A finance transformation case study, plus a news roundup

This episode of the podcast focuses on a busy week in news and a story of finance transformation in action. Janis Parthun, CPA, and Steve McKechnie, leaders in RGP’s finance transformation practice, explain how a recent client engagement led to efficiencies for the client, a global food and beverage company, and lessons learned for RGP.

Also, here are links to Journal of Accountancy articles mentioned in the news roundup:

• U.S. sanctions that include a ban on providing accounting and management consulting services to Russia.
• A TIGTA report on e-filing and the IRS.
• Puerto Rico residents get guidance on claiming the child tax credit.
• TQAs provide guidance on auditor reporting.

What you’ll learn from this episode:

• An explanation by RGP’s Parthun about what a finance transformation can entail.
• Background about the client and why it was interested in transforming operations.
• The talent and retention aspect of finance transformation.
• How properly used tools can help but not replace accountants, allowing them more time for analysis.
• Why McKechnie says of automation: “It’s not a cost, it’s an investment.”
• A summary of recent Journal of Accountancy news on numerous topics.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Welcome to the Journal of Accountancy podcast. I’m Neil Amato. It’s been a busy week for news in the accounting world, and before we get to our main interview segment, we’re going to have a rundown of that news, which you’ll hear right after this brief sponsor message.

Amato: Welcome back. Here’s a quick summary of some but not all the news we’ve written about this week. Expanded sanctions announced by the United States include a ban on providing accounting and management consulting services to Russia. That’s in response to Russia’s invasion of Ukraine in February. This latest round of sanctions is effective June 7th.

Paul Bonner has JofA coverage of the IRS providing two simplified filing methods for residents of Puerto Rico to claim the child tax credit for tax year 2021.

He also has written about a TIGTA report that urges the IRS to adopt more e-filing of tax returns, particularly business returns. We also have coverage of technical Q&A updates from the AICPA that provide guidance related to auditor reporting. Coming up next is my conversation about a real-life finance transformation. It’s a discussion with two consulting leaders who share a case study on such a transformation and what they learned.

Hi, this is Neil Amato, welcome back to the podcast. I’m joined for this segment on finance transformation by Janis Parthun and Steve McKechnie. Both of them are leaders in the finance transformation practice at RGP, a global consulting company. Janis is based in California and Steve is based in Texas. We’re glad to have you both on the podcast, and Janis, I will start with you to introduce the topic.

I’ve heard about finance transformation; certainly our listeners have. How do you start such an endeavor?

Janis Parthun: It’s a great question, Neil. There tends to be a trigger point that leads an organization to start thinking about finance transformation. This could be from a regulatory development and changes in the standards or a company’s transformation as it grows and matures.

It can also be a shift of the CFO’s role to be positioned more as value creators and having to provide operational insights to business units or partners. From a regulatory perspective and as standards evolved, the financial auditors are required to emphasize on the completeness and accuracy of the evidence.

But then at times, some multistep tasks that involves the combination of systems and spreadsheets. It really becomes harder to validate, and this is also where we see emerging trends in the technology relevant to the finance function applied and to improve the operational efficiency as well as the auditability.

As I mentioned earlier, the trigger to transform may also occur as a company grows and matures. It goes through a transformation process from establishing the foundation, such as a startup, to creating value through risk management, optimization, and deeper insights.

I’ll say for finance operations, the transformation really starts from structuring the budget and the financial close processes to building out capabilities to analyze and forecast operational business units.

Now, the CFOs and the finance function are really playing a critical role to drive change and to be value creators. One aspect of the value creation is to be able to plan and forecast quickly, and particularly with operational activities.

A good example is supply chain. The effects of the pandemic over the past few years really have created huge ebbs and flows in the demand for certain goods and services. The secondary supply chain effects of the pandemic, having in turn created challenges that demand for a supply-based re-forecasting.

With this shift, it also requires investing in technology. Now, according to 2021 Gartner’s survey on the CFO perspective, there’s an increasing shift from value protection to value creation and prioritization of the digital initiatives and investments. Naturally, this is a trigger to digitalize the finance function.

Amato: What are some of the things that you need to be thinking about in terms of talent and people for such a finance transformation?

