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White Paper


Standardizing Finance & Accounting processes in Europe: overcoming the challenge of fragmentation

Local and global companies operating in Europe face major challenges in centralizing their F&A processes to drive effectiveness up and costs down. Across Europe, the continents unique legacy of cultural, regulatory and linguistic diversity and fragmentation has resulted in widespread use of multi-location solutions, limiting the efficiency gains from the creation of shared service centers. However, by partnering with the right global provider, growing numbers of companies are succeeding in unifying their European processes in ways that better support their operationswhile simultaneously boosting agility and reducing costs.
In the US, large companies have forged ahead with creating and running shared service centers that centralize and rationalize their F&A processes nation-wide. By contrast, in continental Europea comparably sized marketplacecorporations have found it much harder to consolidate and unify their pan-European processes. As a result, European shared service centers (SSCs) often manage activities on a national or regional basis rather than Europe-wide. Why is Europe so different? Europes relative lack of centralization in business processes has its roots in the continents long-embedded cultural, political, economic and regulatory diversity. There are sharp differences in working patterns between different countries (see Table 1). Basic business processes also differ across the continent, notably between the north and south of Europe. At the same time, enlargement of the EU has led to a renewed focus on strengthening market positions in new EU member countries, resulting in the introduction of new processes and procedures in Central & Eastern Europe. And ongoing expansion of the eurozone has driven accounting changes in the countries joining the currency, creating complications for employers and businesses, especially if they are operating cross-border.
Country EU Labour Force Survey average hours for all workers (inc part-time) 38.0 37.1 41.7 36.9 36.3 37.7 32.5 40.1 38.0 36.4 36.5 37.7 Average hours for full-time workers** 44.1 42.7 42.9 41.0 42.9 40.8 46.0 42.2 40.8 42.7 42.1 42.1 Legal maximum 50.0 40.71* 48.0 39.68 48.0 45.2 48.0 43.12 41.68 48.0 48.0 48.0

Austria Belgium Czech Republic France Germany Italy Netherlands Poland Spain Sweden United Kingdom EU27

Table 1: Weekly working hours for men and women in selected countries and across the EU27 Source: *38 hours per week and 130 hours per year overtime **Calculated from LFS figures. Effective annual maximum (inc overtime) May be exceeded with individual consent

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Forward-looking companies are increasingly overcoming these challenges by establishing a process factory that unifies their finance processes across Europe. The businesses that have achieved this include a global supplier of hygiene and cleaning solutions, which until just three years ago was operating 14 finance entities across Europe, staffed by 74 FTEs using nine different languages. Its finance operations at country level were also hampered by non-standard processes and the involvement of multiple sites and stakeholders. A further challenge was that this SEC registered business needed to achieve certification for its internal financial controls under Sarbanes-Oxley.

to audit the finance processes, rather than going to each individual countrygenerating significant savings. Within a year of the projects inception, 90% of the AP transitions across Europe had been completed, and optical character recognition (OCR) technology had boosted productivity by 30%. E-invoicing was then launched in AP, cutting costs by a further 12% and reducing processing cycle times. The pan-European AP team was reorganized from processbased to activity-based, and the scope of the standardization project extended to GL. The company was also able to rationalize its European finance leadership down from 14 national CFOs to three regional ones. At the same time, SOX attestation was successfully achieved.


Global supplier of hygiene and cleaning solutions Business challenges: 14 finance entities across Europe, staffed by 74 FTEs Non-standard processes between countries Needed certification under Sarbanes-Oxley Solution: Outsourced and standardized AP and then GL across Europe Transformed document flow to digital Single pan-European workflow run by central mailroom Business outcomes: 90% of AP transitions completed within one year Productivity boosted by 30% by OCR technology E-invoicing generated further savings SOX attestation achieved successfully


