Building an Intercompany Transformation Business Case

Within the intricate landscape of multinational operations, the demand for Intercompany Financial Management (IFM)—a comprehensive approach that encompasses policies, processes, and technology to navigate intercompany transactions—is amplifying. Comprising 40% of the global economy (Grant Thorton), intercompany is one of the largest and most complex areas of finance by far. By embracing IFM, companies can not only streamline operations, but also unlock operational efficiencies to achieve significant time and cost savings.

Despite these advantages and the fact that intercompany can be up to ten times revenue (Deloitte), many multinationals hesitate to adopt IFM strategies, especially when it comes to technology. Ignoring the problem or opting for makeshift solutions that merely address symptoms, such as persistent imbalances, only serves to exacerbate challenges that companies encounter.

While maintaining the status quo is always a choice, it’s not always the right one. Intercompany, as a process, spans the organization and the impacts of it go beyond just left pocket/right pocket. Ignoring issues today makes current challenges more difficult tomorrow, and the bottom-line impacts are real—heightened staffing requirements and turnover, suboptimal tax positions, the potential for financial restatements and penalties, delayed integration of new acquisitions, difficulty managing global operations, cash flow constraints, and notable imbalances resulting in write-offs. Collectively, these issues can contribute to a decrease in profits, reduced tax defensibility, and diminished confidence in data accuracy.

Addressing intercompany is important. How an organization addresses it is critical.

Once you have made the decision to address intercompany, it’s important to consider how you are going to make the necessary changes. There are many factors to evaluate, such as performing an intercompany assessment, establishing roles and responsibilities, and recognizing technology requirements. These items will help your organization evaluate your current situation and allow you to see what your top needs are when it comes to addressing intercompany. By considering people, processes, governance, and technology, you can ensure your intercompany transformation will be well on its way.

Pivotal to your success is building a robust intercompany transformation business case. This is the heart of why your company is making the investment and is used to communicate, from the bottom to the top, where you are headed. Considering that only 30% of digital transformation efforts are successful (McKinsey), a robust business case helps guide the way to success and ensures alignment among all stakeholders, including the CFO.

Presenting a compelling case to finance leaders for investing in intercompany optimization is no small challenge. It demands a narrative that not only resonates with the executive vision, but also aligns with the company's strategic goals. To construct a persuasive business case, we recommend the following four steps:

Strategic objectives are statements that identify what is critical or important to a business’ intercompany strategy. Take a high-level approach to defining “how much” and “by when.” Connect the project to well-defined metrics and anticipated results and emphasize its strategic importance. For example, if intercompany is impacting your close and the objective is to reduce close time, a strategic objective might be “to shorten the close by one business day within the next calendar year by improving intercompany operations.”

Strategic objectives can cover multiple categories, such as financial, growth, learning, or customer-based. They should also be SMART–specific, measurable, achievable, relevant, and time bound. According to a recent McKinsey study, transformation initiatives that set strategic objectives had a 1.5X likelihood for success.

Conducting a thorough current state assessment of the business can help your organization see where you are compared to where you want to be in terms of your strategic objectives. Many consulting firms offer this as a service to help your organization. Common categories to assess include: policies, organizational structure, systems used, governance/controls, data/transaction volumes, and processes. The assessment results can be used to provide transparent ROI data that delineates current costs and illustrates how optimization can yield significant savings and reduce risks. The assessment also lays the groundwork for the business case and shows how an investment in technology is tied to the future state and a roadmap for how to achieve it.

Establishing strategic objectives serves as the bedrock for transformative shifts. It acts as a guiding beacon to unite your organization. While business strategies often dominate executives' focus, the most formidable strategy remains ineffective without the backing of well-aligned organizational capabilities—the essence of successful execution. The absence of strategic alignment frequently originates from the top and adversely affects the engagement of leaders at various levels.

According to a survey conducted by the MIT Sloan School involving over 4,000 managers, 28% of respondents could accurately identify three of their organization’s primary strategic priorities. It’s clear that organizations aligned with a strategic vision stand a greater chance of success in today's complex business landscape. Harmony among strategy, organizational capabilities, and architecture is imperative for achieving this alignment. Therefore, it’s important to highlight the proposal's relevance and urgency in achieving overall corporate goals. Tie back intercompany processes to overarching objectives and detail how achieving them will benefit the company.

In an environment that promotes cross-functional collaboration, teams from diverse business functions and groups converge to collectively contribute to a shared strategic goal or priority. Intercompany is no different. Efficient decision-making and innovation rely on teams collaborating seamlessly, merging a variety of ideas, skills, experiences, and viewpoints. Cross-functional collaboration significantly enhances operational efficiency by enabling shared insights and feedback among employees, encouraging diverse thinking that leads to better problem-solving and innovation. Moreover, it forges a more connected and engaged team culture by uniting employees around a shared vision, amplifying their sense of connection and contribution to the larger organizational goals. Collaborate with other departments under the CFO, such as Tax, Treasury, and FP&A to present a united front. Highlight the enterprise-wide benefits of optimization and emphasize the collective advantages that extend beyond individual departments to the Office of the CFO.

A well-prepared business case leads to positive outcomes for an intercompany transformation project. Some of the key outcomes include:

• Informed Decision-Making: Equips decisionmakers with comprehensive insights, enabling well-informed choices by outlining costs, benefits, risks, and potential returns.

• Resource Allocation: Facilitates effective allocation of financial and human resources, aiding in prioritizing and supporting the success of the proposed project.

• Stakeholder Alignment: Ensures alignment among stakeholders, garnering crucial support and cooperation for the project's objectives.

• Risk Management: Allows for the identification of potential risks and challenges and the development of mitigation strategies to enhance overall risk management.

• Measurable Success Criteria: With clearly-defined success criteria and KPIs, organizations can track progress, evaluate performance, and justify the project's financial viability.

Following the steps we’ve outlined and building a solid business case for your intercompany transformation will help ensure the long-term success of your project. But, a business case is only part of the transformation story. Having the proper technology as part of the foundation is critical. BlackLine’s intercompany solutions are here to help.

Transforming intercompany operations may seem like a daunting process, but when executed effectively, it has immense benefits across the organization:

• Operational Redesign & Automation: Realization of efficiencies through redesigned operations and automated processes through technology.

• Strategic Focus: Allows finance and accounting teams to redirect their time towards value-added strategic decision-making activities.

• Cost Savings & Improved Financial Health: Enables tangible cost savings, improved working capital, and reduced internal costs.

• Seamless Integration & Long-Term Sustainability: Ensures the seamless integration of transaction data across diverse businesses and global locations to support long-term sustainability amid ongoing changes.

Following the steps we’ve outlined and building a solid business case for your intercompany transformation will help ensure the long-term success of your project. But, a business case is only part of the transformation story. Having the proper technology as part of the foundation is critical. BlackLine’s intercompany solutions are here to help.

BlackLine’s Intercompany Solution is the first and only holistic solution to address the breadth of global intercompany operations, from transaction creation with tax considerations to final resolution of payment and settlement. The solution provides exceptional visibility and enhanced capacity to intercompany operations across accounting, finance, tax, treasury, and shared services teams. This enables teams to perform real-time and continuous analysis of related-party accounting, leading to streamlined and time-efficient intercompany activities.

Learn more at blackline.com/intercompany.