Are companies optimizing the suboptimum?

Many companies look for ways to increase the efficiency and quality of their finance function. An upcoming trend is to streamline and migrate routine and lower value add controlling activities (referred to as “rule-based controlling activities”) to shared service centers (SSCs) within the controllers’ domain. Controlling activities are normally less standardized in a company.

The next step for shared services could be the migration of the rule-based activities within controlling processes.

Does it make sense to dictate from headquarters what kind of controlling activities are expected in the operating companies? The setup of the finance operating model (FOM) and content of the controlling function are heavily interrelated. An effective program to implement a new FOM will look for ways to reduce complexity and improve accountability. What kind of detailed insight is required to draw and implement such a blueprint and to what extent is it beneficial to do it from a central perspective?

This article discusses the benefits and costs of streamlining and migrating rule-based controlling (RBC) activities in a project to SSCs before formally redesigning the FOM. Is this RBC project “just” a good opportunity? Is it a step on a road map to draft and implement a broader finance blueprint? Or is it, in order to maximize the business case, necessary to implement the desired, broader FOM first before streamlining RBC activities?

There are benefits to migrating RBC activities without completely redesigning the operating model or finance blueprint. With this approach, however, organizational complexity, among other issues, is not addressed. Obviously, eliminating management layers or the number of business units will significantly reduce the effort of migration and realize a much bigger opportunity in terms of cost reduction, process improvement and value. This opportunity can become even larger, if the relevant changes in IT infrastructure are made at the same time. As a result, are we “optimizing the suboptimum” in order to realize a relatively limited business case, or are we taking an important step on a real transformation journey?

We recommend assessing the complexity of the current finance organization before starting an RBC project. The outcome and the willingness to change will determine the approach: a full scope blueprint program or a bottom-up RBC project.

The complete article was written by:

  • Bart Meussen
    Vice President Finance, Philips, Netherlands
  • Jan-Willem Sanders
    Partner, Performance Improvement, EY, Netherlands

Read the full articlepdf425.75 kB

EY refers to one or more of the member firms of Ernst & Young Global Limited (EYG), a UK private company limited by guarantee. EYG is the principal governance entity of the global EY organization and does not provide any service to clients. Services are provided by EYG member firms. Each of EYG and its member firms is a separate legal entity and has no liability for another such entity's acts or omissions. Certain content on this site may have been prepared by one or more EYG member firms