Florian ZastrowNovember 2016

Financial controlling‘s top 3 trends

Whitepaper

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Executive Summary

Introduction

The New Role of the Financial Controller

Trend 1: The Financial Controller as a Business Partner

Trend 2: Financial Controlling as a Shared Service

Trend 3: The One-Finance Solution

Summary

Bibliography

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Content

FinanCial Controlling‘s top 3 trends 03

executive summary

Financial controlling is evolving from a ser-vice provider for the management into an im-portant member of the management team itself. In the near future, financial controlling will become a business partner, cooperating closely with the operating departments and thus bearing responsibility for corporate suc-cess.

Furthermore, local processes will be centra- lised and pooled in a financial controlling shared service centre. This will save time and money as annoying redundancies in the pro-cesses used to execute routine tasks cease to exist.

However, this change process is not limi-ted to financial controlling. It will also affect companies’ software and EDP system land- scapes. It is common for these to use dozens of different software solutions – an approach that is both confusing and often leads to er-rors due to the high number of media dis-ruptions. The objective of all standardisation efforts is to reduce the number of applica-tions – ideally to just one.

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introduction

When change is on the horizon, it often takes a lot of energy to convince others of the ad-vantages of the new developments and, on top of that, to encourage them to join in. The adjustment of corporate processes poses a particular challenge, as this often leads to resistance in the first instance. But a consi- dered approach can turn affected persons into proactively involved parties, increasing the likelihood that the project will be a suc-cess. This whitepaper will examine the forth-coming changes in the field of financial con-trolling and highlight three important trends.

This article will initially analyse the new role of financial controlling compared to its tra-ditional role. Financial controlling is evolving from a service provider for the management into an important member of the manage-ment team itself. As a “business partner”, financial controlling will be responsible for the development of the company and cor-porate success. Furthermore, processes that are currently executed at the local level will be centralised by financial controlling. “Shared service centres” will eliminate the deficiencies of redundant workflows.

The final section of this whitepaper will ana-lyse how companies’ software and EDP sys-tem landscapes are going to develop in the future. Today, companies often use dozens of different applications. The ideal concept for most companies is what is known as the “one-finance solution”. This is a single appli-cation (or at least a small number of applica-tions) that can be easily used on a compa-ny-wide basis.

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Traditionally, corporate financial controlling provides its services in a similar way to a ser-vice desk. This means that it is a service pro-vider for other executives. In its daily affairs, financial controlling always has one eye on corporate success. Its function is to provide all the managerial tools and systems re- quired to lead the company to success, and also to ensure transparency to the maximum applicable extent.

the Financial Controller‘s tasks

The principal duty of corporate financial con-trolling is to supply data and information to the management at the right time and in the

correct way. This duty is particularly impor- tant if negative developments are observed and suitable countermeasures need to be implemented in time to curtail their effects. As such, corporate financial controlling safe-guards the management’s drive for results, and thus that of the whole company.

Corporate financial controlling will still handle its traditional tasks, but will also assume a new position within the company. Firstly, controllers will evolve to become business partners to the management. Secondly, the services of corporate financial controlling will be pooled and offered centrally from a shared service centre.

the new role of the Financial Controller

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trend 1: the Financial Controller as a Business partner

Corporate financial controlling accompa-nies the whole managerial process, from the situation analysis and the formulation of cor-porate objectives to the implementation and the examination of results. From the assess-ment of the current situation to the clear definition of the target state and the act of determining whether and to what extent the objectives have been achieved, corporate fi-nancial controlling is involved every step of the way. It also ensures the necessary trans-parency of costs and results during every single step of the process.

Challenging preconceptions (the right way!)

The tasks of corporate financial controlling as described above sound multifaceted and extremely interesting. In the past, however, it has often been noted that corporate finan-cial controlling increasingly – or even exclu-sively – steps in when negative deviations and developments are monitored within the company. It is human nature – a characte-ristic to which even executives are not im-

mune – to confuse the bearer of bad news with the news itself. This culminates in phra-ses like “Financial controller Smith is coming, something must be wrong again.”

