Strategic Reframing in Tax Function Processes and Operating Models
In the contemporary business environment, characterized by turbulence, uncertainty, novelty, and ambiguity (TUNA), traditional tax function processes and operating models are increasingly inadequate. The Oxford Scenario Planning Approach (OSPA) offers a robust framework for strategic reframing, enabling tax functions to navigate these complexities effectively. This article explores how the principles of OSPA can be applied to enhance tax function processes and operating models, ensuring they remain resilient and adaptive in the face of rapid change.
Understanding TUNA Conditions in Tax Functions
Tax functions operate within a highly dynamic environment influenced by regulatory changes, economic fluctuations, technological advancements, and global interconnectedness. These factors contribute to TUNA conditions, where traditional linear planning and risk management approaches fall short. TUNA conditions necessitate new strategic and policy planning approaches that balance competitive and collaborative opportunities.
The Need for Strategic Reframing
Strategic reframing involves shifting the focus from predicting specific outcomes to exploring a range of plausible futures. This approach helps tax functions to anticipate and prepare for various scenarios, rather than being caught off guard by unexpected developments. The OSPA emphasizes the importance of developing a flexible sense of the future through iterative processes of reframing.
Applying OSPA to Tax Function Processes
Scenario Development
The first step in applying OSPA to tax functions is developing a set of scenarios that reflect different potential futures. This involves identifying key drivers of change, such as regulatory shifts, technological innovations, and economic trends. For instance, scenarios could explore the impact of increased automation in tax compliance, such as the implementation of Indirect Tax Automation, the use of algorithms for Withholding Tax (WHT) decision-making, and the automation of the Risk Control Matrix (RCM) within a Tax Compliance Management System (Tax CMS). Additionally, the emergence of digital solutions, such as Retrievable Augmented Generation for complex tax predictive analytics, and changes in international tax regulations, including the Global Anti-Base Erosion Model Rules (Pillar Two) and DAC 6, could also be examined. Quantitative and qualitative models play a crucial role in this process. Quantitative models can help illustrate the financial implications of different scenarios, while qualitative models provide a deeper understanding of the underlying causal structures. By combining these models, tax functions can develop a comprehensive view of potential future states and their impacts on tax processes.
Translating and Transplanting Scenarios
Once scenarios are developed, they must be seamlessly integrated into the tax function's operating model. This process involves embedding scenario insights into strategic planning and decision-making frameworks. For instance, a scenario predicting heightened regulatory scrutiny could necessitate investments in advanced compliance technologies and the enhancement of reporting capabilities. The technology can be instrumental in addressing the requirements of the Global Anti-Base Erosion Model Rules (Pillar Two).
Embedding scenarios into the organization's routines ensures that they are not just theoretical exercises but practical tools for guiding action. This requires sustained effort and resources to set expectations and embed learning in practical terms. By making scenario planning an integral part of the tax function's operations, organizations can enhance their ability to respond to emerging challenges and opportunities.
Sustaining Scenario Planning Efforts
Sustaining scenario planning efforts is critical for maintaining their relevance and effectiveness. This involves regular updates to scenarios based on new information and changing conditions. It also requires ongoing engagement with stakeholders to ensure that scenarios remain aligned with the organization's strategic objectives and external environment.
Reflective practice is essential for sustaining scenario planning capabilities. By continuously evaluating the effectiveness of scenarios and the decisions they inform, tax functions can refine their approaches and improve their strategic foresight. This iterative process helps organizations stay ahead of the curve and adapt to evolving TUNA conditions.
Enhancing Tax Function Operating Models
Embracing Collaboration and Innovation
In the context of TUNA conditions, collaboration and innovation are critical for achieving success. Tax functions must engage with a broader and more complex array of stakeholders, including regulatory bodies (such as through agreements with tax authorities on timely tax audits), industry peers, technology providers, and external tax compliance service partners (for example, the Global Compliance and Reporting operating model with Big Four firms). This collaborative approach helps to align values and strategies, ensuring that tax functions can navigate complex regulatory landscapes and leverage new technologies effectively. By fostering a culture of collaboration, tax functions can enhance their resilience and adaptability.
Leveraging Technology and Data
Technological advancements and the proliferation of data are transforming tax functions. The ability to access, analyze, and leverage vast amounts of data is critical for effective scenario planning, strategic decision-making and responsible tax planning. The wide availability of digital storage and powerful search engines has significantly reduced the challenges posed by growing knowledge accumulation.
Tax functions can leverage advanced analytics and artificial intelligence to identify trends, assess risks, and develop predictive models, thereby enabling responsible strategic tax planning. These technologies enable tax functions to move beyond traditional compliance and reporting roles, providing strategic insights that drive value creation. For instance, predictive analytics can help tax functions to anticipate regulatory changes and adjust their strategies accordingly.
Building Adaptive Capabilities
Building adaptive capabilities is essential for thriving in TUNA conditions. This involves developing the skills and competencies needed to navigate uncertainty and complexity. Scenario planning plays a crucial role in this process by fostering a culture of learning and continuous improvement.
The OSPA emphasizes the importance of immersive learning experiences, such as policy gaming and role-playing simulations, to rehearse future scenarios and visualize their implications. These experiential learning methods help tax professionals to develop the critical thinking and problem-solving skills needed to respond to emerging challenges.
Evaluating the Effectiveness of Scenario Planning
Evaluating the effectiveness of scenario planning is challenging but essential. Traditional metrics, such as return on investment (ROI), may not fully capture the comprehensive value derived from scenario planning efforts, particularly when evaluating artificial intelligence (AI) solutions. Instead, the focus should be on assessing the contribution of scenario planning to strategic decision-making and organizational learning.
Key evaluation criteria include the quality of the pre-decision interpretive framework, the impact on strategic vocabulary and choices, and the availability of new options and actions. By defining clear evaluation criteria and regularly assessing the outcomes of scenario planning interventions, tax functions can ensure that their efforts are aligned with their strategic objectives and deliver tangible benefits.
Conclusion
In conclusion, the Oxford Scenario Planning Approach offers a powerful framework for enhancing tax function processes and operating models in the face of TUNA conditions. By developing and embedding scenarios, embracing collaboration and innovation, leveraging technology and data, and building adaptive capabilities, tax functions can navigate complexity and uncertainty effectively. Sustaining scenario planning efforts and evaluating their effectiveness are critical for ensuring that tax functions remain resilient and adaptive in a rapidly changing world. Through strategic reframing, tax functions can transform challenges into opportunities and drive long-term value creation.
This article has drawn from the insights provided by Rafael Ramírez and Angela Wilkinson in their work on strategic reframing and scenario planning.
