As corporate executives face global economic and marketenvironments that are perpetually in flux, they understand thattheir organization needs to be agile. It must be prepared torespond when a merger or acquisition opportunity arises, or whenthe competitive landscape shifts, or when political changessomewhere in the world threaten the bottom line. But what doesbecoming agile really mean—what does agility look like?

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The Hackett Group recently published a whitepaper titled “TheWorld-Class Performance Advantage: Three Imperatives for GreaterFinance Agility.” The paper suggests that the best way for afinance function to support the company's drive toward innovationand growth, without hampering its ability to adapt quickly tochange, is to build its internal agility. To learn more about howfinance can become more agile, Treasury & Risksat down with Lynne Schneider, senior research director at TheHackett Group, and Rich Cardillo, a principal and leader of thefirm's finance transformation consulting practice.

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T&R: Your whitepaper explains themove toward agility within the finance function by describing threeimperatives. Let's talk about imperative #1: 'Strengthen thefoundations to enable agile service execution.' What does this looklike, and how can a finance team get there?

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Rich Cardillo: The foundationalpieces—closing the books, paying the bills, applying cash—thosethings keep the business in business. They're obligations that haveto be performed. So we see finance organizations driving as muchefficiency as possible in those process areas. They're not reallylooking for great levels of service effectiveness. They may notwant to be really, really good at accounts payable; in that area,being a low-cost provider might be good. So the foundational piecesare those things you have to do but you don't really want to spenda lot of money on them.

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Lynne Schneider: One of the things we'vefound in the past couple of years' worth of studies is thatcompanies have been strengthening the foundation in these areas bymaking sure they're getting the most out of what they have. Manycompanies haven't had money recently to buy new large technologysystems, but when they've looked at what they have in place,they've realized that they haven't exploited those systems to theirfullest potential.

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So we've seen people strengthening their foundational technologysystems by making sure they're getting all the data consistent andclean within their ERP systems. And they've been taking the sameapproach with processes. Some companies that moved toward sharedservices or global business services in years past haven't caughtup with all of the cost synergies that they expected, so they'regoing back and capturing those.

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T&R: So, how does a strongfoundation support agility for the finance functionoverall?

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RC: We see finance organizations havingagility when they've built a really good platform and have theright solutions in place. Let's say a company makes an acquisition.How can it absorb that acquisition really quickly without incurringa lot of cost? If it's built its foundation properly with sharedservices, and those functions can absorb the acquisition withouthaving to take on another N number of finance people and bolt onanother technology platform, they are demonstrating agility. Forthose that don't have that foundation, an acquisition might meanhaving to create—or accept—another new environment every time theyengage in an M&A transaction.

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LS: For me, it brings to mind the rebarinside of concrete, with someone pouring concrete over it. It'salmost more getting the connections between the processes, buildinga whole connected platform where you've really thought about theentire service delivery model. An agile foundation for the financefunction can accommodate a wide variety of processes andtechnologies.

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RC: End-to-end process orientation ispretty important to becoming an agile organization as well. Agilityinvolves looking at, for example: 'If I change something in myorder management subprocess, how does that affect my accountsreceivable process—terms and conditions in the contract,flexibility in my payment terms, things like that?' If I don't havethat end-to-end process orientation, I lose sight of that. I don'thave the ability to automatically adjust for changes upstream ordownstream.

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T&R: Is moving to shared servicesthe best way to build agility in these foundational areas offinance?

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RC: Yes. But a lot of companies havesqueezed the water out of the rock with respect to shared services.There are some companies that haven't started, but more matureorganizations that are working to build agility are focusing theirattention on EPM [enterprise performance management].

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T&R: That's your imperative #2.'Unleash EPM decision-making excellence.'

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RC: It is. Here the pendulum swings fromincreasing efficiency to more effectiveness. This is simplifyingthings, but you can generally break the finance function into threebig buckets. One involves the transaction processing areas:payables, receivables, T&E, those sorts of things. Those arethe areas where you want to drive costs as low as possible.

