Ibm Cfo Integrated Fin Org
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Learning from the Crisis: A Calling for an Integrated Finance Organization Dr. Philip L. Swan
Chief Economist IBM Bill Fuessler
Global Financial Management Service Area Leader IBM Global Business Services
Tuesday, September 29th, 2009
Agenda Introductions Economic Overview On the Journey to Becoming an Integrated Finance Organization Q&A
Building a smarter planet
The Economic Environment
Phil Swan September, 2009 © 2009 IBM Corporation
Building a smarter planet
The Great Global Recession U.S. Led Financial Market Freeze; MBAs, Credit Default Swaps.
Private Spending Plunge; Excess Manufacturing Inventory. Emerging Economies Plummeted; Exports, Capital Inflows Sink. Unprecedented Bailouts; Huge Monetary and Fiscal Stimulus. Historically Rapid, Simultaneous, Deep GDP and Jobs Collapse.
- Global GDP Down 2.4%; $1.5 Tr. Lost Output; Slow Recovery. - 2010 GDP Growth Prospects Looking Better (1.5% - 2.5%). Risks and Uncertainties Continue to Dominate Activity.
© 2009 IBM Corporation
Building a smarter planet
Global Real GDP Growth Rates, Q/Q 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
© 2009 IBM Corporation
Building a smarter planet
U.S. Debt as a Share of GDP Constrains Activity 1980
1990
2000
2009-2Q
Total
155.4%
230.0%
264.5%
359.6%
Household:
47.9%
61.5%
70.4%
91.4%
Mortgage
31.8
42.8
48.4
73.5
Other debt
16.1
18.7
22.0
17.9
70.5%
108.9%
148.0%
195.5%
Nonfinancial
50.7
64.2
66.2
78.8
Financial
19.8
44.7
81.8
116.7
37.0%
59.6%
46.0%
67.2%
Business:
Government
© 2009 IBM Corporation
Building a smarter planet
Have We Learned Anything From the Global Recession? Globalization Works Both Ways: Synchronous Ups and Downs. Inventory Management Matters: Just-in-Time Manufacturing.
Consumer and Business Debt to Net Worth Ratios Also Matter. Productivity Gains Reduce Vulnerability to Global Shocks. - Lower Costs and Competitive Advantage. Systemic Risk Needs to be Better Understood; - Transparency Regulation‟s Goal. - Market Bubbles and the (Expanded) Role Of Central Banks. Are Any Financial Institutions and Companies Too Big To Fail? -
“Living Wills” and Moral Hazard.
© 2009 IBM Corporation
IBM Global Business Services IBM Institute for Business Value
On the journey to becoming an Integrated Finance Organization
September 2009
© Copyright IBM Corporation 2009
IBM Global Business Services
Contents
Integrated Finance Organizations outperform Different paths, shared objective: greater transparency through commonality Exploring your journey
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
The Global CFO Study 2008 is the largest CFO-level study of its kind with 1,230 participants CFO Study 2008 Firmographics Geography Asia Pacific, 25%
Revenue >$20B, 20%
Americas, 43%
>$5B to $10B, 11%
Title Board / CRO / President, 1% Risk, 8%
SVP / Controller / Treasurer, 25%
Communications, 12% Public, 15%
<$500M, 11%
>$10B to $20B, 9% EMEA, 32%
Sector $501M to $1B, 17%
>$1B to $5B, 32%
Distribution, 24%
Industrial, 26%
Financial Services, 23%
Scope BU / Program Area, 13%
Country, 16% CFO / Deputy CFO / Director, 66%
Region, 12%
Enterprise / Global, 59%
Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
What‟s Important to the CFO? Everything. CFO Agenda 84%
Measuring / Monitoring Business Performance
60%
76% 80% 74%
Meeting Fiduciary and Statutory Requirements Continuous Process Improvement / Business Improvement
42% 75%
Developing People
37% 75%
Aligning Finance with the Business
55% 73%
Driving Cost Reduction
51% 72%
Leading Finance-Related Compliance Programs and Strengthening Internal Controls
65% 71%
Inputs into Identifying and Executing Growth Strategies
40% 66%
Supporting / Managing / Mitigating Enterprise Risk
Driving Integration of Information Across the Enterprise
45% 62% 30%
Importance Effectiveness Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
The IBM 2008 CFO Study showed that Integrated Finance Organizations (IFOs) outperform non-IFO enterprises Components of an Integrated Finance Organization Financial outperformance
Growth rates 5 year CAGR
Increased effectiveness in driving integration of information enterprisewide
18%
Revenue growth rates for overall sample
10%
IFO
Globally mandated standards
22% Standard chart of accounts enterprisewide
Average stock price appreciation
17% 10%
Common data definitions enterprisewide
Standard common processes enterprisewide
Stock price normalized by industry indices
6%
Enterprises with an IFO Enterprises without an IFO
These are the components of process and data commonality and what we call the Integrated Finance Organization (IFO). Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
How effectively does your Finance organization perform in each of the following areas? IFOs are More Effective Percent Effective to Very Effective Measuring / Monitoring Business Performance
80%
58%
Meeting Fiduciary and Statutory Requirements
79%
Continuous Process Improvement / Business Improvement Developing People
60%
39%
58%
34%
Aligning Finance with the Business Driving Cost Reduction
68%
49%
Leading Finance-Related Compliance Programs and Strengthening Internal Controls
37%
Supporting / Managing / Mitigating Enterprise Risk Driving Integration of Information Across the Enterprise
82%
51%
Inputs into Identifying and Executing Growth Strategies
43% 27%
93%
63% 62%
80%
60% 60% IFOs Non-IFOs
Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
But is there a silver bullet to becoming an IFO?
