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Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation
HOW TO UNITE AND CENTRALIZE PROCESSES ACROSS A DIVERSE CONTINENT
Local and global companies operating in Europe face major challenges in centralizing their F&A processes to drive effectiveness up and costs down. Across Europe, the continents unique legacy of cultural, regulatory and linguistic diversity and fragmentation has resulted in widespread use of multi-location solutions, limiting the efficiency gains from the creation of shared service centers. However, by partnering with the right global provider, growing numbers of companies are succeeding in unifying their European processes in ways that better support their operationswhile simultaneously boosting agility and reducing costs.
In the US, large companies have forged ahead with creating and running shared service centers that centralize and rationalize their F&A processes nation-wide. By contrast, in continental Europea comparably sized marketplacecorporations have found it much harder to consolidate and unify their pan-European processes. As a result, European shared service centers (SSCs) often manage activities on a national or regional basis rather than Europe-wide. Why is Europe so different? Europes relative lack of centralization in business processes has its roots in the continents long-embedded cultural, political, economic and regulatory diversity. There are sharp differences in working patterns between different countries (see Table 1). Basic business processes also differ across the continent, notably between the north and south of Europe. At the same time, enlargement of the EU has led to a renewed focus on strengthening market positions in new EU member countries, resulting in the introduction of new processes and procedures in Central & Eastern Europe. And ongoing expansion of the eurozone has driven accounting changes in the countries joining the currency, creating complications for employers and businesses, especially if they are operating cross-border.
Country EU Labour Force Survey average hours for all workers (inc part-time) 38.0 37.1 41.7 36.9 36.3 37.7 32.5 40.1 38.0 36.4 36.5 37.7 Average hours for full-time workers** 44.1 42.7 42.9 41.0 42.9 40.8 46.0 42.2 40.8 42.7 42.1 42.1 Legal maximum 50.0 40.71* 48.0 39.68 48.0 45.2 48.0 43.12 41.68 48.0 48.0 48.0
Austria Belgium Czech Republic France Germany Italy Netherlands Poland Spain Sweden United Kingdom EU27
Table 1: Weekly working hours for men and women in selected countries and across the EU27 Source: http://www.fedee.com/workinghours.shtml *38 hours per week and 130 hours per year overtime **Calculated from LFS figures. Effective annual maximum (inc overtime) May be exceeded with individual consent
1 Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation
to audit the finance processes, rather than going to each individual countrygenerating significant savings. Within a year of the projects inception, 90% of the AP transitions across Europe had been completed, and optical character recognition (OCR) technology had boosted productivity by 30%. E-invoicing was then launched in AP, cutting costs by a further 12% and reducing processing cycle times. The pan-European AP team was reorganized from processbased to activity-based, and the scope of the standardization project extended to GL. The company was also able to rationalize its European finance leadership down from 14 national CFOs to three regional ones. At the same time, SOX attestation was successfully achieved.
Global supplier of hygiene and cleaning solutions Business challenges: 14 finance entities across Europe, staffed by 74 FTEs Non-standard processes between countries Needed certification under Sarbanes-Oxley Solution: Outsourced and standardized AP and then GL across Europe Transformed document flow to digital Single pan-European workflow run by central mailroom Business outcomes: 90% of AP transitions completed within one year Productivity boosted by 30% by OCR technology E-invoicing generated further savings SOX attestation achieved successfully
To overcome all these challenges, the company asked Genpact to take over the management of its finance operations across Europe on an outsourced basis, while simultaneously standardizing them and preparing them for SOX certification. Accounts Payable (AP) was the first activity in scope, followed by General Ledger (GL). The structured approach taken by Genpact involved identifying levers to improve process efficiency and effectiveness to implement a sustainable solution for this client. At its core the initiatives included centralizing and standardizing each process; establishing and measuring each process against Key Performance Indicators (KPIs); developing change management structures; and transforming the document flow from paper to digital. To drive the centralization and standardization of AP, Genpact implemented a mailroom for all the clients European locations, acting as a control point managing a single workflow of scanned electronic documents throughout the business. Simultaneously, Genpact examined each site from a control risk perspective to update the control risk framework to support SOX certification. The required controls were applied centrally to consistent standards. One outcome is that the companys auditor only needs to visit Genpacts facility in Bucharest
2 Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation
Policy harmonization: Streamlining of business policies supports standardized processes and improved productivity. Policy standardization can be optimized by sharing best practices from within and outside the business.
FINANCE AND ACCOUNTING
People & Culture Invest in training on Client organization & culture Ensure that the dedicated Client team has a sense of belonging Joint hiring of key people Client participating into performance evalution and career decisions Consider employees rotations Flexibility Adjust our processes/tools to Client requirements Flexibility in dealing with changes: volumes, acquisitions, process changes... Change performance metrics to align with business needs
days to eight hours. Source-to-Pay was the first area to be successfully standardized and outsourced, and this is now being followed by Recordto-Report and Order-to-Cash.
Global pharmaceuticals company Business challenges: Finance teams spread across 11 European countries using 10 languages Lack of integration and standardization between country operations High costs and low effectiveness Solution: Four process-focused waves of standardization and outsourcing Began with the companys biggest division in top 10 European countries and US Standardization targeted four key aspects: processes, systems, finance strategy, and tools Business outcomes: Greater visibility and efficiency across all its European finance operations Receivables DSO reduced from 21 days to 18 in France Payment run in Italy simplified from 4 days to 8 hours
GENPACT
CLIENT
Natural, scalable extension of Client organization Visibility Provides Transparency into processes-share detailed process performance metrics Access to employee performance data Pro-actively provide visibility on any issue we face
The process factory created through these steps will no longer be organized and operated along national lines, but by process activity. One proven approach to achieve this is Genpacts Virtual CaptiveSM Model (see Figure 1), which is supported and facilitated through seamless management of operations and people across Genpact and the client.
Throughout the transformation program for this pharma major, Genpact has driven the maximum benefits for the clients business by leveraging its proprietary Smart Enterprise ProcessesSM (SEPSM) framework. Summarized in Figure 2, this is a methodology for defining and implementing best practice standards to improve finance process effectiveness and business outcomes. Once these best practices are in place in major jurisdictions, they can be retrofitted in the smaller countries to optimize the benefits.
3 Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation
To break with these past trends, a company can team up with one of the select group of outsourcing partners that have strong and long-standing strategic partnerships with leading accounting and audit firms. These relationships enable the outsourcing partner to act as a single-source supplier for end-to-end finance and accounting services across multiple countries. Genpact, for example, has forged exactly these types of relationships with leading professional services firms. Companies find this capability particularly compelling in countries where their presence is small, and/or where they are entering a new market. Historically, Europes fragmentation has made it difficult to consolidate finance processes across borders. But the tide is now turning, as more companies seize the opportunity to outsource and standardize their finance operations on a pan-European basisthereby unleashing major benefits across their business.
About Genpact Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise G&A and industry specific services, coupled with strong IT, analytics and reengineering capabilities. For more information, visit: www.genpact.com. Copyright Genpact 2010. All Rights Reserved. For more information, contact: Genpact UK Ahmed Mazhari, SVP +44 207 535 5400
4 Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation