The Allianz Group, like many large financial services companies with successful acquisition strategies, has numerous financial entities. Unique to Allianz is a company-wide initiative to harmonize all finance activities. In its wake, reporting, accounting, controlling, and data management functions all operate with uniformity across the more than 600 Allianz business entities.
This transformation from fractured financial entities to one, harmonized financial environment makes Allianz a stand-out in the financial services arena. In 2008 and again in 2009, the Allianz Group and its CFO at that time, Helmut Perlet (now retired), were recognized as best-in-class by Institutional Investor, IR Magazine, and the Thomson Extel Survey.
In addition to revolutionizing the company’s data quality and reporting functions, the transformation also ushered in significantly faster, more cost-efficient processes, including:
- An enormous reduction in the number of financial and controlling figures calculated with spreadsheets
- Almost zero days now required for pre-closing activities
- Immaterial “true-up” amounts
- A one-third drop in the number of hours needed for closing and reporting processes
But these metrics reveal only part of the story. Cost savings were not the primary objective. More strategic gains, like relevance and data reliability, were the goal, and this effort has served Allianz well during the current financial crisis, yielding:
- Consistency between local and International Financial Reporting Standards (IFRS) accounting processes
- Consistency between external reporting and internal steering (IFRS-based)
- More bandwidth to address finance policies, analysis, and strategy
- Better visibility and coordination of spending and cost allocations
- Standardized, yet flexible, procedures to address new reporting requirements
- IT efficiencies and quality improvements through a common technological platform
- A common, consistent, company-wide platform for accounting processes
- An infrastructure that is easy to grow and innovate
Leading the transformation effort — from its earliest internal evangelism and requirements-gathering phases through its design, execution, and continuous improvement activities — was Dr. Juergen Ott, a 17-year veteran of Allianz. This insiderPROFILE offers a firsthand account, from Dr. Ott, of the Allianz transformation.
Question: How do you close the books, exercise prudent controlling, comply with local tax and reporting requirements, and manage financial performance for a company with hundreds of financial entities, most of which have their own accounting, controlling, and reporting functions?
Nowadays, this question isn’t applicable. We don’t have disparate functions across Allianz finance entities. But a decade ago, this was the fundamental challenge we faced at Allianz.
To fully comprehend the magnitude of this challenge, some context about insurance, banking, asset management, and the financial services industries in general might be helpful. Financial services are heavily regulated. Insurance companies, for example, comply with a litany of different regulations for all kinds of insurance segments, such as life or health insurance. Regulations vary by markets and by country. Additional reporting requirements have come with every new acquisition or affiliate that Allianz has brought on board.
Ten years ago, Allianz had over 1,000 legal entities and about 600 operating entities. We had no common data standards and had to contend with the then newly introduced IFRS and US Generally Accepted Accounting Principles (GAAP) standards. We didn’t have an easy time with closing cycles and reporting activities. Manual intervention and the lack of automation presented significant challenges. So we set out to reinvent our financial accounting, controlling, and reporting processes to make life easier for all involved. We also wanted to:
- Ensure the highest data quality, company-wide, at every stage of information life cycle
- Provide relevant information to all senior decision makers
- Get closer to real-time information by increasing reporting frequency and shortening the elapsed time for accounting
There was no simple remedy or quick fix available to us. The improvements we sought would require an overhaul of our entire financial reporting supply chain, from the systems and data levels to the processes and reporting levels.
||Allianz was looking to improve its financials all the way from the systems level to the reporting level
Decoding Our Finance DNA
We launched the initiative by seeking input from the professionals who rely on and drive our finance activities. We looked to our peers who had started similar initiatives to share their experiences with us. Our stakeholders took us deep inside their reporting requirements, challenges, and objectives. We met with our local finance officers, controllers, auditors, senior and middle management, and rank-and-file finance employees. We also met with stakeholders outside finance — everyone from insurance mathematicians and investment managers to marketing and IT managers. We traveled around the globe, not only to gauge requirements, but to accurately assess how people were doing their transactional work. We wanted to see for ourselves just how many spreadsheets were being used, since our aim was to eliminate their use where appropriate and possible.
We also wanted to document our CFO’s value chain, which encompasses a lot more than just accounting. We’re in the business of dealing with the future and all the risks that go along with it. Evaluation of liabilities and risk profiling within the insurance arm of our business, for example, are performed every month, quarter, and year, and we factored these models into our reporting functions. Cost controlling is an ever-present priority; and we wanted to lay the foundation for later integrating risk reporting into our activities — an integration that would jumpstart our Basel II or Solvency II compliance activities.
Of course, a planned change of this magnitude is always accompanied by a healthy degree of skepticism. There we were, advocating for change akin to a revolution, asking entities to abandon entrenched processes that were working for and familiar to them and replace those processes with completely new ones that had unproven elements. It took almost three years of discovery and evangelism to get all the right people and decision-makers on board.
The benefits we promised for harmonized finance functions were what you’d expect — better data management and reporting capabilities, easier closing cycles, greater efficiencies, and so on. Each benefit was compelling, but the real attention-getter at this nascent stage was the prospect of an easier life for all of us. People took notice of the amount of reconciliation work we could shave off our daily worksheet for finance. The direct expense of maintaining multiple charts of accounts for each of our 600+ entities, flagging and reconciling inconsistencies, and then rolling up and consolidating results each month and quarter were substantial. Then there were the indirect costs to consider: Lag times in delivering critical information, obstacles to transparency, difficulty in comparing performance and allocations across operating entities, discrepancies among managers due to the use of different numbers, and so on. But again, the main focus was not on cost savings — we were convinced we would find enough of them on our way toward simplification and standardization.
After we understood the requirements, challenges, and objectives of all vested parties, we peeled back our financial infrastructure, layer by layer, to set standards for master data, hard validations, and software that would support everyone’s needs. We did so in a way that would expedite processes, lower costs, and foster visibility and decision support.
Our starting point was to reduce the number of reporting items sent to headquarters. Focusing first on the necessary data for consolidation, we reduced the number of chart items significantly.
→ At the reporting or output level, we sought to reduce the amount of time it takes to prepare the final data set for each closing cycle. We also wanted to institute one global reporting standard. IFRS was the clear choice. There were external regulatory pressures and internal reasons to do this: IFRS would provide us with one group-wide reporting language and a solid basis for our internal steering process — despite the deficiencies an external reporting standard brings with it (see below).
→ At the data input level, we had these goals:
- Data quality: If you eliminate redundancy in transactional and master data, it’s easy to achieve a faster close. This was our aim: to eliminate most, if not all, of the manual work required to get through closing and reporting cycles.
- Uniformity and consistency: With disparate data definitions, the process of rolling up and consolidating data from all of our accounting entities was labor intensive. We decided early on that all of our financial entities should share common definitions, data structures, and hierarchies, as well as a common chart of accounts. In addition to expediting closing and reporting cycles, this would enable us to readily compare allocations and spending across key areas.
Headquarters took a tough stance, making common goals for transparency, efficiency, quality, and comparability paramount. For Allianz, this was the right decision. The resulting environment has proven to be hugely beneficial to both the entities and headquarters.
We implemented data models that imposed the standards required by headquarters, yet we retained sufficient flexibility for the diverse operating entities to report the specifics of their individual business models.
→ At the process level, parallel, or even multi-GAAP accounting, was clearly needed to support local GAAP alongside IFRS. Prior to this initiative, each of our financial entities would close its books in its leading — usually — local GAAP format. Once completed, they would then have to perform recalculations and so-called “delta adjustments” for each additional format. Based on spreadsheets, this couldn’t be done in parallel. It all had to be done sequentially, which was time consuming, costly, and error prone. For instance, some of our European entities were financed by several subholdings, all located in different countries. Therefore, their affiliates sometimes had to comply with multiple different GAAPs every closing cycle. This was burdensome, so the key objective at the process level was greater automation and efficiency. For this objective, we needed the ability to perform our closing activities in parallel.
→ At the systems level, we wanted one applications and technology platform to support all entities. This was the key to our process efficiency and data quality goals. It would also afford us IT simplification and savings. Here, the clear choice after a comprehensive pilot phase was SAP software. In 2005, SAP invented a new multi-GAAP general ledger to simultaneously support parallel books of accounts — just in time for our global rollout. This was precisely what we needed to easily support both our local reporting requirements and IFRS. Moreover, SAP ERP Financials, a fully integrated system, would allow us better end-to-end process control for the CFO.
How Long Did This Take?
We launched the project in 2002. Three years of development, proof of concept, and people alignment followed. Our first pilots successfully ran in 2005. The graphic below depicts the timeline for our rollouts. Our most recent wave of implementations included a full-fledged shared service center in Bratislava, Slovakia, to provide financial accounting, regulatory management, and corporate reporting, together with SAP support services, for our companies across Eastern Europe (see the article in this issue "Achieving World-Class Accounting & Financial Reporting" for the full story). Further shared service centers are being launched for other parts of the world.
||The timeline for the Allianz Group’s global reporting implementation waves
Put It All Together, and What Have You Got?
The SAP platform’s greatest contribution is ubiquity. It supports each layer of our finance processes and the value chain as a whole. One common, integrated infrastructure has translated into lower costs, higher quality, greater efficiency, and end-to-end coordination and visibility.
We can now compare one subsidiary’s performance to the next. We can see allocations across key areas. We have a clear understanding of spending.
In contrast, multi-GAAP reconciliation had previously required lots of different workflows and manual data checks and validations to accurately coalesce data from non-uniform spreadsheets, ledgers, and systems; today, it’s almost entirely automated. Data quality is significantly higher, and we’re working much faster and with much less overhead (see below).
Simplification, Surprises, and Strategic Gains
A proliferation of spreadsheets, systems, rules, and controls makes for a complex environment. Each new regulatory reporting request or new entity that you bring on board comes with still further complexity. Complexity takes a toll on an organization. You spend a lot of time, for example, compiling, rationalizing, and interpreting data from disparate data sets. But when you simplify things — set common standards for systems, data, and processes — you can devote more resources to analytical or strategic planning endeavors.
Enacting the right standards takes both a bottom-up and top-down approach. You have to strike the right balance, accounting for what the different financial entities need and where they must be able to retain flexibility, but also providing headquarters with the visibility, coordination, and efficiencies it needs. Striving for simplicity was something we did across all legs of our program.
A New, Energized Workplace
We took a tough stand on simplification and standardization because its absence confounds operations and aggravates people. Complexity undermines employees’ best efforts. It impedes their daily output. Remove daily, unnecessary frustration — the kind that can be addressed with the proper application of SAP technology — and you create a happier and more productive workplace.
This kind of workplace was, perhaps, our best surprise of all. Take people who are good at what they do, eliminate daily hassles, and you will energize your workplace. We saw a renewed spirit take hold of finance professionals across our organization. We saw them band together in a community to share their know-how and best practices for processes, reporting, auditing, cash management, procurement, and payment. They were updating their skills. They were engaged and accelerating the organization’s forward-looking momentum. The benefits of such alignment and community building across a global organization are simply immeasurable.