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How CFOs can take a holistic view to transform the finance function

Faced by global challenges, CFOs are rethinking their approach to outsourcing and co-sourcing, to build a future-proofed finance function.

In brief

  • Finance functions are confronted with a catalog of challenges which is triggering the need for root-and-branch transformation.
  • What are the key themes and pressures keeping CFOs up at night? To find out and assess the impact EY has examined the results of four recent surveys.
  • How do finance functions transform so they deliver value to the wider business, while dealing with resourcing issues and support the growth of the business?

From constantly shifting regulation and the impact of a global pandemic to the evolving workplace and the wide effects of geopolitical instability, businesses around the world are facing a perfect storm of challenges that are driving the need for radical transformation.

It is an uncertain landscape that has only been exacerbated by rising inflation and interest rates and significant currency fluctuations. And nowhere are the effects felt more acutely than in the finance function.

To assess the impact of these challenges, EY has examined the results of four recent surveys — The 2022 Tax and Finance Operations (TFO) Survey, the DNA of the CFO Survey, the EY CFO Imperative Report and the 2021 Corporate Reporting Survey — to identify key themes and pressures at the top of CFOs’ and Senior Finance Executives’ (SFEs) agendas right now.

This article addresses the findings and examines evolving technology and the race for talent, as well as the solutions that organizations are adopting, including the use of in-house service centers and rethinking outsourcing and co-sourcing models.

It is clear from these surveys and from speaking to EY Leaders from around the world that there are multiple issues facing CFOs and keeping them awake at night.


Chapter 1

Finance and the great post-pandemic reset

COVID-19 may be receding, but its effects have left an indelible mark on the finance function.

For Vaida Lapinskiene, EY Asia-Pacific Accounting Compliance & Reporting Leader, COVID-19 has irrevocably changed the way finance functions need to operate. “All of the old models that used to apply in pre-COVID-19 times have to be rethought,” she says. “The role of CFO is now shifting toward the role of CVO — Chief Value Officer. How do finance functions transform so that they deliver value to the wider business? How do they deal with resourcing issues and support the growth of the business? Do reports provided by finance provide the necessary insights and drive faster and better decision-making for the future? They can no longer rely on what they used to have and how they used to source their finance and accounting function, select and deploy technology or partner with third parties.”

To achieve transformation, Kathy Denardo, EY Americas Accounting Compliance and Reporting Leader, thinks that every CFO needs to get their finance function focused on driving the company’s future rather than reporting on the past. “This means that their talent needs to be prioritizing future-proofing activities such as scenario-based forecasting and mining internal and external data for value drivers. New requirements from regulators, issues such as environmental, social & governance (ESG) and base erosion and profit shifting (BEPS), also need to be proactively planned for, including how to address the underlying data requirements. And at the same time, managing cost and driving margin improvement are constants.”

Indeed, cost is something that comes up time and again in EY surveys of finance functions. According to CFOs and SFEs in the EY TFO Survey, 85% of companies are changing their finance operating model, central to which is cost reduction — 88% of companies plan to reduce their finance budget over the next 24 months, with an average planned reduction of 4.8%.

The reality, however, is that cost reduction is a given for the finance function, which has to lead the way in doing more with less. “If finance can’t demonstrate cost-reduction leadership, the rest of the business won't follow,” says Liam Keys, Partner, Finance Operations at The European Tax Council with Ernst & Young LLC. “Some questions the CFO should be asking include; If my finance function costs $100 today, how do I get it down to $95 tomorrow and $90 the year after? How do I translate that across all functions outside finance? How do I better deploy the resulting financial and intellectual capital to add more value?

It's a concept that Sergio Garrido Villalba, EY Global Accounting Compliance and Reporting Leader, flips on its head. “There are many ways you can cut costs, such as rethinking your processes and optimizing the way you do things. But if businesses are growing, they often expect finance functions to achieve more, but with the same resources. Either way, it’s a huge challenge.”

However, there are only so many levers that can be pulled to manage costs, and many finance functions have been implementing them for years. So where are CFOs and SFEs focusing their attention to increase efficiency?