Corporate financial controlling’s goal must be to highlight its role as a consultative de-partment. Or even to go one step further: to evolve into a business partner and thus become a proactive member of the manage-ment team itself. As a business partner, cor-porate financial controlling will henceforth bear part of the responsibility for corporate success.

greater responsibility and greater expectations

In its new role as a business partner, close cooperation with the operating departments will be of extreme importance to corporate financial controlling. In future, the functional areas will be jointly responsible for the de-sign and the focus of the company, together with corporate financial controlling as their business partner.

It’s time for a change of perspective!

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Corporate controllers have to live up to cer-tain expectations from the management in their role as internal business consultants. Extra knowledge of the ins and outs of the company is expected in addition to the ex-pertise offered by an external consultant. Objectivity, independence and confidentia-lity are also expected as fundamental prin- ciples of consulting work.

engendering trust

It is especially important that corporate fi-nancial controlling radiate a high degree of trustworthiness in order for it to cope with the new challenges of being a business part-ner, and it must thus enjoy the trust of the operating departments. Without this trust, corporate financial controlling will not be able to advise and support the corporate de-partments on key issues.

laying the Foundations

However, some groundwork is required before corporate financial controlling can face its new role as a business partner. The necessary time resources must exist or be created, and routine processes in planning and reporting will need to be standardised. Only once these requirements are fulfilled can corporate financial controlling begin to establish a productive partnership and consulting relationship for operational and strategic issues.

As partners of manage-ment controllers make a significant contribu-tion to the sustainable success of the organi- zation.(International Group ofControlling, 2013)

Controlling perception

In order to turn around the negative percep-tion described above, corporate financial controlling has to ensure that it is always perceived as a business partner instead of only being connected to negative develop-ments. Monthly or quarterly jour fixe dates present a good opportunity for conversa-tions between the management and its business partner. These dates must be honoured irrespective of the prevailing situ-ation at the time. This means that the mee-tings take place even if there are only posi- tive developments to report. This is good way for corporate financial controlling to disarm recurring discussions about deviations from projections, and also plays a key role in en-suring the acceptance of the business part-ner’s role in the company. Needless to say, this does not mean that corporate financial controlling should simply wait six weeks until the next jour fixe date before addressing the problem in case of a significant aberration.

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Especially in small and medium-sized enti-ties (SME), financial controlling is often not institutionalised. This means that there are in fact several controlling processes, but no institution or department known as Financial Controlling. Controlling processes are com-monly executed by individuals as an additi-onal task to their actual roles, e.g. by the Di-rector of Finance and Accounting.

lightening the Management Workload

An increase in the demands placed on con-trolling processes often leads to institutiona-lisation. Expert knowledge and experience is then bundled, and the management is re-lieved of the burden of this work. The cont-rolling institution also acts as a neutral liaison within the company. In this context, the term “neutral” means that financial controlling is merely committed to ensuring (positive) cor-porate development, and is not influenced by the (potentially negative) interests of an individual or department.

The advantages of a corporate financial con-trolling institution are sometimes accom-panied by a few drawbacks, e.g. additional costs or the phenomenon of self-related perfectionism. This turns controlling into an end unto itself, which means it is practised purely for its own sake.

Where corporate financial controlling is al-ready an institution, there are numerous examples of its hierarchical classification. A centralised controlling institution can be an administrative department to the manage-ment, or the controller themselves may be part of the management, e.g. as Chief Finan-cial Officer (CFO). It is also possible to po- sition financial controlling in a second layer of the corporate hierarchy or below. Local controlling departments are sometimes also used in addition to a centralised controlling institution. In such cases, a financial con- troller acts as an on-site economical expert for the administrative departments. A hierar- chical distinction between the strategic and operational focuses of controlling is also pos-sible. Controlling departments with a strate-

trend 2: Financial Controlling as a shared service

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gic definition can often be found on a higher level of the corporate hierarchy, whereas de-partments with a more operational focus are located on a lower level.

developments in recent Years

There has been evidence of a transformation among companies in recent years, with more and more companies turning from a functio-nal and central focus to decentralised struc-tures with higher marketability. Increased ef-fectiveness and efficiency are the advantages of this transformation. The self-governed and decentralised organisational areas are more flexible, and the central management can re-duce its workload by delegating decisions to the on-site managers. However, decentralisa-tion often also results in additional demand for coordination at the headquarters in order to avoid disparity between the objectives of the various self-governed departments.

