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Developing a Center of
                           Excellence (COE) for financial
                           planning and analysis
                           Life sciences CFOs can address growing cost pressures
                           through decision support centralization




By Brad Smith and Sterling Barnett
Deloitte Consulting LP
In recent years, the pharmaceutical industry has                            Not all FP&A work is equal
       experienced significant challenges stemming from patent                     The FP&A function serves a critical role by delivering
       expirations, issues with R&D productivity, uncertainties                    relevant and insightful information to top executives
       from evolving legislative and regulatory action, and                        to help them make informed business decisions. FP&A
       considerable industry cost pressures. As a result, the                      personnel are typically among the most seasoned and well-
       industry has experienced a market capitalization erosion                    compensated staff members within an organization.
       of 30 percent since 2000.1
                                                                                   However, close examination of day-to-day FP&A
       This environment isn’t likely to improve soon. As a                         activities may reveal some inefficiencies. For example,
       result, operating cost reductions will likely continue to                   FP&A processes are typically fragmented with significant
       be a focus for many life sciences companies. Many of                        customization, redundancies, and inefficiencies as each
       these companies have already trimmed finance budgets                        local entity seeks to best serve its specific business
       through successful shared services programs that focused                    customers. This can lead to highly compensated FP&A
       on traditional transaction-processing activities, such                      employees’ time spent on the transactional aspects
       as accounts payable, accounts receivable, and general                       of FP&A processes. We believe that most of these
       accounting. Now, however, companies need to find                            transactional FP&A processes could be more efficiently
       additional savings in other areas.                                          performed in a centralized environment.

       One area that holds significant cost-reduction opportunities                Despite such cost-saving opportunities, the FP&A function
       is the financial planning and analysis (FP&A) function.                     has typically not been a candidate for centralization due
       According to Deloitte experience, FP&A functions                            to the high visibility and strategic nature of the work
       typically make up approximately 25 percent of finance                       performed. FP&A activities have frequently been considered
       spend and represent the next frontier of finance savings                    “untouchable” candidates for centralization given the
       opportunities.2                                                             perceived level of business knowledge required to perform
                                                                                   these activities. The FP&A function interacts directly with
       Within the pharmaceutical industry, the FP&A function                       business leaders, helps set strategy, supports decision
       represents an even greater opportunity. These companies                     making, and affects future financial performance.
       typically have global operations with decentralized P&L
       responsibility within individual countries. These localized                 Pharmaceutical executives should challenge this blanket
       business operations result in significant country-based                     characterization of the work performed by FP&A staff
       FP&A support. Based on recent analysis by Deloitte, such                    given the industry pressures these companies face.
       geographically dispersed operating models result in some                    Transactional, low-value-add FP&A activities can be
       large pharmaceutical companies allocating upwards of 30                     successfully decoupled from the more strategic knowledge-
       to 40 percent of their finance spend to FP&A activities.                    based activities and centralized in an FP&A center of
                                                                                   excellence (COE) to support a more cost-effective operating
       However, one effective approach which can reduce the                        model (Figure 1). Doing so can result in quantifiable
       high cost of the FP&A function, and allow skilled FP&A staff                cost reductions while freeing up local FP&A resources to
       to spend more time on business decision support activities,                 perform more valuable business partnering activities. The
       is to move currently decentralized FP&A decision support                    centralized decision support model should link operational
       activities into centers of excellence.                                      requirements to corporate objectives and provide a basis
                                                                                   for functional design.


Page pull quote
       1	 NYSE Pharmaceutical Index, December 2000 – November 2010.

       2	 Source: Deloitte’s Global Benchmarking Center, which has more than 800 participants in its various proprietary studies. To learn more about
          Deloitte’s benchmarking capabilities, please visit our Web site: www.deloitte.com/us/benchmarking.
2
Figure 1. Companies are centralizing selected decision support areas


                                                        General Accounting*                                                                        Decision Support*




                    Accounts          Transactional       External                     Accounts        Fixed          Cost         Std Mgmt      Budgeting /       Financial        Strategy
                               T&E                                       Payroll
                     Payable           Accounting        Reporting                    Receivable       Assets      Accounting      Reporting     Forecasting       Analysis         Support
    Centralized




                    95%        95%                                                                                                     80%
                                            90%            90%            90%            80%            80%
                                                                                                                        60%
                                                                                                                                                         50%
                                                                                                                                                                        30%
                                                                                                                                                                                        0%

                      5%       5%                                                        20%            20%
                                            10%            10%            10%                                          40%
                                                                                                                                                         50%
                                                                                                                                       20%
    Decentralized




                                                                                                                                                                        70%
                                                                                                                                                                                       100%




                                                                                                                                                          * Splits based on Deloitte experience




While the opportunity for centralization within Decision Support is not as large as in General Accounting, significant benefits can still be achieved.    Leading organizations are moving
decision support activities to a centralized environment so that additional time can be allocated to business strategy and support.




