April 01, 2021
April 01, 2021
Contributor: Jackie Wiles
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.
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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.
To respond effectively to these shifts, finance leaders can:
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:
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:
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.
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.
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.
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.
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.
After setting the degree of centralization, CFOs can go on to redesign other key aspects of the finance functional organization:
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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Recommended resources for Gartner clients*:
3 New Realities for Finance Organization Design Following COVID-19
Achieving Greater Centralization of FP&A Activities
Finance Organizational Structure Playbook
Webinar: Setting the Course for Finance Transformation
*Note that some documents may not be available to all Gartner clients.