Time For a Change

There were several reasons for Allianz embarking on a major transformation of its finance operations. The external regulatory environment was a significant factor; the requirement for European companies to publish IFRS consolidated accounts alongside local GAAP, tax accounts and management reporting, SOX, Basel II, Solvency II... a seemingly endless list of regulatory reporting requirements.

‘The best way to deal with the additional reporting streams and changes to reporting processes was through structural change,’ says Jürgen Ott, Allianz’s head of global reporting and group financial data management. ‘And, in doing so, applying manufacturing quality management principles to the finance function and the financial supply chain.’

There were also strong internal drivers. Globalisation meant that a better global strategic view of the business was needed, with the finance function’s expertise helping to maximise performance of the core businesses.

Underpinning principles

There was a clear set of principles underpinning the transformation. ‘We wanted to bring the community of finance people together to share their know-how and best practice – in terms of processes, recording, reporting, auditing, cash and procurement, payment – and then try to put this on an IT platform in order to be as efficient as possible,’ says Ott.

An early part of the change process involved setting KPIs. ‘You can only change what you measure,’ says Ott. ‘We started putting together a huge selection of KPIs. How many days does it take to close your numbers, not only overall, but in all the sub-processes? Do you have pre-closing in place and how many days does it take? What about data quality? How many corrections are acceptable after sending in the numbers, or after closing the books for the first time?’

Harmonising the IT systems and processes was also high on the agenda as there were about 600 different general ledgers in operation, with just about every vendor represented, and Allianz paying licences across the globe. There were even proprietary accounting and consolidation systems.

Simplicity was essential. So, for example, Allianz wanted to find a way to integrate risk and financial reporting. It also needed to deal with the parallel reporting and closing procedures and the complex world of evolving global standards. Ultimately, Allianz opted for IFRS, hoping this would eventually be combined with US GAAP to become the global standard.

‘We were doing two things. First, we could report to stakeholders based on the global standard, which should reduce our cost of capital as people can trust, compare, and understand the numbers,’ says Ott. ‘Secondly, we could steer our business based on these numbers in terms of capital allocation, investment decisions and cost cutting. Therefore, not needing to use different numbers or different internal communication, compared to external.’

Improving quality was also at the heart of the transformation process and that meant improving the quality of the financial information – in this case, based on a principle of checking the quality at the very beginning rather than clearing up the mistakes at the end. So part of the industrialisation process focused on bringing validation checks further forward to the source of the booking entry.

In practical terms, that meant using a standardised platform between core applications or the point of sale and the back office, pre-configuring that centrally and setting validation rules in line with Allianz group reporting requirements.

‘It was a tough change to implement,’ says Ott, ‘but nothing more than the manufacturing industry had done with respect to quality 20 or 30 years ago.’

Implementing change

Progress on the transformation programme advanced in a logical fashion, starting with the data then moving through processes and systems.

For example, the operating entities were getting numerous similar requests from different departments resulting in reporting overlaps. To counteract this, Ott removed any redundant reporting. The idea was to integrate the requirements and channel them through a central hub, set up within the finance function. This was then structured and put onto an IT platform, with the same codification for the same reporting requirements right across the group. This included not only financial information such as accounting but other strategic information including KPIs for IT reporting, HR reporting, marketing and other productivity-related information.

It is important to take a tough attitude towards standardising the data, Ott claims, as there will be the inevitable pushback.

‘Every time headquarters try to standardise something, even if it’s a bottom-up approach, you see local management rejecting it because they lose flexibility and control, and there is more transparency and comparability,’ he says. ‘There was a huge resistance at the beginning, but eventually people learned to like the new processes when they realised how much more efficient they were.’

The data governance process must be transparent. Ott travelled the world explaining the benefits of the changes, talking to the CFOs, CIOs, and CEOs at the various operating entities. It was an authoritative process with the new group policies drawn up and signed off by the CEOs.

Then, once in place, it needs to be monitored regularly otherwise, says Ott, the same procedures, ad hoc reporting and overlaps will crop up again.

After data standardisation, attention focused on the processes.

‘We did a process map outlining the processes for accounting, controls and reporting, and looking at them across countries and business segments,’ says Ott. ‘We concluded that on a higher level, these processes are effectively all the same. So we came up with a business blueprint for the processes to use across other countries and business segments.’

The third element was the systems implementation. ‘Ultimately, we went for SAP, but it is not the IT that is really important. What is important is that you end up with a standard capable of dealing with large businesses,’ he says. ‘IT is an enabler that is the principle – go for one system and one standard.’

It was a more painful process, points out Ott, to reengineer processes to encrypt in the SAP platform. Allianz might easily have decided to reengineer the system in line with their customised processes. But, given that SAP has 30 years’ development based on thousands of customers’ experiences, a standardised process, based on standard platform made more sense.

A finance function for the future

Having led Allianz through such a substantial transformation, Ott is well placed to identify the key factors for success. Firstly, he believes, have a clear vision and strategy, one that can be understood by the people affected by the change. Secondly, communicate the end-goal clearly and openly. If cost reduction is involved, for example, say that there will be painful change and some people will probably need to look for different roles in the company, because their job is automated or eliminated.

Get senior management backing. Try to keep the change project simple. Concentrate on a few key processes and standardise them, and keep those standards. Do not give up if people reject it or try to change the standards. Go for one system, and adapt your processes to the system, and not vice versa.

And finally, make sure that people work together to implement the change.

‘Partner with people,’ says Ott. ‘Collaboration is essential. Between the CFO and the CIO, throughout finance departments, accounting, controlling, and reporting. Bring local people together with people at headquarters and try to create a community and team where people respect each other,’ he adds.

‘Bringing people together and working towards a common goal helps immensely when you are implementing a global change programme.’

A Focus on the Benefits

Radical transformation is pointless unless there are clear benefits. Fortunately, a number of positives have already emerged from the global reporting initiative and industrialisation of finance at Allianz.

‘First and foremost, we have dramatically reduced the time we need to produce the numbers,’ says Ott. ‘Some of the operating entities are closing within five days, four days even, and overall we are getting the numbers within eight to ten days and then consolidating. And, we are still on the journey, so I expect that to improve.’