Practicalities in Delivering World Class Finance

© 2013 Consider Solutions All rights reserved.

solutions for world class finance

Practicalities in Delivering World Class Finance

“Optimising Finance Processes without costly, structural change”

Briefing Leaders in Finance & Shared Services24th September 2013


The pessimist complains about the wind. The optimist expects it to change.

The leader adjusts the sails.”2


Today’s Discussion

Dan French

CEO

Consider Solutions

David Mitchell

Associate Principal

The Hackett Group

3 © 2013 Consider Solutions All rights reserved


Something worth discussing?

There are known knowns; there are things we know that we know.

There are known unknowns; that is to say, there are things that we

now know we don't know.

But there are also unknown unknowns – there are things we do not

know we don’t know.

There are both problems and opportunities!

We have some of the answers!

We will never know all the questions!

Insights to share......?


Today’s Discussion

Introduction

Defining world class performance

World class & the process view

Aligning vision to world class

Aligning reality to your vision

Procure to Pay (P2P) Perspective

Continuous alignment & improvement

Transformation & change as business-as-usual

Next Steps

Q & A

© 2013 Consider Solutions All rights reserved5


Alignment - World Class, Vision, Reality . . .

Operating Standard

Target

What good looks like for us?

Current

Process performance, process

exceptions

Tools

Metrics, process mapping, best practices..

Process Community

Assess Gaps & Opportunities

Actions & Initiatives

Action performed by

Change Results

Imp

ac

ts

World Class

About The Hackett Group

Our insights are fact based, from over 5,000

benchmark studies and consulting

engagements

Our Best Practices Intelligence Center™ is a

significant differentiator and enabler. It

contains:

20,000+ performance metrics updated

annually

1,500+ best practices across 95 business

processes

1,000+ best practice-based process maps,

requirements and configuration guides

1,000+ case studies, implementation

examples and research

Hackett Value Grid

97%of the Dow Jones

Industrials

80%of the

Fortune 100

88%of the Dow Jones

Global Titans

Clients

The Hackett Group | 8© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

World-class finance organizations have shown superior ability

to respond to unpredictable change

Financial crisis &

2009-2012 recession

1.50%1.28%

1.10%1.00%

0.90%0.72% 0.74% 0.73% 0.67% 0.61% 0.59% 0.60% 0.61% 0.63% 0.61%

1.90%1.70%

1.50%1.40%

1.20%1.10% 1.08%

1.26% 1.22% 1.24% 1.17% 1.13% 1.16% 1.22% 1.17%

1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012

Response to

Sarbanes-Oxley act

31%51%

World-Class to Peer Gap

Finance: World-Class Performance Highlights Continuing to deliver greater value at significantly lower costs – over time


Where are organizations focusing transformation?

Organization

structure

Process design/

ownership

Sourcing

model

Shared

services/GBS

Talent

management

COMPREHENSIVE TRANSFORMATION

MODERATE TRANSFORMATIONSource: Global Operating Model Study, The Hackett Group, 2012

Percent of companies planning program-driven transformation

Companies can expect to improve their Finance Cost as a % of revenue metric by

7% during 2 years of transformation effort


Accelerating process maturity

New

Complexity

Established

Complexity

Codification

Simplification

Standardisation

Sharing

Commoditization

Most significant finance operations initiatives today include:

Aligning Vision to World Class

•moving towards end to end global process ownership

•focusing on standardization and complexity reduction

•reaping the benefits of automation

•mastering the challenges of data management

Aligning Reality to Vision

•ensuring adequate control


Moving towards end to end global process ownership

•Today 19% of all companies have cross functional global process

ownership. 42% plan to in 2 to 3 years time

•Currently, in purchase to pay 29% of world class companies have

process owners

Process owners act as

architects of the service

delivery model for their

process


End to end process and process ownership (P2P example)

Requisition and

PO processing

Receipt

processing

Supplier

scheduling

Item master/

Content mgmt.

Catalog

managementContract

master mgmt.

Supplier

master mgmt.

Verification

and approval

Invoice

pre-processing

Invoice

processing

Discrepancy

resolutionSupplier

payment

Customer

inquiry

and response

Reconciliation,

accrual and

compliance

File, store

and retrieve

PURCHASING OPERATIONS

ACCOUNTS PAYABLE

End-to-end purchase-to-pay process

Global Performance Management - Governance

•Ensures sustainability of end-state

processes during and after

transformation

•Leverages expertise through

centralization

•Process governance ensures speed in

process execution and agility in the

business changes


Focusing on standardization and complexity reduction

Standardized policies and

procedures must be a goal

from the start of any

transformation project

Process standardization

enables predictability of

service and global alignment

of data, systems and training

Simplification – World Class

versus peer (per $billion

revenue:

•Between 1/5th and 1/15th

applications

•58% fewer bank accounts

•50% fewer legal entities

•60% fewer routine reports


Reaping the benefits of automation (cost and effectiveness)

58%

Source: The Hackett Group, 2012

Customer billing – electronic customer invoices:

• 18% lower cost

• 34% fewer errors

Accounts Payable – electronic supplier invoices:

• 52% lower cost

•22% shorter time to process

General Accounting– automated journals

• 34% lower cost

•20% faster cycle time

Finance transactional

processing cost as a percent

of revenue


Mastering the challenges of data management

Total cost of finance % revenue by use of data standards:

• Low use 1.71%

• Medium use 1.37%

• High use 1.1%

• World class 0.61%

World class versus peer use of data standards:

• Global chart of accounts 86% versus 69%

• Enterprise wide supplier master 88% versus 57%

• Enterprise wide purchase expenditure 67% versus 55%

Common data definitions in a highly consolidated application

environment bring direct process savings cost of $6.1m for

every $1bn of revenue


Growth in Multi function Global Business Services enables process excellence

In 2004 ; 24% percent of GBS centres were multi function

By 2010 ; 65% of GBS centres were multi function

Finance operations is starting to become more integrated

Multi function GBS enables cross function end to end process

ownership



Operating Standard

Target


Current


exceptions

Tools


Process Community



Action performed by

Change Results

Imp

ac

ts

World Class


The Journey to world class

1. Understanding the baseline and

size of the prize in terms of

efficiency and effectiveness.

