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The risk management function of the future Advisory

Finance of
the future
A Guide for
Business Users
KPMG Management Consulting
````"Accountants could go the
way of coal miners!
A mighty industry that once
employed three quarters of a
million and helped bring
down a government today
employs fewer employees
than SmithKline Beecham.
I believe that accountants in
industry could go the same
way if they do not realise the
fundamental changes
they need to make."
Hugh Collum
Executive Vice President and Chief Financial Officer, SmithKline Beecham
Introduction
There has been widespread recognition of the need for finance to develop from
being a scorekeeper to a business partner. Many organisations have changed
their finance function as a result. But there is much further to go.
The question now is whether there should be a finance department at all.
The rapid development of IT has removed many of the tasks which traditionally
defined the finance department. Manual ledgers disappeared many years ago.
Manual transaction processing is going the same way, replaced by electronic
commerce.
The need for financial knowledge is no longer restricted to finance. There is much
greater awareness of the financial implications of decisions throughout
organisations. It is a necessary part of business. Equally, business knowledge is
more highly valued than technical accounting expertise.
Much of the traditional finance department is moving out into the business, which
means that the finance director is losing much of his or her traditional domain.
Finance directors can see this as an opportunity or a threat. Those that see it as
an opportunity are more likely to prosper.
Although there has been much debate lately about the future of finance, no one
has put forward a comprehensive picture of what the finance function could look
like. This is the first attempt, we believe, to do just that.
Barbara Morris-Welsh
Partner, KPMG Management Consulting
Contents Page
Back to the future - an eye witness account from 2010 2
1998: in the beginning 3
2010: the finance department will no longer exist 4-5
Taking advantage of strategic opportunities 6-7
The way forward 8-9
En route to 2010 with SmithKline Beecham 10
The importance of the finance discipline 11
The future: a catalyst for your career 12
1
F e b r u a r y 2 8 used to be Anna Walker's least Vision committee, representing finance. Huge changes
favourite day of the year. It was the year end for started taking place immediately. Finance people were
FutureSystems plc and also happened to be her birthday. moved into the business to sit alongside operational
Ten years ago, that would have meant staying up until managers. Integral activities, such as control and cash
the early hours of the morning finishing the accounts management, became an essential part of day-to-day
books and preparing all the information for publication. activities in operations. Transaction-based tasks, such as
These days, however, she can go out and celebrate, now purchase order processing, were outsourced. Even the
traditional budgeting process
an eye witness account from 2010 had been abolished in the
transformation that dissolved
the finance department. The
that t h e f i n a n c e d e p a r t m e n t h a s success of the 2010 Vision project had been a r e a l
c h a n g e d and, with it, her role. She is now Head c a t a l y s t f o r h e r c a r e e r .
of Operations.
These changes had shifted the emphasis away from
For the last ten years, FutureSystems has outperformed activities that did not add any value to the business - a
the market with an average growth of 35% per annum. major step towards becoming a v a l u e b a s e d
Amazing, really, Anna thought, considering the rocky 12 o r g a n i s a t i o n . All strategic management was
years that the global economy had just experienced. The transferred to operational business managers. They were
company had survived Year 2000 by the skin of its teeth. supported by one central cross-discipline advisory team
EMU had posed a huge challenge, but the executive for finance, IT, HR, training and development.
committee saw the s t r a t e g i c
o p p o r t u n i t i e s it afforded, and took The result of all those changes, thought Anna, was a
advantage. Many companies did not fare so well. highly successful organisation in which t h e
f i n a n c e d i s c i p l i n e was responsible for
One of the obstacles to the growth of FutureSystems three things: delivering value to shareholders; challenging
had been the finance department. Anna remembered the operational managers; and controlling the risks inherent in
day that the board had announced the decision: t h e the business.
finance department would no
l o n g e r e x i s t . Although they expected a Activating the performance reporting suite of the
positive reaction from operational managers, they were information system, Anna called up a value based
concerned there might be mass pandemonium from summary report, ready for the analysts' briefing. She
distraught accountants. Instead they were inundated with accessed the back-up analysis, and made a final run
requests for sponsored MBAs and training courses. through her presentation.
Although the decision was unsettling, the finance people
recognised the opportunity for career growth inherent in As she did so, she thought back to February 1998 when
the decision. she had made her move from finance to operations. At
the time, it had seemed such a huge decision. N o w ,
The business success and change was masterminded t h e o p t i o n o f " s t a y i n g i n
through the 2010 Vision project. Anna was on the 2010 f i n a n c e " n o l o n g e r e x i s t e d .
2
Back to the future
F I N A N C E 1998: in the
beginning...
The traditional role of Organisations are expecting finance to act To help organisations see how these
as a business partner. What does this mean? responsibilities might change, KPMG
They want finance to be an ally in achieving Management Consulting has developed a
finance as the their business objectives by focusing on the framework for analysing the various
beancounter - the part of
three key financial accountabilities: finance activities (see Figure 1). The
s to deliver value to the shareholders in activities are placed in the quadrant which
accordance with their expectations; best describes their underlying
characteristics. This analysis will vary from
s to challenge business managers to business to business.
the organisation which generate value and monitor their success in
doing so; and A typical example might be:
always says no - is
s to manage financial risk and maintain s operational/discrete - payroll;
financial control. s operational/integrated - cash
changing rapidly. These three accountabilities are unique to management;
the finance discipline and are not likely to s strategic/integrated - decision support;
change in the future. What will change is and
who holds the responsibility for the s strategic/discrete - tax planning.
activities which underpin them.
Traditionally, the responsibility has
remained inside the finance department. In
the future, the responsibility will go to
other parts of the business.
Figure 1: A framework for analysing finance activities
Strategic
Tax planning Planning
Managing Investor Relations Decision Support
Consolidation
Internal Control
Accounts Payable
Cash Management
Payroll
Operational
Discrete Integrated
3
F I N A N C E 2010: the finance
department will
no longer exist
Figure 2: The future of finance
Advisory team Line / Financial
awareness
Whole
Outsourced organisation
Looking at each Operational/discrete accelerate with the further integration of
Those activities which are operational and the single European market. Some
discrete can be handled by shared service organisations have even outsourced these
quadrant in turn, we can centres or outsourced completely. They activities. There are a number of well
are not an integral part of the business nor publicised examples of outsourcing
do they have strategic importance or agreements, especially within the oil
consider how finance confer competitive advantage. In the US, industry.
transaction processing such as accounts
payable or payroll is often located in Looking further ahead, the vast majority
might change. shared service centres. In Europe there are of transaction processing, even for small
now a growing number of shared service organisations, will be done through
centres, and we expect this trend to electronic commerce. This might change
the nature of outsourcing agreements as
they look to take on additional activities
such as consolidation and reporting.
4

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