Chapter 2

Increased use of in-house shared service centers

Centralizing shared service centers in-house makes great sense in the new ‘work-from-anywhere’ era

According to the EY TFO survey, 58% of CFOs and SFEs report that providing greater centralization through in-house shared service centers is a priority for their finance operating model. At first glance, this may seem surprising as many organizations have for years been outsourcing specific functions to external shared services centers — typically high-volume, low-value work.

However, Philippe Verhoeven, EY EMEIA Accounting, Compliance & Reporting Leader and Partner at Ernst & Young LLC in Belgium, believes that the pandemic has made many CFOs rethink how best to optimize shared service centers. “With people around the world working remotely, businesses have realized that they don’t have to have everyone in the same physical space — they can shift to what is effectively a virtual shared service center with people fulfilling the same role but in different countries.”

This approach can also get around some of the language and talent challenges that arise when locating service centers in low-cost countries. “It's very complicated to find people in India, for instance, that you can train in languages such as Norwegian, Polish and Turkish ­— so native speakers would have to be relocated to the service centers,” says Garrido. “That wasn’t always attractive from a talent perspective. People working remotely can help overcome this challenge.”

This current shift, however, may become something else altogether in the years ahead as automation becomes more prevalent for those high-volume, low-value tasks. “Companies are now considering how their Global Business Services organization should be functioning,” says Lapinskiene. “Whether they should be the old center of scale, doing the very efficient high-volume transaction processing, or if they should become a center of excellence, where they own the processes end-to-end, and own the continuous improvement of how they run those processes, integrate with the business and provide insights to the business?” 


Chapter 3

Reimagining how businesses partner with external providers

Workflow volume and skills availability are the biggest factors driving out-sourcing decisions.

This rethinking of the use of shared service centers is just one way in which CFOs and finance leaders are considering the best use of external service providers. Indeed, outsourcing and co-sourcing are rapidly moving beyond simple cost savings as businesses take a smarter, more holistic approach.

According to the EY TFO Survey, 62% of CFOs and SFEs plan to increase co-sourcing select finance and tax activities, with 77% more likely than not to co-source select activities in the next 24 months. The critical word in both these instances is “select” as finance leaders look to optimize operations in the most effective way.

Of course, what this looks like for each individual finance function will be determined by the size of the organization, the sector it operates in, its global footprint and, ultimately, its broader business goals. Typically, there will be processes that a finance function would always want to keep in-house, but beyond that, everything is effectively open to a sourcing discussion.

Garrido believes that decisions around which finance processes to outsource, or co-source often come down to a choice of scale or skills. “Imagine something like travel expenses and accounts payable — as long as you have the right controls in place, these can easily be outsourced at scale. On the other hand, if you are moving into a new territory and you need a super-skilled person on the ground, can you afford that person as well as having someone supervise them, or is it better to work with a partner?”

For high-growth companies, it may be that the business is growing faster than the back-office function, which may struggle to support long-term success. “If you're the CFO in one of these high-growth organizations, you really need to be the right-hand man to the CEO, source and manage capital and prioritize investments to support strategy,” says Keys. “But if you're a CFO who's stuck navel gazing internally, trying to reconcile accounts or hire the next accounts-payable clerk, then you won’t achieve this. This is where working with a partner can be critical.”


Chapter 4

Investing in technology to futureproof finance

Finance team members will increasingly be expected to have process, data and technology skills.

Central to the role that external providers can play in supporting the finance function is the use of rapidly evolving technology, which can reduce costs and risk, while adding value. But what is inescapable is that many finance functions are behind the curve when it comes to making the most of tech.

According to the EY DNA of the CFO survey, 47% of CFOs say their current finance function does not have the right mix of capabilities to meet the demands of future strategic priorities. Investing in technology now is seen as a way to future-proof that function.

CFOs and SFEs report the lack of a sustainable plan for data and technology is the biggest barrier to delivering on their finance function’s purpose and vision. This is very clearly disconnected with the fact that digitalization will underpin the vast majority of finance’s operations.

“The diversity of technology platforms and tools available in the market and the speed of new tools and new functional capabilities being introduced is amazing,” says Lapinskiene. “But it’s impossible for many businesses to keep up with everything that is going on and work out what is most relevant to them. And that is where we see clients need to make choices and prioritize things. What are the tools and the processes that they want to focus on in-house when they go through the digitalization process and which parts of process and technology can better be managed by the partners?”

The challenge for many is that the organization at large — with a finite technology budget — may well choose to focus on client-facing technology, dashboards and apps, leaving the finance function much further down the list. On one hand, CFOs and SFEs are flagging investment in technology as a priority — yet the average planned investment over the next three years is only US $3.1m, according to the TFO survey.

Regarding which technology to focus on, while there may be excitement about artificial intelligence, machine learning and robotics — with finance leaders saying the top priority over the next three years is advanced and predictive analytics (according to the CFO Imperative survey) — finance functions need to get the basics, such as ERPs and data, right.

“Before you end up with Blockchain and AI, you need structured data,” says Verhoeven. “And if you look at how data is still being presented today, it's not structured — it’s hard to do anything with it. So even if you are shouting out for new technologies, it will be almost impossible if you don’t have that structured data.”

Decisions around technology typically come down to “build” or “buy.” Considering the cost of building a solution, implementing it and constantly updating it, there are only so many businesses that have the scale to achieve this.

Others are turning to outsourcing because it gives them access to technology, people and infrastructure far quicker than trying to build their own. It typically also gives them a scalable model that can grow with their needs. 


Chapter 5

How to bridge the finance function skills gap

Finance team members will increasingly be expected to be in possession of process, data and technology skills.

Much has been said in recent years about the shifting talent landscape. As the nature of the finance function changes, so do the skills required. According to the EY TFO survey, 96% of CFOs and SFEs expect technical competencies of their finance teams to be augmented with process, data and technology skills.

COVID-19 also changed the world of work like never before, with more people than ever working remotely. This is something that is largely expected to continue, with more than half of CFOs and SFEs in the CFO survey stating they anticipate an increase in remote and flexible working arrangements.

As was touched on earlier, one of the challenges faced is when businesses move into new territories and decisions must be made around whether to carry the cost of employing someone in those locations or working with a local provider. However, the changing face of the finance function has also brought with it the risk of talent shortages, which Lapinskiene puts down to multiple reasons.

“In Asia-Pacific, for instance, there are aging populations in countries such as Japan,” she says. “Australia, on the other hand, was hit by the lack of immigration during the pandemic. And then more broadly there has been the so-called “Great Resignation.”

Finance leaders are now having to look toward creating jobs that are attractive to talent with suitable remuneration and the possibility of career progression and that also add value to the business. This is arguably more difficult for smaller organizations that can’t compete on salary so are having to make decisions around sourcing talent externally.


Chapter 6

The road to transformation

The finance function needs an ecosystem of partners and alliances to overcome growing complexity.

While all the above presents a challenging picture for CFOs and the finance function, it is evident that the direction of travel for the time being will be even further complexity. The imminent implementation of the base erosion and profit shifting (BEPS) project will be a significant development, as will the expected increase in ESG reporting.

Denardo believes that when it comes to transforming the finance function, what's most important is how it can add value internally. “I think that defines what you keep and what you look for in an alternative model,” she says. “If I were a CFO these days, I’d be looking at my roadmap — what do I want to invest in versus what I may need an alliance partner or somebody else to invest in for me.”

This concept of the roadmap is key, especially with so much coming down the line as well as any possible unexpected developments, such as global pandemics. Where do CFOs want their finance function to be in the future and what do they need to do now to make that a reality?

Critically, this can’t be seen in isolation but must be viewed in the context of the broader business. “We have conversations with CEOs and CFOs where we look at the organization’s strategic plan alongside the finance function,” says Garrido. “If in five years a business will have grown by 50% and moved into new countries, then the finance function will need to look a particular way to deliver on this, in terms of work involved, the number of people required and all the associated costs.”

Once that has been identified, CFOs can then start to plan how best to resource it, be it through automation, co-sourcing, shared service centers and so on. Critically, technology and automation aren’t magic bullets and must be paired with a talent strategy and process improvement.

As Lapinskiene concludes: “I think it’s essential that the finance function of the future builds an ecosystem of partners and alliances. They will face labor challenges and the speed of technology change will be very challenging for many to handle. So, building the ecosystem around yourself and having trusted strategic partners who can help you handle things in the rapidly changing world has become very important.” 


The challenges facing CFOs that are trying to transform the finance function include evolving technology, the race for talent, as well as the use of in-house service centers and rethinking outsourcing and co-sourcing models.

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