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Finance Capabilities Model Drives Transformation

In this business architecture blog post, let’s review, how a Finance Business Capabilities Model helps in accelerating the transformation of the finance function. Of course, the accounting and finance capabilities model has to be an integral part of a broader, overall transformation framework.

The New Finance and Accounting Function: 

The accounting and finance function is undergoing tremendous change, which most observers feel, is for the better.  While hitherto finance was deemed a bean counting exercise purely, today, the finance function is seen as a holistic approach to funding, budgeting, allocation, paying and receiving, and profitably managing the enterprise.  It includes a varied set of services, requiring diverse capabilities, skills, and competencies to achieve the overall record to report value stream successfully.

However, the accounting and finance function as it exists presently has several challenges including an array of complex systems, byzantine processes, arcane procedures, and disjointed experiences.  Some of these difficulties are to be expected as finance function is as old as the concept of business itself. Other issues and complications are mainly due to factors such as mergers and acquisitions, and a patchwork of legacy systems and processes.  Irrespective, the status quo of how accounting and finance functions are managed is not acceptable.

What is a Finance Capabilities Map?

A finance capabilities map captures the essence of what the enterprise finance function does and can do at a level of abstraction that is valuable in transformation planning. A finance capability is an encapsulation of the underlying form, function, and flow into a holistic entity, which combined with a set of attributes can provide clarity, coherence, and transparency into the inner workings of the capability.

To jump-start, a finance transformation, a strategic capability framework of what accounting and finance functions do and a process framework encompassing the value streams and activity flows is an essential ingredient. As a part of the business architecture, two of the most critical deliverables are an Accounting and Finance business capability Map and an accompanying Value Stream model.  We will address the value derived from Finance Value Stream mapping in a separate blog post. In this post, we will focus on how the Accounting and Finance Capabilities Model help influence and drive the Finance Transformation.

Core Finance Capabilities and Processes:  At a foundational level, the following finance and accounting capabilities and processes are common to most businesses. However, in a large enterprise setting, particularly when planning a transformation, these become very high-level constructs and do not provide execution level detail.

Example Finance Functions and Processes:

  • Raising Funds
  • Managing payments
  • Keeping Books and Records
  • Cash Flow Management
  • Credit control
  • Financial relationship management
  • Financing and Borrowing
  • Paying Bills and Receiving Payments

So, in essence, it is essential to drill down and develop a comprehensive accounting and finance capabilities matrix.

An Accounting and Finance Capabilities Matrix includes a logical grouping of accounting and finance functions defined at multiple levels of granularity.   After completion and adoption of a finance capability model, the transformation teams can use the model to accomplish the following:

Example Finance Capability Matrix:

The following is a high-level view of the core finance capabilities.  And a finance capabilities list comprises of a granular decomposition of underlying capabilities. 

Finance and Accounting Strategy
Accounting and Controls
Management Finance
F&A Reporting and Analytics

Now let’s take the “Accounting and Control” and decompose to next level (Level 2): 

General Accounting
Fixed Asset Management
Accounts Receivables
Accounts Payable
Accounting Controls

The level 3 finance capabilities go to a deeper level. Let’s decompose the “Accounts Payable” capability to the next layer: 

Accounts Payable Planning
Payee Management
Disbursements
Reconciliation

And one can now decompose “Payee management” to the next level (This is level 4.)

Payee Profile Management
Payee Reporting
Payee Inquiry Management
Payee Dispute Resolution

Capstera offers a detailed list of finance capabilities. Please check out the mutually exclusive and collectively exhaustive set of finance capabilities into an accounting and finance capability map. The finance capabilities model is available starting at $699 and includes a list of about ~125 finance and accounting capabilities. Click here to learn more.

What are the advantages of decomposing to a granular level finance capabilities? 

A finance capabilities map is both a strategic and execution tool.  For strategic level conversations, having a level 1 and level 2 finance capabilities list may suffice.  The strategic discussions are for executive level future state envisioning and determination of the path forward. The more granular level (Level 3, 4 and 5) finance capabilities provide execution level information. For example, gathering future state requirements at a capability level helps avoid ambiguity and fosters transparency and clarity.  Furthermore, the deeper level decomposition allows for mapping the capabilities to SOA or Microservices and influence the modularity and functionality of the underlying services landscape.  Last but not least, a detailed list of finance capabilities helps in comparing vendors against deeper level capability needs. 

How an Accounting and Finance Capabilities Model helps in the Finance Transformation:

  • Capability Prioritization: Prioritize which Accounting and Finance capabilities are essential to the firm and where the emphasis should be regarding
  • System Footprint: Juxtaposing the applications and systems against Finance capabilities to understand the coverage, sufficiency, and footprint of technology enablement of finance and accounting functions.
  • Capability-based Needs Assessment: As Finance function is a shared service across business units, even if there is a standalone business unit support, a capability-based needs assessments could bring together what different groups need in each capability cluster.
  • Capability-based Vendor Evaluation: Evaluate vendors based on the Finance capabilities which are essential to the firm and how the solution of suppliers meets or does not comply with the requirements.
  • Capability-based Roadmap: A roadmap of what changes are required to various accounting and finance capability areas.

Finance Capabilities Model

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