85 slides detailed professional presentation to the Fortune 500 executive CFO presentation to reduce overall cost of 20% to meet 1.2% of sales bench: benchmark of global finance function (transaction, controlling, audit, management), definition of target organization, process, technology; definition of project portoflio (25 projects defined), business case (savings, costs) and implementation plan.
DRAFT FOR DISCUSSION Finance Benchmark CFO Meeting #2 Benchmark / Assessment Book Tuesday May 9th, 2006 Agenda 1. Context & Objectives 2. Work Status 3. Supplier HPB Research Highlights 4. Benchmark & Leading practices Assessment 5. Benchmark & Opportunities Summary 6. Appendices 2 Objectives • Assess the performance of the Client Finance processes and organization (exclusive of FSS & SCE FT) The objective is to benchmark Client processes with high performers in both efficiency (“doing things right”) and effectiveness (“doing the right things”). • Identify & Study improvement opportunities The goal is to identify the cost and quality savings that could take place by applying best practices on each process activities. • Propose Value Realization Plan Based on data collected and understanding of operations on the fields, the objective is to elaborate collectively a to-be vision and its associated Business Case & Transformation Plan. 3 Approach Where Where do How do are we we want to we get today? be? there? CFO CFO CFO Meeting Meeting Meeting Today ~Mid-April End May Project PHASES mobilizat Benchmark ion / / Key Root causes Business Case, Review Clientervatio Opportunities Scenarios current ns & & Visioning & Value Ralization capabiliti Verbatim Plan es Meetings with people Review 1st key Thematic workshops on the fields to findings & (best practises) validate Validate next & Visioning Workshops assumptions & steps collect data “Internal buying” process 4 Agenda 1. Context & Objectives 2. Work Status 3. Supplier HPB Research Highlights 4. Benchmark & Leading practices Assessment 5. Benchmark & Opportunities Summary 6. Appendices 5 Work status Overall Status: We are at the end of week 18 and we are on track on schedule. March / early April have been dedicated to best practices / visioning workshops and identification of opportunities / savings 1. As-Is Information Gathering and Analysis 5. Improvement Opportunities - Completed - To be discussed and validated in this workshop 2. Executive Interviews 6. Transformation Roadmap - Completed - Schedule to start in May 3. Benchmarking Analysis 7. Business Case - Completed - Scheduled to start in May 4. Leading Practices Assessment - 3 workshops performed: closing; performance measurement & management reporting; planning, targeting, budgeting and forecasting - Supplier High Performance research presentation CFO Volume I & II (lecture) - Supplier CH&T Study on Business Insight pending 6 Agenda 1. Context & Objectives 2. Work Status 3. Supplier HPB Research Highlights extracts 4. Benchmark & Leading practices Assessment 5. Benchmark & Opportunities Summary 6. Appendices 7 Mastery Key Finding #1: The correlation between finance mastery and high performance is greater than 70% CFOs at leading companies view Finance & Performance Management as crucial elements of business success. Specifically, they believe: Reported Level of Importance of Functional Areas in Driving Shareholder Value • The finance function not only Finance and Performance Management Sales/Marketing/CRM plays a strategic role, but is also a Supply Chain (Procurement, Logistics) Strategy, M&A central contributor to shareholder R&D/Innovation Production (Manufacturing, Operations) Top Choice Second Choice value in its own right Human Performance Information Technology Post Sales Service / Customer Support 0% 10% 20% 30% 40% 50% 60% • An integrated focus on cost, profitability and capital How finance has driven value across other business functions? Informing Decisions & Planning 27% stewardship are major drivers of shareholder value and key Enforcing Rigor, Efficiency & Process Control 23% decision criteria in product, Providing Cross Company Integration 23% customer and business model Driving Cost Reduction 15% innovation Educating & Increasing