As this companys experience shows, the key to creating an outsourced process factory is to consolidate fragmented processes into a single process model. This involves removing variations in the processes in the various country operations, and standardizing them in combination with the transition to the external partner. This end-to-end solution involves the following critical steps:. Organization and Governance: The scoping of process should be in such a way that the outsourced portion maximally covers the end-toend process to reduce frequent hand-offs. While creating a retained organization, it is important to identify business hubs to consolidate fragmented retained organizations. Nordics, Germanic, Benelux, Iberia, Southern Europe etc. are some frequently envisaged regional hubs. The key is to understand local volumes, future growth, market uniqueness, end customer landscape and openness to change before creating regional hub model. The end state finance organization will then combine the retained organization and outsourced organization under one governance structure. Process streamlining: Assessing the as-is business processes to eliminate non-value added activities and create a global process template through standardization workshops. The application of processes should be validated at every stage of the transition. Some of the processes may need to be fixed before shipped to the outsourced center. Process Decoupling: Decoupling involves identification of nonlanguage sensitive processes and co-locating them in offshore location while language sensitive processes are kept near shore. While identifying the portion of process that requires decoupling, it is important to understand as-is process health e.g. An AP process with 90% Purchase Order [PO] penetration can have much higher decoupling possibilities than a similar process with 40% POs. Process decoupling assessments need to balance cost advantage and ongoing business delivery. Technology tools: Maximizing the returns on investment in technology by leveraging the existing IT infrastructure, while using enabling tools to assure proper functioning of business processes from a remote location.

To overcome all these challenges, the company asked Genpact to take over the management of its finance operations across Europe on an outsourced basis, while simultaneously standardizing them and preparing them for SOX certification. Accounts Payable (AP) was the first activity in scope, followed by General Ledger (GL). The structured approach taken by Genpact involved identifying levers to improve process efficiency and effectiveness to implement a sustainable solution for this client. At its core the initiatives included centralizing and standardizing each process; establishing and measuring each process against Key Performance Indicators (KPIs); developing change management structures; and transforming the document flow from paper to digital. To drive the centralization and standardization of AP, Genpact implemented a mailroom for all the clients European locations, acting as a control point managing a single workflow of scanned electronic documents throughout the business. Simultaneously, Genpact examined each site from a control risk perspective to update the control risk framework to support SOX certification. The required controls were applied centrally to consistent standards. One outcome is that the companys auditor only needs to visit Genpacts facility in Bucharest

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Policy harmonization: Streamlining of business policies supports standardized processes and improved productivity. Policy standardization can be optimized by sharing best practices from within and outside the business.
People & Culture Invest in training on Client organization & culture Ensure that the dedicated Client team has a sense of belonging Joint hiring of key people Client participating into performance evalution and career decisions Consider employees rotations Flexibility Adjust our processes/tools to Client requirements Flexibility in dealing with changes: volumes, acquisitions, process changes... Change performance metrics to align with business needs

days to eight hours. Source-to-Pay was the first area to be successfully standardized and outsourced, and this is now being followed by Recordto-Report and Order-to-Cash.

Global pharmaceuticals company Business challenges: Finance teams spread across 11 European countries using 10 languages Lack of integration and standardization between country operations High costs and low effectiveness Solution: Four process-focused waves of standardization and outsourcing Began with the companys biggest division in top 10 European countries and US Standardization targeted four key aspects: processes, systems, finance strategy, and tools Business outcomes: Greater visibility and efficiency across all its European finance operations Receivables DSO reduced from 21 days to 18 in France Payment run in Italy simplified from 4 days to 8 hours


Genpact Virtual CaptiveSM


Natural, scalable extension of Client organization Visibility Provides Transparency into processes-share detailed process performance metrics Access to employee performance data Pro-actively provide visibility on any issue we face

Figure 1: Maximizing partnership through the Virtual CaptiveSM Model

The process factory created through these steps will no longer be organized and operated along national lines, but by process activity. One proven approach to achieve this is Genpacts Virtual CaptiveSM Model (see Figure 1), which is supported and facilitated through seamless management of operations and people across Genpact and the client.


