UNTANGLING THE KNOT
Multinationals in Asia are now attempting what their American and European peers have long struggled with—to make finance efficient and helpful.
By Gregory J. Millman

A multinational corporation was unrolling a new, global financial infrastructure in Asia. The project had reached the testing phase, and everything seemed to be working perfectly—a sign not of success but of real trouble. “We expected to be recording defects as we tested,” says the project manager, who asked that neither he nor his company be identified, “but we weren’t recording any defects. It seemed strange.”

An investigation revealed the truth: there were indeed problems, including incorrect data structures. Local employees had spotted defects but weren’t reporting them, much to the consternation of their European manager. The problem, he discovered, was that some employees felt that reporting problems would be seen as criticizing their colleagues’ work, and they were reluctant to do so. “People felt it was a reflection on someone’s work instead of a reflection on the design,” says the manager. Arguments about the necessity of reporting problems helped, but weren’t enough. “We also ran into a similar issue when we went live [with the project],” he says. “There were a few issues that didn’t surface as fast as we’d like.”

After years of putting off plans to overhaul the finance functions of their Asian operations, many multinationals are now making the push. Western companies such as AIG, BP, and ING are making a concerted effort to implement a common set of finance processes, to put in shared services and ERP systems, and coax their controllers to look up from their ledgers and start talking to their peers in the business. Many Asian multinationals are attempting the same thing.

But, as the experience above suggests, it’s rarely enough to simply use a finance transformation template that worked well elsewhere and expect the same results in Asia. A company may easily have operations in 15 countries, each with its own language, traditions, and regulations.

Add to this an internal dimension of diversity. MNCs in Asia often operate in different markets, with businesses at different levels of maturity. Many have grown by acquisition, picking up a variety of legacy systems, applications, organizational models, and other impediments.

Ready to Grow?

Clearly, sorting out such complexity—and doing it in a way that doesn’t squelch the entrepreneurial drive of local managers—won’t be easy. But the region’s finance chiefs sound determined to attempt it. “We’re trying now to get more leverage from our overall skills, capacities, and resources in the region, trying to find opportunities where our whole is more than the sum of the parts,” says Ewout Steenbergen, CFO and chief risk officer of ING Insurance and Investment Management Asia-Pacific.

The reason for the change of heart among multinationals should come as no surprise. Years of breakneck growth have yielded high profits for many companies but have left a tangled mess in the back office. “For most of the past 20 years, most multinationals [in Asia] have focused on growth,” says Steve Roder EVP and CFO, Life Operations, for AIG. “Inevitably, when business growth is driving the organization, the support functions have to play catch-up.” Indeed, it can be hard to convince headquarters to spend money on finance function improvement, particularly in the absence of the kind of governance and compliance pressures facing operations in the West. “If somebody asks you to show the IRR on putting in a new general ledger, it’s hard to do,” says Roder.

But multinationals need Asia’s brisk growth rates to continue, particularly now that growth is sputtering in the United States. The trouble is that many companies have reached the point where inefficient finance operations threaten to hold back high growth. That’s certainly true for many of China’s big enterprises, where finance often has only a clouded picture of financial performance, making good business decisions difficult. And as these enterprises look for growth overseas, observes Colin Powell, partner for IBM Global Business Services, they’ll increasingly encounter regulations that will require a more smoothly running finance operation. “We have a couple of very large clients in China that are truly global enterprises, and they want to be globally integrated, able to manage and report across the global enterprise,” says Powell.

For other companies, there’s recognition that seizing business opportunities in Asia—where growth rates are high, but competition is intense—calls for more guidance from finance. But good advice requires good information. Furthermore, few CFOs can spend time on analysis when their finance teams are spending late nights puzzling over conflicting spreadsheet data.

Simple, Not Easy

These are all good reasons for simplifying Asian finance operations. But as any CFO operating here could tell you, the region throws up significant obstacles to ambitious finance executives with big plans. First of all, there’s growth itself. Most companies in the region continue to expand quickly, buying businesses and entering new business lines and markets. Trying to standardize finance processes and implement a new ERP system in such a situation can be a bit like changing the transmission on a moving car. “If you look at a two-to-three year implementation of an SAP system, you’ll never catch up with yourself,” says David Axson, president of Sonax, a U.S. consulting firm.

There’s also the chaotic condition of finance processes and systems for many companies in Asia. That’s particularly true of multinationals that have been operating in the region for many years. Consider BP. The global energy company is in the middle of a massive effort to transform finance around the world. The focus of the effort is a new SAP platform, including a common chart of accounts, data warehouse, and reporting tools. Usually, such ambitious ventures reach Asia last—operations here are traditionally smaller and costlier to rationalize, given the peculiarities of operations within each country. But for BP, Asia is second on its list—after Europe but before the company’s big U.S. operations.

One reason, says Tim Roberts, BP’s director of group financial infrastructure for Asia, is the parlous state of local financial infrastructure. “There was legacy infrastructure—old BP systems or ones from companies we acquired—that was coming to the end of its useful life. If we didn’t replace these systems there was a risk that it would actually fall over.”

There’s another motivation: BP’s Tangguh liquid natural gas (LNG) project near Papua, Indonesia. It’s a US$5 billion investment to pull clean gas out from under Bintuni Bay, pipe it to an LNG processing facility, and put it on tankers bound for North America and other parts of Asia. Tangguh is a big priority for BP, but the old Oracle system the company has in Indonesia lacked the tools to allow finance to provide the kind of reporting and analysis needed to keep the project running smoothly. “We need a financial system in place to be able to support the project,” says Roberts.