Parthun: Yeah, I would say from a people and talent perspective, it’s so important to be able to attract and retain people with a digital skillset. In our current workforce, Millennials, Gen-Z employees, they tend to gravitate towards firms embracing technology for two reasons.

One, they’re comfortable with or they’re accustomed to the technology since they’ve grown up with the technology. Two, research shows that they’re motivated by having interesting work, that they can be able to see their contributions, and using the technology to provide the insight in driving organizational improvements are really motivating to them.

Now, when you’re embarking on finance transformation from a people perspective, you’ll also likely engage other stakeholder participation outside of accounting, and this could be [chief technology officers] and [chief information security officers], so that’s also important to take into consideration.

Then, you’ll also want to consider operating in a distributed workforce because of the scale of the use of systems and tools across the regions and countries there’s really a lot to consider in this.

Amato: Now you have a recent example of a client going through this transformation, tell me some first about the scope of that engagement?

Parthun: That’s right. RGP was engaged with a particular client last year. I’d like to share just some background about the client itself and their situation. This client is in the food and beverage industry with over $20 billion in global net sales.

Their consumer products rolled up over five active reporting units. Then from the operating results perspective, they’re consolidated into reportable segments by geography. A lot of significant global presence. One key thing is that they also underwent a merger between two entities over five years ago.

Now, specifically for the finance function, they’re organized and lead regionally. You have Northern America, Latin America, Europe, and Asia-Pac. Specifically in the financial close, the technology and people perspective that are supporting the function did remain mostly the same after the merger, and they had limited staffing resources and technology capabilities.

Based on the scenario, the finance function had limited capacity to evolve just throughout the five years and having to focus on post-merger activities.

Amato: You mentioned that limited capacity. Leading into that, I guess, what pain points was this engagement trying to address?

Parthun: Yes, as I mentioned earlier, the finance function had limited capacity to evolve throughout the five years and having to focus on the post-merger activities, but with that really came with pain points to the function, and I’d like to talk about this more from a people, process, and technology perspective.

From a people perspective, the task leaders had approached the process or solution changes based on reactive drivers, and then depended significantly on Excel spreadsheets to complete the task. From a process perspective, each region, really function, invested in the technology and the resources independently.

The other challenge is that from a process perspective there’s a lack of consistent and continuous training for the different user audiences. Now, from a technology perspective, the existing technology solution remains stagnant, and it included outdated functions and features.

The lack of awareness on the extent of the software capabilities had also led to the technology limitation. I also want to mention earlier from the Gartner survey that one of the CFO’s goals is to digitalize the finance function. It is also one of the more challenging efforts, having to consider the people and the process aspect and not just the technology.

Amato: Steve, we’ll bring you in now. Would you say you achieved the initial goals set out to address the pain points?

McKechnie: Yes, we did, and it was great. One of the key things you want to start with is not just try to solve for the now. You want to solve for down the road, you want a scalable solution. We were able to achieve that, especially having a strong client sponsor, committed, visionary, could see that long term, where did we want to go? Then working with our sponsor, really, there’s so many places that we could start.

Collaboratively, determine where we want to start. We decided to go with the optimizing the reconciliations. Could have started in multiple places, but this one working together figured that it’s the place where we could get the most results with minimal effort or at least effort that would [be a] rising tide to lift all the boats.

Working collaboratively and then engaging the users, engaging management, engaging the team, and really working together on sharing the knowledge, sharing the vision, incorporating the team throughout the process, be it training, be it testing, but really dedicating time so that they understood the vision of where we wanted to go and what we wanted to do.

Amato: Also for Steve, I guess, what were some of the additional outcomes that came from the efforts?

McKechnie: Great, it was fantastic. We started with their EMEA region: Europe, Middle East, Africa. Really we were able to get a lot of value. The amount of administrative time reduced and they spent more time doing the quality, the value-add aspects of their jobs.

Increase the visibility of what was going on. Management was happy, the internal/external auditors were also happy as well. As part of that, improving the efficiencies, improving the quality, we’re actually able to help the client save time, save money, or at least get more out of what they were doing.

Then we also had some incidental wins or cost savings. As we were implementing this application, it provides real-time visibility into their close. We actually were told, wait a minute, explain more.

The client at that time had just about started a Tableau-based project to do some of the very same reporting that was already embedded within this application. But the application would give data real-time.

