Insights from The Lab

Finance Transformation for Lean Retail: Business Intelligence in Shared Services for CFOs

Our last article served up its share of war stories from the front lines of finance transformation in the world of lean principles in insurance. In this article, we’re sticking with the topic of lean finance transformation, but we’re shifting the venue to the fast-paced, ultra-competitive, razor-thin-margin, zero-room-for-error realm of retail operations. Some people may think that retail wars are won in the aisles of stores, or in the battles between brick-and-mortar and online settings. But the true deciding factor often lurks in the back-office operations of knowledge work, where even the smallest inefficiencies quickly scale to crippling proportions.

This article on finance transformation is drawn from The Lab Consulting’s real-world engagement with retailers of all stripes, including global leaders in the very top five. 

Finance transformation: Lean retail shared-services challenges 

The CFO at one of our lean retail project clients was tasked with cutting costs by transferring work activity from the stores to finance-function shared service centers in North and South America and Europe. Centralizing these kinds of operations isn’t uncommon; it’s a well-established trend for finance transformation with lean process improvement.

And the problems that retailers encounter, when trying to implement a lean finance transformation via shared services, are all too common as well. They’ll find that the shared services centers lack any surplus capacity; how, then, can they cut costs? Clearly, they needed to increase productivity.

They maintained internal lean finance management teams. They launched lean shared-services initiatives. They even upgraded their technology to best-in-class levels. Yet none of these efforts delivered the capacity gains they sought and their attempted business intelligence implementation fell short without structured data and hierarchies to track lean retail operations KPIs. 

As we noted, these challenges are more common than you may think. As we’ve seen in our article about lean hospital finance management and our article about insurance finance operations, it can be difficult to achieve granular control and KPI measurement with business intelligence over a large knowledge workforce that’s performing thousands of activities each day. For one of our retail clients, they employed 3,000 people in their finance-function shared services centers alone.

The scope of lean retail finance transformation project: Digging into root causes

When The Lab is brought in to help clients with a shared-services lean finance transformation, the problems described to us fall into numerous broad categories:

  • “We need to increase finance operations capacity.”
  • “We want to reduce cycle times.”
  • “We need to standardize finance and accounting function activities.”
  • “We need to eliminate last-minute surprises in our budgeting and forecasting.”

They’re all symptoms of the same set of problems. Our earlier articles in this series have described—in painful detail—how individual finance operations knowledge workers’ ability to create line-item accounts in the general ledger results in a Kafa-esque level of bloat and confusion, where the real value hides from leadership in the tiniest percentage of the line items. In this article, we’ll take a look at some of the other problems we’ve found in the retail world.

Lean retail finance transformation and business intelligence services builds on existing, not new, technology

Our engagements are always structured in two phases. Phase I, which typically lasts about six or seven weeks, documents the finance operations business processes and lean improvements needed, replete with a self-funding business case and work plan. Phase II is the implementation. This is where we dive deep into data analytics for proper business intelligence operational reporting.

In retail finance shared services, our lean transformation project will span numerous functions, including:

  • Accounts payable
  • Accounts receivable
  • Health & wellness
  • Inventory management
  • Procurement
  • Payroll
  • Accounting services

We’ll typically identify a few hundred lean retail finance improvements that can be made, all using the client’s existing technology. That’s the beauty of the approach: no new tech investments are required.

Examples of finance transformation improvements with lean retail business intelligence services

Here are some of the lean finance process improvements we’ve helped to implement for our retail clients:

  • Business intelligence services – capacity models. This speaks directly to the concerns of the SVP we’d mentioned above. Many retailers rely on standard activity times to monitor finance operations productivity—but these can be inaccurate and impossible to reconcile. Using our proprietary Activity Cube (part of our business intelligence services offering), we are able to upgrade capacity models to reconcile capacity and volumes, greatly improving their accuracy. We also introduce daily finance function KPI productivity reports to track individual employee performance with finance operations business intelligence—a metric that’s surprisingly missing in far too many finance knowledge-work operations.
  • NIGO reduction. Inbound invoices, purchase orders, and payments that arrive “not in good order,” or NIGO, require costly manual rework. When the volume of NIGO is high, productivity plummets. As it turns out, half of NIGO often stems from vague, inconsistent, or even non-existent submission guidelines to vendors! By introducing a simple and straightforward “guidelines inventory,” we can slash NIGO reprocessing by half—usually within about three months.
  • Removing research redundancy. Invoices which require research are often handled individually, and documented informally, by finance-function shared-services employees. As a result, a single vendor might have scores or even hundreds of invoices being individually researched. By standardizing the research process and centralizing it within small teams, we’re able to reduce unnoticed, avoidable, and redundant research—often by as much as 80 percent.

What’s the state of your lean finance transformation and business intelligence services implementation for retail operations?

In our next article in this series, we’ll look at lean finance transformation and business intelligence services implementation in the world of retail investment management. It’s another information-packed case study. But before you read it, ask yourself: Is your lean finance transformation and business intelligence services implementation on track to make appreciable gains? Is your finance function able to measure operational intelligence and KPIs, increase capacity, reduce cycle times, standardize activities, and eliminate last-minute surprises? More importantly, can it escape from the Kafka-esque pursuit of false precision and deliver strategic value to the lines of businesses it serves?

If you hesitated to answer any of these questions, consider booking a quick, no-obligation 30-minute phone call with The Lab. In it, we can show you how we’ve helped other leaders—from retailers to insurers to hospitals and more—to lean out their finance groups, in just six months, without any new technology, all backed by a self-funding money-back guarantee. Contact The Lab to book your call now.

 

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