Accountability 8% Cash Management 4% 0% 5% 10% 15% 20% 25% 30% Percentage of Respondents Responding 8 Mastery What does this finding mean for you? There are certain things that a finance organization must always do well. • Shareholder Value Targeting -- Management must be able to discern drivers of current and future value. Not only is this crucial to maximizing shareholder returns, it also enables the finance organization to respond more effectively to changing business conditions. • Value-Centered Culture -- Our research has demonstrated that an enterprise with a value-centered culture motivates and enables employees to make and quickly act upon decisions that create shareholder value. Such a culture removes many of the normal barriers to change and gets everyone marching in step, in the same direction, adhering to the same agenda and the same priorities. • Technology Leverage -- Leading companies deploy fit-for-purpose, right-sized technology. Investments in finance technology—such as performance management solutions and enterprise-wide applications—occur along a continuum. Organizations need to understand their process and technical capabilities need to be able to migrate to the next level and the next operating model before their competitors have even anticipated the next wave of change. • Finance Skills -- In the world of high performance, finance employees need to understand new business models and how to restructure revenue, cost and capital resource streams. They need to be able to provide innovative thinking about capital management and employ advanced analytical techniques to predict change. They need a supportive environment that encourages them to learn, adapt and pursue new opportunities to create value. And they need to be able to offer insights that support dynamic change. 9 Mastery What does this finding mean for you? Finance masters do more. They recognize the role of the CFO has changed from the traditional scorekeeper to a visionary strategist. They: • Strive to be pioneers in those capabilities most strategic given their business model, industry and company value (current vs future) • Recognize the gaps that exist between the skills they have today and the skills they will need tomorrow………and invest accordingly • Tend to think differently about the role of finance in the business • Structure the CFO agenda and accompanying organization model to enable finance to take on roles of more strategic importance 10 VCC Key Finding #2: Masters in finance have made the finance function the driver of a value- centered culture CFOs of high-performance businesses acknowledged the significance of value-centered culture in two important ways: Value-Centered Organization as the Foundation to Other Key 1. 50+% reported value- Finance & Performance Management Capabilities centered culture as one of the top 3 finance Enterprise competencies (out of a total Finance Capital Enterprise Performance Operations Stewardship Risk of 20) contributing to Management Management shareholder value. A third rated it as the most important Value-Centered Organization Change Finance Agency Value-Centered Culture Skills 2. Nearly 40% of them noted that value-centered culture is one of the top 3 competencies they plan to Business Value Chain / Network invest in over the next two years. 20+% cited it as their highest investment priority 11 VCC Value-centered culture is the core foundation upon which finance‟s contribution rests In companies with a value-centered culture, we found that: Embedded Finance Organizational Model • The finance function plays a leading role in the organization Corporate • Financial thinking and value- Finance CFO oriented metrics pervade the organization • The finance function is organized Finance Center of Transaction Processing Expertise (Controllership to maximize value (see figure to (Shared Service Center / & Stewardship, Outsourced Model) Enterprise Risk Mgmt; right) M&A, etc) • Finance takes a leading role in Business Units maintaining relationships with customers and trading partners BU 1 Gen. Unit 1 Unit 2 BU 2 Gen. Mgmt Finance Finance Mgmt VCC Master: Orange - Orange believes that initiatives to enhance value centered