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SKILL SET
Explain finance function transformation in the digital age.

TOPIC
The changing structure and shape of the finance function

Course learning objective

After completing this course, you should be able to recognize the trends and decision considerations
for outsourcing, offshoring, shared service centres, and business process re-engineering.

Introduction

Traditionally, the shape of the finance function was a hierarchical triangle with a broad base and
fewer roles at more senior levels. However, over the past two decades, the shape evolved to a
segregated triangle.

This was driven by globalization and advances in information and communications technology. It
allowed routine processes to be migrated to shared service centres. The bottom section of the
segregated triangle represents the finance function activity carried out within shared service centres.

The digital age, hexagonal shape, shows the impact of technological automation as it continues to
erode the traditional triangular base.

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Outsourcing, offshoring and shared service centres

Outsourcing

Virtually, every element of an organisation could be outsourced if so desired. Indeed, the increasingly
popular 'virtual organisation' structure is a collection of independent organisations connecting
through information technology. In such a structure, you could essentially say that all elements of
operation except for management have been outsourced.

However, at present, most organisations are not quite that extreme, and will seek to undertake core
work of strategic importance in-house, developing a set of competencies that create their
competitive advantage.

The key is to outsource elements of the organisation that could be more effectively and efficiently
performed outside — for example, areas that are not fundamental to business success, key
competencies, or competitive advantage.

An effective outsourced relationship can create cost savings, as the provider is likely to benefit from
economies of scale. Additionally, as the supplier performs their role continually and to a large scale,
it is likely to possess higher levels of knowledge and expertise in that area in which the organisation
would not have held in-house. A further benefit is that removing this peripheral area from the
organisation to the outsourcer allows management to focus more time on key activities and
business areas likely to lead to competitive advantage. They are no longer distracted by work that is
better done elsewhere.

However, a poor outsourced relationship can cause considerable problems, and that is why the
organisation must be careful of which areas it chooses to outsource and who it chooses to
outsource them to.

The organisation loses control of the area outsourced and is faced with a dilemma if service or
goods quality is sub-standard. Does the organisation challenge the supplier, can it obtain the
improvements it needs, will a new provider need to be sought, does the operation need to be brought
back in-house, and is it possible?

Once a commitment is made to outsource an area of operation, it can become very difficult to bring
it back in-house if the need arises that gives the supplier a lot of power.

A successful outsourcing relationship will arise, as with other suppliers, when communication is
good and collaboration is sought.

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A service level agreement (SLA) will be drawn up between the provider and the organisation to lay
out what is required of the provider. This gives the organisation the chance to set out what elements
of the provision are important and put in place factors that will monitor whether the outsourced
provider is meeting those requirements.

Time and money must be spent setting up these systems of monitoring, control, and collaboration.
Hence, it is important to be sure outsourcing costs do not ultimately outweigh the benefits
mentioned previously.

Transaction cost theory

As mentioned previously, it is important to select areas for outsourcing carefully. This tends to be
peripheral activities that are not part of the core competencies of the business. One way of deciding
which of the non-core, peripheral areas to outsource is via transaction cost theory.

Click the video or the transcript button below.

Transaction cost theory

When selecting activities to outsource, the role of the activity within the business must be
considered.

Traditionally outsourced activities will not be the core competencies of the business.
But rather will be peripheral activities.

So a specialised manufacturing company for example, is unlikely to outsource its production line or
the training of production staff, but may well outsource its finance, human resources, IT or
distribution activities.

One way of deciding which non-core activities a business should outsource is to use transaction
cost theory.

Transaction cost theory compares the cost of using hierarchy solutions (that is carrying out an
activity in-house) with the cost of using market solutions (that is, the cost charged by external
service providers to provide the same service).

When evaluating the cost of hierarchy solutions a business should ensure it takes account of all of
the costs incurred in providing the activity in-house, for example the costs of staff, management,
premises, training, staff bonuses and equipment.

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The same principle applies to evaluating the cost of market solutions.