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Contents
Integrated Finance Organizations outperform Different paths, shared objective: greater transparency through commonality Exploring your journey
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Analysis of IFOs since conducting our last Global CFO Study
Discussion with 80+ analysts to share IFO findings
IFO Summit pre-session interviews
IFO Summit (roundtable with Finance executives from IFO organizations)
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The call-to-action for Finance transformation has often been a downturn or event Triggering Events Technology Company 1993 Analysts began to call for break-up. The company decided to run the business on facts and to tighten controls
Entertainment Company 1999 Fortunes began to change. Segment started to falter and hit a lull. The new CFO saw an opportunity for economies of scale
Energy & Telco Company 2001 A severe capitalization decline after a drop in the telecommunications market
Regional Bank Company 2002
Consumer Products Company 2004
Disclosure errors and restatements provided a call-toaction to get back to fundamentals
2009+
A profit warning was a wake up call. Analysts call for the break up.
What has been your call-to-action to ignite greater transformation?
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Was there a silver bullet? We found that there was no silver bullet Companies that have gone through a transformation project took a variety of different paths toward becoming an IFO
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The entry points for transformation can be either data, process, technology or delivery model encompassing all three IFO Journey Starting Points
Greater Transparency through Commonality • Stricter adherence to common data • Process ownership • Greater systems commonality • Commonality helps to manage the transformation risks
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Multiple starting points on the IFO journey
Though starting points varied, the end goal was greater commonality Transformation Paths – Select Examples Data & Tools Led
Process Led
Technology Led
Delivery Model Led
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The drivers of transformation can differ based on objectives, initial priorities, culture and context Technology Company
Entertainment Company
Federal Department
Consumer Products Company
Country focused, disparate systems, low value add admin focus
Lack of integration amongst autonomous and diverse segments
14 bureaus with separate funding & unique constituents
400 highly autonomous operating units with captive Finance units
Transformation Objective
Create one version of the truth and reduce costs
Gain economies of scale and streamline processes
Replace an antiquated system
Remove complexity and cost while quickly getting to world-class processes
Initial Priority
Strict data definitions and capturing data integrity at the source
Control over the process (i.e., in-house/onshore)
Getting to a common systems platform with a controlled implementation
Speed with control through a third party
Culture & Context
• Strong leadership provides top-down executive commitment • Initially an edict driven approach to standards • Finance evolves into the steward of the “truth” for the firm • The approach becomes collaborative as the transformation gained traction
Culture and Context
Pre-Transformation
• Need for a consensus driven approach among segment CFOs led by the Controller • „Current‟ and „Futurestate‟ workshops defined path forward • Set aggressive milestones • Used internal scorecards to prompt desired behavior
On the journey to becoming an Integrated Finance Organization
• Strong agency leadership drove the need for a consensus driven approach • A value-oriented case for change „sold‟ to bureaus • The opportunity to a shared services model arose after technology increased commonality
• Top-down after a long period of decentralized / bottoms-up management • After several failed attempts at transformation, selected a knowledgeable 3rd party to quickly get to world-class processes with control and act as a change catalyst • Regionally transforming Finance © Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Data led
Transformation in the face of adversity
The Technology Company‟s journey Needing to assemble the facts to stave off calls for its break-up, the company needed better access to data buried throughout the organization. Common data definitions came to be the foundation of a comprehensive information management strategy that also sought to enhance processes and technology.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Data led