	                                                                                                           Developing a Center of Excellence (COE) for financial planning and analysis	          3
An FP&A COE offers many potential benefits                                 A global manufacturer sought to streamline and enhance
    Some of the potential benefits organizational leaders can                  the effectiveness of its finance function while reducing
    expect to achieve by implementing an FP&A COE include:                     operational costs. The company moved 80 percent of
                                                                               its corporate FP&A work to a lower cost COE, including
    Process standardization and automation                                     ad-hoc reporting and analysis, balanced scorecard
    Transitioning activities to a centralized environment helps                reporting, and management reporting and board
    promote process standardization. Standardization improves                  presentations. It also moved select business unit FP&A work
    an organization’s ability to train resources, develop talent,              offshore, including segment profitability reporting, product
    and further streamline through technology deployment.                      profitability and profiles, and competitor analysis. Through
    As activities are standardized across an organization, data                these transitions, the company reduced its FP&A costs by
    analysis, data quality, and the way in which data is used to               between 50 and 70 percent.
    make business decisions also becomes more consistent.
                                                                               Span and level savings
    For example, a large international pharmaceutical client’s                 Through centralization, eliminating organizational layers and
    finance organization in one country identified an automated                improving span of control is possible. The typical structure
    way to perform volume, price, and exchange analyses.                       of an FP&A COE would allow for a broader span of control
    Once this process was centralized, it became the standard                  that can ultimately result in a lower-cost operating model.
    blueprint for all regional markets, driving significant time
    savings across the organization.                                           A global hospitality company wanted to reduce its SG&A
                                                                               spend due to increasing cost pressures from changing
    Local process elimination                                                  economic conditions. The finance function was an obvious
    Migrating activities to a centralized environment helps                    candidate for centralization due to the significant number
    eliminate custom activities that have historically been                    transactional activities completed by its highly compensated
    performed locally. Through centralization, non-value-add                   staff. This company identified these transactional activities
    local processes become more visible and can be more easily                 and transitioned them to a newly-created FP&A shared
    challenged.                                                                service center in the UK. As a result, the company was able
                                                                               to realize significant labor savings by better matching job
    As one Deloitte client began an FP&A COE implementation,                   requirements to staff levels.
    it discovered that certain balance sheet and cash-flow
    analyses were regularly performed by a local entity. As                    Economies of scale
    activities were evaluated for centralization, it became clear              Migrating activities to a centralized environment provides
    that these analyses were of little value to leadership and                 additional cost-saving opportunities due to economies of
    were subsequently eliminated.                                              scale. Activities such as data validation and standard report
                                                                               creation can be performed more efficiently through a
    Labor arbitrage                                                            centralized model and in large volumes by a team dedicated
    FP&A activities are typically performed by highly trained and              to these specific activities.
    educated employees. These staff members are expensive;
    transitioning transactional components to a lower-cost                     A global consumer business company, facing significant
    resource pool can lead to significant savings and allow                    margin and price pressures, embarked on a major cost-
    skilled finance employees to focus on areas that are                       reduction initiative, as well as transformation of its
    commensurate with their level of expertise and pay grade.                  commercial operating model. To keep up with these
                                                                               changes, the company’s finance function reorganized
                                                                               around a global structure with harmonized policies,
                                                                               processes, data, metrics, and controls. It increased its