The costs associated with outsourcing are:

The direct cost of the outsourced service plus the cost of managing the service such as the cost to:

• set up a service level agreement

• monitor the relationship in place and correct any issues or problems that occur with the third-party
provider and
• pursue remedies where necessary such as enforcing penalty clauses or taking legal action

Therefore, when considering which non-core areas to outsource, transaction cost theory would
suggest that:

If the cost of outsourcing (the market solution) is lower than the cost of carrying out the service in-
house (the hierarchy solution) then the simple conclusion is to outsource that service. Of course, it is
never quite that simple, and there are several additional factors which may be hard to value, but
which must still be taken into account such as:

The risk that outsourcing could change market perception, product reputation, or customer trust the
availability of suitable suppliers of appropriate quality the extent of what is known as ‘asset
specificity’. Let’s now take a closer look at what this last term means.

Asset specificity describes the extent to which an asset - whether a machine, a skilled worker or a
plot of land - can be easily adapted to perform a different task or to use in a different way.

An asset with high specificity is highly specialised and so only useful for a limited number of tasks.
For example an international tax advisor, a mineral field, or a winch for a diving boat. These assets
tend to be expensive to acquire and maintain.

An asset with low specificity is more flexible and has multiple potential uses. For example, a junior
finance officer, an arable field, or a computer. These assets are usually cheap and can be obtained
from multiple sources.

When a business is considering outsourcing a service, it must take account of the specificity of the
assets involved in providing the service.

If the assets have high specificity, then there are unlikely to be many providers of comparable assets.
Therefore, it is less likely to be the type of service that the organisation should outsource.

If an organisation were to outsource a service with high asset specificity, such as perhaps the
manufacture of a key component requiring specialised equipment, it may find it difficult to negotiate
with the supplier as it has few other choices in the event of disagreement, yet it would be difficult
and expensive to bring the service back in-house.
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By contrast, a photocopying service, which has low asset specificity, is available from multiple
suppliers, giving the business far greater negotiating power.

However high asset specificity has other implications.

Services requiring high asset specificity are likely to be expensive to carry out in-house, as the
business will need to acquire and maintain the asset.

This cost will only be justifiable if the business has a regular need for the asset.

So, for example, a large financial planning company can probably justify the cost of a full-time in-
house international tax advisor whose services will be needed daily, but a national retail company
with just one international branch may be better off using an outsourced tax advisory service.

Knowledge check

Group items by dragging them into their corresponding boxes.

Question
Drag the following costs to the solution costs category where they belong.

Solution

Penalty charges for low quality provision of service

Arranging a service level agreement Staff monitoring a service level agreement

Bonus schemes to improve staff productivity Recruiting production staff

Legal costs to act for poor supplier performance

Provision of capital equipment for production

Hierarchy solution costs (H) Market solution costs (M)

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SUBMIT

Knowledge check feedback

Hierarchy solution costs

Hierarchy solution costs are costs associated with the provision of a service in-house. The costs of
recruiting production staff, providing capital equipment for those staff, and bonus schemes to
improve productivity, are all costs related to an in-house activity.

Market solution costs

Market solution costs are costs, or potential costs, associated with outsourced activity. Arranging a
service level agreement and staff monitoring of that agreement are basic costs of an outsourcing
arrangement. Additional outsourcing costs may be incurred if penalty charges need to be imposed
for low quality provision of services, or if legal action needs to be taken for poor supplier
performance.

Scenario

Pete's Gym (PG) opened in 1993, a single gym in the capital city of Country Y.

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Due to vast success throughout the 1990s, PG was able to expand significantly, and now has 276
gyms across three countries.

‘Here at Pete's Gym we are an extremely lean organisation. We have been able to remain profitable
and grow our business by always focusing on what makes us unique — good prices and excellent
up-to-date equipment provision.

We are a budget gym, but we do not offer a poor-quality facility. We provide customers with high-
quality venues and equipment but keep our prices down by keeping staffing to a minimum and
outsourcing all non-core areas of the business.

Outsourcing has reduced our costs considerably. Each function we have outsourced so far has been
successful and we will continue to look at each of our business activities to see if they could be
better served by a third party.

We started with obvious and easy areas to outsource — gym security, cleaning, and equipment
maintenance.