This often results in the implementation of a dual controlling organisational structure, which attempts to ensure that both the

company as a whole and the decentralised departments remain target-oriented. The tasks of planning, operating and supervising are executed at headquarters (for the whole company) and at the decentralised branches (for the various departments). This approach is adopted in an effort to consider both the objectives of the company as a whole and those of its decentralised branches. But diffi-culties arise within terms of coordination and harmonisation between the headquarters and the financial controlling branches, often resulting in redundancies. These redundan-cies unnecessarily tie up personnel and fi-nancial resources.

streamlined Use of resources

This is the reason behind the current delibe-rations over whether to bundle financial con-trolling processes that have hitherto been executed locally and independently, e. g. standard reporting, management reporting and master data maintenance. The act of bundling processes can also be referred to as offering a shared service; the correspon-

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ding institution is known as a shared service centre (SSC). The SSC is a service provider for its “customers” within the company. Inci-dentally, the idea of shared services is much further developed in other divisions, such as finance and IT, than in financial controlling.

Setting up an SSC for corporate financial controlling can reduce existing redundan-cies, as well as interfaces and the majority of the media disruption caused by different applications being used by the individual branches. The bundling of specialist exper- tise in a financial controlling SSC leads to cost reductions. The SSC is able to manage a high process volume, resulting in what are known as “economies of scale”. The concrete pro-cesses for the execution of the controlling SSC’s tasks are defined in service level agree-ments (SLAs), which define aspects such as the quality requirements and transfer prices for the services offered, as well as the dura- tion of the contract.

Some examples of processes provided by a financial controlling SSC have been men- tioned above; they are also summarised be-low for clarity:

• Cost, activity and result accounting• Management reporting• Strategic and operational planning• Forecasting

The advantages of the SSC concept are ob-vious: marketability and competitiveness are preserved by decentralised processes and an entrepreneurial spirit is encouraged. Some of the disadvantages of centralised functional areas, such as friction losses due to media disruption and losses of synergies, can be avoided, or their impact at least re-duced.

But first of all, certain criteria need to be taken into consideration, such as legal and geographical issues. What legal form will the

example of UnnecessaryUse of resources

For periodic management reporting,the same tasks of analysing, preparing

and passing on data and information are executed at all local branches.

At headquarters, the aggregated report is also prepared by analysing and handling data and information or, more precisely, the data provided

by the individual branches.

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SSC take? Is it going to be managed as a cost centre or as a profit centre? Where will the SSC be located? In practice, most entities decide on one controlling SSC per continent rather than one single, global SSCor one location per country the entity operates in.

Clearly defined processes and responsibili-ties are essential prerequisites for the suc-

cess of a financial controlling SSC, as are cle-arly specified goals. The expert knowledge and extensive experience of the employees with regard to the entity’s local and central circumstances are, of course, also crucial to the success of the SSC. Furthermore, the IT systems need to be unified in order to en-able an efficient exchange of data between the operating divisions, the SSC and the cen-

tral management. Finally, standardised and unified IT systems enable more flexible data analyses, e.g. using an integrated planning, budgeting and reporting solution.

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Standardised processes and unified soft-ware solutions have a positive impact on corporate development. Taking thoughts of standardisation or consolidation of IT sys-tems one step further, a one-finance soluti-on represents the ideal for most companies. This means a single application for all corpo-rate divisions.

