Finance

Transformation
Strategic Approach
Agenda

1. Background of global survey

2. Key findings in the public sector
3. The imperative for finance transformation
4. Understanding finance transformation
5. The four faces of finance
6. Mastering finance in government
7. Taking your organization to the next level –
moving to mastery
Background of global finance transformation survey

More than 200 responses from across the world

XYZ Research
conducted a global
survey to understand the 31 68
maturity of the finance 54
function in governments
across the world. 13
2 3

The survey results were

supplemented with 2
secondary research and
case studies. 2 8
4
14

Source: XYZ Research Global Study on Finance Transfromation

 Key findings of the survey
• Significant gaps exist between current finance capabilities and
government needs.

• Most finance organizations do better in the tactical roles (Steward and

Operator) than at the strategic roles (Strategist and Catalyst)--the roles
that are the most critical to addressing many of government’s biggest
fiscal and operational challenges.

• The greatest need in government finance today is for a finance function

that can offer timely information and advice to government leaders on
key operational and strategic decisions.

• Twenty- four percent of respondents are “Finance Masters” who support

the business in making strategic decisions and act as a catalyst for
change, built on a foundation of excellence in finance stewardship and
operations.
Question # 1
When it comes to finance transformation, which of the
following is the most important priority for your organization?

•Improve decision-making ability

•Improve transparency and integrity of financial information
•Reduce transaction processing costs
•Reduce administration expenses
•Improve asset management
•Don’t know/not applicable
Many Challenges Are Increasingly Affecting
Government Budgets

“VA. Budget Shortfall May Mean Layoffs”

Kaine Considers Fee Increases, Too
“$50 million Dallas budget gap may require
- Washington Post September 18, 2007
service cuts”
-Pegasus News, May 22, 2008

“Predicting a Slowdown in Revenue, New

York Officials Prepare for a Tighter Budget”
- NY Times, September 18, 2007

“Illinois Senate budget officials

believe shortfall is closer to $395 million”
- Chicago Tribune, May 4 2008
“California faces a shortfall of
more than $17 billion”
- Reuters, May 21, 2008
“Wis. budget crunch means smaller raises
for state employees”
- Minneapolis Star Tribune, May 23, 2008
Question # 2
Which of the following barriers most impact overall
organizational performance, including financial
performance?

•Lack of up-to-date information for strategic decision making

•Lack of real time information for operations and execution
•Lack of process standards, clarity or discipline
•Lack of integrated risk management
•Don’t know/not applicable
Gap #1: Lack of up-to-date information for decision making

Lack Of Up-to-Date Information For Strategic Decision-Making

100

66 percent have
80
difficulty getting timely
% of Respondents

and accurate
60
financial information
38
40 31
26

20
6

0
Not a barrier at all Minor barrier Moderate barrier Signif icant barrier

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Gap #2: Inadequate information on costs

Program Owners Do Not Understand The Full Cost of Their Services Our Systems Find It Difficult To Support The
Including Asset Costs Preparation of Costing Reports

100 100

80 80
% of Respondents

% of Respondents
63
60 60
49

40 40
30
20 17 21
20 20

0
0
Disagree Neutral Agree Disagree Neutral Agree

The understanding of costs is missing and systems are not competent enough
to prepare cost reports
Source: XYZ Research Study, “Mastering Finance in Government,
Transforming the Government Enterprise Through Better Financial Management”
Gap #3: Relationship between investments and outcomes
is unclear

There Is A Thorough Understanding of The Relationship

Betw een Investm ents Made (program costs) and
Outcom es Achieved

100

80
% of Respondenst

60 54

40
30

20 16

0
Disagree Neutral Agree

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Gap #4: Lack of consistent risk management

Compliance/Risk Management

100
Only 29 percent have strong
80 compliance/risk management
% of Respondents

capabilities
60
39
40
21 24
20
8 7

0
Source: XYZ Research Study, “Mastering Finance in Government,
Non-exis tent Developing Basic Advanced Leading Transforming the Government Enterprise Through Better Financial
Management”
Understanding finance’s challenges
Stimulate behaviors Provide financial
across the organization Leading Edge leadership in
to achieve strategic and determining strategic
financial objectives business direction and
align financial strategies
Threshold
Performance