Having a remote organisation perform these tasks not only means that our costs have reduced, but
that the quality of tasks performed has also been higher. Outsource companies are specialists in
their roles. However, we selected carefully to ensure this was the case. Our first selection of gym
security provision was poor. We mistakenly selected purely on price, and they did not provide the
service we needed. Our next selection for this service was made based on both price and what they
could offer, and we have had no issues with these providers.

More recently we have outsourced several elements of the finance function. Payroll, accounts
payable, accounts receivable, tax returns, and preparation of monthly accounts are now all
performed externally. This has given our finance department the chance to become more useful
business partners across the business. Time they once spent processing transactions is now spent
providing more useful analysis and insight across the organisation, which further drives our business
performance.

The area we are currently considering for outsourced provision is data management. At present, we
run our own database through a moderately sized dedicated team. However, it is becoming too large
for us to handle, and our customer relationship management programme has become slow and
unwieldy. We believe this work could be done cheaper and more effectively if it was outsourced.’

Offshoring

Offshoring occurs when business processes are outsourced to another country.

These may be production processes such as manufacturing, or support processes such as finance.

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Globalisation has led to increased trade and interaction across the world. When barriers to
international trade fall and movement of people country-to-country increases, some organisations
are more able to set up elements of the operation abroad.

Operating from another country can significantly save costs — if the organisation moves operations
to a location where land is cheaper, resources cost less, environmental rules and regulations are less
onerous, or labour is cheaper.

Labour arbitrage occurs when an organisation identifies it can obtain the same labour skills in
another country for less cost. Also, it occurs when labour migrates into a country that pays more for
its inherent skills than is paid in its home country.

There are, however, sometimes issues with offshoring. It is not straightforward to set up in another
country. There may be language, cultural, legal, and ethical differences that make a simple shift of
operations or functions difficult. However, if these can be overcome, the cost savings can be great.

Shared service centres

A shared service centre or SSC exists when one element of an organisation, for example, finance
becomes centralised in its provision. The alternative to a shared service centre is provision of a
service in multiple places across an organisation — for example, a finance department in every
country of a global organisation.

Shared service centres can be in-house or outsourced and have played a pivotal role in transforming
the finance function over the last 20 years. As the labour arbitrage benefits that initially drove much
outsourcing have become less attractive, there has been a move towards in-sourcing some
previously outsourced functions, but many organisations continue to implement shared service
centres, whether in-house or outsourced.

There are many benefits to setting up a shared service centre, both financially and nonfinancially:

● Economies of scale that enable the organisation to cut posts and so reduce its
employment costs.
● The potential to locate an SSC in an area where labour costs are lower. This is taking
advantage of labour arbitrage.
● Savings on the cost of premises and associated outgoings or insurance, security, and
legal fees.
● The ability to achieve tax savings by moving more profits to a low-tax regime.
● The consolidation of the various disparate systems used by different business units.

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● The ability to cater for the company's growth in a cost-effective way, because any
acquisition, new product or service can be handled by the SSC with only a marginal
increase in resources.
● Quality improvements arising from a dedicated SSC pursuing a more professional
supplier-client relationship.
● The ability to measure SSC processes and standardise them via internal benchmarking.

There are also a few considerations that must be evaluated prior to setting up a shared service
centre:

● They can be very expensive and complicated to set up.

● Specialised knowledge may be lost — the centralised function may lose the detailed
knowledge once held when the services were embedded across the organisation.
● The shared service centre is more remote from the day-to-day business operations and
hence less in touch with real issues and challenges people across the organisation are
facing.
● Services may feel less accessible across the organisation, and relationships develop
less well than they would have when the service was spread throughout the
organisation.

The digital age

Business process re-engineering (BPR)

Processes become inefficient, particularly in organisations that have existed for a long time and built
up procedures incrementally.

An organisation may realise processes are taking too long or running in an inefficient manner by
examining workflows or benchmarking to competitors. At this point, the organisation may wish to re-
engineer its processes to work more quickly, effectively, and with less costs and waste.

BPR looks to re-engineer business processes across the business, not only in terms of themselves,
but also the interactions between processes. It is a large undertaking and can be very expensive to
complete.

