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How to Escape the Financials Transaction Processing Quicksand: 4 Steps to Transform Your Finance Organizations into a Strategic Partner

by Katharina Müllers-Patel | SAPinsider

January 1, 2008

Even the most sophisticated finance organizations are still mired in excessively manual processes. In this Q&A, Katharina Müllers-Patel offers coveted advice on how finance can effectively free up valuable time and resources to become a strategic business partner.

Katharina Müllers-Patel, PhD
Senior Principal, Value Engineering
SAP America, Inc.

Look across even the most sophisticated finance organizations today and you'll still find many financial processes that are excessively manual. Consider the closing cycle, which for many companies is fragmented and anchored to error-prone spreadsheets. Disjointed processes like these are inhibitors, and they prevent finance from becoming a strategic partner to the business.

Finance departments have a unique set of skills and expertise that can guide an organization strategically by analyzing performance and identifying new business opportunities. And with the revenue and margin demands facing businesses today, many companies need finance to step up into that more strategic role sooner rather than later. To get there, finance priorities must shift from the traditional back-office model of processing transactions to focus more on business value creation.

In this interview, Katharina Müllers-Patel, Senior Principal of Value Engineering at SAP America, Inc., describes how any finance organization today — and by extension, financials systems — must optimize transactional performance, be fully integrated into the business, and enable business value.

Q: SAP has been giving a lot of attention to its financials functionality lately. SAP ERP 6.0 provides the most enhancements in years. What is driving this renewed emphasis?

A: Like anything, we are responding to our customers' needs. And what they are telling us lately, particularly in the finance area, is that they are ready to become more than just a department that generates sales reports or general ledger statements.

Within any finance organization, there are three types of activities: process and transactional support, expertise-based business support, and strategic decision support (see Figure 1). Process and transactional support includes accounts payable, payroll, fixed assets, and the cash cycle; expertise-based business support would be budgeting, reporting and analysis, and the general ledger; and at the strategic level, you would find activities such as risk management, strategic planning support, and regulatory and compliance management.

Figure 1
The three layers of financial activities; the challenge for finance lies in optimizing the bottom layer to enable increased focus on the top layers

Finance organizations tend to get bogged down in the lower layers of the pyramid, but want to devote more time and resources to the top — the part that drives finance effectiveness and business value.

Finance can create business value by managing enterprise risk, ensuring compliant processes, providing business intelligence in support of market and margin initiatives, and spearheading growth initiatives — but also by optimizing finance operational costs.

Strategic decision support is about driving performance, managing risk, and ensuring compliance, and frankly, most companies are underinvested in this area. In many companies, a large portion of finance staff still focuses on the process and transactional base of the pyramid. Everyone knows they need to optimize it, but not everyone has figured out how.

On top of existing, strong transactional capabilities supporting the bottom layer, SAP ERP 6.0 is adding new capabilities to support the top layers. It is improving the close process, for example, via new GL enhancements including the closing cockpit. And to support compliance and performance management, which are more strategic in nature, SAP is concentrating on improvements related to governance, risk, and compliance, as well as corporate performance management and measurement.

Q: Are you saying transactional activities are perceived as no longer important?

A: Not at all. Managing transactional processes may be at the base of the pyramid, but that is simply because these activities represent the foundation of what a finance organization must do. They are as important, if not more so, than ever. However, thanks to the automation inherent in SAP ERP, with tools such as electronic invoicing and payment processing (EIPP), consolidations, or global payroll, you should be spending less time and resources on them.

These are activities that are the same, or should be the same, regardless of what size or kind of company you are. If you use SAP ERP by the book, minimize the number of instances to one or two across your global organization, and adhere to the standards that are already built in, then you will see dramatic improvements from a cross-structural perspective. For example, many customers who have successfully completed a finance transformation have experienced anywhere from a 20% to a 60% reduction in finance costs, closing times, or error rates.

Q: Let's drill down into that middle level of the pyramid, expertise-based business support. What do you mean by that?

A: Budgeting and forecasting is a perfect example. It's one of the biggest pain points for many companies. It can take several weeks or even a few months, depending on the complexity of the organization. And without the right tools, systems, and processes in place, it ends up being a very manual process, with spreadsheets flying out in all directions and returning in a wide variety of formats and broken templates. This makes reconciliation nearly impossible.

SAP ERP 6.0, together with the new corporate performance management (CPM) functionality, enables a collaborative environment where all templates are managed within the system and defined by you. The application comes with a workflow engine so you can designate who sees the templates, who can make changes, and who can approve them. And in the end, they roll up instantly, in real time. Now the finance employees who formerly spent weeks or months managing the process and reconciling spreadsheets can devote that time to value creation.

Q: At the top is strategic decision support. When finance organizations can free themselves from the constraints of process and transactional support, how are they able to create value through strategic activities?

A: The best companies, the most farsighted with the broadest vision, look beyond traditional finance metrics, such as costs or headcount versus revenue, and focus instead on business value. Areas such as strategic planning, mergers and acquisitions, risk management, and even talent management become much more the focus, as these areas impact enterprise value as measured through shareholder value or operating income, for example.

At SAP, we have benchmarked over 200 companies in the last two years on their finance processes alone. That's quite a big number, and we've done it in various industries, and for companies of various sizes — both customers and non-customers. We have consistently found across all industries that the top performers — those creating the greatest business value as compared to peers within their industry — are the companies that focus most on strategic decision support, in particular on risk management and strategic planning support, as well as on expertise-based business support (see Figure 2).

Figure 2
Top performers — those with the highest operating income per employee — focus more on strategic decision support and expertise-based business support; at the same time, they are more efficient

Q: A decade ago, the most common metrics to measure finance performance tended to be related to finance efficiency, such as cost as percentage of revenue, cost per transaction, number of transactions per FTE, time to close the books, and so on. Is this changing?

A: The good news is that more and more companies are shifting their mindset. There are some companies that still have much to gain by reducing the costs of finance processes, either through shared services, outsourcing, or automation. Those companies must rigorously measure process efficiencies and costs to close any gaps.

Benchmark Average First Quartile
Finance costs as % of revenue 1.09% 0.53%
Finance FTEs per $ billion in revenue 85 50
Time to close annual books (in days) 7 3
Audit costs as % of revenue 0.1% 0.05%
Figure 3
Sample finance benchmarks from the finance benchmarking study1

Leading organizations have, in many instances, already identified and implemented those efficiencies, thanks to an ongoing measurement and tracking process. They were then able to free up the capacity of a group of very talented people who can now focus on value-added activities.

With the right tools, finance can become a significant driving force and provider of business value in any company.

Q: For those customers bogged down at the bottom of the pyramid who want to focus on strategic activities, what advice can you offer them to get there?

A: There are four steps to transforming any finance organization:

  1. First, you have to define your own "pyramid" by assessing which finance responsibilities belong at the bottom, and which ones should be at the top. While most companies' foundational layer — the transactions — likely look fairly similar, the top of the pyramid, namely strategy and decision support, can vary significantly by industry. For example, the identification and integration of acquisition candidates can be a very strategic initiative for high-growth industries. Here, finance can play a very strong role during planning and implementation, whereas it may not be critical in lower-growth industries where margin management may be more important.

  2. From there, you can establish your own set of benchmarks. SAP can help with that (see sidebar).

  3. The most important step is to standardize your IT platform, and that means upgrading to SAP ERP 6.0.

  4. Finally, once you have your benchmarks and standardized platform in place, it is up to you to execute flawlessly, keeping your eyes on the results you wish to achieve rather than on the processes and effort it takes to get there.

Companies following this process must always focus on improving business value, which is the goal and the culmination of the four steps.

Use SAP's Benchmarking Services to Evaluate Your Current Financial Processes: How Do You Measure Up?

Benchmarking is an important tool in the transformation of a finance organization into a strategic business partner. If an organization Benchmarking is an important tool in the transformation of a finance organization into a strategic business partner. If an organization doesn't know where it stands, it has no way of developing a solid roadmap to where it is going. In other words, you may already have made great progress toward becoming a best-run business, but how would you know without a way to measure it?

Benchmarking should be at the core of every business case. You do an assessment in quantitative terms and compare yourself against your peers. You establish a baseline and identify metrics that will be used for your business case and later to measure value realization. Once you complete your project, you do another benchmark to see if you realized the value gains you projected.

Because benchmarking is so very fundamental, and because it speaks to the core mission of SAP to "make every business a best-run business," SAP has established a strategic benchmarking offering that helps customers evaluate key performance indicators (KPIs) as well as adopt best practices so that they can achieve more value from their SAP systems (see Figure 3).

Benchmarking services are available to SAP customers and select prospects free of charge. The process is straightforward. You start with an online survey that, after registering, you may complete at your own pace. SAP's Value Engineering team will then analyze the results and conduct a validation session with you to walk through the submitted data, address any gaps or inconsistencies, and obtain background on how you plan to use the results to tailor the study for maximum benefit.

Based on that conversation, some customers edit the data submitted in the original survey and resubmit it. After looking at that refined data, SAP will develop a draft benchmarking report, and review and finalize it with you (see Figure 4).

Benchmarking is also available in other areas such as human capital management, compliance, order-to-cash, SRM/procurement, supply chain planning, customer relationship management, and information technology. For more information about SAP's benchmarking program, please visit solutions/asugbenchmarking/index.epx.

Q: How does having greater integration between finance and the rest of the company support the creation of business value? Wouldn't the business be concerned that the finance organization might use greater visibility to exert greater influence and control?

A: The result is actually the opposite. We have found that the leading companies have figured out a win-win partnership model between the finance organization and the business. Instead of looking at finance as an outside organization that wants to impose rules and controls, finance is considered a strategic partner that both supports common business objectives and provides welcome advice and supplementary skills. An integrated environment — from a technology as well as a process perspective — is a key condition for such a partnership, because it allows for a seamless exchange of data between different business units or functional groups and finance, and vice versa.

Figure 4 A sample benchmarking report

SAP ERP 6.0 establishes this environment with key integration points between financials and supply chain management, human capital management, and customer relationship management. An integrated environment is the basis for end-to-end processes, such as order-to-cash or procure-to-pay, that cross departmental boundaries. It's also essential for analytics and reporting capabilities to measure and analyze process performance.

An integrated platform — based on standardized processes and with strong analytical capabilities — positions any finance organization on their journey to become a strategic business partner. With the right tools, finance can become a significant driving force and provider of business value in any company.

Additional Resources

The Financials 2008 conference in Orlando, March 10-13, 2008, for tips and tricks to transform (or simply fine-tune) the role finance is playing in your business (

"Good Benchmarks Are Hard to Find — Or Are They?" a Q&A with Mike Perroni (SAP Insider, January-March 2007,

"Transform Your Cash Flow Processes with Financial Supply Chain Management" by Jürgen Weiss (SAP Insider, January-March 2006,

1 These results are from companies of all sizes across many different industries.

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