How to Organize Your Finance Function

Finance function (re)design starts with centralization decisions.

Long gone are the days when finance just reported numbers. Finance increasingly provides operational or enterprisewide decision support as well as meeting its critical responsibilities in governance and oversight. How do chief financial officers (CFOs) determine the optimal structure to fulfill the dual demands of judgment- and rule-based activities? The first step is to settle the issue of centralization.

The finance function should be designed around a few key principles

“Regardless of the size of the organization, the finance function should be designed around a few key principles,” says Dan Garvey, senior executive advisor at Gartner. “It’s good to start by deciding what level of centralization you want to have.”

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 Service Delivery Models Under Centralized and Decentralized Structures

Read more: Redesigning Finance Structure and Roles to Support Growth.

Custom-fit the finance function

CFOs ultimately need the best service delivery models for their business. Some might choose to migrate to shared services or a center of excellence (CoE); others might sharply divide responsibilities between corporate and embedded finance teams. Some might take a hybrid approach, as is the case with one global telecommunications company.

One 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.

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Gartner Strategic Analytics “Hub and Spoke” Model

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 function:

  • 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.
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Gartner for Finance Leaders clients can read more in Finance Organizational Structure Essentials.