Each process needs to be examined in detail and assessed for whether it is needed, whether it adds
value and whether it supports another process needed elsewhere. Any processes that are surplus to
requirements are removed, and the remaining processes redesigned and reassembled more
effectively and efficiently than before.
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The following are advantages of BPR:

● Improved productivity
● Reduced costs
● Reduced waste
● Simplification of activities allowing time to focus on core competencies
● Better interactions across the organisation

However, there are disadvantages:

● It is expensive and time consuming to undertake.

● Linkages may be missed leading to key processes being removed.
● Staff may see it as a way to reduce headcount.
● Staff may argue about the processes under discussion.
● It may lead to changes that demotivate the workforce.

Scenario

BPR has been useful at Pete's Gym. It is not something we can do regularly as it certainly takes up a
lot of management time, but we ran a detailed process review in 2000 and found some real areas for
improvement.

New member application processing is a key example. Back in the ’90s it took a week to process a
new gym member. Potential members would complete a standard paper form and bring it into the
gym. The form would be sent to head office for processing, bank details set up, and the potential
member written to about a week later with a membership card (required to swipe into the gym) sent
in the post.

We looked at this process and removed all the excess. The paper forms are gone. Now a member
can sign up over the phone or in person. We take their details electronically and within minutes they
are members. We take the first month's fees by debit card and send them a temporary electronic
card they can use to enter the gym. If members don't have a mobile phone, they are provided with a
printed card that we can deliver real time as they register.

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The time between signing up and first being able to use the gym has been reduced from an average
of eight days to eight minutes...now that is re-engineering at its best!

That is just one small example of course. The approach was used across the whole business and
every process was examined. Could it be done better, quicker, cheaper? In so many cases the answer
was yes, and we have seen significant ongoing improvements in our margins since we undertook the
exercise.

Process automation

In today’s digital environment, automation is also contributing to the changing shape of the finance
function.

Business process automation (BPA) can be considered the automation element of business process
re-engineering — taking the big picture approach and automating components of a process that is
being re-engineered.

Robotics process automation (RPA) is a digital solution used to carry out individual tasks or small
processes typically performed by humans. While robotics is possibly more frequently associated
with manufacturing solutions, lower level finance and accounting operations are increasingly being
performed by robotic technology solutions.

While the ‘robotization’ of finance and accounting processes often results in increased efficiency,
they are not necessarily contingent upon a BPR process.

Disruptive outsourcing

The increasing digitalization of business is driving another shift in outsourcing solutions that go
beyond cost and process improvements, not only for the finance function but for other aspects of
the business model as well.

Deloitte Consulting
Traditional outsourcing is dead. Long live disruptive outsourcing.

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In the past, organizations typically used outsourcing to improve back-office operations through cost
reduction and performance improvement. Today, disruptive outsourcing solutions are enabling
competitive advantage by accelerating changes within those organizations that have the audacity
and skill to leap over the technology chasm; for them, outsourcing can pioneer a northwest passage
to top line growth, as well as to a more agile, effective back office.

The focus has shifted from traditional work transfer to upfront transformation and automation.
Organizations are recognizing that disruptive solutions can revolutionize the way they do business,
and that ‘buying’ capabilities in the marketplace is generally faster and more scalable than
developing capabilities internally. Emerging solutions incorporating cloud and automation are
empowering organizations to work smarter, scale faster, reach new markets, increase productivity
and, ultimately, gain competitive advantage.

Doug Plotkin

Managing Director

Deloitte Consulting LLP1

1
Deloitte. ‘The Deloitte Global Outsourcing Survey 2018.’ Copyright © 2018 Deloitte Development
LLC. All rights reserved.

Conclusion
The shape of the finance function has traditionally been depicted as a hierarchical triangular shape
with a broad base of lower-level staff to the chief financial officer at the peak of the triangle. In
recent decades, this shape has shifted to a segregated triangle as routine processes have migrated
to shared service centres, outsourced to other service providers, or offshored to lower-cost locations
of the enterprise.

