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 Services
24th 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
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

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

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
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

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
Process
exceptions
Tools
Metrics, process
Process Community
Assess Gaps &
Opportunities
Action performed by
Change Results
Impacts
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
Process
exceptions
Tools
Metrics, process
Process Community
Assess Gaps &
Opportunities
Action performed by
Change Results
Impacts
World Class

Reality & Vision
Things 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 & 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

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 . . .

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
Current
Process
exceptions
Tools
Metrics, process mapping,
best practices..
Process Community
Assess Gaps &
Opportunities
Action performed by
Change Results
Impacts
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 - dfrench@consider.biz
David - dmitchell@thehackettgroup.com
www.consider.biz
www.thehackettgroup.com
Enjoy the journey!

© 2013 Consider Solutions All rights reserved.
Practicalities in Delivering World Class Finance
“Optimising Finance Processes without costly,
structural change”
Briefing Leaders in Finance & Shared Services
24th September 2013

Practicalities in Delivering World Class Finance

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