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The second bucket is planning, budgeting, and forecasting—whatwe affectionately call FP&A, financial planning and analysis.That's where you want to be really good, and where low-cost is notnecessarily the target. Low-cost might be a nice by-product, butsome companies are willing to pay a premium in these areas becausethere is immense value in being very insightful, analytical, andhaving accurate forecasts.

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Most finance functions spend 80 to 90 percent of their resourcesin the first two buckets. The third bucket includes tax, treasury,audit, and investor relations. There's very little cost in thosedepartments—they're pretty small compared with the others—althoughthey add huge value.

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Agility efforts generally focus on the first two buckets. That'swhy this notion of world-class is important for finance—becauseit's a balance. On one hand, we're trying to reduce costs. On theother hand, we're trying to increase effectiveness. You find thebalance by looking at the subsets of finance. The foundationalpieces are: Can I take the cost out as much as possible in thetransaction processing areas without sacrificing controls? And thenin the enterprise performance management area, you're looking todrive greater analytical capabilities, to achieve imperative numbertwo.

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T&R: So, what does a financefunction do to 'unleash EPM excellence'?

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LS: EPM excellence is not about having afancy technology tool. It's about getting the right analyses andthe right key performance indicators in place. It's about buildingthe relationship between the people in finance and in operations sothat they can talk about what are the right metrics to have inplace: How can I serve you with the information that helps you makea better decision? Figure 1 [below] shows how much more confidencemanagement teams at world-class companies have in their financeteam's decision support.

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RC: One key to improving EPM capabilitiesis this notion of 'business partnering.' That's a term we hear overand over. Every organization we walk into, people define it alittle differently, but basically it entails constructing anFP&A organization that has subsets, centers of excellence [CoE]or what I'll call the 'shared services of FP&A.' The people inthe center of excellence support the basic FP&A activity of thecompany.

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Having an FP&A center of excellence enables the FP&Apeople in the business units, who are sitting side-by-side with thegeneral managers or presidents of those divisions, to really be astrategic adviser, to be prepared to support decisions like: Whatacquisition should we be making? What markets should we penetrate?What products should we be retiring? What works in the West butdoesn't work in the East? Supporting those decisions requires a CoEthat is both efficient and flexible. The company arrives at thatenterprise performance management environment through a combinationof process change around planning budgeting, forecasting, andreporting; organizational change around the structure of the CoE;and technology and data changes around KPIs and the ability todeliver them. You have to look at all the dimensions of servicedelivery, specifically for FP&A, and make sure you have theright combination in place.

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Another way world-class companies are improving their EPMcapabilities is by extending EPM beyond P&L, the balance sheet,cash flow, those kinds of things. Now we're seeing companiestackling supplier effectiveness, customer profitability, productprofitability, inventory—they're looking beyond finance at more ofthe operational and strategic metrics of the organization.

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T&R: So, your imperative #3 is to'Build an adaptive finance organization.' What specific actions canfinance leaders take to make their function more adaptive?

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LS: We did a study last year looking atfinance transformation initiatives. One of the characteristics thatreally stood out among organizations that were more successful inconducting change was having an environment where people within thefinance organization understand what finance is supposed to beabout. They have a shared vision, so that then leadership can takethe function there. At companies that were not world-class, only 27percent of respondents said their company's vision for finance isclear, focused, understood, and embraced, compared with 63 percentof respondents from world-class companies. If you don't understandwhere you're going, any road can take you there. A better, crisperunderstanding of where finance should be going helps the financefunction get there.

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RC: I agree. To be adaptive, one reallyhas to understand what they're trying to accomplish. What are theneeds of the people we're trying to serve? What are they askingfor—do they have a clear vision of what that is? Of course, there'sthe balance of cost constraints. They may ask for the world, inwhich case finance has to go back and help them understand thecosts, and prioritize their requests. We tell CFOs all the time:'You can do anything they ask for. The question is: How much is itgoing to cost, and does everyone understand the tradeoffs they needto make to get that level of service?'