Another source of difficulty for large finance projects is the region’s diversity. “For the global company in Asia…the opportunities are great because of the growth, but they have to deal with a lot of complexity because the countries and even the geography are different from what they’re used to,” says Matthew Podrebarac, a partner with Accenture. A typical multinational will have disparate operations in many countries. This has made many reluctant to include Asia in their finance improvement efforts over the years, including ERP, shared services, and outsourcing. Accordingly, local operations have grown accustomed to a great degree of independence. Finance transformation—with its emphasis on common processes and cross-border agility—runs counter to this reality.

Steve Roder is in the early stages of a transformation for the Asian operations of AIG’s life insurance division. His goal is to trim the number of finance employees doing low-value work and build a finance team that’s considered an integral part of the business, providing analysis of market problems and opportunities. Part of the effort will include standardization and shared services. “It’s far more challenging [in this region],” Roder says. “You’ve got to work within the local cultures and make allowances for the fact that what works in one location won’t necessarily work in another. It’s a delicate balance between having projects that are harmonized, while at the same time having local buy-in.”

The Roads Taken

Clearly, a major project in this region requires a plan of attack. The obvious, and most common, approach is top-down: take global standards and processes and drive them through the Asian operations. This is the tack that BP is taking. For the past 36 months Roberts has been rolling out BP’s SAP infrastructure across Asia. “The solution we’re deploying here is a global solution, not developed in Asia,” he says, “That brings unique challenges compared to a program developed locally. There’s a risk of local solutions, people working to get it done but getting it done their own way. So governance is important to make sure people do things in a standard way,” Roberts explains.

Predictably, unambiguous support for this project from the very top of BP has been essential. “We’re a global multinational with operations from New Zealand to Alaska. A lot of managers are used to running their own business,” he says. “We’ve needed a very strong message: we need SAP, we’re going to do it this way, and we’re going to drive it through.”

BP might have flown in a team from the United States or Europe to implement the new solution. Instead, it formed a regional team and has rolled out the program through a series of “go-lives.” The team cut its teeth on the first go-live in Malaysia and Singapore, and then moved on to Australia and New Zealand. Most recently, in May, Indonesia went live. This approach has several benefits. It allows the team to learn as it goes. It also creates a sense of momentum. “You have a program that spans three or more years, but the organization stays stable for 18 months—if you’re lucky. After three years, people have different roles, and there are different sponsors. The important thing is to build momentum and get some deployments established. Everyone starts to see the benefits and it becomes a no-brainer in terms of changing tack.”

But beware, says Aurore Saglio-Thébault, CEO of Capgemini Business Services (Asia). The top-down approach that BP is taking—what she calls the “classical” approach to finance transformation—is anything but a sure bet in Asia. “In most cases it fails,” she says. “It costs a lot of money with few results. Nobody is really aligned, and people continue to do things their own way without telling anybody at headquarters.” Often, she says, a new ERP system will be installed on top of existing systems, allowing local units to continue using their legacy systems.

Saglio-Thébault is equally critical of a second method—when managers (typically Westerners) try too hard to be sensitive of what they perceive as “Asian culture.” These companies pursue a pure bottom-up approach, trying to achieve consensus on every decision. “What happens is that you show the template to each country, but each country asks to develop specifics. So the standard solution is not standard anymore.”

She advocates a third approach. This is to divide the responsibility for the transformation project among the countries or businesses involved, giving each responsibility for a specific element. For example, instead of imposing a key performance indicator (KPI) template from headquarters, the company might assign each country responsibility for a particular KPI, which will be applied across the region. The Japanese division might take charge of strategic metrics while Korea focuses on HR measures, for example. Each region would present its ideas to the others and work to agree on a standard for the region.

The advantage is that local operations develop a sense of ownership, rather than a feeling that plans have been foisted on them without consideration of their situation. “By having these countries working together but with different responsibilities, you create a kind of benchmark, or emulation between them—not really competition, but a very positive insight from each of them. At the end of the day, they are proud of what they have done and you come up with something really workable,” says Saglio-Thébault.

A Promising Start?

For all the difficulties of an Asian finance transformation, early reports from the latest batch of projects are encouraging. AIG’s Roder, for example, has marked up some improvements already, such as lopping 10 days off the time required to close the books. And because of his efforts to move finance into a more strategic role, he’s seeing that the company’s finance function has an improved reputation in the marketplace for talent. “We’re now seen as a progressive, dynamic finance function, and we’re finding it easier to recruit talented people now.”

At BP, the top-down approach has been yielding results, despite the difficulties commonly associated with the method. What has made the difference, argues Roberts, has been the ability to show local employees the benefits to doing things in a common way. “We can supply them with tools they didn’t have before, particularly in terms of management information,” he says. For example, historically, when BP’s local operations did their internal reporting and forecasting, finance employees would have to pull data out of an archaic database and put it into spreadsheets. Now Asian operations can use the business data warehouse in London, and the extracts for reporting and consolidation are automated.

Of course, it’s too soon to say what the long term results of such projects will be. But if they succeed, CFOs will be laying the groundwork for a more important mission: creating business value. “We have gone after technology and embraced ERP,” says Ravi Nedungadi, CFO of United Breweries in Mumbai. “Those are only tools to achieve our objective: that’s to understand and anticipate what the Indian consumer wants from our lines of business.”

Now the fun begins.

Gregory J. Millman is a U.S.-based business writer.