culture have had a positive impact on both company performance & how the company is perceived e.g. the ability of Finance to adapt & support organizational changes with tools to measure the financial impact / performance of the new structure and demonstrate this to the market “Today, the key thing is to deliver what has been promised to share holders. In that context, it is important to get the appropriate tools to track targets against actuals & take proactive decisions. Analysts are looking for the champions in each industry, the high performance businesses. The TOP program & implementation of benchmarking across the organization strengthen Orange.” 12 Capabilities Key Finding #3: Finance masters demonstrate progressive to pioneering skills in other four capabilities Client? 13 Investments Key Finding #4: High performers major finance past and forthcoming investments 14 Agenda 1. Context & Objectives 2. Work Status 3. Supplier HPB Research Highlights 4. Benchmark & Leading practices Assessment - Key Assumptions - Overall Findings - Process Group Findings & Opportunities 5. Benchmark & Opportunities Summary 6. Appendices 15 Key Assumptions 16 Introduction • Benchmark based on the Supplier High Performance Business research and external, independent benchmarks • Costs are analyzed across four categories - Labor, outside, technology and other • Comparison of quantitative benchmark data – Median: this comparison of overall costs & process groups is against Supplier HPB peer group – Masters: was determined based on world-class performance in both efficiency and effectiveness • Qualitative analysis through interviews and leading practices 17 Cost categories Labor Outside Technology Others Salaries & Wages Outside services IS Maintenance Facilities, travel (full and part-time) (consulting, audit, & Evolution Training Content Details surveys…) Computer Overtime / Bonuses Other direct processing / costs (supplies, License & IT Taxes & Fringe phone…) amortization Benefits Overheads IS/IT part of Other non staff Related Client budget line Internal Staff Costs Professional Fees Finance costs – Excl. Contract / Temp Outsourcing System GOM1 indirect taxes & workers insurances IT costs2 HR & Corporate Services 1 18 Process groups1 Transaction Compliance & Planning and Management Processing Risk Management Analysis & Administration Cash disbursements - Accounts Payable, T&E Tax management Planning and Projects / - Payroll Management Initiatives Treasury Reporting Revenue cycle management Management & Business Administration General Accounting Compliance analysis & Consolidated management Reporting Tax FPA FSS CFO Office CFO Office (cash BPA (others) Reg. & Ind. Channels generator / US) ENS, ESS, CSO Fin. Systems2 CAO Audit fees & SoX HoF Internal Audit 19 Overall Benchmark Findings 20 Client‟s baseline finance cost is $80,5 million, which represents 2,75% of revenue Total Cost of Finance: Labor cost -- $42,6 million • Salaries/Wages, social charges & pension, $80,5 million (excl finance bonus, benefits, other staff costs incl. contract contingency 4,8m$) * and temp labor services 9% Outside cost --$22,7 million • Outsourcing – (SITA, F&A, Payroll, 10% Account…) • Professional fees (consulting, audit, Professional surveys…) fees (17%) 53% Technology cost -- $7,9 million • IS/IT maintenance & development services, 28% software expense, IT amortization, license Outsourcing Other cost -- $7,3 million (11%) • Net Occupancy, Operating Supplies, Labor Outside Technology Other Furniture and Equipment, and Other direct and indirect expenses (e.g. HR & Corporate Services excl. technical building) * Source: Client Budget FY06 ** Revenues: $2,927 billion 21 Client overall cost of finance is high although significant cost reduction budgeted in FY06 Total Cost of Finance Quartile breakdown as a % of revenue * $91,2m(*) High Cost 5,5% 100 90 $80,5m (excl. fin. 6 -12% contingency of -$4,8m) 80 11,2 7,3 Quartile 4 70 7,9 21,3 Professional 60 fees (17%) 50 22,6 CLN Actuals FY05 Outsourcing (11%) 3,12% 40 CLN Budget FY06 30 52,7 2,75% 20 42,6 1,96% 10 Quartile 3 1,52% 0 Quartile 2 Act 05 Budg 06 1,10% Labor Outside Technology Other Quartile 1 Low Cost 0,37% (*) Source Budget FY06 & Actuals FY05: $87,235m + IT costs estimated at same * Source: Supplier/Client Analysis and Supplier level than that of FY06 ($3,971m). HPB 2005 22 Staff and outside costs represent 2,24% of revenues, most of Client cost gap with median peer group Supplier HPB External Benchmarks 3,00% 2,75% (excl fin.conting.) 