Before continuing, it is important to answer two questions: How does a company’s soft-ware landscape become so diverse? And how is it possible for some companies to use more than one hundred different applica-tions?

standardised Versus Customised software

Software developers distinguish between two variants of application: standard soft-ware, which is identical for all users and may have a slight degree of customisation; and completely customised solutions developed

to fulfil the particular customer’s require-ments

the Best of Both Worlds

In most cases, neither of the variants des- cribed above can be used expediently. This is why many companies pursue a “best-of-breed” approach, whereby the best solu- tion is chosen separately for each individual branch or section of the company. Different solutions are connected with the aid of a “system integrator”.

But the best-of-breed approach comes with disadvantages as well, such as high main-tenance costs for different solutions, the need for specific knowledge in order to pro-vide user support, and the problem of me-dia disruption whenever a data exchange is required. Furthermore, the best-of-breed approach is one of the main reasons why such a great variety of software solutions is used within a single company. The other

trend 3: the one-Finance solution

main causes of this are mergers and acqui-sitions in which the integration of the indivi-dual software solutions used by the acquired companies has not yet been completed.

streamlining processes

By consolidating their software applications, companies hope to downsize their system landscape, which means standardisation and a reduction in the number of applica-tions. To this end, entire applications or parts of applications are replaced and the technology base is unified. The consolidation of applications offers the immediate advan-tage of improved data quality, especially for master data relating to products, customers, supplies, etc. This provides the basis for consistent master data management. A wel-come side effect of all consolidation efforts is the higher degree of automation that can be realised in a less complex and disentangled application landscape.

Choose a non-industry-specific software so- lution that offers both professional finan- cial controlling and integrated financial planning. LucaNet‘s financial controlling soft-ware builds on pre-defined structures in all areas (profit and loss statement, balance sheet, cash flow statement), which can be adjusted to the individual needs of your enterprise with just a few clicks. Your actual figures can easily be transferred using exis-ting financial accounting interfaces to allow a comprehensive and detailed analysis during the controlling process. This is even pos- sible down to document level. Once the ac-tual figures are displayed, you can start any planning processes you need. You can also use an existing plan as a basis for easily dis-

playing any scenarios and (rolling) forecasts with LucaNet.Planner. For example, you can use a scenario to simply and transparently simulate the effects of increases in turnover and costs or changes in customer payment modalities. Thanks to complete integration

of the individual areas, the consequences of such changes are visible across all structu-res. This means not only the effects on re-sults, but also all the impacts on the balance sheet and liquidity can be tracked directly. Traditional evaluation methods like the com-parison of planning and actual figures, devia-tion analyses, traffic light functions and many other controlling functionalities provide you with an opportunity to get deeper into the detailed analyses at any time. Get to know our software! Our demo video provides you with an overview of the many features avai-lable. Go to www.lucanet.com/presentation to make an appointment for a non-binding online or on-site product presentation.

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our tip:

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harmonising processes

Aside from the applications, consolidation efforts also focus on process optimisation. Like the standardisation of the technology base (i.e. the hardware and the server archi-tecture), “business process reengineering” should ideally be carried out before the uni-fication of applications. However, most com-panies have already completed the unifica- tion of their IT infrastructures.

Corporate processes are being standar- dised and harmonised in order to finally make them consistent. Business process reen-gineering also leads to reduced costs and enhanced efficiency. Standardised systems and concepts among affiliates enable cen-tral decision-making in areas such as custo-mer portfolio, products, projects and pricing. Multinational companies and groups are faced with the particularly difficult challenge of consolidation across national borders and

legal entities.However, adopting current processes to suit an altered – or even entirely new – system is one of the major challenges in the project of consolidation. It is often difficult to map practised processes to an ERP system, par-ticularly in cases where the processes are not uniquely defined. With that in mind, the

consolidation project almost demands for the company’s processes to be analysed and unified beforehand, with the applications tackled thereafter. As such, it is useful to know the exact limitations of the new system in advance. The limitations of the system can then simultaneously be used as the limi- tations for the processes that are going to be adopted and revised.