Although virtually any component of the business, or the finance function, could be outsourced, the
key is to outsource elements of the organisation that could be more effectively and efficiently
performed outside. These are customarily peripheral activities that are not part of the core
competencies of the business, which can be determined by using methodologies such as
transaction cost theory, and asset specificity. In making decisions about whether to outsource,
offshore, or create a shared service centre, it is often advisable to consider BPR.

The digital age (represented by the hexagonal shape of the triangle) shows the impact of
technological automation as well. BPA, the automation of business processes, and RPA, the use of
technology solutions to automate specific human processes, continue to erode the traditional
triangular base.

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TOPIC
Digital age finance function

Course learning objective

After completing this topic, you should be able to recognise how the finance function is being
transformed in the digital age.

Introduction

The digitization of business will certainly impact the finance function in many ways. Increasing
automation of more lower level tasks will change the shape of the finance function. It will also create
the opportunity for finance function staff to provide higher-level services. This transformation of the
finance function will include greater business partnering and providing decision support to other
functions of the business. These evolving roles and responsibilities will also change the
competencies required of finance professionals necessary to add value to the business.

Digital age finance function

In the digital age, the shape of the finance function is evolving into a ‘hexagonal’ structure.

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Assembling and extracting data

Many of the lower level tasks in ‘assembling and extracting data and providing limited insight’ have
been, and will be continued to be, automated. Most of these tasks are likely to be clerical in nature,
rather than tasks performed by professional accountants. At this level, there will be systems and
technologies of recording.

Although lower level tasks will be automated, professional-level skills will still be required to provide
management and continuous improvement of processes. The understanding and use of new
technologies will be increasingly important in process improvement.

Specialists generating further insights

At the level of ‘specialists generating further insights in their areas of specialism’, we will also
continue to see increasing automation. Higher level services will also increasingly be offered from
shared service centres or centres of excellence, with technologies and systems geared more
towards interpretation.

The lower two levels of the hexagon form the building blocks of the organisation’s value creation
process because they involve the finance function doing the following:
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● Applying rules, policies, and standards to collect, clean, and connect data
● Analysing information to create insight
● Communicating insights through periodic reports

Partnering for value

‘Partnering for value to influence and shape how the organisation creates and preserves value’ is
becoming central to the role of the finance function. As such, the hexagon bulges outwards at that
tier.

Business partnering services may be provided by individuals deployed to work alongside business
unit managers, in a centre of expertise, or by a hybrid model, in which some support is provided
locally, but an expert team might be deployed to tackle a problem or to guide a major initiative.

At this level, the technologies and systems will be those that are designed to facilitate engagement,
augmenting what humans do. Finance professionals will increasingly work in multidisciplinary teams
assembled in skills combinations that support the business by

● providing insight through interaction with internal and external stakeholders,

● generating and communicating further insight to assist decision-making, and
● controlling operations and the implementation of decisions.

Leading the finance team

With the least level of skills subject to automation, leadership of the finance team relies on systems
and technologies of governance and oversight to:

● manage others,
● apply expert technical skills, and
● formulate strategy (including financial strategy).

Knowledge check

Match items by dragging and dropping each item into the corresponding box.

Question
Drag each core competency to the corresponding element of the digital age finance function.

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Core competencies Digital age finance function

Analysing information to create insight Assembling and extracting data

Formulate strategy (including financial

strategy)

Specialists generating further insights

Applying rules, policies, and standards to
collect, clean, and connect data

Providing insight through interaction with

internal and external stakeholders
Partnering for value

Leading the finance team

SUBMIT

Knowledge check feedback

Assembling and extracting data

Applying rules, policies, and standards to collect, clean, and connect data
Although technology solutions have increasing capacity for extracting data and providing automated
analysis, one of the core competencies of the finance function involves following rules, policies, and
standards to collect data. The systems capability at this level is processing and recording
transactions.

Specialists generating further insights

Analysing information to create insight
In order to perform the core competency of analysing financial and nonfinancial information to
provide further insights for influencing business decision-making, specialists require system

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capabilities that can facilitate the interpretation of that information.

Partnering for value

Providing insight through interaction with internal and external stakeholders
Cross-functional collaboration and effective business partnering involve interaction with internal and
external stakeholders. This requires systems that enhance engagement with those parties.

