Why utilities should reimagine their tax and finance functions

Tax and finance functions are often viewed through a lens of cost, not value. But new operating models, technologies and skills can offer better results.

In the face of these dynamics and — at times — competing priorities, how can utilities reimagine their tax and finance functions to drive value across the organization?

A fit-for-purpose operating model for utility tax and finance functions

Utilities should look broadly across their tax and finance functions now and in the future and address them as a cohesive whole as opposed to siloed competencies. Specifically, companies should:

1. Scrutinize your current target operating model. Now is the time to examine your organization’s priorities around cost controls, high-value activities and risk management to understand how your tax and finance function contributes to your overall business strategy. 

Most of the utility companies surveyed say that they are not spending appropriate time for routine and strategic tasks:

2. Determine what to build. Keeping tax and finance activities in-house generally requires some degree of internal transformation to improve efficiency of existing people, data processes and technology. Some organizations may decide to keep activities they consider higher value and best-in-class, but they need to be sure they can perform these activities with improved effectiveness and control.

3. Determine what to co-source (or outsource). Some organizations may decide it’s better to co-source some activities, especially those that are more routine such as completion of tax returns, regulatory filings and data collection. It may be that co-sourcing these tasks can be performed at lower costs through centralization or use of third parties.

Co-sourcing and outsourcing often offers the easiest and quickest path forward to results. A wide spectrum of options exist that would be effective for different P&U companies, but efficiency and headcount reduction — while understandably important — should be approached thoughtfully to deliver greater value, not just cut costs.

4. Find the right balance. The shifting regulatory landscape and sudden technological advances can be a struggle to keep up with in a cost-effective manner: addressing the needs of today with an eye toward tomorrow in back-office functions risks fraying your focus or requires costly investment. Finding the right balance of what to own and what to outsource or co-source enables flexibility so an organization can scale up or down as needed, in response to growth plans or challenging periods.

Getting the most out of a third-party provider requires understanding where in-house resources are best positioned to add value and where their capabilities may be lagging. The options available exist on a spectrum: many companies will decide a hybrid approach is right for them, where they decide to continue to own some tax and finance functions they consider to be critical, while co-sourcing others.

5. Maximize your data. Data is a core component to capturing value from an operation model redesign: how many sources of it you have access to, how much it’s integrated into the operating model through automation, and what level of governance supports the integrity of the data and how well it’s used. Bringing together data with fresh thinking in a co-sourcing or outsourcing arrangement can be a powerful driver of value.

A value driver for power & utility companies

Ultimately, the right mix of top-quality people, greater efficiencies through technology and a forward-looking operating model can provide more time and ability to expose value across a company. 

For P&U companies specifically, opportunities exist in virtually all areas of tax, such as sales taxes and property taxes and beyond— as well as getting plugged into renewables and e-mobility offerings, for example — along with risk reduction and mitigation.