Aligning vision to world class

performance

2. Identifying the gaps and where to

focus change initiatives

3. Knowing where to lead by

defining emerging best practice

and where to be a fast follower

4. Staying aligned to world class

performance and stretching the

goals

5. Embedding transformation and

change as a business as usual

process

But, what you have built and implemented is

not always what is happening in reality .....



Operating Standard

Target


Current


exceptions

Tools


Process Community



Action performed by

Change Results

Imp

ac

ts

World Class


Reality & VisionThings ain’t what they seem . . .



We TRY to control standardization . . .

4. GR is created against PO

3. Purchasing creates PO for Shipment

1. Truck drops off shipment, but no PO exists

2. Warehouse worker calls up purchasing to create a PO

ERP is configured to only allow GR if PO exists, however…


We need a way to find and understand these exceptions

What actually does happen

=Processes are ignored or

circumvented

Policies cannot be cost-effectively

enforced

Fraud &

Waste

Sub-optimal Cash

Mgmt

Ineffective

Process

Delays and

Rework

Audit/Compliance

Costs

Unnecessary

Risk

- - - - - - - - - - - - Performance Impact - - - - - - - - - - - - - >

What should happen


Continuous Improvement Cycle Assuring Reality is Aligned to Vision . . .



Procure-to-Pay (P2P) Perspective



Defects in Process Performance

Page 25

Process Performance Measures

Defect Conditions

Exceptions in Planned Performance

The unintended consequences of

Performance Measures

Example

Spend Under PO & 3 Way Match

PO lags physical delivery

POs created same day as GR/IR

Rationale

• We need to define what ‘good looks like’

• We also need to define what ‘bad looks like’ in sufficient detail to manage out defects

• More precise information enables more effective management decision/action


Example: Supplier Invoices

Desired process

‐ Purchase Order to initiate and approve purchase

‐ Touch-less Invoice/Payment approval on match


‐ First time match rate

‐ Invoice processing cost/effort

Defects / Exceptions

‐ Duplicate Invoices, duplicate vendors, duplicate POs

Discovery

‐ 3% duplicate invoices causing re-work and cash loss

Root Cause

‐ Duplicate vendor data, Imprecise PO data



Example: Purchase Orders

Desired process

‐ Purchase Request to approve expenditure

‐ Purchase Order to initiate and approve purchase


‐ Spend under PO

‐ PO processing cost


‐ Multiple touch POs, changes to PO Pricing & Terms

Discovery

‐ 11% POs change activity

Root Cause

‐ Pro-forma POs, Master Data inaccuracy



Example: Payments

Desired process

‐ Purchase Orders

‐ Goods Receipt & Invoice Processing


‐ Cost per Invoice – Touch-less invoices


‐ Over-payment – GR > PO, IR > GR

Discovery

‐ 4.5% over payment in certain areas

Root Cause

‐ Vendor ‘enthusiasm’ with payment tolerances, vendor performance issues, system controls




World Class needs efficiency & effectivenessDriving out defects / exceptions is key

MaturityClass

Best-In-Class Top 20%

of aggregateperformance scorers

Industry Average Middle 50% of aggregate

performance scorers

Industry Laggard Bottom 30% of aggregate

performance scorers

Number of days to process an invoice

from receipt to approval

4.1 days 6.1 days 16.3 days

Average cost to process an invoice $3.34 $6.29 $16.67

Early payment discount

capture rate90% 47% 18%

Mean Performance

Source: 2012 Aberdeen Study: AP Invoice Management in a Networked Economy


Process Improvement Driving out Defects & Exceptions

Look at the processes, controls and performance measures

Define ‘what can go wrong’

Monitor transactions for exceptions from standard

Identify root causes

Manage & resolve root causes

Continuously improve processes

Exceptions have an asymmetric impact on effort and efficiency

Non-disruptive performance improvement . . .



Make Alignment between World Class, Vision & Reality a ‘Business As Usual’ Process

Operating Standard

Target


Current


exceptions

Tools


Process Community



Action performed by

Change Results

Imp

ac

ts

World Class


Something worth discussing?

There are known knowns; there are things we know that we know.

There are known unknowns; that is to say, there are things that we

now know we don't know.

But there are also unknown unknowns – there are things we do not

know we don’t know.

Known knowns – World Class Performance

Known unknowns – Exceptions & Unanticipated Consequences

Unknown unknowns . . . . . ?

Insights to share......?


Insights & Next Steps

1. Align vision to world class

Benchmark

Best practices

Gap closure

2. Align reality to vision

Assessment

Exceptions

Gap closure

3. Transformation & change as business-as-usual

Embed governance and process

Continually align vision & reality

Integrate initiatives to close gap



Questions & More information?

Dan - [email protected]

David - [email protected]

www.consider.biz

www.thehackettgroup.com

Enjoy the journey!


mailto:[email protected]

mailto:[email protected]

http://www.consider.biz/

http://www.thehackettgroup.com/

© 2013 Consider Solutions All rights reserved.


Practicalities in Delivering World Class Finance

“Optimising Finance Processes without costly, structural change”

Briefing Leaders in Finance & Shared Services24th September 2013