Leading the finance team

Formulate strategy (including financial strategy)
Although finance team leadership often requires expert-level technical skills, effective management
of others and the formulation and execution of strategy are also essential. Systems geared towards
oversight and governance enable these competencies.

Finance function transformation

This section summarises how the digital age is affecting the finance function. It covers the
transformation process necessary and the competencies needed for the migration from services
provided within a more traditional hierarchical or segregated finance function, to a finance function
in the digital age.

The Global Management Accounting Principles (GMAPs) were created by the Association of
International Certified Professional Accountants and reflect the perspectives of chief executives,
chief financial officers (CFOs), academics, regulators, government bodies, and other professionals in
20 countries across 5 continents. The GMAPs define management accounting as ‘the sourcing,
analysis, communication and use of decision-relevant financial and nonfinancial information to
generate and preserve value for organisations.’ This definition reflects the different levels of the
finance function in the digital era.

The changing mandate of the finance function and the impact of new technology put more
emphasis on finance as a discipline across the business, rather than as an overhead function. This
process is bringing together different internal areas of the finance function and fusing finance with
the rest of the business.

In terms of leadership, transformation of the finance function in this digital era requires a new shared
vision of the finance function’s role, including business partnering with extensive involvement in the
formulation, implementation, and monitoring of strategic execution. This will require changes to the
structure, systems, business processes, and business relationships of the finance function.

From traditional to digital

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In moving from the traditional to the digital, these structures, systems, and processes — along with
the new competencies and skills that are needed — must be aligned, as described below.

Area of responsibility: Primary role

Traditional finance function: The accounting function is focused on customary accounting and
reporting activities.
Digital finance function: Businesses develop and deploy finance professionals as business partners
to cascade the CFO’s influence through the business.

Finance professionals become strategic advisers to business leaders, overseeing performance

across the organisation and communicating a persuasive story to the full range of stakeholders.

Area of responsibility: Data management

Traditional finance function: Significant time and effort are required to capture, clean, and reconcile
date from legacy systems.
Digital finance function: Greater expertise in data governance, data planning, and data architecture
is required so that the accounting function can ensure the integrity of the data that it uses in its
analysis and reporting.

Area of responsibility: Financial analysis

Traditional finance function: Accountants tend to focus on routine financial analysis.
Digital finance function: Leveraging ‘big data’ and related advanced analytic skills, the finance
function analyses both financial and nonfinancial information to draw out patterns and relevant
insights.

Commercial curiosity, questioning, and analysis by dimension (for example, by relationship, product,
channel, or segment) are skills employed by finance professionals.

Area of responsibility: Business involvement

Traditional finance function: Business involvement is limited to traditional areas such as budget
variance reporting, efficiency and cost savings, and capital investment appraisals.
Digital finance function: Through partnering, finance deploys broader business understanding to
identify opportunities to improve performance and create value.

Skills required include communication, collaboration, strategy implementation, change management,

and project management.

Area of responsibility: Risk

Traditional finance function: Risk responsibilities are focused on the internal control environment
and control activities as they relate to reporting, compliance, and operations.
Digital finance function: Through constant horizon scanning, the finance function has a broader
perspective of enterprise risk and can alert the business to strategic opportunities or threats.

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The finance function can also facilitate organisation-wide conversations to generate innovative
solutions.

Area of responsibility: Subject matter expertise

Traditional finance function: Subject matter expertise comprises traditional tax, treasury, mergers
and acquisitions, and investor relations activities, with subject matter experts often working in their
own ‘silos’.
Digital finance function: Subject matter experts will be more engaged in the business partnering
process across the organisation to create business value.

Finance professionals will also engage with data scientists to help ask the right questions of the
data and interpret insights and patterns arising from the analytical process.

Area of responsibility: Technology

Traditional finance function: Information systems are shown as a black box to the side of the
finance function.

Accounting is dependent on technology.

Digital finance function: Understanding and managing what happens in the ‘black box’ requires the
combination of accounting and systems expertise, whether individually or, more likely, on
multidisciplinary teams.