The data led transformation eventually had a process, technology and delivery model focus Wave I 1994 - 1997
Wave II 1998 - 2002
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Fully Fully Fully Fully (>75%) (>75%) (>75%) (>75%)
Wave III 2003 - 2005
Future 2006 and beyond
Implement an enterprise-wide standard Chart of Accounts Create enterprise-wide common data definitions Established a comprehensive information strategy Begin implementing global data tools Leverage global acctg capabilities (i.e., local to a global structure) Implement global process owners Conduct benchmark study
Implement the CEO dashboard
Implement the CFO portal
Strengthen global process owners Conduct benchmark study a second time Harmonize & reengineer transactional processes
Create one global ledger
Begin reducing the number of Finance applications
Create Finance Information Warehouse
Begin rationalizing data warehouses
Begin implementing global systems
Provide planning system tools
Improve integration across transactional processes Transform planning process to best practice Continue reduction of the number of Finance applications Continue data warehouse rationalization Provide self service to Finance data (e.g., CFO Portal) Create dashboards to provide “headlights”
Drive regional transactional shared services / COEs
Drive global transactional, pricing and planning shared services / COEs Outsource / globally source select processes
On the journey to becoming an Integrated Finance Organization
Continuous improvement of processes
Move to one ERP Drive global optimization of shared services / COEs for systems, planning, treasury, services, ledger, etc
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Balance of standards
The vision and strategy requires determining the appropriate level of enterprise versus localized standards Enterprise versus Localized standards Common
Unique
Technology Company
Entertainment Company
Everything is common until proven unique
Everything is unique until proven common
(Top-down approach)
(Bottoms-up approach)
Pre-existing conditions
Account for pre-existing business conditions since there is more than one finance transformation path
What is „good enough‟?
Enterprises must determine what is „good enough‟ • „Good enough will be closer to common than unique • What may be optimal for a given process or system may not be optimal for the overall organization
Unique requirements
Unique requirements will be driven by legal/statutory, business model granularity and geographical benefits
Organizations should determine their starting position on common and unique definitions On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Process led
A transformative CFO streamlines Finance The Entertainment Company‟s journey
In 1999, the new CFO saw an opportunity to streamline back office processes and create economies of scale. Segment CFOs re-engineered financial processes to reflect a consensus driven „to-be‟ state. Common processes served as catalyst for broader cross-segment Finance transformation.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Process led
The process led transformation eventually had a data and technology focus Wave I 1999-2001
Wave II 2002-2004
Reduce the differently maintained sets of CoAs
Implement an enterprise-wide standard Chart of Accounts Started the creation of common segment data definitions
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Mostly Mostly Mostly Fully achieved achieved achieved (>75%) (50-75%) (50-75%) (50-75%)
Wave III 2005-2008
Future 2009 and beyond
Enhance segment common data definitions
Create enterprise common data definitions Enhance information strategy
Globalize the procurement process Conduct full benchmark study of the Finance function Conduct „Current State‟ / „Future State‟ workshops Implement global process owners
Standardize / reengineer additional Finance processes
Refine/implement best practice processes within Finance
Begin to rationalize ERP systems from 5 to 1 instances
Complete ERP rationalization
Begin to reduce Finance applications
Continued reduction of Finance applications (i.e., 400 to ~20)
Achieve and maintain enterprise-wide process standards
Provide decision support tools Provide self service to Finance data Drive regional transactional shared services / COEs (e.g., A/P, Fixed Assets, etc.)
Drive additional select global shared services / COEs (e.g., Tax Acctg, etc)
Continue to drive additional global shared services / COEs
Continue to drive additional global shared services / COEs Outsource / global source select processes
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Technology implementation led
A common technology lowers costs and increases time for analysis The Federal Department‟s journey In the early 2000s, it was clear that the Department needed to replace its legacy finance technology platform. The fourteen bureaus had unique constituents and separate funding. However, a common technology platform enabled economies of scale and drove process and data commonality.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Technology implementation led
The technology led transformation eventually had a data and process focus Wave I 2000 - 2005
Wave II 2005-2006 Create select common data definitions
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Mostly Mostly Mostly Fully achieved achieved achieved (>75%) (50-75%) (50-75%) (50-75%)
Wave III 2006 - 2008
Future 2009 and beyond
Enhance select common data definitions
Increased integration of financial and non-financial data
Standardize / reengineer select processes across bureaus
Standardize / reengineer additional processes across bureaus
Finalize implementation to remaining bureaus
Making greater use of analytical tools
Drive consensus on single ERP platform for all 14 bureaus Begin implementation with initial bureaus
Continue implementation to additional bureaus
Provide greater self service to Finance data Create the Enterprise Service Center (ESC) for scale economies
Increase the number of bureaus using the ESC
Expand services to additional bureaus outside of the Dept Create CoEs for decision support
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Delivery model led
Leveraging a third party to drive a speedy transformation with control The Consumer Products Company‟s journey In 2004, a profit warning prompted analysts to call for company‟s break up. In response, the management structure was transformed from a country to a geographical focus. Prioritizing speed with control, the company selected an outsourcing partner to quickly get to world-class Finance processes.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Delivery model led
The delivery model led transformation had service level agreements focusing on process, data and technology
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Fully (on a Fully (on a Fully (on a Fully (on a regional basis) regional basis) regional basis) regional basis) (>75%) (>75%) (>75%) (>75%)
Wave I 2004 - 2006
Wave II 2007 - 2008
Future 2009 and beyond
Create a Global Information Office
Create common European, Americas & Asia Pacific data definitions
Deploy a simplified Chart of Accounts by 2010
Implement standard global Chart of Accounts Continue to enhance information strategy
Shift from a decentralized structure to a regional structure
Standardize / reengineer / enable European processes (via outsourcer)
Engage outsourcer(s) to run most North America &Asia Pacific F&A processes
Engage outsourcer(s) to run most Latin America F&A processes
Standardize / reengineer / enable Americas & Asia Pac processes (via outsourcer(s))
Rationalize / standardize ERP / systems (Europe)
Rationalize / standardize ERP / systems (Europe)
One version of ERP
Rationalize ERP / systems (Americas & Asia Pac)
Provide decision support tools
Regionalize & scale most F&A processes via outsourcing (Europe)
Greater automation and measurement via outsourcer(s)
Regionalize & scale most F&A processes via outsourcing (N America) Regionalize & scale most F&A processes via outsourcing (Asia Pacific)
Regionalize & scale most F&A processes via outsourcing (Latin America)
Engage outsourcer to run most European F&A processes On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Outcomes and capabilities
Moving along the IFO journey has brought beneficial outcomes and new capabilities Outcomes and Capabilities Technology Company
Outcomes
New Capabilities
Entertainment Company
Federal Department
Consumer Products Company
• Reduced cost of Finance by 40% • Reduced key financial apps from 145 to 44 • Reduced financial Data Centers from 67 to 6 • Total Finance FTE reduction of ~30%
• Initial ~30% reduction of Finance FTE • Reduced the financial apps from >400 to ~20 • Reduced the CoA from >20,000 to <4,500 accounts • Reduced ERP instances from 4+ to 1
• Replaced antiquated system with new ERP • Reduced maintenance costs • Increased transactional efficiency • Reduced error rates
• Reduced the cost of Finance significantly • Standardized previously fragmented processes • Reduced the size of the European CoA • Rationalized ERP instances
• Faster close cycle • CEO dashboard provides headlights for business • 70% of Finance activity is decision support • CFO portal creates a „pull‟ versus „push‟ reporting environment • All F&A processes in SSCs or outsourced • Increased acquisition / divesture ability • Faster deployment in new markets
• Faster the close cycle (by 33%) • Tripled the time spent on business performance and analytics
• Increased bureau staff time spent on performance management and analytics • Shifted skills to more analytical activities
• Greater visibility / access to information • Increased acquisition / divesture ability
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Broader vision / strategy
Greater commonality requires a broader vision / strategy IFO Journey Vision / Strategy • Develop a comprehensive information management strategy, which elevates Data as a key lever to transformation that complements People, Process and Technology levers • Address interdependencies between the data, process, systems and people dimensions • Create global process owners to design, adopt, deploy, and monitor the consistent use and compliance to common, best practice processes
• Combine financial/operational data for new, integrated views
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
Q&A Dr. Philip L. Swan Chief Economist IBM
Bill Fuessler Global Financial Management Service Area Leader IBM Global Business Services
Chief Economist IBM Bill Fuessler
Global Financial Management Service Area Leader IBM Global Business Services
Tuesday, September 29th, 2009
Agenda Introductions Economic Overview On the Journey to Becoming an Integrated Finance Organization Q&A
Building a smarter planet
The Economic Environment
Phil Swan September, 2009 © 2009 IBM Corporation
Building a smarter planet
The Great Global Recession U.S. Led Financial Market Freeze; MBAs, Credit Default Swaps.
Private Spending Plunge; Excess Manufacturing Inventory. Emerging Economies Plummeted; Exports, Capital Inflows Sink. Unprecedented Bailouts; Huge Monetary and Fiscal Stimulus. Historically Rapid, Simultaneous, Deep GDP and Jobs Collapse.
- Global GDP Down 2.4%; $1.5 Tr. Lost Output; Slow Recovery. - 2010 GDP Growth Prospects Looking Better (1.5% - 2.5%). Risks and Uncertainties Continue to Dominate Activity.
© 2009 IBM Corporation
Building a smarter planet
Global Real GDP Growth Rates, Q/Q 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
© 2009 IBM Corporation
Building a smarter planet
U.S. Debt as a Share of GDP Constrains Activity 1980
1990
2000
2009-2Q
Total
155.4%
230.0%
264.5%
359.6%
Household:
47.9%
61.5%
70.4%
91.4%
Mortgage
31.8
42.8
48.4
73.5
Other debt
16.1
18.7
22.0
17.9
70.5%
108.9%
148.0%
195.5%
Nonfinancial
50.7
64.2
66.2
78.8
Financial
19.8
44.7
81.8
116.7
37.0%
59.6%
46.0%
67.2%
Business:
Government
© 2009 IBM Corporation
Building a smarter planet
Have We Learned Anything From the Global Recession? Globalization Works Both Ways: Synchronous Ups and Downs. Inventory Management Matters: Just-in-Time Manufacturing.
Consumer and Business Debt to Net Worth Ratios Also Matter. Productivity Gains Reduce Vulnerability to Global Shocks. - Lower Costs and Competitive Advantage. Systemic Risk Needs to be Better Understood; - Transparency Regulation‟s Goal. - Market Bubbles and the (Expanded) Role Of Central Banks. Are Any Financial Institutions and Companies Too Big To Fail? -
“Living Wills” and Moral Hazard.
© 2009 IBM Corporation
IBM Global Business Services IBM Institute for Business Value
On the journey to becoming an Integrated Finance Organization
September 2009
© Copyright IBM Corporation 2009
IBM Global Business Services
Contents
Integrated Finance Organizations outperform Different paths, shared objective: greater transparency through commonality Exploring your journey
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
The Global CFO Study 2008 is the largest CFO-level study of its kind with 1,230 participants CFO Study 2008 Firmographics Geography Asia Pacific, 25%
Revenue >$20B, 20%
Americas, 43%
>$5B to $10B, 11%
Title Board / CRO / President, 1% Risk, 8%
SVP / Controller / Treasurer, 25%
Communications, 12% Public, 15%
<$500M, 11%
>$10B to $20B, 9% EMEA, 32%
Sector $501M to $1B, 17%
>$1B to $5B, 32%
Distribution, 24%
Industrial, 26%
Financial Services, 23%
Scope BU / Program Area, 13%
Country, 16% CFO / Deputy CFO / Director, 66%
Region, 12%
Enterprise / Global, 59%
Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
What‟s Important to the CFO? Everything. CFO Agenda 84%
Measuring / Monitoring Business Performance
60%
76% 80% 74%
Meeting Fiduciary and Statutory Requirements Continuous Process Improvement / Business Improvement
42% 75%
Developing People
37% 75%
Aligning Finance with the Business
55% 73%
Driving Cost Reduction
51% 72%
Leading Finance-Related Compliance Programs and Strengthening Internal Controls
65% 71%
Inputs into Identifying and Executing Growth Strategies
40% 66%
Supporting / Managing / Mitigating Enterprise Risk
Driving Integration of Information Across the Enterprise
45% 62% 30%
Importance Effectiveness Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
The IBM 2008 CFO Study showed that Integrated Finance Organizations (IFOs) outperform non-IFO enterprises Components of an Integrated Finance Organization Financial outperformance
Growth rates 5 year CAGR
Increased effectiveness in driving integration of information enterprisewide
18%
Revenue growth rates for overall sample
10%
IFO
Globally mandated standards
22% Standard chart of accounts enterprisewide
Average stock price appreciation
17% 10%
Common data definitions enterprisewide
Standard common processes enterprisewide
Stock price normalized by industry indices
6%
Enterprises with an IFO Enterprises without an IFO
These are the components of process and data commonality and what we call the Integrated Finance Organization (IFO). Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Setting the context
How effectively does your Finance organization perform in each of the following areas? IFOs are More Effective Percent Effective to Very Effective Measuring / Monitoring Business Performance
80%
58%
Meeting Fiduciary and Statutory Requirements
79%
Continuous Process Improvement / Business Improvement Developing People
60%
39%
58%
34%
Aligning Finance with the Business Driving Cost Reduction
68%
49%
Leading Finance-Related Compliance Programs and Strengthening Internal Controls
37%
Supporting / Managing / Mitigating Enterprise Risk Driving Integration of Information Across the Enterprise
82%
51%
Inputs into Identifying and Executing Growth Strategies
43% 27%
93%
63% 62%
80%
60% 60% IFOs Non-IFOs
Source: IBM Global Business Services, The Global CFO Study 2008 On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
But is there a silver bullet to becoming an IFO?
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Contents
Integrated Finance Organizations outperform Different paths, shared objective: greater transparency through commonality Exploring your journey
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Analysis of IFOs since conducting our last Global CFO Study
Discussion with 80+ analysts to share IFO findings
IFO Summit pre-session interviews
IFO Summit (roundtable with Finance executives from IFO organizations)
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The call-to-action for Finance transformation has often been a downturn or event Triggering Events Technology Company 1993 Analysts began to call for break-up. The company decided to run the business on facts and to tighten controls
Entertainment Company 1999 Fortunes began to change. Segment started to falter and hit a lull. The new CFO saw an opportunity for economies of scale
Energy & Telco Company 2001 A severe capitalization decline after a drop in the telecommunications market
Regional Bank Company 2002
Consumer Products Company 2004
Disclosure errors and restatements provided a call-toaction to get back to fundamentals
2009+
A profit warning was a wake up call. Analysts call for the break up.
What has been your call-to-action to ignite greater transformation?
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services
Was there a silver bullet? We found that there was no silver bullet Companies that have gone through a transformation project took a variety of different paths toward becoming an IFO
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The entry points for transformation can be either data, process, technology or delivery model encompassing all three IFO Journey Starting Points
Greater Transparency through Commonality • Stricter adherence to common data • Process ownership • Greater systems commonality • Commonality helps to manage the transformation risks
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Multiple starting points on the IFO journey
Though starting points varied, the end goal was greater commonality Transformation Paths – Select Examples Data & Tools Led
Process Led
Technology Led
Delivery Model Led
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective
The drivers of transformation can differ based on objectives, initial priorities, culture and context Technology Company
Entertainment Company
Federal Department
Consumer Products Company
Country focused, disparate systems, low value add admin focus
Lack of integration amongst autonomous and diverse segments
14 bureaus with separate funding & unique constituents
400 highly autonomous operating units with captive Finance units
Transformation Objective
Create one version of the truth and reduce costs
Gain economies of scale and streamline processes
Replace an antiquated system
Remove complexity and cost while quickly getting to world-class processes
Initial Priority
Strict data definitions and capturing data integrity at the source
Control over the process (i.e., in-house/onshore)
Getting to a common systems platform with a controlled implementation
Speed with control through a third party
Culture & Context
• Strong leadership provides top-down executive commitment • Initially an edict driven approach to standards • Finance evolves into the steward of the “truth” for the firm • The approach becomes collaborative as the transformation gained traction
Culture and Context
Pre-Transformation
• Need for a consensus driven approach among segment CFOs led by the Controller • „Current‟ and „Futurestate‟ workshops defined path forward • Set aggressive milestones • Used internal scorecards to prompt desired behavior
On the journey to becoming an Integrated Finance Organization
• Strong agency leadership drove the need for a consensus driven approach • A value-oriented case for change „sold‟ to bureaus • The opportunity to a shared services model arose after technology increased commonality
• Top-down after a long period of decentralized / bottoms-up management • After several failed attempts at transformation, selected a knowledgeable 3rd party to quickly get to world-class processes with control and act as a change catalyst • Regionally transforming Finance © Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Data led
Transformation in the face of adversity
The Technology Company‟s journey Needing to assemble the facts to stave off calls for its break-up, the company needed better access to data buried throughout the organization. Common data definitions came to be the foundation of a comprehensive information management strategy that also sought to enhance processes and technology.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Data led
The data led transformation eventually had a process, technology and delivery model focus Wave I 1994 - 1997
Wave II 1998 - 2002
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Fully Fully Fully Fully (>75%) (>75%) (>75%) (>75%)
Wave III 2003 - 2005
Future 2006 and beyond
Implement an enterprise-wide standard Chart of Accounts Create enterprise-wide common data definitions Established a comprehensive information strategy Begin implementing global data tools Leverage global acctg capabilities (i.e., local to a global structure) Implement global process owners Conduct benchmark study
Implement the CEO dashboard
Implement the CFO portal
Strengthen global process owners Conduct benchmark study a second time Harmonize & reengineer transactional processes
Create one global ledger
Begin reducing the number of Finance applications
Create Finance Information Warehouse
Begin rationalizing data warehouses
Begin implementing global systems
Provide planning system tools
Improve integration across transactional processes Transform planning process to best practice Continue reduction of the number of Finance applications Continue data warehouse rationalization Provide self service to Finance data (e.g., CFO Portal) Create dashboards to provide “headlights”
Drive regional transactional shared services / COEs
Drive global transactional, pricing and planning shared services / COEs Outsource / globally source select processes
On the journey to becoming an Integrated Finance Organization
Continuous improvement of processes
Move to one ERP Drive global optimization of shared services / COEs for systems, planning, treasury, services, ledger, etc
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Balance of standards
The vision and strategy requires determining the appropriate level of enterprise versus localized standards Enterprise versus Localized standards Common
Unique
Technology Company
Entertainment Company
Everything is common until proven unique
Everything is unique until proven common
(Top-down approach)
(Bottoms-up approach)
Pre-existing conditions
Account for pre-existing business conditions since there is more than one finance transformation path
What is „good enough‟?
Enterprises must determine what is „good enough‟ • „Good enough will be closer to common than unique • What may be optimal for a given process or system may not be optimal for the overall organization
Unique requirements
Unique requirements will be driven by legal/statutory, business model granularity and geographical benefits
Organizations should determine their starting position on common and unique definitions On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Process led
A transformative CFO streamlines Finance The Entertainment Company‟s journey
In 1999, the new CFO saw an opportunity to streamline back office processes and create economies of scale. Segment CFOs re-engineered financial processes to reflect a consensus driven „to-be‟ state. Common processes served as catalyst for broader cross-segment Finance transformation.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Process led
The process led transformation eventually had a data and technology focus Wave I 1999-2001
Wave II 2002-2004
Reduce the differently maintained sets of CoAs
Implement an enterprise-wide standard Chart of Accounts Started the creation of common segment data definitions
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Mostly Mostly Mostly Fully achieved achieved achieved (>75%) (50-75%) (50-75%) (50-75%)
Wave III 2005-2008
Future 2009 and beyond
Enhance segment common data definitions
Create enterprise common data definitions Enhance information strategy
Globalize the procurement process Conduct full benchmark study of the Finance function Conduct „Current State‟ / „Future State‟ workshops Implement global process owners
Standardize / reengineer additional Finance processes
Refine/implement best practice processes within Finance
Begin to rationalize ERP systems from 5 to 1 instances
Complete ERP rationalization
Begin to reduce Finance applications
Continued reduction of Finance applications (i.e., 400 to ~20)
Achieve and maintain enterprise-wide process standards
Provide decision support tools Provide self service to Finance data Drive regional transactional shared services / COEs (e.g., A/P, Fixed Assets, etc.)
Drive additional select global shared services / COEs (e.g., Tax Acctg, etc)
Continue to drive additional global shared services / COEs
Continue to drive additional global shared services / COEs Outsource / global source select processes
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Technology implementation led
A common technology lowers costs and increases time for analysis The Federal Department‟s journey In the early 2000s, it was clear that the Department needed to replace its legacy finance technology platform. The fourteen bureaus had unique constituents and separate funding. However, a common technology platform enabled economies of scale and drove process and data commonality.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Technology implementation led
The technology led transformation eventually had a data and process focus Wave I 2000 - 2005
Wave II 2005-2006 Create select common data definitions
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Mostly Mostly Mostly Fully achieved achieved achieved (>75%) (50-75%) (50-75%) (50-75%)
Wave III 2006 - 2008
Future 2009 and beyond
Enhance select common data definitions
Increased integration of financial and non-financial data
Standardize / reengineer select processes across bureaus
Standardize / reengineer additional processes across bureaus
Finalize implementation to remaining bureaus
Making greater use of analytical tools
Drive consensus on single ERP platform for all 14 bureaus Begin implementation with initial bureaus
Continue implementation to additional bureaus
Provide greater self service to Finance data Create the Enterprise Service Center (ESC) for scale economies
Increase the number of bureaus using the ESC
Expand services to additional bureaus outside of the Dept Create CoEs for decision support
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Delivery model led
Leveraging a third party to drive a speedy transformation with control The Consumer Products Company‟s journey In 2004, a profit warning prompted analysts to call for company‟s break up. In response, the management structure was transformed from a country to a geographical focus. Prioritizing speed with control, the company selected an outsourcing partner to quickly get to world-class Finance processes.
