate governance office. Firms will seek to optimize compliance processes through IT infrastructure (e.g., business applications, security), and many will also improve business efficiency by using the compliance justification. By 2007, global compliance will raise control expectations for all multinational firms.
Global 2000 (G2000) organizations’ CFOs face a broadening array of challenging priorities (see Delta 2925). These include managing regulatory requirements and optimizing responses, better managing financial and corporate performance, and reducing costs while simultaneously improving asset utilization. There is also an opportunity for the CFO to play a leading role in providing focus and coordination around cross-organization units and processes. This is almost a prerequisite to adequately addressing the aforementioned regulatory compliance mandates. Such mandates are driving a heightened interest in corporate governance initiatives, in which the CFO and its organizations will play a key role. The CFO organization must continue to shift focus from transactional operations to more value-added activities to address such challenges.
The IT organization can play a clear role in such efforts. Any supporting IT solution must enable the delivery of financial processes and information in a better, auditable, cheaper, and faster manner. The enterprise financial management application space is being invigorated by compliance requirements. Performance management has experienced a renaissance during the past years, as best-of-breed and ERP solutions stretch the scope of traditional functionality, and business performance management (BPM) platforms are becoming critical backbones for end-to-end business processes. However, many CFO organizations face challenges gaining and motivating support for new IT investments, given previous enterprise application implementations that were overbudget and failed to meet expectations. Although compliance mandates, a highly competitive environment, and globalization are driving the need for additional IT investment, CFOs must work to ensure a higher success rate and better return on investment than with past efforts.
Firms must determine when, with whom, and how they can leverage external business and IT service providers to help address CFOs’ challenges. Such firms can play a role in addressing the business problems the CFO faces as well as identifying, implementing, and potentially even operating some amount of existing and new IT investments. Better leveraging third-party capabilities can improve IT operational efficiency and effectiveness. This can both enable greater IT functionality to support CFO operations and free up resources, time, and focus within the IT group to spend on more analytical and strategic activities with the CFO organization. As more IT capabilities commoditize and become cheaper when acquired from external resources (e.g., “offshore”) and as more flexible/variable delivery models are developed (e.g., utility, “on demand”), organizations need to re-examine the role of internal versus external provisioning of finance, accounting, and IT capabilities.
Organizations must consider several points as they explore greater utilization of external business and IT service providers to address CFO challenges. It is paramount to ensure that a realistic and a consensus-supported service strategy and process exist. This should address and define when a firm considers consuming external services; who is involved in the sourcing and vetting processes; which service providers are eligible for consideration; what the respective roles are for the finance, IT, and procurement firms; and who is tasked with monitoring and addressing any regulatory implications (ideally, the chief compliance officer or a similar role). Defining a governance and operating model for service usage, including engagement and relationship management, is the most critical element to ensuring success.
Beyond process optimization and control, organizations must broaden their definition of what constitutes compelling business or IT services. Specifically, they must recognize that business acumen must coexist with IT capabilities. The day of the pure-play business or the IT service provider is rapidly fading, except for the most commoditized IT services. Consultancies cannot provide adequate strategic business advice and council without intimately understanding what enabling information technology can or cannot do to support, enable, and extend business process performance. Similarly, few IT services can be delivered well into the CFO organization, unless the provider is fluent in finance and accounting business process issues in general and in the context of a specific industry. In addition, providers must also have strong domain expertise relative to compliance mandates that impact CFO firms (e.g., Sarbanes-Oxley, Basel II, SEC 17a, USA PATRIOT Act). Addressing such issues and vetting providers against their requirements must occur as part of any services sourcing effort.
Such new hybrid requirements create natural opportunities for service providers with more diverse skill sets. These include firms that possess financial, risk, assurance, and IT capabilities. Such organizations include Deloitte and PwC, since the latter continues to invest more in its IT capabilities. There are also several firms with strong financial and IT domain capabilities, including Accenture, BearingPoint, Capgemini, IBM (particularly with its new KPMG alliance), and Unisys as it builds out its financial processes and markets consulting capabilities. Although there are other firms with strong operational and IT financial capabilities (e.g., ACS, CSC, EDS, Fujitsu, Perot, Siemens), they need to invest more in strategic- and compliance-related capabilities. Offshore firms (e.g., Infosys, Satyam, TCS, Wipro) are targeting this space through value-added services as well as financial application implementation and longer-term process outsourcing, but face similar requirements to build out their financial processes and vertical industry expertise.
External service providers will also continue to play a key role in financial application deployment and implementation. Users must more tightly monitor and measure performance and investment return on such efforts than they have in the past. Although nearly all G2000 firms have rolled out next-generation financial management systems, a natural upgrade cycle is occurring, and these software vendors introduce new functionality to address compliance requirements. Firms should broaden service provider candidate lists to include both enterprise ISV professional services organizations (PSOs e.g., Oracle and PeopleSoft services groups) and leading Indian-based offshore firms. Other more focused financial application areas such as BPM are still more the domain of traditional IT service providers (e.g., Accenture, BearingPoint, IBM), though vendor PSOs are playing a growing role. Here, tactical BPM implementations will require a different type of IT service provider (e.g., vendor PSO) versus a more strategic finance transformation project, because these are more management change-focused. Overall, service providers should be selected based on vertical competence, change management success, and the ability to integrate with ERP and BI environments.
Business process outsourcing (BPO) offers many opportunities but also significant risk, particularly in the short term, for addressing CFO requirements. Leading/larger vendors such as IBM, Accenture, and Capgemini are touting the lure of “transforming” finance and accounting processes via outsourcing. However, the reality is that broad/full-scale finance and accounting (F&A) outsourcing simply to reduce costs much less to introduce ongoing process improvement and transformational capabilities is still largely immature. Organizations must first realistically address the maturity of their own financial processes and IT systems as well as operating and governance models as part of and ideally prior to seriously considering F&A BPO. Ultimately, F&A business transformation outsourcing can enable the finance organization to move away from the paradigm of a transaction processor to a value-added business partner.
Bottom Line: Most G2000 organizations would be remiss not to involve external business and IT service providers in their efforts to better support the CFO organization’s IT requirements. However, users must realistically assess a provider’s true capabilities, particularly in terms of supporting/understanding compliance requirements and emerging areas like business process/transformational outsourcing.
Business Impact: Leading CFO organizations will increasingly narrow their focus on strategic and value-added activities and will further automate or rely on third-party providers for transactional operations.
META Group originally published this article on 25 May 2004.