The skills needed to use new technologies (for example, to automate a process) will become as
important as people management skills are today.

The New Operating Model

The modern finance function exists in a dynamic, competitive environment and plays a key role in
managing risks, formulating strategy, responding to market changes, and ensuring the short- and
long-term financial viability and strength of the organisation.

‘Modern finance teams have fully embraced a new operating model for modern finance that is
responsive and change-ready, embracing digital technologies to proactively automate traditional
transactional work, while investing in new skill sets to provide the analytical insights and strategic
guidance management needs to adopt new digital business models and ways of working.’ 1

The role played by management accountants in providing accounting and management information
positions them as professionals who can help improve decision-making. With their unique
combination of professional rigour and objectivity, technical accounting and analysis skills, and high-
level knowledge of the business, management accountants engaged as finance business partners
can cascade the influence of a CFO throughout a business. Finance business partnering can

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improve decision-making and business performance in ways that are in the long-term interests of
stakeholders.

Traits needed
According to Anton Broers, the finance manager of Royal Dutch Shell, the following traits are needed
for effective finance business partnering:

● The courage to speak up, to challenge managers, to hold up the mirror to the business.
● Influencing, building relationships, and communication skills; being able to get the
message across and get a discussion going.
● Persistence (the message might not get through on the first attempt).
● Business knowledge (business partners must understand the business).
● The ability to translate the numbers into a business story.2

1
Oracle, in partnership with the AICPA and the Chartered Institute of Management Accountants.
‘Agile finance revealed: The new operating model for modern finance’. Copyright © 2017, Oracle
and/or its affiliates.
2
Samantha White. ‘5 behaviours for effective business partnering’. Financial Management. October
2015.

Transformation

In today’s digital and global economy, the finance function is undergoing significant transformation
in its role, responsibilities, and relationships within the organisation. The shape of the finance
function, along with the skills needed to be a finance function professional, are becoming
increasingly more important.

The CGMA Competency Framework highlights these needed skills. Technical finance and accounting
skills, applied in the context of business to influence people and lead within the organisation, are
increasingly critical; digital competencies and a digital mindset are now at the centre of that skill set.

Business partnering in the new digital economy requires the finance professional to understand the
macroeconomic context of the business, the company’s business model, and the strategic
objectives of the organisation.

Applying that knowledge, facilitated by the people skills of communication and collaboration, is what
is necessary in the business partnering role.

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Leveraging technology to use advanced analytics techniques to influence decision-making in ways

that will create value is essential to achieving the goal of becoming a strategic adviser in the
organisation.

Scenario

You are a finance assistant and have recently been hired by Serendipity Magazine Group (SMG).

SMG chief executive Maxine Bakewell has arranged for representatives of each department to
deliver presentations to you.

We have been profitable for two years, following seven years of loss.

We changed our fortunes by cutting our workforce in half and investing in technology and upskilling.
We now offer all our magazines in online format only, which has cut our costs drastically. This move
was met with resistance, but we couldn't survive as we were. We are also smarter in terms of our
offerings to advertisers and have invested in cloud accounting systems. This has allowed many of
our traditional transactional jobs to be done remotely while our finance experts focus on driving the
business forward.

Production

The first department you meet with is production.

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Hi. My name is Genevieve Egloff and I head up production at SMG.

Production costs now revolve around staff costs and the cost of the technology we use to bring the
magazines to life. We have invested in recruiting people with significant digital expertise and training
existing staff to work in new ways.

I don't need you to tell me about my production cost performance. We have invested in user-friendly
systems that allow me to find out the cost, by magazine, in real time at the touch of a button, and I
can drill down into areas of variance or interest as I need to.

What I need your help with is working out a strategy to continue to digitise our content production,
servicing and delivering it directly to our customer.

Can you help me ascertain what our competitors are doing? What systems do they use to deliver
such competencies? Can we do the same? How much would it cost, and do we have the skills to
facilitate it? What are the risks and how can we manage them? We need to work together to find
robust answers to these questions.

Marketing

Your next department meeting is with marketing.

Welcome! My name is Hay.

We now work with both readers and advertisers continually to ensure our product is exactly what
they want. We are always learning and always evolving with the information we receive.

