Practicalities in Delivering World Class Finance
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Practicalities in Delivering World Class Finance

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‘Optimising Finance Processes without costly change’ ...

‘Optimising Finance Processes without costly change’

The keys to success in the World Class Finance Journey is the topic of this joint webcast between Consider Solutions and The Hackett Group. Surveys show CFO priorities remain focused on reducing costs, driving process efficiency and effectiveness and improving business insight and management decision support. However,

- How do we measure ‘world class’ and what are the practicalities in achieving this state?
- Can we do this without costly, structural change?
- What are the strategies, tactics and techniques?

David Mitchell, an experience Principal at The Hackett Group, explores best practices, innovative tools and proven approaches to drive process improvement and cost efficiency. Hear David and Dan french, CEO at Consider Solutions, as they go through:

- Defining and benchmarking world class performance
- Designing/Refining the optimal model for the organisation
- Identifying and prioritising Quick Wins through process performance analysis

This executive briefing is an excellent opportunity for all senior finance professionals embarking on the journey to World Class Finance.

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Practicalities in Delivering World Class Finance Practicalities in Delivering World Class Finance Presentation Transcript

  • © 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 Services 24th September 2013
  • solutions for world class finance The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.”2
  • solutions for world class finance Today’s Discussion Dan French CEO Consider Solutions David Mitchell Associate Principal The Hackett Group 3 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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......?
  • solutions for world class finance 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
  • solutions for world class finance 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 Impacts 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
  • The Hackett Group | 9 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Where are organizations focusing transformation? Organization structure Process design/ ownership Sourcing model Shared services/GBS Talent management COMPREHENSIVE TRANSFORMATION MODERATE TRANSFORMATION Source: 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
  • The Hackett Group | 10 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 11 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 12 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. End to end process and process ownership (P2P example) Requisition and PO processing Receipt processing Supplier scheduling Item master/ Content mgmt. Catalog management Contract master mgmt. Supplier master mgmt. Verification and approval Invoice pre-processing Invoice processing Discrepancy resolution Supplier 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
  • The Hackett Group | 13 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 14 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 15 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 16 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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
  • The Hackett Group | 17 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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 Impacts World Class
  • The Hackett Group | 18 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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 .....
  • The Hackett Group | 19 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 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 Impacts World Class
  • solutions for world class finance Reality & Vision Things ain’t what they seem . . . © 2013 Consider Solutions All rights reserved20
  • solutions for world class finance 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…
  • solutions for world class finance 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
  • solutions for world class finance Continuous Improvement Cycle Assuring Reality is Aligned to Vision . . . © 2013 Consider Solutions All rights reserved23
  • solutions for world class finance Procure-to-Pay (P2P) Perspective 24 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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
  • solutions for world class finance Example: Supplier Invoices Desired process ‐ Purchase Order to initiate and approve purchase ‐ Touch-less Invoice/Payment approval on match Performance Measures ‐ 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 © 2013 Consider Solutions All rights reserved26
  • solutions for world class finance Example: Purchase Orders Desired process ‐ Purchase Request to approve expenditure ‐ Purchase Order to initiate and approve purchase Performance Measures ‐ Spend under PO ‐ PO processing cost Defects / Exceptions ‐ Multiple touch POs, changes to PO Pricing & Terms Discovery ‐ 11% POs change activity Root Cause ‐ Pro-forma POs, Master Data inaccuracy © 2013 Consider Solutions All rights reserved27
  • solutions for world class finance Example: Payments Desired process ‐ Purchase Orders ‐ Goods Receipt & Invoice Processing Performance Measures ‐ Cost per Invoice – Touch-less invoices Defects / Exceptions ‐ 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 © 2013 Consider Solutions All rights reserved28
  • solutions for world class finance 29 © 2013 Consider Solutions All rights reserved World Class needs efficiency & effectiveness Driving out defects / exceptions is key Maturity Class Best-In-Class Top 20% of aggregate performance 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 rate 90% 47% 18% Mean Performance Source: 2012 Aberdeen Study: AP Invoice Management in a Networked Economy
  • solutions for world class finance 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 . . . © 2013 Consider Solutions All rights reserved30
  • The Hackett Group | 31© 2013 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Make Alignment between World Class, Vision & Reality a ‘Business As Usual’ Process 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 Impacts World Class
  • solutions for world class finance 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......?
  • solutions for world class finance 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 © 2013 Consider Solutions All rights reserved33
  • solutions for world class finance Questions & More information? Dan - dfrench@consider.biz David - dmitchell@thehackettgroup.com www.consider.biz www.thehackettgroup.com Enjoy the journey! 34 © 2013 Consider Solutions All rights reserved
  • © 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 Services 24th September 2013