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T&R: Does having people ininternal finance transformation roles help a company become moreagile and adaptive?

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RC: Yes. We have several differentclients right now that have finance transformation offices.Basically, they're subsets within finance that are charged withdriving transformation. They ensure that somebody is responsiblefor making sure the change takes place. And these are changesacross all dimensions of the service delivery model. If you'reimplementing new planning software, for example, this person wouldbe responsible not only for overseeing the project, but also fordriving changes in the planning calendar and process changes in thecompany's forecasting. The person might also be responsible fordefining new roles for the FP&A CoE, defining new datastructures and data elements and levels of detail, and perhapsdimensionality for planning output. This needs to be a fairlysenior person, someone with clout to drive these kinds of changesbroadly in the organization.

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It's also important to note that the finance transformationoffice needs to be permanent. You can't have people in theorganization thinking, 'Hey, if I can wait this out long enough, Iwon't have to change, because six months from now this group willbe gone.' There needs to be a culture of built-in, continuousimprovement. But those companies that have a permanent organizationfor finance transformation are far more effective in drivingtransformation than those companies that either don't have them, orput them in place temporarily and then disband them.

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T&R: And are companies that havean office, or at least an individual, whose responsibility isinternal finance transformation—are those finance functions betterable to respond when the external environment changesdramatically?

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RC: The short answer is yes. Because theyhave a blueprint on someone's wall that shows how everything plugsin. They can more easily answer questions like 'If we make a changehere, how will it impact these four different areas?' When anacquisition comes on board, they can look at that wall and figureout: What are the things finance has to do? What are the questionswe have to ask the acquisition? What are the requirements we needto tell them to provide so that we can plug them in?

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The transformation office has a holistic, comprehensive view ofwhat aligns with the blueprint and what doesn't. If you don't havethat, whenever you face a major change initiative, you have to setoff on projects of discovery before you can figure it out. It takesa long time, which means you're not as responsive.

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T&R: Do you have any otherrecommendations around cultural changes for finance teams lookingto become more agile?

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LS: Adaptability and agility need to be apart of the finance function's culture. Finance people aren'talways known for their flexibility and adaptability. It's a changeof mind-set to let people experiment, to try new things. A lot oftimes the finance mind-set is 'I've got a group of rules. I have toenforce these rules. I need to maintain control.' But financefunctions need to also put a priority on being adaptable. There's aduality there: You can look to transform while also maintainingcontrol.

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T&R: Have you seen a shift overthe past decade or two in the types of people finance teams arehiring, and in the competencies they're looking for in newhires?

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RC: Yes, and it follows the evolution ofthe profile of finance. Ten or 15 years ago, the majority ofactivities within a finance function were transaction processingactivities. A small subset of finance was devoted to analytics. Butthen people recognized that the value of finance is going to comeout of the analytics space. They began to change the mix of thefinance organization so that analytical capabilities became moreand more important.

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Today finance functions tend to be looking not just for thebasic finance capabilities around income statement and balancesheet, the pure accounting background, but more of what I'll callan MBA background. They're interested in some of the analyticsaround customer profitability, product profitability, supplieranalytics, spend analytics, what-if scenario modeling. It's adifferent skill set they're looking for.

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Also, in the past half-dozen years or so, finance functions havestarted looking more for people who can churn through the company's'big data,' doing things like sensitivity analysis and trendanalysis. Some large financial institutions are hiring doctoratesin math and economics to build financial models, to do currencyprojections, inflation projections, and GDP projections.Nonfinancial companies may soon start to build these kinds ofcapabilities as well because organizations that can do moreinsightful analytics are going to see a competitive advantage.

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LS: The other piece is around softskills. Finance has typically looked for hard skills—whetherbookkeeping and accounting, or now in the analytics area. And it'seasy to tell whether a candidate has mastered the hard skills. Butas finance leadership is growing and developing the organization,they need to be looking at candidates' soft skills as well, attheir ability to build relationships and to manage otherpeople.

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