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Delivery model led
The delivery model led transformation had service level agreements focusing on process, data and technology
Globally Standard Common Standard mandated chart of data common standards accounts definitions processes Fully (on a Fully (on a Fully (on a Fully (on a regional basis) regional basis) regional basis) regional basis) (>75%) (>75%) (>75%) (>75%)
Wave I 2004 - 2006
Wave II 2007 - 2008
Future 2009 and beyond
Create a Global Information Office
Create common European, Americas & Asia Pacific data definitions
Deploy a simplified Chart of Accounts by 2010
Implement standard global Chart of Accounts Continue to enhance information strategy
Shift from a decentralized structure to a regional structure
Standardize / reengineer / enable European processes (via outsourcer)
Engage outsourcer(s) to run most North America &Asia Pacific F&A processes
Engage outsourcer(s) to run most Latin America F&A processes
Standardize / reengineer / enable Americas & Asia Pac processes (via outsourcer(s))
Rationalize / standardize ERP / systems (Europe)
Rationalize / standardize ERP / systems (Europe)
One version of ERP
Rationalize ERP / systems (Americas & Asia Pac)
Provide decision support tools
Regionalize & scale most F&A processes via outsourcing (Europe)
Greater automation and measurement via outsourcer(s)
Regionalize & scale most F&A processes via outsourcing (N America) Regionalize & scale most F&A processes via outsourcing (Asia Pacific)
Regionalize & scale most F&A processes via outsourcing (Latin America)
Engage outsourcer to run most European F&A processes On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Outcomes and capabilities
Moving along the IFO journey has brought beneficial outcomes and new capabilities Outcomes and Capabilities Technology Company
Outcomes
New Capabilities
Entertainment Company
Federal Department
Consumer Products Company
• Reduced cost of Finance by 40% • Reduced key financial apps from 145 to 44 • Reduced financial Data Centers from 67 to 6 • Total Finance FTE reduction of ~30%
• Initial ~30% reduction of Finance FTE • Reduced the financial apps from >400 to ~20 • Reduced the CoA from >20,000 to <4,500 accounts • Reduced ERP instances from 4+ to 1
• Replaced antiquated system with new ERP • Reduced maintenance costs • Increased transactional efficiency • Reduced error rates
• Reduced the cost of Finance significantly • Standardized previously fragmented processes • Reduced the size of the European CoA • Rationalized ERP instances
• Faster close cycle • CEO dashboard provides headlights for business • 70% of Finance activity is decision support • CFO portal creates a „pull‟ versus „push‟ reporting environment • All F&A processes in SSCs or outsourced • Increased acquisition / divesture ability • Faster deployment in new markets
• Faster the close cycle (by 33%) • Tripled the time spent on business performance and analytics
• Increased bureau staff time spent on performance management and analytics • Shifted skills to more analytical activities
• Greater visibility / access to information • Increased acquisition / divesture ability
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
IBM Global Business Services Different paths, shared objective > Broader vision / strategy
Greater commonality requires a broader vision / strategy IFO Journey Vision / Strategy • Develop a comprehensive information management strategy, which elevates Data as a key lever to transformation that complements People, Process and Technology levers • Address interdependencies between the data, process, systems and people dimensions • Create global process owners to design, adopt, deploy, and monitor the consistent use and compliance to common, best practice processes
• Combine financial/operational data for new, integrated views
On the journey to becoming an Integrated Finance Organization
© Copyright IBM Corporation 2009
Q&A Dr. Philip L. Swan Chief Economist IBM
Bill Fuessler Global Financial Management Service Area Leader IBM Global Business Services
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