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Charles Darwin the famous scientist who introduced the theory of natural selection said "In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment." He used this theory to explain the extinction of the dinosaurs from the earth.
I believe this theory in fact is not confined to species. It is a universal truth which is applicable to so many phenomena we see in our day to day lives. One such illustration is the transformation of finance function. The enormous change the corporate world underwent over the last few decades has inevitably pressurized the finance function to adapt to its operating environment. As a result, today the finance function is in the fore-front of decision making positioning itself as a business partner for the organization as opposed to a conventional support function.
It is in this context that every organization today should embark on the journey of transforming its finance function to adapt to the challenges of the modern business environment. It is needless to exaggerate the changes this brings about in the role of the management accountant. However being humans it is natural for us to resist such change. What we should remember nevertheless is that if we fail to adapt to these changes, our destiny would not be different to that of dinosaurs.
This reinforces the argument that tomorrow's successful management accountants will be the ones who not only understand the need & importance of finance transformation but also who take proactive measures to bring about effective change and eventually manage such change to ensure sustainability of the business.
2. Finance Transformation
2.1 How it has changed?
Accounting & Finance function over the centuries has evolved significantly from the basic double entry bookkeeping - the revolutionary concept which started it all. Today we live in a world where global companies exist and the finance function like so many other things in human life has transformed itself to cater the ever increasing demands of modern day businesses.
Let it be financial reporting, treasury management, budgeting or any other area in finance for that matter, there is visible transformation. For instance, bottom-line in financial jargon, only meant financial profitability until recently. But today organizations strive for a triple bottom-line which is way beyond the boundaries of financial profitability.
A recent research conducted by CIMA's centre of excellence at the University of Bath concluded the following changes (see Figure 1) as the most frequent changes faced by businesses.
Figure 1: Key changes faced by the Finance Function in the last decade
Source: CIMA - Centre for Excellence, Excellence in Leadership, December 2009, p.12
As per the above research data, an overwhelming majority of 96.4% has confirmed that there had been at least one change in their finance function for the period in concern. However the degree, to which these changes have been popular, may extremely vary with Cost reduction being the forerunner with a popularity of 59% while Outsourcing of non-routine tasks was confined to a mediocre 5.5%.
The same study later classifies these changes to four broad types and also pinpoints two main motives behind these changes namely Cost efficiency and Value creation (See Table 2).
Table 2: Classification of Changes Faced by the Finance Function
Source: CIMA - Centre for Excellence, Excellence in Leadership, December 2009, p.12
Cost Efficiency motive is where a business is keen to improve its output by using its resources more efficiently. On the other hand Value creation involves performing tasks in better ways whilst eliminating non-value adding activities such that the organization creates value in terms of profitability.
It is clear from the data (See Figure 1) that it is the Cost Efficiency based changes which were more prominent in businesses during the last decade. As the research suggests, Cost Reduction and Business Process Re-engineering (BPR) appear logical steps for organizations as they grow. The economies of scale, firms are expected to achieve with its size, rationalize such change. Further the world economic crisis stemmed in 2007 & prolongs to date would also have significantly influenced finance managers to run their businesses on tighter budgets and thus focus on efficiency based transformation.
Although cost efficiency measures, up to now, have had the upper hand in finance transformation, it is expected that the value based changes would take precedence in times to come, as finance functions embark on the journey to achieve the visionary "value creator" status.
2.2 Why has it changed?
So far we discussed how the finance function has evolved over the years. Let us now examine the underlying drivers which caused this dramatic change. This inevitably leads us to look at the changes that occurred in the environment in which businesses operate. One thing that surely comes to my mind is globalization. I believe this concept single handedly revolutionized the way people engaged in business. For instance virtual organizations such as Dell and online market places such as e-bay have not only been highly successful, but also have challenged the future viability of traditional business models.
However globalization is only one among many drivers of change as per CIMA's recent research findings on finance transformation. In fact it ranks well below the likes of increased competition & technological advancement which grabbed the top two spots in terms of popularity (See Figure 3).
Figure 3: Drivers of organizational change ranked in terms of popularity
Source: CIMA - Centre for Excellence, Excellence in Leadership, December 2009, p.15
Increased risk and uncertainty and External reporting requirements achieved 3rd and 4th places respectively with market development coming next. It is important to mention the part played by the collapses of big corporate giants such as Enron, Worldcom and subsequent changes it created in the finance function especially in terms of risk assessment models and stringent reporting guidelines.
The report further highlights some of the differences that exist within different business sectors.