Finance
CFO
Function
Focus
Triangle

Protect and preserve Balance capabilities,

the assets of the costs and service levels
organization to fulfill the finance
organization’s
responsibilities
Finance functions today perform better in the tactical roles
than in the strategic roles
Finance as operator of the finance function
Non - Existent
Key Finance Operator Functions
Developing
Baseline
Capital asset planning 5 27 40 21 7 Advanced
Leading
Manage and control employee benefits 17 21 36 21 6

Manage finance talent (recruit, retain, develop,

6 28 39 22 4
deploy)

Manage and control pension liability 19 21 35 20 6

0 20 40 60 80 100
% of Respondents

• Building an effective finance organization is a precondition for building a world-class

finance organization, yet many agencies struggle to advance.

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Finance as strategist supporting the enterprise
Non - Exis tent
Key Finance Strategist Functions
Developing
Bas eline

Es tablis h perform ance m eas urem ents 7 31 34 22 7 Advanced

Leading

Determ ine s trategic priorities 6 25 40 24 4

Prioritize and gain approval for highes t value

5 23 44 23 4
initiatives

Perform ance target s etting 8 31 35 22 4

Develop project cos t-benefit analys es and

9 36 36 16 3
prioritize inves tm ents

0 20 40 60 80 100
% of Re s ponde nts

• Strategist capabilities at baseline level or below for most organizations.

• Significant opportunities for improvement across the board.

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Finance as catalyst for change and execution
Non - Exis tent
Key Finance Catalyst Functions
Developing
Bas eline
Negotiate and m anage external contracts
Advanced
and s ervice agreem ents for IT hardware, 8 22 36 29 4
s oftware, s ervices Leading

Support bus ines s analys is (e.g.,

m anagem ent reporting, program 4 26 42 25 4
evaluation)

Manage capital inves tm ent budgets for IT

9 23 45 19 4
infras tructure

Support com pens ation planning 16 27 37 16 4

As s es s recruitm ent and retention of talent

(including com pens ation, developm ent, 15 27 42 12 4
deploym ent, turnover, etc.)

Develop workforce com pens ation s trategy

(incentives , benefits , pens ions , healthcare, 16 28 39 14 2
etc.)

0 20 40 60 80 100
% of Re s ponde nts

• Leveraging finance across the enterprise as a catalyst is a challenge for nearly all
government agencies studied. Strategists/Catalysts, however, are breaking new
ground and use this area to drive performance.

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Mastering finance in government - finance
masters represent 24% of responders

Invalid responses comprise 4%.

Most respondents fit into what we classify as “Novices” or “Intermediates.”

Path to finance mastery - two stage process
Stage One: Improve core Stage Two: Provide more strategic insight
capabilities

• Compliance
•What government does
• Management reporting
•Set strategic priorities
• Forecasts and budgetary plans
•Improve resource allocation
• Financial policies, processes, and
•Evaluate policy alternatives
procedures
•Set performance measures and targets

•How government should do it

•Provide better value for money
•Protect value through improved risk
management
•Support talent management

Almost no agency in our analysis has been able to master strategist and
catalyst capabilities without a foundation in stewardship and operator
capabilities
Stage 2: Improving the what and how - acquire
strategic capabilities
% of Respondents With Advanced or Leading Capabilities
Intermediates
100
Finance Masters

80

60

40

20

0
Determine Prioritize and Develop project Finance spends
strategic gain approval f or cost-benef it more time
priorities highest value analyses and dealing w ith
initiatives prioritize longer-term
investments f inancial issues
than on the
short-term (this
year and next)
issues

‘Intermediates’ need to bridge these gaps to achieve ‘Finance mastery’

Source: XYZ Research Study, “Mastering Finance in Government,

Transforming the Government Enterprise Through Better Financial Management”
Finance masters play a key role evaluating
policy alternatives
100 Intermediates

% of Respondents With advanced or Leading Capabilities

Finance Masters

80

60

40

20

0
Policy alternatives are financially Finance has a clear and w ell-
valued to provide decision understood role in the
makers w ith the long-term cost development and evaluation of
implications of short-term strategy
decisions

While most ‘Finance Masters’ play a role in strategy development and

evaluation, ‘Intermediates’ lag
Source: XYZ Research Study, “Mastering Finance in Government,
Transforming the Government Enterprise Through Better Financial Management”
Providing greater value for money is another
key capability
% of Respondents With Advanced or Leading Capabilities

100.0 Intermediates
Finance Masters
80.0

60.0

40.0

20.0

0.0
Budget There is a Program Senior leaders The finance
performance is thorough ow ners can obtain function is best
examined in understanding understand the financial results placed to move
combination of the full cost of their quickly the organization
w ith other cost relationship services at large to a
efficiency betw een including asset greater focus
performance investments costs on value
measures made (program
costs) and
outcomes
achieved

Less than 20 percent ‘Intermediates’ understand the relationship between

investment and costs
Source: XYZ Research Study, “Mastering Finance in Government,
Transforming the Government Enterprise Through Better Financial Management”
Transforming the Finance
Function
Becoming a leading finance organization:
driving value across the government
Finance organizations
can use six Value Performance Risk
Drivers and four & Decisions & Capital

Leading Edge
Enablers to improve
their operations and Close, Regulation,
Consolidate Controls
better achieve their & Report & Governance

objectives Threshold
Performance

Transaction Finance Strategy &

Processing Strategy Execution

Systems & Talent &

Information People

Finance Policy &

Organization Process

Enablers
Organizations working to improve their performance
can conduct a self assessment
Steps to Identify Areas for Improvement:

1. Assess the organization’s capabilities for each of the Four Faces.

Use the specific Value Drivers that impact each face to target
opportunities for improvement
• Strategy & Execution
• Regulation, Controls & Governance
• Risk & Capital
• Performance & Decisions
• Transaction Processing
• Close, Consolidate & Report

2. For each of the Value Drivers, consider each Enabler

3. After assessing each Value Driver and Enabler, prioritize your issues
and determine a course of action to transform Finance
Transformation efforts can be driven by
organization and people
Organization and People
• Work to better define the finance operating model,
considering finance roles and responsibilities across key
stakeholders
• Consider opportunities to implement shared services or
centralized models
• Enhance the skills and training of people working in finance
• Begin addressing the recruiting and retention issue now

Examples
• Creation of shared services for particular finance functions,
such as invoice processing
• Establishment of a centrally managed performance
management effort
• Allocation of trained staff to analytical units focusing on
strategist and catalyst activities
• Create a dedicated audit organization that develops its
business plan through analysis of risk areas
Transformation efforts can be driven by
process and programs
Process/programs
• Find ways to reduce paper transactions
• Create processes that reduce the number of handoffs and
approvals
• Design processes that can use streamlining technologies

Examples
• Develop easy-to-use purchasing card guidelines to reduce
paperwork intensive transactions
• Review coordination of process activities across different
organizations and improve coordination
• Post-audit a sampling of transactions rather than pre-auditing
all transactions
Transformation efforts can be driven by
technology
Technology
• Find ways to use imaging, electronic processing and
workflow
• Implement integrated technologies
• Create integrated technical and business teams
• Use electronic forms and standardized technologies
• Develop integrated financial, procurement and HR systems

Examples
• Implement workflow technologies for invoice processing and
other processes
• Image documents one time and use the images for
processing
• Leverage vendor self service technology to push data entry
to vendor.
Global finance transformation research and benchmarking project

Finance Transformation Report

A study based on the FT survey

results supplemented by
secondary research and case
studies from XYZ offices across
the world
Benchmark Analysis

Each survey respondent

receives a customized
benchmarking report.