    3	 The finance talent challenge: How leading CFOs are taking charge, Deloitte, 2007.
4
use of COEs and shared services centers for transactional             finance executives who are very protective of local FP&A
and common FP&A activities, and it instituted a standard              resources. Significant efforts need to be made in managing
global framework for management reporting that enabled                the change associated with centralizing these activities to
significant economies of scale through centralized delivery.          ensure that expectations are clearly set and service levels are
The result was substantial reduction in overall finance               maintained.
operating costs.
                                                                      Future leader talent development
Talent alignment                                                      The FP&A function is often a training ground for future
Leading organizations are continually looking to identify and         leaders of the finance organization. The finance talent
retain top talent. However, a 2007 Deloitte study shows               career ladder needs to be modified to reflect the new
only 50 percent of survey respondents believe that their              operating model and allow for movement of junior
finance organization is strong in the competencies needed             employees from the FP&A COE to the more value-add local
to align talent with the business.3 Moving transactional              finance units.
components of FP&A processes to a COE can help position
an organization’s talent more strategically and improve this          End-to-end process efficiency
metric.                                                               The FP&A COE typically only performs a portion of a process
                                                                      and not the entire process. As a result, additional handoffs
A large pharmaceutical company implemented a regional                 are created as activities are being performed. As activities
decision support COE. Shortly thereafter, senior finance              are being considered for migration, they must be carefully
leaders found that they could spend more time driving                 evaluated to ensure that the new end-to-end process has
complex analytics and future business decisionmaking.                 not created a burden for the organization. See Figure 2
This not only allowed for additional time to focus on                 for criteria to be considered when identifying processes for
decisionmaking capabilities, but it also improved morale              transition to a COE.
within the finance function. The organization’s focus became
more strategic and better aligned with the organization’s
Finance service delivery model.

Overcoming concerns about centralization
Organizations have been hesitant to consider FP&A as
a candidate for a COE model for several reasons. The
shared services concept is not new, but the concept of
applying a centralized model to business-facing activities
is. If implemented without great care, the FP&A COE could
hinder an organization’s ability to provide a critical partnering
function to the business.

Key concerns that organizations need to overcome as they
evaluate the risks associated with an FP&A COE include:

Dedicated local support
The idea of moving FP&A activities to a shared services model
has typically been off-limits due to the significant visibility and
high value of the end product. The output from the FP&A
function is often used by business customers and senior



	                                                                                              Developing a Center of Excellence (COE) for financial planning and analysis	   5
Realizing partial FTE efficiencies                                        Fear of going it alone
    When migrating transactional activities from locations                    Finance organizations are already stretched to their
    with low volume, or where finance support is minimal,                     limits with day to day demands. Burdening them with
    it may be difficult to realize savings. If cost savings is the            a transformational project such as evaluating and
    driving factor behind considering an FP&A COE, the volume                 implementing an FP&A COE may be beyond the current
    of activities migrated from local FP&A functions needs                    staff’s experience and could be tremendously disruptive.
    to be large enough to ensure that full resource savings                   Teaming with a service provider that has both the
    can be achieved. If cost savings is not the driver behind                 experience and resources to carry out long-term finance
    centralization, the additional resource capacity created by               transformation initiatives can allow companies to continue
    migrating local FP&A activities to a COE can be used to                   day-to-day activities with minimal disruption while moving
    focus on more analytical, higher value-add activities.                    toward the envisioned future state organization and
                                                                              operating model.


    Figure 2. Process centralization evaluation framework


                                 Suitable           Immediate Candidate                              Future Wave Candidate
                                                    for Centralization                               for Centralization
      Process Fit Criteria                          •	 Processes that are individually               •	 Processes that can be centralized
      •	 Specialized Skills                            fit and ready for centralization                 but require reengineering to
      •	 Language Requirements                         based on process maturity and                    minimize risk or stabilization of
      •	 Complexity of External                        organizational capabilities                      the underlying technologies and
         Communication                                                                                  processes
      •	 Process Modifications
      •	 Service Requirements/
         Time Constraints
      •	 Critical Adjacencies                       Not Fit for Centralization
                                                    •	 Processes that are unlikely to be centralized due to regulatory constraints,
                                                       strategic importance, or specialized needs



                           Not Suitable
                                                  Now                                                                                    Future


                                                                               Migration Readiness Criteria
                                                        •	 Process Maturity                            •	 Training
                                                        •	 Process Stability                           •	 Technology Requirements
                                                        •	 Process Documentation                       •	 Connectivity/Security


    When considering processes to be centralized into a COE, an assessment must be made as to whether they are “fit and ready” for migration in the
    near or long term.