Their Tableau-based tool data could be anywhere [between ] a day [and] up to 30 days late and so they were very pleased that they didn’t have to spend money on another tool. They already had something that was included within this application.

Part of that, the results from there, the global controller was like, hey, that’s really great. Can you do that for Latin America? Yes, we can. We did this with Latin America. We then move forward and we also did it for APAC and now we’re implementing, now back to Europe, we just went around the globe back to Europe again, wanting to implement automation around their journal entry process.

We’re engaged with them doing it for EMEA and then LATAM and North America put their hand up and said, we want to be a part of that as well, and so now we’re a bit further along with the EMEA right now, but North America and LATAM are catching up quickly.

It’s just great how, where do you want to start? Because there’s always more ways to optimize, more ways to automate. It’s been a great journey and we enjoy where we are in the journey, and we look forward to what is to come next.

Amato: You’ve mentioned thoughts on tools and cost savings. Obviously we had a little geography lesson in the middle there. But what would you say are some of the human elements or maybe also the human obstacles in this project.

McKechnie: A lot more positives. When folks were able to not have to spend so much time extracting data, formatting data, downloading data, trying to get it into the spreadsheet, whichever way it’s needed, and then having very little time to be able to do the analytical work.

Now it gets flip-flopped to where a lot of that data extraction or formatting is done automatically even with this application. Some of the reconciliation work itself can be done. Now the accountants are dealing with the exceptions.

They get to spend more time doing the analysis. What they went to college for, what they got their CPA for, all these other things. But not so much a challenge but thing to always be mindful of: communicate, drive collaboration, share the visibility.

Everybody is a part of this and as I said earlier with that rising tide lifting all boats, the tide’s rising for all of us. We’re all in this together, and so that communication and collaboration is key throughout the entire change process.

Amato: To think about this in summary, for both of you, what lessons did you learn?

Parthun: Thanks, Neil. I’ll go ahead and start first. Steve illustrated how we were able to successfully help transform our clients’ finance function. It also requires a partnership between us and the client. I really think that’s important.

There are a number of other key elements to consider from a lessons learned perspective. I think one is having a project sponsor. This is such a vital role to have someone champion the project within the organization, provide the vision, and then also just be able to know and align with the company’s objectives and provide the project governance.

Two, I think it’s also important to understand and prioritize the needs. With the multiple pain points that I had just mentioned earlier, it’s important to listen and work in collaboration to prioritize and determine the starting point to focus on.

Three, the training and the knowledge sharing. It’s really important to have the dedicated time and the team resources to training and knowledge sharing in order to have the successful acceptance of the process and the technology changes from the team.

As I mentioned earlier from a Gartner source, one of the key goals for CFOs is to digitalize the finance function. But this is not just the technology; this includes upgrading the digital competencies of the finance team to be able to enable and successfully implement the project.

Four, having to understand the solution capabilities and have a proactive understanding of the solution capabilities and features available in order to maximize the spend and then process improvement opportunities to be able to achieve the set goals.

Five, I also want to mention that and just having to understand the long-term and the short-term road map when investing in the technology capabilities to be able to define short-term goals versus long-term and with the resources available, because likely you might not necessarily be able to accomplish all at once.

Then just be able to set the pace to successfully accomplish it and to be able to break that up into portions. Then six is the investment. Steve, would you like to talk about that a little bit more?

McKechnie: I do. Thank you. In the past 20–30 years, we just haven’t made that much of a substantial investment in the back office. I think the last one may have been moving from 10 keys and ledger sheets into spreadsheets.

Well, it’s time for another investment. As many companies are at that point, that inflection point where additional resources, additional spreadsheets is just not a sustainable answer. In fact, some companies are probably past that point.

The move toward automation and optimization, looking at tools that can be used to help not replace people. Utilizing tools to automate the administrative work and allow folks, allow accountants, to be able to spend more time doing the analysis work that they love to do that are wired to do.

Look at this as an investment, it’s not a cost, it’s an investment.

Amato: I think that’s a great spot to end on. Steve, Janis, thank you very much.

Again, that was CPA Janis Parthun and her RGP colleague, Steve McKechnie. We appreciate them being on the podcast. In the JofA episode page, we will, as always, have a transcript of the interview and we will link to the news articles mentioned at the top of the show. Thank you for listening to the Journal of Accountancy podcast.