We can now store information about every touch point with customers in the cloud, and we make
the most of every interaction as a chance to obtain information and improve our products.

This is where you come in. We can obtain the basic signals from the data, but what does the data
really mean? Can it be further analysed, and what do we do about it? Your analytical skills will be
useful to inform our decisions.

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You note that one of your responsibilities will be to interpret information at a high level that is
sufficient to drive decisions and strategy, rather than simply considering costs, transactions, and
performance reporting.

Editorial

Your new role is promising to be both exciting and challenging. Your next stop is the editorial
department, led by Ken Keleti, a department that didn’t exist at your old employer.

Social media has incredible power. How to harness the power is still quite new to us, and I would like
to work with you on that in terms of understanding the cost and benefit of using each different social
media platform. One thing I have wondered is how proactive use of social media might affect our
brand value in the longer term. Can we even value that? You might have a better idea than I do about
how we value intangibles of this nature.

Additionally, I would like to get you involved in developing apps to enhance our online content
provision. At present, this is something of an unknown area to us.

You note that your role will involve examining a dynamic environment, looking at risks, quickly
assessing the best course of action, and monitoring progression. You are aware of the significant
challenges of valuing intangibles and setting up key performance indicators (KPIs) to measure
intangible value across the business. Yet this is becoming increasingly important and needs to be
addressed.

‘In the past quarter century or so, a large and striking macroeconomic value inversion has occurred.
In 1975, more than 80% of corporate value reflected in the S&P 500 was tangible assets, while
intangible assets comprised less than 20% of market capitalisation. By 2010 intangible assets had
grown to 80% of market capitalisation.’3

Human resources

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Hi. I'm Graham, and I head up the human resources department.

The finance function at SMG goes beyond traditional duties of organising payments and setting a
budget for staff costs and training. Of course, all that still happens, but beyond that we need help
with performance measurement to drive corporate goals. What KPIs should we be examining to test
the effectiveness of our workforce? How do we know if staff are performing well or need additional
training and development? We are reconsidering our bonus system, which currently rewards digital
advertising sales, because we recognise that this is not the area we would most like to develop. We
would like to encourage higher levels of customer relationship management with advertisers,
providing them with extremely targeted routes to their market. I need your help in devising a
performance management scheme congruent with those aims.

Information technology

Next you meet with Grace Windsor, who leads the information technology (IT) department.

We are in a position now where technology underpins all our activities. We are completely online in
terms of our content offering, and we have invested heavily in the systems required to do that. We
now have excellent online content provision and are developing mobile phone content provision,
social media interactions, and applications that supplement our products and provide us with vital
customer information. We have a large database in the cloud that we are building every day. Each
time we make contact with a customer or advertiser, we feed more data into that space. This
supplements the already vast amount of information we had about customers and advertisers as a
result of over 100 years in existence. We use specialised systems of big data analytics to make
sense of it all and are increasingly able to obtain information across the business in real time to
inform decisions and strategy.

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We do not really need you to process transactions because most of that is automated. We don't even
need you to produce management accounts or basic variance analysis because that is also mostly
automatic at SMG. However, we do need you to take an active role in informing decisions, using
predictive analytics to provide strategic insights, and going beyond the role of a finance professional
to that of a business partner.

3Ocean Tomo. ‘Ocean Tomo 300® Patent Index’. Accessed 30 January 2018.

Conclusion

This case study reflects how varied the responsibilities of a finance function professional can be.
The level of digitisation at an organisation can affect the role of the management accountant
significantly. The traditional duties of preparing reports, assessing and evaluating past performance,
and processing transactions still exist in many locations, but increasingly organisations make the
most of smart digital systems to facilitate automation of simpler finance tasks and responsibilities.
This frees up the accountant to take on a higher-level role, evaluating strategic direction and choices
and playing a vital role in decision-making moving forward. This evolution is not without obstacles.
Organisations can lack the workforce skills, systems, or investment required to make the changes
described.

However, accountants of the future will need to recognise the changes occurring and build their skill
levels to ensure they can respond to the new requirements and continue to offer value to the
organisation.

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