6
Toward a brighter future for life sciences FP&A
Life sciences finance executives should not wait to explore   Reducing finance operating costs by 25 percent at
the possibility of creating an FP&A COE. The FP&A CoE
model has proven successful at a select group of leading
                                                              a global pharmaceutical company
companies and many more are now beginning to assess           A major global pharmaceutical company asked Deloitte to help implement a decision
how to implement it within their own organizations.           support center of excellence (COE) that targeted management reporting, planning,
The high potential for reducing costs, improving FP&A         budgeting, and forecasting activities. Initially, a finance group developed a proof-of-
effectiveness, and adding to the bottom line make this        concept operating model, which indicated that 20 to 30 percent of FP&A employees
an opportunity at a time when life sciences companies         perform transactional, low-value-added work that could be migrated to a COE. Deloitte
are under significant performance pressures. Finance          then conducted more than 20 global workshops to further define an operating model
executives should challenge their company’s traditional       that aligned with corporate objectives, create a governance structure, and develop a
FP&A organizational structure and explore a solution that     road map for implementation across multiple international markets and business units.
could make their organization more efficient, flexible, and
strategic.                                                    Each market’s implementation began with a series of meetings designed to explain
                                                              the concept of the COE and gain leadership buy-in. The next step was to gather an
List of FP&A activities that can be prime candidates          inventory of activities in management reporting, forecasting, and operating plan
for COE transition:                                           processes from local subject matter experts. Using an agreed-upon decision framework,
•	Market/Segment Profitability Reporting                      Deloitte analyzed each activity to determine if, and to what extent, the processes could
•	Product Profitability and Profiles                          be decoupled. The team identified transactional, noncustomer-facing components of
•	Management Reporting and Standardized Presentations         these activities for migration to the COE.
•	Data Validation and Standard Report Creation
•	Ad Hoc Reporting and Variance Analysis                      Activities like data validation, basic variance analysis, and standard reporting
•	KPI Performance Monitoring                                  comprised a significant portion of the activities that met the decision criteria. The team
•	Baseline Modeling for Budgeting and Forecasting Activity    documented these migrating activities with detailed step-by-step work instructions for
•	Standardized Volume Price and Exchange Analysis             COE staff hired in regional support centers located in low-cost areas. Before migrating
•	Balance Sheet and Cash Flow Analysis                        these activities, the team conducted a series of parallel runs to ensure that the COE staff
•	Competitor Analysis                                         could produce the same results as the original FP&A colleagues.

Consider migrating these FP&A functions:                      Post go-live, the COE addressed continuous improvement opportunities, including
•	Volume, price, and exchange analyses                        standardizing reporting activities and offshoring highly standardized FP&A processes. In
•	Balance sheet and cash-flow analyses                        aggregate, these activities led to approximately 25-percent reduction in overall finance
•	Ad-hoc reporting and analysis                               operating costs, as well as increased FP&A efficiency and effectiveness.
•	Balanced scorecard reporting
•	Management reporting and board presentations                Based on the success of this global implementation, other pharmaceutical companies
•	Segment profitability reporting                             are exploring implementing a COE. A critical first step for interested companies is to
•	Product profitability and profiles                          review which activities within their organization are candidates for transition to a COE.
•	Competitor analysis                                         This can help them assess the potential impact and savings for their organization.
•	Data validation and standard report creation




	                                                                                   Developing a Center of Excellence (COE) for financial planning and analysis	   7
This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means
of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such
professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision
or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall
not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the
legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations applicable to
the practice of public accounting.

Copyright © 2011 Deloitte Development LLC. All rights reserved.
Member of Deloitte Touche Tohmatsu Limited

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Us ft developing_a_coe_for_financial_planning_and_analysis_11102011

  • 1. Developing a Center of Excellence (COE) for financial planning and analysis Life sciences CFOs can address growing cost pressures through decision support centralization By Brad Smith and Sterling Barnett Deloitte Consulting LP
  • 2. In recent years, the pharmaceutical industry has Not all FP&A work is equal experienced significant challenges stemming from patent The FP&A function serves a critical role by delivering expirations, issues with R&D productivity, uncertainties relevant and insightful information to top executives from evolving legislative and regulatory action, and to help them make informed business decisions. FP&A considerable industry cost pressures. As a result, the personnel are typically among the most seasoned and well- industry has experienced a market capitalization erosion compensated staff members within an organization. of 30 percent since 2000.1 However, close examination of day-to-day FP&A This environment isn’t likely to improve soon. As a activities may reveal some inefficiencies. For example, result, operating cost reductions will likely continue to FP&A processes are typically fragmented with significant be a focus for many life sciences companies. Many of customization, redundancies, and inefficiencies as each these companies have already trimmed finance budgets local entity seeks to best serve its specific business through successful shared services programs that focused customers. This can lead to highly compensated FP&A on traditional transaction-processing activities, such employees’ time spent on the transactional aspects as accounts payable, accounts receivable, and general of FP&A processes. We believe that most of these accounting. Now, however, companies need to find transactional FP&A processes could be more efficiently additional savings in other areas. performed in a centralized environment. One area that holds significant cost-reduction opportunities Despite such cost-saving opportunities, the FP&A function is the financial planning and analysis (FP&A) function. has typically not been a candidate for centralization due According to Deloitte experience, FP&A functions to the high visibility and strategic nature of the work typically make up approximately 25 percent of finance performed. FP&A activities have frequently been considered spend and represent the next frontier of finance savings “untouchable” candidates for centralization given the opportunities.2 perceived level of business knowledge required to perform these activities. The FP&A function interacts directly with Within the pharmaceutical industry, the FP&A function business leaders, helps set strategy, supports decision represents an even greater opportunity. These companies making, and affects future financial performance. typically have global operations with decentralized P&L responsibility within individual countries. These localized Pharmaceutical executives should challenge this blanket business operations result in significant country-based characterization of the work performed by FP&A staff FP&A support. Based on recent analysis by Deloitte, such given the industry pressures these companies face. geographically dispersed operating models result in some Transactional, low-value-add FP&A activities can be large pharmaceutical companies allocating upwards of 30 successfully decoupled from the more strategic knowledge- to 40 percent of their finance spend to FP&A activities. based activities and centralized in an FP&A center of excellence (COE) to support a more cost-effective operating However, one effective approach which can reduce the model (Figure 1). Doing so can result in quantifiable high cost of the FP&A function, and allow skilled FP&A staff cost reductions while freeing up local FP&A resources to to spend more time on business decision support activities, perform more valuable business partnering activities. The is to move currently decentralized FP&A decision support centralized decision support model should link operational activities into centers of excellence. requirements to corporate objectives and provide a basis for functional design. Page pull quote 1 NYSE Pharmaceutical Index, December 2000 – November 2010. 2 Source: Deloitte’s Global Benchmarking Center, which has more than 800 participants in its various proprietary studies. To learn more about Deloitte’s benchmarking capabilities, please visit our Web site: www.deloitte.com/us/benchmarking. 2
  • 3. Figure 1. Companies are centralizing selected decision support areas General Accounting* Decision Support* Accounts Transactional External Accounts Fixed Cost Std Mgmt Budgeting / Financial Strategy T&E Payroll Payable Accounting Reporting Receivable Assets Accounting Reporting Forecasting Analysis Support Centralized 95% 95% 80% 90% 90% 90% 80% 80% 60% 50% 30% 0% 5% 5% 20% 20% 10% 10% 10% 40% 50% 20% Decentralized 70% 100% * Splits based on Deloitte experience While the opportunity for centralization within Decision Support is not as large as in General Accounting, significant benefits can still be achieved. Leading organizations are moving decision support activities to a centralized environment so that additional time can be allocated to business strategy and support. Developing a Center of Excellence (COE) for financial planning and analysis 3
  • 4. An FP&A COE offers many potential benefits A global manufacturer sought to streamline and enhance Some of the potential benefits organizational leaders can the effectiveness of its finance function while reducing expect to achieve by implementing an FP&A COE include: operational costs. The company moved 80 percent of its corporate FP&A work to a lower cost COE, including Process standardization and automation ad-hoc reporting and analysis, balanced scorecard Transitioning activities to a centralized environment helps reporting, and management reporting and board promote process standardization. Standardization improves presentations. It also moved select business unit FP&A work an organization’s ability to train resources, develop talent, offshore, including segment profitability reporting, product and further streamline through technology deployment. profitability and profiles, and competitor analysis. Through As activities are standardized across an organization, data these transitions, the company reduced its FP&A costs by