For example, demographics are as twice as popular driver in public sector compared to the private sector in which competition & market dynamics are more prevalent.
In financial services industry risk & uncertainty is hailed above all drivers of change.
All these drivers subsequently created pressure on the tradition finance function and new finance & control models evolved to suit the new playing field.
3. The changing role of the management accountant in today's environment
3.1 The way forward
So far we analyzed the nature of finance transformation and its underlying causes. It is now high time to look at the evolving role of tomorrow's management accountant. Having acted as a steward for decades, today the finance professionals are increasingly pressurized to be a navigator or a business partner in performing his/her duties.
With reference to the previously mentioned study done by CIMA, it is evident that Business partnering is clearly emerging as a way forward for finance transformation.
Table 4: Business Partnering in finance function
Source: CIMA - Centre for Excellence, Excellence in Leadership, December 2009, p.11.
In its research report, Finance transformation & business partnering, CIMA - Centre for Excellence defines business partnering as a behavior which" involves members of the finance function acting as close advisors or internal consultants in greater collaboration and cross-functional working with others in the organization, so they can understand the business better, and provide the advice and support that is needed." 
The idea here is, for finance members to actively participate in the decision making process and take collective ownership of the decision as opposed to being passive advisors. However in order to do so, the finance professionals not only need to posses technical knowledge in finance & IT, they should also be equipped with extensive industry knowledge & business acumen. In addition to that, the need for enhanced interaction across all the levels in the organization would mean that the management accountants need to master necessary communication and interpersonal skills.
Further the traditional barriers that exist between departments would also need to be relaxed so that effective inter-functional associations are enabled. Erik ter Horst, Vice President - Finance, CFO EMEA and Latin America, BT, offering insights to CIMA's survey adds "for me, finance can only be functional if the finance function is a part of the whole organization"  .
However one might also argue that this may compensate the level of independence exercised by finance and hence affect the objectivity of its decisions. While acknowledging the possibility, Morten Sorensen, Finance Director Central Europe, Middle East and Asia Pacific, SSP, believes that the potential risk to the objectivity of finance function will be "outweighed by the additional value generated & at the end of the day it comes down to the integrity and professionalism of the individual." 
3.2 Finance transformation and the role of the Management Accountant at Bodyline
Bodyline Private Limited, a joint venture between MAST Industries, Triumph International & MAS Holdings, is one of the largest lingerie & sportswear manufactures in Sri Lanka with a workforce of around 6000 employees and an annual capacity of around 15 million pieces of bras. The company caters to some of the world's most glamorous brands including Victoria Secret, Nike, Marks & Spencer and Lane Bryant.
Over the last couple of years Bodyline has synergized its multi product - customer portfolio to its competitive advantage whilst investing on technologies such as bonding, 3D hemming and ultrasonic welding.
However the company is constantly facing stiff competition from low cost manufacturers in Asian countries such as Bangladsh & Vietnam, and as a result recently underwent drastic changes in its business model which in turn caused the finance function to transform accordingly.
3.2.2 Finance Transformation at Bodyline
Table 5: Changes faced by the finance function at Bodyline
Finance Function Change
Type of Change
Motive for Change
Greater emphasis on cost reduction
Projects to curb major cost overrun areas. E.g. Overtime Tracking Mechanism
Increased outsourcing of routine tasks
Outsourcing of VAT Returns Process to a 3rd party
Increased Use of Shared Service Centers for routine tasks
Setting up a common commercial department in collaboration with MAS Intimates group
Increased work on product pricing
Developments of Pre & Post Order Profitability functions on SAP
Cross functional teams
Formation of customer teams comprising of representatives of different departments including finance
Focus on internal processes
Greater emphasis on poor performance within the organization
Facilitating greater depth in Performance Management. (Catering to Business, Departmental & Individual levels)
Increased external benchmarking of the whole organization
Risk assessments and external benchmarking activities leading to sound business decisions being taken
Source: Primary data collected from Bodyline
The above diagram depicts functional changes experienced by Bodyline Finance and it could be directly compared with Table 2 in page 3. (CIMA's original model)
22.214.171.124 Cross Functional Teams:Â A drastic structural change was introduced few months back where cross functional teams (representing virtually all the departments) were formulated to uniquely cater each customer. A business analyst was appointed to each team to represent finance and he/she adheres to a dual reporting structure where the individual reports to the Head of Finance as well as to the Head of the respective customer account. Each customer team sits together in a separate area within the factory so that interaction between the members is enhanced.
