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Author's profile photo Katharina Reichert

How far are Finance Operations teams already on the path to “digital business” today?

There was a really interesting study published in February, 2016, by McKinsey & Company about the theme of digital business and its current status in the world of finance operations, which are often structured in shared services organizations:

How shared-services organizations can prepare for a digital future (Chandok, Chheda, and Edlich, Feb 2016)   Screen Shot 2016-02-18 at 8.48.59 AM.png

The benefits promised by “digitalizing” shared services is enough to make any Head of Finance Operations sit up and listen:

  • “McKinsey research suggests that companies can achieve … up to 50% increases in efficiency in some back-office functions.”

These benefits are realized when companies adjust business processes to take advantage of automation and analytics, such as the processes delivered by the latest version of SAP ERP software, SAP S/4HANA. And automation and analytics are SAP S/4HANA’s sweet spot.

There has been a lot of hype around the topic, but the McKinsey study shows that the adoption of automation technology to support this trend has not happened yet.

  • “Only 22% of the shared-services organizations … are beginning to build capabilities in automation”

Screen Shot 2016-02-18 at 9.07.51 AM.png

So, why haven’t customers adopted more automation yet? Well, as usually, it’s not the machines and technology, but the people, that are an impediment to change:

  • “The talent base in a typical shared-services organization tends to skew more heavily toward those with “processing” mind-sets…and too few data analysts to support the advanced-analytics programs with more of an end-customer perspective.”

Reviewing the SAP portfolio of Finance Operations solutions, using SAP Receivables Management as an example, you can see how automation in the context of digital business will continue to change business processes, and move people’s time from processing to exception management and analytics. Today, automated rules determine credit limits for customer accounts and prioritize customers that should be contacted regarding outstanding invoices. Short payments are automatically followed up using workflow to collaborate with logistics, quality control and other internal teams (as well as the disputing customers) to identify the cause of the short payment and to resolve the invoice disputes. In the future, even more cognitive systems will be applied to automation of the most manual process step in the Finance end of the order-to-cash process, applying incoming customer payments to open invoices. Automation is at the heart of Lights Out Finance processing.

Since the SAP system has automated most of the processing tasks, the people in our finance operations teams can focus on customer interactions. As we’ve learned from IDC and their “CustomerIntimacy@Scale” research, the number of touch points with customers is going to increase rapidly, and they will expect great service in all of these contacts. No matter who they speak with in your shared service office, or where they click on your website, they will expect accurate information pulled together from their sales executive, your logistics department, and your contract team, without any delay.

While software has been helping provide automated processing of core finance operations processes for decades, the rise of analytics has been revolutionized by very recent innovations like in-memory database and being able to run transactions and analytics in a single system, such as SAP HANA.

This means the managers of Finance Operations organizations have information available to them on the performance of their team against goals that are important to the leaders of the businesses they support with their services. In the past, shared service managers might have seen reports showing the number of shared service requests processed yesterday; these reports sourced through a business warehouse. Now, they have instant insight on data that senior business leaders want to see – total accounts receivables, receivables of the top 10 customers, total cash by currency, etc. SAP S/4HANA analytics provides cross-process KPIs in a user interface that gives the shared service team as well as the business executives access to these metrics anywhere, anytime. And since everyone has access to the same data (instead of via siloed business reporting systems), they can work together to shape the company’s working capital.

The McKinsey study confirms that shared services teams are lagging in their use of analytics to provide key findings back to their internal customers, the business units that they support. Only 10% of Finance Operations teams provide this “above-and-beyond core process support” for business units.

Here again, using our example of SAP Receivables Management, we see customers having implemented our dispute resolution module as leading the curve. By centrally tracking invoice disputes and their root causes, associated processing costs and duration,the dispute team can show the business which parts of their processes (pricing, quality, etc.) are causing customers to be dissatisfied. Most companies that have implemented SAP Dispute Management report lower rates of disputes in following years as process weaknesses are identified and corrected.

It is great that trusted advisors like McKinsey, who have entrée to CEO offices around the world, are writing about digital business; they see automation and analytics as being clear value drivers for shared services and finance operations teams. SAP S/4HANA Finance brings a toolbox of innovation that can help Finance Operations teams get close to that 50% improvement benchmark.

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