analysis, data quality, and the way in which data is used to between 50 and 70 percent. make business decisions also becomes more consistent. Span and level savings For example, a large international pharmaceutical client’s Through centralization, eliminating organizational layers and finance organization in one country identified an automated improving span of control is possible. The typical structure way to perform volume, price, and exchange analyses. of an FP&A COE would allow for a broader span of control Once this process was centralized, it became the standard that can ultimately result in a lower-cost operating model. blueprint for all regional markets, driving significant time savings across the organization. A global hospitality company wanted to reduce its SG&A spend due to increasing cost pressures from changing Local process elimination economic conditions. The finance function was an obvious Migrating activities to a centralized environment helps candidate for centralization due to the significant number eliminate custom activities that have historically been transactional activities completed by its highly compensated performed locally. Through centralization, non-value-add staff. This company identified these transactional activities local processes become more visible and can be more easily and transitioned them to a newly-created FP&A shared challenged. service center in the UK. As a result, the company was able to realize significant labor savings by better matching job As one Deloitte client began an FP&A COE implementation, requirements to staff levels. it discovered that certain balance sheet and cash-flow analyses were regularly performed by a local entity. As Economies of scale activities were evaluated for centralization, it became clear Migrating activities to a centralized environment provides that these analyses were of little value to leadership and additional cost-saving opportunities due to economies of were subsequently eliminated. scale. Activities such as data validation and standard report creation can be performed more efficiently through a Labor arbitrage centralized model and in large volumes by a team dedicated FP&A activities are typically performed by highly trained and to these specific activities. educated employees. These staff members are expensive; transitioning transactional components to a lower-cost A global consumer business company, facing significant resource pool can lead to significant savings and allow margin and price pressures, embarked on a major cost- skilled finance employees to focus on areas that are reduction initiative, as well as transformation of its commensurate with their level of expertise and pay grade. commercial operating model. To keep up with these changes, the company’s finance function reorganized around a global structure with harmonized policies, processes, data, metrics, and controls. It increased its 3 The finance talent challenge: How leading CFOs are taking charge, Deloitte, 2007. 4
  • 5. use of COEs and shared services centers for transactional finance executives who are very protective of local FP&A and common FP&A activities, and it instituted a standard resources. Significant efforts need to be made in managing global framework for management reporting that enabled the change associated with centralizing these activities to significant economies of scale through centralized delivery. ensure that expectations are clearly set and service levels are The result was substantial reduction in overall finance maintained. operating costs. Future leader talent development Talent alignment The FP&A function is often a training ground for future Leading organizations are continually looking to identify and leaders of the finance organization. The finance talent retain top talent. However, a 2007 Deloitte study shows career ladder needs to be modified to reflect the new only 50 percent of survey respondents believe that their operating model and allow for movement of junior finance organization is strong in the competencies needed employees from the FP&A COE to the more value-add local to align talent with the business.3 Moving transactional finance units. components of FP&A processes to a COE can help position an organization’s talent more strategically and improve this End-to-end process efficiency metric. The FP&A COE typically only performs a portion of a process and not the entire process. As a result, additional handoffs A large pharmaceutical company implemented a regional are created as activities are being performed. As activities decision support COE. Shortly thereafter, senior finance are being considered for migration, they must be carefully leaders found that they could spend more time driving evaluated to ensure that the new end-to-end process has complex analytics and future business decisionmaking. not created a burden for the organization. See Figure 2 This not only allowed for additional time to focus on for criteria to be considered when identifying processes for decisionmaking capabilities, but it also improved morale transition to a COE. within the finance function. The organization’s focus became more strategic and better aligned with the organization’s Finance service delivery model. Overcoming concerns about centralization Organizations have been hesitant to consider FP&A as a candidate for a COE model for several reasons. The shared services concept is not new, but the concept of applying a centralized model to business-facing activities is. If implemented without great care, the FP&A COE could hinder an organization’s ability to provide a critical partnering function to the business. Key concerns that organizations need to overcome as they evaluate the risks associated with an FP&A COE include: Dedicated local support The idea of moving FP&A activities to a shared services model has typically been off-limits due to the significant visibility and high value of the end product. The output from the FP&A function is often used by business customers and senior Developing a Center of Excellence (COE) for financial planning and analysis 5
