How can reporting catch up with an accelerating world?

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.

2 Oct 2016

Innovative technologies and new operating models can help deliver a new age of responsive reporting.

In today’s fast-moving world of corporate reporting, speed of reaction is everything. Reporting teams are expected to deliver — with speed — data-driven, forward-looking insight of the highest quality and accuracy. The regulatory environment never seems to stand still. And the role of the chief finance officer (CFO) is changing fast to keep up with finance leaders embracing new strategic and operational areas in addition to their core finance and reporting responsibilities.

In our 2014 and 2015 studies, we examined how organizations are responding to the need for connected reporting and the growing expectations of stakeholders. In this latest survey, involving 1,000 finance leaders around the world, we turn our attention to how leading organizations are transforming how reporting is delivered — in particular, how corporate reporting can become more responsive in this fast-changing environment.

For many reporting organizations, agility and speed of response are a challenge. Fragmented technology makes it hard to harvest and analyze large data sets. Cumbersome reporting processes result in slow reaction times. Reporting teams around the world may duplicate effort, taking up precious time that should be devoted to generating forward-looking insight.

How, therefore, can finance leaders plot a path to a more responsive corporate reporting capability? In our view, there are two imperatives:

  • Create forward-looking insight through sophisticated data analytics and new quantitative methods
  • Reimagine and streamline the operating model for corporate reporting

Corporate reporting is the foundational capability of the finance function. In our view, reporting will look very different in the future — smarter, highly automated and digitized, more streamlined, and increasingly forward-looking. By focusing on innovative technologies and a more flexible operating model, CFOs and reporting leaders can design and deliver the responsive reporting capability required for an accelerating world.

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Chapter 1

Going beyond reporting the data

Why sophisticated data analytics is key to driving reporting insight

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.

Top technology challenges in reporting

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
Can CFOs and Group FCs collaborate to redefine corporate reporting?
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Chapter 2

Fine-tuning the reporting operating model

Why the reporting operating model is ripe for design

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.”

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Chapter 3

Overcoming the IT and organizational barriers

The need to streamline and centralize the reporting operating model runs up against a significant technology barrier

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.

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Chapter 4

Keys to the future of reporting

Three essential areas in creating a new age of more responsive reporting

We believe there are three essential areas in creating a new age of more responsive reporting:

Strategy and vision

Operating model change creates uncertainty, particularly for internal stakeholders as well as the finance staff who will be affected by changes. Therefore, a strong and compelling strategy and vision are more important than ever to create certainty, secure the buy-in and engagement of key stakeholders, and provide the foundations of a business case. The optimal operating model for reporting will clearly vary according to a variety of factors, but there are a number of areas to consider focusing efforts:

  • Design a target operating model that sets out what reporting services will be retained at headquarters and which will be provided by other arrangements, from physical SSCs to virtual shared services
  • Put in place a clear and centralized governance and ownership model for data in the new structure
  • Exploit the potential of smart technologies to automate processes and replace manual workarounds, which are time-consuming and expose the organization to the potential of costly data errors
  • Prioritize process effectiveness over process efficiency: cutting through complex and bureaucratic processes, removing processes that are redundant, and streamlining and automating existing processes

Innovative technology and data

Today, reporting teams are simply expected to provide complex data quickly, and change course at speed as markets change. But this will happen only if reporting teams have access to the right data and to the right tools. There are a number of areas where action may make a significant impact:

  • Exploit agile and flexible technologies, including cloud and software as a service (SaaS). SaaS applications, for example, can help reporting teams keep up to speed with new data analytics tools.
  • Future-proof reporting technology by experimenting with emerging technologies and getting outside perspectives on the disruptive technologies that are emerging on the horizon. Pilot programs that explore the use of emerging technologies — such as blockchain and artificial intelligence (AI) — provide use cases and begin to build skills and capability in the reporting team.

Talent

Reporting teams will need to complement deep financial management and reporting knowledge with new skills in the future, from predictive analytics to scenario modeling to the intersection of AI and finance. Reporting leaders need to reimagine their approach to talent acquisition and skills development. There are a number of priority areas where reporting leaders can focus their efforts:

  • Develop a broader talent management approach for the different profiles in tomorrow’s reporting function. As well as corporate reporting professionals, you will have new team members, such as data scientists, who will require a different career path and reward structure.
  • Build a consistent enterprise-wide understanding of the business partnering role in reporting and set clear expectations for what success looks like in the role.
  • Rethink your approach to hiring talent beyond the traditional reporting profile, actively recruiting different profiles from different backgrounds, thereby introducing fresh perspectives and new skills, from advanced analytics to digital know-how. 
  • Build understanding of how smart machines will interact with, and complement, the abilities of talented reporting staff, and provide reassurance at a time when people will be concerned about the impact of robotics and AI on their jobs.

Summary

By focusing on new technologies and a flexible operating model, reporting leaders can prepare for a world that continues to accelerate.

About this article

By

Peter Wollmert

EY Global and EY EMEIA Financial Accounting Advisory Leader

Senior Assurance leader. Promoting quality and effectiveness in corporate reporting and the audit. Advocate for the future of the accounting profession. Passionate runner and scuba diver.