At a strategic level, the CFO also plays a fundamental role in Although tax should never be the ultimate driver of operational ensuring integration between the different elements of the decisions, it can be an important influencer that can yield operating model . Mr . Vreeswijk adds, “Traditional operating significant bottom-line benefits. One CFO we spoke to said, models encompass business processes, transactional flows, “Finance should not lead the charge in terms of operational organizational structure and cost-effective location choices. But decisions, but if there is a choice between one country and the CFO can also ensure that the direct tax, indirect tax, transfer another that both work operationally, then we need to be involved pricing and legal entity layers are also integrated to the model . in that decision and make sure that tax considerations are taken This helps improves the alignment between tax and the business, into account . Of course, we have a clear responsibility to our and can also significantly boost shareholder value. These days, shareholders to try to maximize returns for them, but that also competition between peers ultimately comes down to one has to be done in the context of risk .” operating model versus another, and the CFO’s role in getting that operating model right is crucial .” Creating value through a centralized procurement operating model The role of procurement within organizations is shifting The centralization of procurement can also have important from one of cost reduction to a broader goal of value creation . tax benefits, in terms of reduced direct and indirect tax costs In addition to maintaining a low-cost base, procurement and improved free cash flow. Companies need to factor tax functions are tasked with achieving operational excellence, into the decision-making process. Tax-effective procurement managing key risks, sourcing sustainably and collaborating operating models have a proven track record of being flexible, across the value chain . business-driven solutions. They can also lead to reductions Achieving these varied goals requires the right procurement in the effective tax rate that may be as high as 2%. operating model . For a growing number of companies, this More broadly, companies can also start to think about how means a more centralized approach in which they can leverage the centralization of procurement forms part of a broader skill and scale, build new capabilities, manage risk and make approach to shared services implementation . A growing better decisions . This helps to deliver demonstrably enhanced, number of companies are re-thinking their approach to shared measurable procurement value propositions and related services, moving from a narrow, function-specific approach value outcomes for the business . to a multifunctional model, as EY explored in its recent report 4 Diageo, for example, has taken steps to centralize procurement Delivering tomorrow’s companies today. To add value and to drive economies of scale and consistency across the optimize costs, these companies are developing a single, business . “Although we have local procurement teams, they unified global business services organization that is capable now form part of a centralized group,” says Mr . Gosnell . “We of managing end-to-end processes across different business have category managers at the center who set strategies and functions, including not just procurement, but also human manage contracts globally . So if an executive wants to buy resources (HR), finance and a range of other activities. a flight locally, they can do that through a portal, but it rolls up into the central procurement model .” 4 Delivering tomorrow’s companies today, EY, 2013 28 Partnering for performance Part 1: the CFO and the supply chain