  • 6. Realizing partial FTE efficiencies Fear of going it alone When migrating transactional activities from locations Finance organizations are already stretched to their with low volume, or where finance support is minimal, limits with day to day demands. Burdening them with it may be difficult to realize savings. If cost savings is the a transformational project such as evaluating and driving factor behind considering an FP&A COE, the volume implementing an FP&A COE may be beyond the current of activities migrated from local FP&A functions needs staff’s experience and could be tremendously disruptive. to be large enough to ensure that full resource savings Teaming with a service provider that has both the can be achieved. If cost savings is not the driver behind experience and resources to carry out long-term finance centralization, the additional resource capacity created by transformation initiatives can allow companies to continue migrating local FP&A activities to a COE can be used to day-to-day activities with minimal disruption while moving focus on more analytical, higher value-add activities. toward the envisioned future state organization and operating model. Figure 2. Process centralization evaluation framework Suitable Immediate Candidate Future Wave Candidate for Centralization for Centralization Process Fit Criteria • Processes that are individually • Processes that can be centralized • Specialized Skills fit and ready for centralization but require reengineering to • Language Requirements based on process maturity and minimize risk or stabilization of • Complexity of External organizational capabilities the underlying technologies and Communication processes • Process Modifications • Service Requirements/ Time Constraints • Critical Adjacencies Not Fit for Centralization • Processes that are unlikely to be centralized due to regulatory constraints, strategic importance, or specialized needs Not Suitable Now Future Migration Readiness Criteria • Process Maturity • Training • Process Stability • Technology Requirements • Process Documentation • Connectivity/Security When considering processes to be centralized into a COE, an assessment must be made as to whether they are “fit and ready” for migration in the near or long term. 6
  • 7. Toward a brighter future for life sciences FP&A Life sciences finance executives should not wait to explore Reducing finance operating costs by 25 percent at the possibility of creating an FP&A COE. The FP&A CoE model has proven successful at a select group of leading a global pharmaceutical company companies and many more are now beginning to assess A major global pharmaceutical company asked Deloitte to help implement a decision how to implement it within their own organizations. support center of excellence (COE) that targeted management reporting, planning, The high potential for reducing costs, improving FP&A budgeting, and forecasting activities. Initially, a finance group developed a proof-of- effectiveness, and adding to the bottom line make this concept operating model, which indicated that 20 to 30 percent of FP&A employees an opportunity at a time when life sciences companies perform transactional, low-value-added work that could be migrated to a COE. Deloitte are under significant performance pressures. Finance then conducted more than 20 global workshops to further define an operating model executives should challenge their company’s traditional that aligned with corporate objectives, create a governance structure, and develop a FP&A organizational structure and explore a solution that road map for implementation across multiple international markets and business units. could make their organization more efficient, flexible, and strategic. Each market’s implementation began with a series of meetings designed to explain the concept of the COE and gain leadership buy-in. The next step was to gather an List of FP&A activities that can be prime candidates inventory of activities in management reporting, forecasting, and operating plan for COE transition: processes from local subject matter experts. Using an agreed-upon decision framework, • Market/Segment Profitability Reporting Deloitte analyzed each activity to determine if, and to what extent, the processes could • Product Profitability and Profiles be decoupled. The team identified transactional, noncustomer-facing components of • Management Reporting and Standardized Presentations these activities for migration to the COE. • Data Validation and Standard Report Creation • Ad Hoc Reporting and Variance Analysis Activities like data validation, basic variance analysis, and standard reporting • KPI Performance Monitoring comprised a significant portion of the activities that met the decision criteria. The team • Baseline Modeling for Budgeting and Forecasting Activity documented these migrating activities with detailed step-by-step work instructions for • Standardized Volume Price and Exchange Analysis COE staff hired in regional support centers located in low-cost areas. Before migrating • Balance Sheet and Cash Flow Analysis these activities, the team conducted a series of parallel runs to ensure that the COE staff • Competitor Analysis could produce the same results as the original FP&A colleagues. Consider migrating these FP&A functions: Post go-live, the COE addressed continuous improvement opportunities, including • Volume, price, and exchange analyses standardizing reporting activities and offshoring highly standardized FP&A processes. In • Balance sheet and cash-flow analyses aggregate, these activities led to approximately 25-percent reduction in overall finance • Ad-hoc reporting and analysis operating costs, as well as increased FP&A efficiency and effectiveness. • Balanced scorecard reporting • Management reporting and board presentations Based on the success of this global implementation, other pharmaceutical companies • Segment profitability reporting are exploring implementing a COE. A critical first step for interested companies is to • Product profitability and profiles review which activities within their organization are candidates for transition to a COE. • Competitor analysis This can help them assess the potential impact and savings for their organization. • Data validation and standard report creation Developing a Center of Excellence (COE) for financial planning and analysis 7
  • 8. This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations applicable to the practice of public accounting. Copyright © 2011 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited