Study Unit 1: Structure and Shape of the Finance Function 2024 PDF

Structure and Shape of the finance function BSCI121 - Study unit 1 Chapter 7 GM  From BSCI111 -Analysis for insights -Advising to influence -Applying for Impact -Assembling information What is the future of the finance funct...

Structure and Shape of the finance function BSCI121 - Study unit 1 Chapter 7 GM  From BSCI111 -Analysis for insights -Advising to influence -Applying for Impact -Assembling information What is the future of the finance function https://www.youtube.com/watch?v=HnQ2 A4AZH8Y  Learning Outcome On completion of this study unit, you should be able to understand the following: The structure and shape of the finance function Evolution of the shape of the finance function Shape of the finance function in the digital era The Changing Over time, the role of the finance function has developed from one that generated information into one that turns shape of the information into insight which is then communicated to finance function decision markers. From Generating information to creating insight The Finance function Finance function: Handles financial operations and provides information and advice other departments. Traditional role: Generate information - Financial reports, management accounts, investment appraisals and reports on the organization’s risks and controls Contemporary role: Create insight and add value - Analysing generated information effectively communicate insights to decision-makers; support/report on the effectiveness of decisions taken Mintzberg’s organisational structure He believed that organisations can be analysed in 5 components. Strategic Apex Techno structure Operating core Middle line Support Staff Criteria he used: How they relate to the work of the organisation How they co-ordinate such work Traditional organisational structure Functional structure: These groups employees by specialism, such as finance and marketing. (Separate departments) Geographical and divisional structure: Used where an organisation is arranged according to the geographic area Matrix structures: Used where an organisation uses cross- functional teams  Contemporary organisational structure Boundaryless organisations Minimise or eliminate formality and chains of command to focus on speed and flexibility. Shamrock organisations The core of essential executives and workers supported by outside contractors and part-time help (buying in of services as needed with consequent in overhead costs: Flexible firm) Other types of Organisations Flatter structures – Organisations with fewer layers enabling faster response times Horizontal structures – organisations that use multi- functional project teams and multi-skilling provide flexibility Chunked structures and unglued structures – where smaller and more flexible units are created within the overall structures Output-focussed structures – These structures focus on results rather than processes Jobless structures – organisations using a changing pool of freelance workers  Alliances Joint ventures Strategic Licences & Alliances Franchises Alliances Agents Consortia Alliances Where organisation works with external entities Joint Ventures: A new shared organisation is set up by two or more firms which each retain an independent entity Licences and franchises: Licensing is the granting of permission to another company to manufacture or sell a patented product (in return for a fee) – Franchise Consortia: Short-term legal entities to deliver a particular project Agents: The use of agents can be effective as a distribution channel Strategic alliances: Sharing of resources and activities across two or more organisations in order to pursue strategies  The Impact of automation on the shape and structure of the finance function Triangular base eroded Large numbers of staff required Globalisation and advances in information at lower levels to GENERATE and communications technology drove the Central bulge = higher value services of INFORMATION structure. finance professionals performed by centres of excellence/SSC’s The bottom part of the segregated triangle presents the activities of finance function Fewer roles as you get to the top carried out within shared services. Flat top as a consequence of of the hierarchy The top part presents other areas of finance collaborative financial leadership that were not centralised, e.g., those that perform detailed financial analysis. Why is the shape of the finance function changing?  The changing mandate for finance Role of the finance function continues to shift in emphasis towards management rather than accounting The finance function has a unique end-to-end view of an organization The CFO has the business understanding to work alongside the CEO as a co-pilot (business partnering) The role is evolving to better enable partnering for value to influence and shape how the organisation creates and preserves value (level 2) Explains the bulge towards level 2  Other organisational development and the finance function Shared service Service level Reconfigurations Outsourcing Transaction costs centres (SSCs) agreement Business Segregation of Business process re- Relocation the finance partnering engineering function Shared service Centres (SSCs) These involve centralising operations that previously existed in more than one part of the organisation. It is sometimes referred to as internal outsourcing. Benefits of SSC include: Risks of SSC include: Cost savings (Lower headcount, Insufficient organisational resources premisses costs) to establish them Standardised processes HR issues such as redundancy cost Selection and delivery of single best and impact on morale practice from all operations Consolidating systems might be Improved control and quality costly, time-consuming and complex Consolidation of information Language, cultural and reporting requirements may not be understood Outsource Involves an organisation sub-contracting business activities to external providers Advantage Disadvantages Reduces costs through the outsourcing Investment is needed in managing the partner’s economies of scale relationship with the outsourcing partner Enables significant structural changes to be Disruption to the business and resistance to made to the organisation through radical change during the changeover transformation or business process re- Loss of control over the function being engineering outsourced Access to expertise and resources that the Increased risk of loss due to theft or damage organisation does not have through data breaches Enable the finance team to concentrate on Loss of internal knowledge and expertise in becoming business partners areas outsourced Service level SLAs are legally binding contracts between the customer and the outsource partner that set out the agreed level of service to be agreements provided. Some of the disadvantages of outsourcing can be mitigated through such (SLAs) agreements Areas often covered by the SLA include: A description of the service being provided Targets and benchmarks to be met Response times to queries Expected recovery times following disasters Complaints procedures Cancellation procedures Remember to refer to your textbook: Chapter 7