How do you build a global company

August 30, 2018, article by Christy Sasser on the topic of finance

The three biggest challenges facing global companies and how to solve them

Managing a global company is becoming more and more complex. Companies constantly have to deal with changes - from increased economic activity in growth markets to the rise in economic nationalism to increasing regulatory requirements such as the US tax reform and the new EU General Data Protection Regulation (GDPR). In addition, there is the increasing risk of cyber crime and data protection risks, the competition for skilled workers and the ever faster development of technological innovations.

The increasing complexity presents global companies with significant operational challenges, especially when expanding into new markets. These problems can usually be divided into three categories:

  1. Challenge: Problems with performance analysis and reporting

In the course of expansion into new regions and the further development of the product portfolio, it is becoming increasingly difficult for companies to maintain consistency in performance analysis and reporting. This also increases the risk of wrong decisions by management. This has the following reasons: When selling the same goods and services in several countries, different financial solutions are often used. In addition, different data definitions are applied to the business activities in the individual regions. This increases the risk that the analysis and reporting guidelines specified by the company are not taken into account when assessing the performance of a particular product or service at the different locations. This in turn can lead to incorrect analyzes and decisions, which can make individual business areas appear more profitable than they actually are.

  1. Challenge: Lack of control over finances

Another challenge for global companies is operational financial controls, especially when entering smaller or growth markets. In many companies there is a lack of standardized control processes to ensure compliance across locations - think, for example, of guidelines for cooperation with local suppliers or specifications for the maximum number of bank accounts allowed in a branch. If these processes are missing, it is difficult to understand what is happening to the company's own assets. This in turn increases the risk of fraud. However, existing control instruments are often managed manually and are limited to a certain country, so that they can only be accessed or checked with difficulty from abroad.

  1. Challenge: Compliance with regulatory requirements on site

The impenetrable thicket of municipal and regional laws and requirements in the form of tax regulations, data protection laws, anti-money laundering regulations and payroll and accounting guidelines can pose serious problems for globally operating companies. The sheer number of special editions at the individual locations may prevent any central management. As a result, many global corporations forego it and instruct their overseas offices to meet corporate reporting requirements while hiring local accounting firms to manage local regulations. Others see no other way out than to set up a separate finance department in each country, which leads to further inefficiencies and increasing complexity.

Deficits in the technological basis

A major cause of these operational challenges is the lack of connectivity between the systems on which the business is based - especially in areas like finance. Traditional ERP systems cannot keep up with the increasingly complex corporate environments.

A traditional ERP solution is usually used at the head office of the emerging company, which is opposed to regional and country-specific accounting systems in the other operating countries, as the use of the traditional solution at the smaller locations would be associated with excessive costs. The result resembles a patchwork of incompatible financial solutions from different providers and versions on different platforms, provided by different system integrators.

Each of these systems has its own processes, security models and versions of the data that are almost never complete or synchronized. This in turn makes the collection, coordination and consolidation of data as well as the data transparency at the different locations far from the control of the corporate controllers and auditors much more difficult.

Often the core of the problem is the lack of a “single source of truth”, a uniform source of information.

In addition, the architecture of larger traditional ERP solutions is usually rigid. If business processes designed for the headquarters are used in smaller municipal or regional business units, their special features can often not simply be explained or circumvented - especially not if the solution is only used by a handful of users at this location.

With advances in the development of financial solutions, global companies can now overcome many of these challenges using the following three methods:

A single source of truth

Data is one of the most valuable resources in a company today. By using them effectively, companies can gain deeper insights into their business, make informed decisions, and improve planning and forecasting accuracy - all aspects that contribute to better performance.

Often the core of the problem is the lack of a single source of truth. It's not easy to get the pulse of a global company when the data is spread across 20 to 30 financial solutions. The analysis and reporting of the results are not only time-consuming and annoying, but the information is ultimately out of date and highly error-prone.

Innovative financial solutions based on cloud and in-memory technology introduced over the past decade have resolved this problem. These cloud-based solutions combine financial management and analysis in a single, global solution, creating a single source of truth that companies can rely on for their data transactions and analysis. With in-memory data storage, you get real-time insights into your business and can call up consolidated results at any time.

A global data system becomes even more important when companies seek advanced analytics. Organizations need a foundation on which to merge financial and non-financial data and which also enables them to use data science and machine learning to conduct more complex evaluations such as predictive and prescriptive analysis.

Global standards, local configuration

Ideally, companies with a global business strategy can act globally and manage locally. But traditional ERP solutions are not designed for such flexibility. Cloud-based financial solutions differ from these traditional solutions in one essential point - the workflow is an integral part of the system. This enables companies to standardize processes globally. At the same time, the individual locations are enabled to implement their own processes and modify existing ones, as well as adapting responsibilities to local conditions.

Processes that require certain levels of delegated approval, such as: B. Entries in the general ledger or the release of supplier invoices, for example, can be standardized on a global level and still remain configurable at the country level, where the size of the company may require leaner processes. This not only improves efficiency and control, but also increases the feeling of belonging at the local level.

Preventive approach to control and compliance

For compliance reasons, cross-location and cross-group control instruments are indispensable for global companies. Without it, a company is exposed to a high risk of fraud and, in the event of a crisis, wastes valuable time and resources with retrospective analyzes.

Cloud-based financial solutions take a preventive compliance approach in which governance and control functions are integral parts of the solution. The integrated workflow enables central modeling, control and automatic documentation of all activities in one place. All system tasks are integrated in workflows so that companies are able to secure all processes and activities with control instruments. For example, they can set up controls so that a bonus is only paid to an employee if the transaction has been approved by a specific entity.

When all transactions are available for review in a global solution, auditors can access them from anywhere, reducing complexity, time and costs.

In legacy systems, one of the biggest problems with establishing strong controls is that the compliance, internal controls, and auditing functions are separate solutions outside of the core financial system, making them extremely error-prone and risky. Distributing multiple systems to different locations also makes global audits difficult and costly, as auditors have to travel to different locations to review the data on site. If, on the other hand, all transactions are available for review in a global solution, auditors can access them from anywhere, thereby reducing the complexity, time and costs of global audits.