Finance Transformation in Commercial Real Estate
Technology is key
Posted by Surabhi Sheth, Real Estate research leader, Deloitte Services LP, on December 3, 2013
“The requirements of the modern finance organization have shifted. Finance should now serve as more than just a steward of a company’s resources and also help chart a path to growth in partnership with other parts of the business,” notes Rich Rorem, principal, Deloitte Consulting LLP and Finance Transformation leader for the Americas.1 “Business leaders are looking to their finance organization for a deeper, more hands-on, collaborative approach,” he says. In addition, digital technologies are rapidly evolving, converging and becoming C-Suite friendly. “While CFOs and other finance executives understand this, many of them lead finance organizations that simply weren’t built for that purpose.” 2
In the commercial real estate (CRE) sector, the requirements have likewise shifted. CFOs are being asked to focus on improving cost efficiency and competitiveness, as well as using enhanced technology and analytics to deliver strategic insights (Figure 1). We are not surprised that the CFO’s role is increasingly valuable and complex, especially as the sector is in modest growth phase and many prior balance-sheet concerns have been addressed.
In reality, however, the finance function at CRE companies typically spends the bulk of its time consolidating and reporting key pieces of financial information both across the organization and externally. And why? It’s because many organizations tend to have a multi-entity structure, with properties spread across various geographies. Adding to that, each one typically has a unique finance- operating model using different legacy systems. Consider the small-to-mid-tier firms – they tend to use individual or combined multiple enterprise systems, offline tools such as MS Excel and process and procedure manuals to perform core finance activities. On the other hand, many large companies tend to use a hybrid model – a mix of leading enterprise resource planning (ERP) solutions for corporate management and point solutions for different functions – all of which can create integration challenges.
This calls for significant realignment of existing finance functions and may require companies to overhaul their core finance reporting systems and processes (Figure 1). Companies need to automate and standardize repetitive and transactional tasks, as well as increase accuracy, efficiency and speed of core finance operations to effectively manage business information and reporting. To achieve this, companies first need to challenge current practices in light of the most appropriate finance-operating model and then evaluate the right mix of technologies. Companies should assess whether the current system’s capabilities align with leadership’s objectives to support the business for the next three to five years. To this end, companies may consider answering the following questions: 3
- Does current technology provide the information, tools and services that business leaders are demanding for shorter- and longer-term planning, decision support and strategy implementation?
- Can that technology be scaled to support business-model changes, company growth and expansion into new markets?
- Can the existing technology generate information that can help management plan for and address unexpected events or risks that may impact earnings?
- Does that technology enable the finance organization to comply readily with new regulations and report on such compliance?
Figure 1: Technology enables finance transformation
Source: Deloitte Analysis
Once companies complete the assessment and design the transformation plan, successful execution is key. And can the finance function execute in isolation? NO, it cannot. Companies will benefit from involving various stakeholders early in the process and partner with them throughout the execution. According to Burt Rhea, director, Deloitte Consulting LLP, “addressing organizational change management issues early, preparing users to adopt new work processes and systems and aligning supporting talent processes are increasingly being recognized as critical risk management strategies to drive successful finance transformations.” In fact, according to Mr. Rorem, “finance organizations haven’t historically hired talent or built themselves to meet this demand for partnering with other areas of the company to drive growth. Consequently, there is a significant talent gap developing, which CFOs are now trying to address.”
Hence, while the CFO’s role has broadened and requires the finance function to break down ‘silos’, technology is the key enabler. Just as it is important for the CFO to define the finance priorities, it is equally important to make the right technology-related decisions to achieve these goals, especially as these initiatives can be a lengthy and costly affair.
Looking ahead, we anticipate that a great number of companies may opt for staged implementation rather than an extensive, “big-bang” approach. The choice may not be an easy one for technology leadership to make, as they balance long-term strategic imperatives against the imminent need for technology revamps across various functions and processes.
As Ken Meyer, principal, Deloitte Consulting LLP and U.S. Real Estate Consulting leader notes, “today’s successful real estate organizations are challenging the status quo and asking whether their finance operation model reflects innovative practices that leading companies have adopted. The benchmark for operational effectiveness extends beyond the RE industry peer group and now includes the most successful and respected organizations.”
A full report on impacts of technology on various aspects of the commercial real estate business can be accessed here – Trimming the sails for growth: 2014 commercial real estate outlook: Business transformation is key.
1 Pipeline of Future Finance Leaders Running Dry: Global Survey, Deloitte WSJ CFO Journal, August 27, 2013.
3 How CFOs Can Unlock Value with a New Financial System, Deloitte WSJ CFO Journal, April 17, 2013.
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