How to Organize Finance Department Structure

Finance organization structure incorporates organizing principles (i.e., whether the finance function is structured by subfunctions, customer segments, processes or another method), as well as reporting lines and spans of control. Progressive finance functions recognize the importance of organizing finance around its opportunities for unique value creation. Recognizing rising profit and loss (P&L) expertise among decision makers, these organizations are applying a balance sheet, not P&L, lens to operational decision support and elevating individuals with balance sheet expertise (accounting and treasury experts) into more formalized business partnership roles. These organizations are also expanding their use of shared delivery models to capitalize on finance’s unique view throughout the enterprise, including transitioning more activities shared across business units to shared service centers (SSCs) and centers of excellence (COEs).

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. The impact of rising organizational complexity on finance’s closeness to decision makers cannot be overlooked. Today, decisions are made more quickly and at lower levels within the organization, which increasingly limits finance’s ability to remain updated on the business priorities and challenges of decision makers throughout the organization. Leading organizations are continuing to migrate ownership of common activities to SSCs and COEs. However, they are no longer looking to strengthen finance’s support of business-unit-specific decisions and instead are shifting from a business generalist decision support model to a decision expert model for business-unit-specific decision making.

CFOs and finance executives are continuously assessing and revamping their finance strategy in response to the changing needs of internal and external customers. Organizational structure redesign is one of the ways finance can effectively adapt to these evolving needs. To select a structure that best supports these goals, CFOs should understand a broad scope of structures that have been tried and tested by their peers. Centralized structures help finance achieve economies of scale, information and expertise, and enable strong corporate oversight. These benefits come at the expense of business customization and speed of response to ad hoc requests and changing business conditions. Decentralized structures help finance customize its activities according to local business needs and achieve local compliance expertise. These benefits come at the expense of a limited corporate oversight on finance activities and high operational costs. Hybrid structures help finance find balance between customizing and scaling its activities. This balance comes at the cost of having complicated reporting relationships in some cases.

Many finance leaders are seeing their current measures for assessing finance organization design effectiveness, such as finance functional cost and customer satisfaction fall, short because they are both lagging indicators and overly broad indicators (i.e., they don’t only reflect the effectiveness of finance organization design). For a more accurate measure, finance leaders should use organization design friction, which we define as obstacles in the work environment that make it hard for employees to get work done. Design friction is a better measure because it allows finance leaders to isolate more specific, individual aspects of organization design that negatively impact employees, allowing more informed organization design choices. Efforts to reduce organization design friction target all three elements of finance organization design: organization structures, workflows and role design, and networks.