What is a Finance Target Operating Model (FinTom) and how does SAP fit in ?
A finance target operating model (TOM) is a document that outlines the desired future state of an organization's finance function. It defines the key processes, data, systems, people, and governance required to achieve the organization's strategic objectives.
The benefits of having a documented finance TOM include:
Alignment: A documented finance TOM ensures that everyone in the organization understands the desired future state of the finance function. This alignment helps to ensure that everyone is working towards the same goals and objectives.
Clarity: A finance TOM provides clarity around the roles and responsibilities of the finance function. It helps to define the processes and systems that need to be in place to support the finance function and enables the organization to better allocate resources.
Efficiency: A finance TOM can help to streamline the finance function by identifying inefficiencies and redundancies in processes and systems. This can help the organization to optimize its finance function and reduce costs.
Agility: A documented finance TOM enables the organization to be more agile and responsive to changes in the business environment. It provides a framework for adapting the finance function to changing business needs and ensures that the finance function is aligned with the organization's strategic objectives.
Overall, having a documented finance TOM is essential for any organization that wants to optimize its finance function and align it with its strategic objectives. It provides clarity, alignment, efficiency, and agility, which are critical for success in today's business environment.
A Finance TOM will include
· Finance Enterprise Structures such as COA, Cost Centres structure, Profit Centres
· Finance master data governance
· General Ledger Accounting, GL Rec and intelligent journals
· Intelligent AR, AP
· Sales Order Processing / Contract mgt
· Revenue Recognition
· Cash book management
· Treasury management
· FX daily, monthly or preferred real time
· Asset Accounting
· Inter, Intra
· Controlling, COGS, COPA
· Daily Close, Period Close
· Project and Product
· Fund management (US local concept).
· Accounting standards
· Process Controls Framework
· Consolidation
· Financial, Planning and Analytics
· Greenline / Carbon accounting
· JV accounting
So where does SAP fit in, or more simply put where doesn’t it ?
SAP is in fact not Tech !!!!
SAP is actually a complete out of the box Finance Target Operating model and has been for 5 decades.
See this blog providing an overview of the latest version of SAP S/HANA finance,
Finance for SAP S/4HANA Cloud 2202 | SAP Blogs
Watch the video highlighting SAP’s latest Finance offering
But not only is SAP a full Finance TOM, its best of breed, so much so that in 2022 McKinsey and SAP joined forces to further refine and innovate the SAP target operating model. https://www.mckinsey.com/about-us/overview/alliances-and-acquisitions/sap-and-mckinsey
The use of SAP as a Finance Target Operating model is commonly seen in support of private equity carve-outs, where by the buyer will wish to drop the acquired business onto SAP, as SAP will provide a complete operating model to enable the acquired organisation to function. SAP if documented correctly will provide Private Equity Owners with a fully warranted view of the enterprise significantly accelerating the due diligence process.
SAP can enable every element of the Finance TOM, it is often linked to third party cloud solutions for supporting elements of master data.
Top Design Tip from the Private Equity Space:
It’s common for many transformation projects to split the design between the Finance operating model with one team of expensive consultants, with similar team tasked with the “SAP system design”, which is quite simply madness. SAP provides every element of the Finance TOM and provides detailed best practice process documentation to build out from. Having two Finance design teams is costly and normally ends up with the SAP system and Finance design not being aligned and causing cost and time impact as the programme implodes and the CFO looses their mind with rage………
Defining the Business Change Impact
The level of business change and disruption can only be quantified once there is a clear understanding of how the organisation currently orchestrates it’s “in scope” AS-IS business processes and how these processes will work by adopting standard SAP.
We commonly see the following change pain points:
· How finance and customer master data is managed across multiple IT systems and processes.
· How business processes will work using SAP, an example would be monthly close and FP&A.
· New GL and Finance data lake.
· The ripple down impact of the Finance operating model changing, we often see the wider organisation impacted if there is a dependency upon Finance for a service. An example may be workflows or data sharing.
· Working with third party service providers, often the way in which an organisation integrates with third parties (excluding IT integration) is often overlooked.
· Reporting tools will change as will the look and feel of some reporting output.
· Process control framework application and monitoring will be enhanced.
· Look and feel changes
· IT support model changes
· Getting the business ready for the change, including creation and changes to SOP’s and key business artefacts.
In parallel to the configuration and build of the system we would recommend an organisational change impact assessment is carried out to define areas of change and remediation required.
So if you want to know more about defining or refining your Finance Target Operating model or want to know more about how SAP enables finance teams, then contact a Dragon.
https://dragonerp.co.uk/contact-us
Dragon ERP, “Less Consulting puff, more SAP delivery firepower.”
About the Author:
Alisdair Bach is a Business Transformation innovator with over three decades worth of experience in helping complex organisations gain value through the use of SAP.