Another business that has successfully unified its pan-European finance processes and systems is one of the worlds leading global pharmaceuticals companies. With teams spread across 11 European countries using 10 languages, this business found that the lack of integration and standardization between its various European finance operations was driving high costs and low effectiveness. So the company decided to standardize and streamline its finance processes on a panEuropean basis through an outsourced solution. It selected Genpact as its outsourcing partner. The program took place in four waves, each of which transformed specific parts of the companys finance organization through standardization and outsourcing. The first wave focused on the finance activities of the companys biggest division in the top ten European countries and the US, with other divisions and countries following in three subsequent waves. In each case, the standardization targeted four key aspects of the finance operations: processes, systems, finance strategy, and tools. In each wave, Genpact global process owners collaborated closely with their counterparts in the client organization to define and implement best-practice standards in each area, ranging from overall strategy to specific tools. Following the transformation of each activity, the pharma company has gained greater visibility and efficiency across all its European finance operations. The benefits are still increasing, but those already realized include a reduction in receivables DSO from 21 days to 18 in France, and simplification of the payment run in Italy from four

Throughout the transformation program for this pharma major, Genpact has driven the maximum benefits for the clients business by leveraging its proprietary Smart Enterprise ProcessesSM (SEPSM) framework. Summarized in Figure 2, this is a methodology for defining and implementing best practice standards to improve finance process effectiveness and business outcomes. Once these best practices are in place in major jurisdictions, they can be retrofitted in the smaller countries to optimize the benefits.


Proprietary IP based on analysis of 200 million+ transactions across 4,000+ managed processes Determines benchmarks across industries at each level in a process, with key drivers to improve business results. Identifies best practices for addressing those drivers Cuts across business silos through upstream and downstream inter-linkages and concentrates on the effectiveness of an end-to-end process Maps client performance at every step of a process, measures against best-in-class standards and provides a clear roadmap on how to become best-in-class Offers solutions including Process, Analytics, Reengineering and Focused IT based on achieving business impact

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Enterprise Suite Collections Customer Services Hire to Retire Order to Cash Record to Report Source to Pay Insurance Suite Application to Issuance P&C Claims-Auto, Homeowners, Personal Healthcare Suite Patient Flow Revenue Cycle Management Supplies Flow Financial Services Suite Application to Dibursals Collections Commercial Lending Credit Risk Manufacturing Suite After Market Services Supply Chain Infrastructure and Application Suite IT Design to Retire IT Helpdesk


A Unique Scientific Approach that Delivers Impact on Business Outcomes

Figure 2: The Smart Enterprise ProcessesSM (SEPSM) framework


On top of the best practice points we have highlighted, there are a number of further factors to bear in mind when looking to consolidate and integrate processes across Europe through outsourcing and standardization. One is the choice of which processes to outsource. In a typical finance and accounting outsourcing, transactional processes account for around 60% to 70% of the effort but only 35% to 45% of the cost. This is why companies often feel tempted to keep high-end work such as FP&A, tax, statutory and management accounting activities in-house. However, such an approach can hamper the companys ability to overcome embedded country silos and reduce costs.

To break with these past trends, a company can team up with one of the select group of outsourcing partners that have strong and long-standing strategic partnerships with leading accounting and audit firms. These relationships enable the outsourcing partner to act as a single-source supplier for end-to-end finance and accounting services across multiple countries. Genpact, for example, has forged exactly these types of relationships with leading professional services firms. Companies find this capability particularly compelling in countries where their presence is small, and/or where they are entering a new market. Historically, Europes fragmentation has made it difficult to consolidate finance processes across borders. But the tide is now turning, as more companies seize the opportunity to outsource and standardize their finance operations on a pan-European basisthereby unleashing major benefits across their business.

About Genpact Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise G&A and industry specific services, coupled with strong IT, analytics and reengineering capabilities. For more information, visit: Copyright Genpact 2010. All Rights Reserved. For more information, contact: Genpact UK Ahmed Mazhari, SVP +44 207 535 5400

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