How can reporting catch up with an accelerating world?

The expectations on corporate reporting are changing as the volume and velocity of data increase and stakeholders increasingly expect higher levels of technology sophistication from business functions.

The impact of fast-changing technology is echoed in our research. When we asked respondents to identify the major external challenge to corporate reporting — ranging from “the pace of regulatory change” to “satisfying differences in reporting standards” — they identified “changes to technology” as the number one challenge they faced.

When we look deeper at the specific technology challenges that organizations face, we find teams struggling with systems that do not talk to each other, lack of automation and reporting systems proliferation.

To address this gap between the tools that reporting teams have at their disposal, and the innovative technology they need, three areas are key:

1. Investing in more agile technologies, such as cloud-based enterprise resource planning (ERP), which can help increase integration and automation without the need for complex rationalization of on-premise systems
2. Finding and building the technology and data analytics skills necessary to exploit the potential of innovative IT
3. Exploring the future of reporting technology, including blockchain, robotic process automation and AI, exploiting the ability of new technologies to pull data from disparate systems

Reporting teams are expected to deliver granular reporting information quickly, and with zero defects. This insight is critical to allow reporting’s stakeholders to interpret, and make sense of, a fast-changing world. Ad hoc requests are common and expectations are high, putting a strain on already stretched teams.

Playing this role requires a transformation of how reporting is delivered. Reporting teams that have suboptimal operating models — fragmented processes, complexity and unclear governance, duplicative efforts, time-consuming manual workarounds — will likely not succeed. While operating model transformation represents a significant effort that will consume considerable leadership time, it is now a strategic priority.

In our research, three themes emerge:

1. Organizations are increasingly using more streamlined and centralized operating model arrangements for reporting, and a further wave of transformation is expected in the near future.

CFOs and senior finance leaders have been transforming the function’s operating model through arrangements such as shared services and outsourcing for many years now. By moving transactional finance processes into arrangements such as shared services, organizations have driven greater efficiency and effectiveness and freed their best people to focus on higher-value tasks. Today, however, organizations are looking to increase the functional scope of operating model change, transitioning additional activities into these arrangements.

More than 40% of organizations around the world say they are currently using either centers of excellence (CoEs) or onshore and near-shore shared services centers (SSCs) to support corporate reporting. Organizations are currently less likely to use more remote arrangements to support corporate reporting today.

While today the focus of operating model transformation in reporting is on arrangements with a degree of close control, this will likely change in the future, with a new wave of activity. Over the next two years, 55% of finance leaders around the world expect to make a significant or very significant increase in the use of outsourcing to support reporting. Group CFOs are particularly bullish about increasing the use of outsourcing and managed services.

2. Operating model change is seen as key to generating forward-looking insight, cutting through complexity and delivering a more responsive approach to reporting.

More than half of finance leaders worldwide — 56% — say that changing the corporate reporting operating model is key to providing forward-looking insight, rather than reporting the past. 

Joon Arn Chiang, Asia-Pacific FAAS Leader, EY, points out that managing data in more centralized entities can allow organizations to ask different questions about how to get value from that information. “When data is centralized, you can ask ,‘How can we transform that raw data into valuable nuggets of insight that the business has never had before, because all the data was never housed under one roof?’ You can manipulate the data much more cost effectively and much more easily, because it’s all sitting in a common, consistent format in your shared services center.”

In addition, 56% say that transforming the corporate reporting operating model is essential to managing the increased complexity of today’s matrix organization.

3. Organizations are using operating model transformation as an opportunity to drive process excellence and harmonization, and warn against a pure “cost play” transformation.

Operating model transformation will often have a cost reduction element, as finance leaders seek the efficiencies of moving processes into arrangements such as offshore shared services. However, reporting’s stakeholders are not just looking for a team that is cost efficient.

Key stakeholders are expecting greater value: better data, sophisticated analysis, strategic business partnering, exemplary consistency and control. Operating model transformation becomes an opportunity to eliminate redundant processes, streamline critical processes, achieve global consistency and automate more transactional activities.

This is a view that resonates with Ron Kapusta, Chief Accounting Officer and Controller at Johnson & Johnson. “For a public company, external reporting is about your communications to the various stakeholders that either invest in your company, regulate your company or otherwise have a stake in your company,” he says. “Therefore, while the cost is important across our entire value chain in finance and accounting and the business in general, you’re not going to cut your way to greatness.”

Balancing central control and local needs: key actions

Support effective communication and engagement with key stakeholders to build an understanding of how more streamlined and centralized models can serve their needs.

Create a pool of finance business partners who can provide an effective interface between the services provided by centralized reporting functions and the needs of business unit leaders, ensuring the services provided are tailored to local needs and compliant with the local regulatory environment. However, finding enough business partners to fulfill that role is an ongoing challenge.

Of course, a more centralized and streamlined operating model is not necessarily in opposition to the desire to meet local needs and regulatory requirements.

Our research shows that reporting leaders will need to manage a range of challenges in the path to more responsive reporting:

• Fifty percent of respondents are concerned about the complexity and cost of tackling the legacy IT environment.
• Forty-two percent of respondents are concerned about striking the balance between central control and the need to devolve reporting for the local regulatory and compliance environment.

Tackling the legacy IT environment

The need to streamline and centralize the reporting operating model runs up against a significant technology barrier. Devolved business units will have bought or built discrete reporting systems and tools, leading to significant IT fragmentation. The idea of dealing with multiple ERP systems, legacy applications and non-integrated architecture can seem daunting.

However, innovative new technologies offer a means to overcome these problems. For example, smart robotics tools can pull data from different systems into a single federated data set, including pulling data from different ERP systems or providing a bridge between a single enterprise ERP and important legacy systems.

Striking a balance between central control and local needs

More than 40% of respondents are concerned about the need to strike a balance between central control and the need to devolve reporting so it is attuned to local needs. This suggests a tension between two forces:

• The desire to centralize the reporting operating model for greater effectiveness and agility
• The desire to have a devolved organizational structure, facilitating reporting that is tailored to the local regulatory environment

Today, the dominant organizing principle for corporate reporting is “highly centralized, with everything controlled from head office.”

According to our survey, a third of organizations around the world (33%) currently adopt that organizing principle. However, when we asked respondents how reporting should be organized, the picture changes.

Balancing central control and local needs: key actions

Support effective communication and engagement with key stakeholders to build an understanding of how more streamlined and centralized models can serve their needs.

Create a pool of finance business partners who can provide an effective interface between the services provided by centralized reporting functions and the needs of business unit leaders, ensuring the services provided are tailored to local needs and compliant with the local regulatory environment. However, finding enough business partners to fulfill that role is an ongoing challenge.

Of course, a more centralized and streamlined operating model is not necessarily in opposition to the desire to meet local needs and regulatory requirements.