LITTLE DOUBT now exists that global economic uncertainty will continue indefinitely. European CFOs are planning to hold cash amidst liquidity concerns and the need to drive productivity, with cost efficiency also now paramount to a company's ability to remain competitive. But many CFOs are missing the boat and forgetting that understanding internal processes and benchmarking can also increase competitive advantage and save costs.
Traditional productivity levers, like the workforce reduction and automation that have been used extensively over the last three years of the downturn, are now reaching diminishing levels of return.
Efficiency should not be a goal in and of itself. With companies looking even further for differentiation and a competitive advantage, continually improving processes in terms of overall effectiveness and efficiency is now the strongest value lever for executives and a critical imperative in today's challenging business environment. To achieve this, companies must now consider and focus on three key elements: what to measure, relative versus absolute performance, and the optimum framework for improvement.
In examining what to measure and relative performance, it is imperative to use a robust benchmarking process. According to Genpact's recent CFO Research study of more than 400 senior finance professionals at companies around the world, 60% agree that improving process performance would yield financial benefit to their companies, but only 34% of them actually assessed their processes through external benchmarks. Faced with current demands from stakeholders, companies' senior finance teams must focus on the effectiveness of key enterprise processes as a lever for business performance.
Most organisations depend on metrics which provide insights into efficiencies, but they rarely measure process effectiveness. Additionally, limited availability of comparative benchmarks makes it difficult to assess how good or bad a process truly is, so senior finance executives face an information deficit.
Companies across all industries do share four core financial processes that can be benchmarked: business planning, source-to-pay (S2P), order-to-cash (OTC), and consolidate-to-report. By addressing these areas, finance executives can ensure their key processes are benchmarked to measure and drive improved effectiveness, whilst improving overall corporate performance.
With business planning, 40% of our survey respondents reported their companies' actual revenue performance differed from their forecasted performance by 6% or more over the past year. Our experience indicates that – when sophisticated forecasting tools are combined with integrated, well-designed processes that are centralised in some form – companies can increase forecast accuracy to best-in-class performance in their industries, compared with the 30-50% confidence levels typically seen.
One important measure of S2P process performance is a company's ability to manage the timing of its payments to suppliers and vendors, as it serves as a useful gauge of a company's negotiating skill. It also measures the degree of control it is capable of exerting over its payments – especially when considered against the tendencies of its peers. We've seen that persistent early payment of 10 to 20% of invoices can lead to a float loss of 1.5% of total spend value, along with a host of other working capital management problems.
A solid majority (71%) of companies have an automated, reliable way to track customer satisfaction, according to our survey, which is the most well-tracked OTC-related benchmark. When presented with a list of possible OTC improvements, 29% of respondents say that improving communication and cooperation between sales, operations and finance would yield the greatest benefit for their company over the next year.
Only two in five respondents said their companies complete each stage of the quarterly consolidate-to-report process within one week, and companies that use a greater number of charts of accounts take much longer to complete each stage of their quarterly closing process. Using a single global chart of accounts as well as centralising this function has improved the process effectiveness through less labor and reduced cycle times.
Benchmarking core financial processes to gauge and ensure effectiveness has a direct effect on the bottom line through enhanced liquidity, cashflow, revenues and working capital.
Corporate finance leaders can no longer afford to ignore the simple, but extremely valuable scientific framework for enterprise process management. Delivered correctly, it can result in significant competitive advantage and financial benefit within economically constrictive environments.
Shantanu Ghosh is senior vice president of practices, solutions and transitions at Genpact
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.