How to Organize Your Finance Function

January 27, 2021
Contributor: Jackie Wiles

Finance leaders weighing the organizational design of the finance function must account for three changes driven by COVID-19. Centralization decisions will still be key.

COVID-19 and its effects forced short-term changes on many finance functions, including changes to organization design — structures, networks and workflows, and role design. Finance leaders will need to account for these new realities in their long-term plans for the shape of the finance function.

Finance function structures will be permanently flatter

Finance function organizational structures have typically been hierarchical. However, many finance positions were eliminated in 2020, essentially flattening most finance organizations — and requiring staff to operate more autonomously and adapt quickly to change.

Finance managers will now manage more employees, making it critical for them to be clear about the finance activities they do or don’t need to perform, while allowing employees to work more independently. 

Read more: Top Priorities for Finance Leaders in 2021

To respond effectively to these shifts, finance leaders can:

  • Determine the potential for autonomy by capturing feedback from the hardest hit areas of the finance function on how employees managed more autonomy and where better support is needed. 
  • Identify the tasks most suited to automation by asking staff, for example, which tasks have the lowest rate of rework or inaccuracies, aren’t critical-path activities or have limited impact.
  • Establish a “default go” culture in which employees feel empowered to make routine decisions independently within certain thresholds beyond which escalation is required.

Finance function networks will fade 

With a hybrid workforce model, internal networks on which finance staff rely could dissolve. Finance function leaders and managers must create opportunities to maintain employee engagement as finance staff remain remote — whether temporarily or permanently. To do that:

  • Use digital collaboration tools (and model their use) to connect employees with peers, including those working remotely, on-site and in hybrid arrangements.
  • Develop a “Connector manager” culture. Managers who build connections within and beyond the finance function and refer employees to others who can provide specific answers and development support are the most effective. 
  • Hold finance function employees accountable to increase the motivation and engagement of staff. Also establish the expectation that finance employees should lean on peers for support and collaboration.

Adapt finance function workflows 

Finance function leaders have long focused on standardizing workflows and roles to increase efficiency, but standardized models proved brittle during the volatility of COVID-19. To strike a balance between standardization and flexibility that can organizational resilience:

  • Determine probable disruption levels by tracking more qualitatively leading indicators, such as changing customer demands, shifting regulations, workflow vulnerability and the level of side-of-desk work. Also identify “steadier state” business units that are less likely to face disruption.
  • Prioritize standardization, focusing first on activities with lower levels of disruption risk. Reduce standardization for workflows with higher disruption risks and instead provide more decision-making tools and principle-based (rather than rule-based) recommendations on how to react in more ambiguous situations.

You still need a ‘best fit’ approach for the finance function

Despite these shifts in organizational design, finance leaders shouldn’t make decisions on how to evolve the finance function in a vacuum. Gartner research shows that it’s still important, for example, to make decisions about the level of centralization in finance activities.

The ongoing standardization and automation of processes and transactions lends itself to centralization, but a range of options across the centralization spectrum serve different objectives. Gartner research found that on average, finance leaders place two-thirds of their staff at the corporate center and 10% to 15% in shared locations, though finance activities are more likely to be centralized as companies grow in size, complexity, and finance functional maturity.

Gartner shows the range of options across the centralization spectrum that serve different purposes in the finance function.

Complexity is key to finance-function middle office design

As companies respond to changing business conditions, finance leaders must consider which service delivery model offers the greatest value. Some, for example, might choose to migrate to shared services or a center of excellence (CoE); others might sharply divide responsibilities between corporate and embedded finance teams. 

Ultimately, the “best” model for a given organization is one that balances finance’s competing governance and guidance responsibilities given the available human and financial resources. 

Consider the finance middle-office, which owns the bulk of core accounting work, Gartner research found that two activity attributes — impact and complexity — are key to identifying which location best balances risk and efficiency.

Gartner activity location decision framework that uses two activity attributes — impact and complexity —to evaluare location of middle-office activities

This framework helps finance leaders establish the base paradigm for activity location – middle office activities of low complexity should be moved into shared locations unless there is a well documented reason for exception; even those activities with medium complexity but broad impact should be considered for a shared location; activities with high complexity should be owned either by the corporate center, or addressed jointly by the center and regional or BU teams.   

“While there isn’t a one-size-fits-all approach, this model provides a framework for considering where specific activities should fit within the finance department,” says Risberg.

New models can improve finance function’s front office impact

For front-office activities, Gartner finds organizations implementing a variety of new models to improve the quality and impact of finance analytics. One global telecommunications company adopted a “hub-and-spoke” model in which a centralized CoE (hub) owns some of its more strategic analytics and is linked to “spokes” embedded in the business.

In this model, the hub executes multivariate tests recommended by the spokes to produce constructive insights such as profitable-growth targets, customer and produce profitability models, and strategic pricing information.

Strategic analytics hub and spoke model indicating a centralized CoE (the hub) owns some with links to spokes embedded within the business.

This model exemplifies how CFOs can create structures that meet their own company’s needs. In this case, the integrity of the pure data analysts is protected in the hub, while the needs of the business are leveraged through the spokes.

Next steps

After setting the degree of centralization, CFOs can go on to redesign other key aspects of the finance functional organization:

  • Assess current finance structure. Understand the organization’s spend, staffing, structure, technology, productivity and performance now and anticipate future business needs.
  • Determine an outsourcing strategy. Select activities to outsource and the location for outsourcing.
  • Structure finance subfunctions. Make sure the structure is based on functional priorities, and clearly define each subfunction’s scope of activities to avoid duplication.
  • Establish reporting relationships. Choose the right reporting structure for embedded finance teams and optimize the span of controls. Use role definitions, incentives and performance measures — instead of just redrawing reporting lines — to drive the desired behavior.

This article has been updated from the 2018 original, which was refreshed July 18, 2019, to reflect new events, conditions and research.

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