standardisationof the system

landscape

standardisationof the

it infrastructure

Unification offunctions and

processes

Figure 1: Process for standardising a company’s processes and system landscape

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important Factors for success

Besides the adoption of practised processes to a whole new ERP system, another major challenge is the migration of data, as the author can confirm from his own experien-ce in numerous projects. All in all, up to six years must be scheduled for the consolidati-on project. Because of its length, the project will be highly re-source-intensive as well as cost-intensive. Furthermore, financial con-trolling must ensure that it has the backing of the management in order to be able to handle the project successfully. Of course,

the consolidation project has to be planned carefully, and time buffers are required for dealing with any uncertainties.

Last but not least, involving the departments from the beginning is crucial to the project’s success. The consolidation will not only af-fect financial controlling and the manage-ment themselves; it will also primarily impact on the company’s departments and divi- sions. Involving the parties concerned right from the beginning allows opportunity for the resistance typical to such projects to be dissipated at an early stage.

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Financial controlling is evolving from a ser-vice provider for the management into an im-portant part of the management team itself. As a business partner, financial controlling works closely with the company’s operatio- nal departments, and thus bears some of the responsibility for corporate success.

Furthermore, processes that were previous-ly local will be centralised and pooled in a financial controlling shared service centre. Time and money will be saved because of the reduction in annoying redundancies in-volved in the execution of tasks.

The process of change is not limited to finan-cial controlling; it also affects the corporate software and system landscapes. It is com-mon for dozens of software solutions and applications to be in use within a compa-ny. This is confusing, and also leads to mis- takes due to the large number of media dis-ruptions. The aim of all standardisation ef-forts is to reduce software solutions, ideally to just one application.

summary

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Detecon International GmbH (2012): ERP-Konsolidierung: – Aus vielem eines: Prozesse, Anwendungen und Infrastruktur, https://www.detecon.com, last accessed: 06/09/2016.

Horváth AG (2015): One Finance, https://www.horvath-partners.com/de/media-center/studien/detail/one-finance/, last accessed: 06/09/2016.

Horváth, Péter (Hrsg.)/Michel, Uwe (Hrsg.) (2015): Controlling im digitalen Zeitalter: Herausforderungen und Best-Practice-Lösungen, Stuttgart: Schäffer-Poeschel Verlag.

International Group of Controlling (2013): Das Controller-Leitbild der IGC, https://www.icv-controlling.com/en/association/control-lers-mission-statement.html, last accessed: 04/10/2016

Krings, Ulrich (Hrsg.) (2015): Erfolgsfaktor Controlling: Der Controller als Inhouse-Consultant, 2nd edition, Wiesbaden: Springer Gabler Verlag.

Meyer, Jürgen E. L. (2013): Der Controller im Wandel – Neues Controller-Leitbild der International Group of Controlling IGC, in: BC, vol. 37 (2013), p. 351-354.

Bibliography

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Your contact

Florian Zastrow Senior Inhouse Consultant

Phone: +49 30 46 9910-0Fax: +49 30 469910-29E-Mail: f.zastrow@lucanet.com

With a diploma in Business Administration (UAS) and a Master of Arts degree focussing on fi-nance, accounting, corporate law and taxation, Florian Zastrow is a highly qualified expert in the fields of annual and consolidated financial statements, controlling, reporting and taxes. His areas of responsibility at LucaNet AG include webinars, workshops and the pro-active expan- sion of our knowledge management. He is also a lecturer at the LucaNet.Academy.

Contact us!

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how lucanet ag can support you

For more than 15 years, Berlin-based company LucaNet AG has been developing innovative user software for business intelligence in the field of accounting. Our products are known for their innovative technology, intuitive operating interfaces and high level of performance. We provide our customers with reliable support in the creation of both consolidated and indivi-dual financial statements, reporting, planning, analysis and controlling. We do this not only through our software, which we can set up at our customers‘ sites quickly and easily, but also by providing expert advice in all finance and accounting matters. We also offer free webinars and specialist events, as well as training sessions for the LucaNet software.

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