However the transformation involved significant cultural change. People had to be convinced that the previous structure that had been adopted for the past 15 years was not the right way forward.Â Members of finance worked very closely with the new leadership to change the internal structures & reporting lines to logical cross functional business teams to support customer expectations.
The management accountants involved in articulating the methodology of performance management systems including Key Performance Indicators as well as devising segmental reporting of customer bottom lines coupled with policy control deployment. This helped the people to understand the big picture and most importantly, where do they fit in to the new structure. The increased level of transparency helped us create a healthy competition among customer teams which in turn contributed to break the resistance to change whilst aggressively driving towards the achievement of business objectives.
126.96.36.199 Greater emphasis on poor performance: Performance management initiatives across many departments & layers are being introduced with the direct involvement of finance which provides design to delivery solutions. For instance, the incentive scheme for sewing operators was changed to an efficiency based group incentive mechanism from an individual performance based incentive system, with finance department functioning as the project champion. This is one fine example where Bodyline's finance function operated as a true business partner coming out of its comfort zones, co-operating with the other relevant departments and executing the project to perfection. It is noteworthy to mention that whilst executing this project, complex human dynamics of 6,500 people and the cost implications of providing incentives to all of them were considered. A series of information sessions had to be conducted to manage the knowledge transfer requirement in terms of the new system. Nevertheless a significant increment in factory efficiency was noticed within the first month of project implementation.
In order to facilitate such advance business requirements, the finance function was strengthened with people having dual backgrounds. In other words, apart from hardcore finance graduates, Bodyline's finance team comprises of several apparel engineering graduates from the University of Moratuwa who are also qualified in CIMA. It is this unique resource combination that has enabled Bodyline's finance team to successfully strive for excellence amidst numerous challenges.
188.8.131.52 Risk Analysis: The members of the finance department are also engaged in & analysis & assessment of risks facing the company, developing projections based on such risks to draw the attention of the management on high risk areas. For example early identification of the risks of Western economic recession, paved the way for the company to take immediate actions and thereby mitigate the impact of these adverse events at least to a certain extent.
184.108.40.206 Cost Reduction: As a follow up action plan to Budget Monitoring, the finance team in collaboration with other departments initiated 4 major projects to cut down company's overhead cost. These are namely
Implementation of overtime cost tracking & controlling mechanism
A project to control transport expenditure
A project to control courier charges
A project to control stationary cost
A project leader is appointed from Finance for each project and this individual is solely responsible for delivering the objectives of the project. The leader is expected to collaborate with relevant departments, device an action plan, follow up action points and present the progress at the next month's budget monitoring session. Significant cost reductions were observed in each area with the inception of these projects.
On the other hand, these projects offer a great opportunity for the budding management accountants to move out their comfort zones, actively involve in cross cultural teams, learn and become business partners who actively participate in achieving the company's strategic objectives.Â Â
220.127.116.11 Increased work on product pricing: To enhance the visibility of financial information at the Sales Order level, a project was initiated by finance with the collaboration of IT to develop SAP (the company's ERP system) based modules which calculates the expected profitability of a Sales order in the system itself. This process currently happens on spread sheets off the ERP system and as a result lot of information is duplicated and resources are wasted. The second phase of this project involves linking purchase order authorization procedure to sales order profitability so that an effective control on at the point of material purchases can be exercised.
Yet again this is a challenging project which requires the individual to move out of the comfort zones of an accountant and work with System users/IT specialists and to gather system requirements and thereby ensure effective system development is achieved later.
Modern day businesses experience change at a dramatic rate and whichever the ones that do not adapt quickly, would be gone before long. Being part of that business, the finance function can never isolate itself so should get accustomed to change.
If the finance function has to change, that indirectly means the management accountants should expect their roles to frequently change in future. In fact it is the management accountants who are expected to manage the process of finance transformation. As their roles evolve, tomorrow's management accountants will be expected to learn new skills (more often out of their comfort zones) work with cross functional teams and ultimately act as business partners who take responsibility for the collective decisions.
Although we all tend to resist change initially, we also might feel it is after all not so bad. It certainly brings opportunities & provided we take it in the right spirit we may end up being better off. The story of finance transformation at Bodyline is certainly of that type. Transforming was never an easy journey and it still is not. However as a team the finance function moved forward with positive attitude and as a result in the process has achieved so many milestones.
As I conclude, the fundamental point I wish to bring up is that the finance transformation is inevitable. Irrespective of whether we like it or not it's here to stay. However it is our decision either to embrace the change like a lizard which quickly changes its color to suit the environment and thereby survive through successful camouflaging or else ignore the change just like the dinosaur and simply extinct.