Ibm Cfo Integrated Fin Org

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

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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

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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