How corporate tax departments can take steps to achieve operational excellence

What is the strength of a corporate tax department? That may depend on the department’s accountability structure because a strong control environment lends itself to the department’s e efficiency and accuracy.

Among the many finding from the 2023 State of the Corporate Tax Department, a central theme emerged in which department heads were concerned about economic changes within their businesses or industries, including acquiring new products or services or mergers & acquisitions. All of which could have a big impact on corporate tax departments — it is no wonder that 86% of respondents said these developments would likely pose a challenge to their operational abilities.

As tax departments try to plan for the expected and unexpected, department leaders should take a strong look at how the department operates. It isn’t enough to consider efficiency improvements and how better to operationalize the department. Achieving operational excellence is not just about adhering to rules and regulations; it’s about setting up efficient and effective systems, creating consistent outcomes, and continuously refining processes to meet evolving demands.

Yet, for a corporate tax department, what does operational excellence mean? And, more importantly, how can it significantly transform the tax compliance landscape?

What is operational excellence?

Operational excellence is an approach to business management that emphasizes continuous improvement of processes, efficiency, and productivity. In essence, it focuses on reducing waste, streamlining operations, and consistently meeting customer (or stakeholder) requirements.

For corporate tax departments, this would mean ensuring accurate, timely, and efficient tax reporting, while minimizing errors and inefficiencies that can lead to financial penalties or their companies’ reputational damage.

Why is operational excellence important for tax?

The reasons for a tax department to strive for operational excellence may vary from organization to organization. However, there are a few reasons that are the backbone of any businesses’ success. First, with excellence there is greater chance that errors will be minimized, and if there are audits, penalties will also be minimized. The is no question that given the continued complexities of tax codes across jurisdictions, both national and international, almost any error could be costly. In the 2023 State of the Corporate Tax Department survey report, we saw that those departments that were proactive in their approach to technology and processes were less likely to be audited and the amount of penalties assessed were far less than those departments that defined themselves as chaotic or reactive.

Another hallmark of operational excellence is simple but worth overstating, and that is improved efficiency. Streamlining tax processes allows organizations to deploy resources more effectively, reducing overhead costs and expediting reporting. In addition, tax departments on the whole work across their companies, having to interact with and receiving and providing data from and to various stakeholders, consistently and systematically. Finally, as previously stated, tax laws and regulations will continue to change seemingly at warp speed, therefore a tax department that is agile and has the ability to pivot will be set up for excellence as well.

How to achieve operational excellence?

The definition of excellence may vary by department and business; however, it can be defined and clarified based on the department’s size and the work it performs. Below are a few basic steps tax department leaders should consider when considering how to operationalize their department and equip it for success.

1. 1. 1. Create standardized processes — Develop clear, standardized procedures for all tax-related activities. This ensures consistency and minimizes variability that can lead to errors. In addition, it can make it easier to on-board new staff.
      2. Embrace technology — In the 2023 State of the Corporate Tax Department survey report, 75% of all respondents noted they had 50% or less of their work automated. Considering the volume of the work produced by the average tax department, this number is staggering. It was no surprise that those departments that felt they were under-resourced received higher tax penalties. The need to leverage modern tax software and tools to increase the automation of many manual tasks is critical and not only builds on the previous point of standardizing processes but improves the speed in which work gets done.
      3. Use performance metrics — If you cannot measure it, you cannot improve it, the saying goes. And in our report, one-third of respondents said they use formal performance metrics. Yet, of that number, only 8% said they use key performance indicators (KPIs). It is therefore a key component of operational excellence to immediately implement KPIs as a measure to monitor the efficiency and effectiveness of the department’s tax processes. And regularly reviewing these metrics helps to identify areas of improvement.
      4. Develop top tax talent — It goes without saying, but keeping staff and its development at the center of processes is paramount. Encourage a culture in which feedback from team members is valued. Often, those on the front lines of operations have invaluable insights into process inefficiencies. Also, provide continuous training for staff whether it’s on tax compliance or best practices for adopting technology.

Operational excellence in the corporate tax department is not just a goal, it’s an ongoing journey. By embedding its principles into the very fabric of tax operations, companies can ensure that their tax functions are not only compliant but also efficient, agile, and resilient in the face of ever-changing tax rules.

As Benjamin Franklin aptly put it, “Beware of little expenses — a small leak will sink a great ship.” In the world of corporate tax, operational excellence is the sealant that prevents those leaks and ensures smooth sailing.