0,25% 2,50% 0,27% x1,8 2,00% 0,77% 1,65% 1,52%(*) 1 0,1 % 1,50% 0,13% 0,19% 1,08% 0,15% 0,35% 0,18% 1,00% 0,36% 0,86% 0,18% 0,1 % 1 0,74% 1,46% 0,1 % 1 0,09% 0,10% 0,20% 1,07% 0,13% 0,50% 0,05% 0,81% 0,80% 0,43% 0,46% 0,00% Equant M edian High M ed 1 M ed 2 World Perf ormers Class 2 Labor Out side Technology Ot her Finance cost as % of revenues ($2,93b) Source Client Budget FY06; Source Supplier internal benchmark 2005 Source for other external benchmarks: CFO Executive Board (Med 1) & Hackett Book of Numbers 2005 (Med 2 & World Class). NB. Global telcos business (network, services, traffic) induces a level of organizational and process complexity, likely to generate higher cost levels. 23 Headcount, professional fees and cost per man are strong optimization levers for respectively transaction processing / planning, compliance and management / initiatives Process costs Internal FTE normalized to Client (as a % of revenue) Revenue 2,50% 500 2,24% 450 FTE 0,15% 450 18 Management Admin. & Initiatives 2,00% Planning & Analysis 400 0,40% 98 Compliance & Risk Management 350 FTE Transaction processing 350 18 25 1,50% 300 0,55% 98 260 FTE 1,17% 250 19 0,10% 25 1,00% 200 79 159 FTE 0,28% 150 309 13 0,22% 0,63% 37 0,06% 50 1,15% 209 0,50% 0,15% 100 31 0,15% 125 0,57% 50 65 0,27% 0,00% 0 Equant Median High Performers Equant Equant end of Median High Transaction Processing Compliance & Risk Planning & Analysis Transaction Processing average FY06 FY06 Performers Outside 0,33 0,44 0 0,02 FTE Labor 0,82 0,13 0,4 0,12 Exclusive of 30 FTE in Technology and -1 FTE Finance contingency, and outsourcers FTEs 24 SAP project combines most high performers value-centered organization elements Centralized / decentralized organization with centers of expertise and co-sourced transaction processing model 7 FTE CFO CFO Office Centers of Expertise 17 FTE 168 FTE Finance Operations • Sarbox Centers of • Accounts Payable • Tax Expertise • Accounts receivables Main • Cash Management • Internal Audit Controller Subsidiaries • Payroll • Cash Generator Coordination • General Ledger • Fixed Assets Central 18 FTE Client CAO Controlling Controlling 26 FTE 54 FTE • Consolidation 52 FTE & Stewarship Channel Business CFO Etrali • Financial Planning and analysis • PL project (customer and product Controlling Controlling profitability) CFO Globecast • Investment committee office France DGC, EMEA, GCS, GS, • Costing & Surveys APA, AME, Indirect Broadcast, ESS, Treasury • Support function controlling (SG&A, channels CSO controlling • Transferred to FT Transformation program) • support to local • assist CSO, Group operations in GS & GCS IS & Projects revenue business unit 38 FTE recognition, manager in • Financial systems sales finance & Only Client budget FY06 FTEs are commissions, performance presented (excl. -1 FTE Finance and sales force activities Contingency budget line item) expenses 25 Client IS architecture is complex and a limit to process automation and simplification Billing Sales Data & IP + MHS GOLD CUBS Finance BIC SITA Oracle NFPS SCB • Fragmented sales and billing VOICE IMS AR GL ARAVIS M.H.S. INFRANET systems Mediation Systems Rhone Poulenc Rhodia Excel USA FT Billing Cornerstone Network Excel FINANCE • Multiple, sometimes manual EQ interco CHBM Eqt resale Billing SUN Business Revenue Oracle NFPS Assurance Budget SUN Russia Reporting & Analysis LEVEL 1 Reforecast Circuits AR interfaces (e.g. Gold / Cubs) Telco Invoices Treasury CM Discoverer Reporting Web Reporting Web Planning Provisioning PO AP GL OCS Hyperion Planning System 170 • Single Chart of Account FA Oracle Hyperion Hyperion CONCUR Discoverer Essbase Essbase PA GEM Financial Reporting Systems HR constant dollar and budget reporting MC Reconciliation iTime/OTL SITA RUSSIA SUN • Oracle / SUN as accounting Payroll LEVEL 1 Circuits Carriers Mediation Systems systems Telco Invoices MBRS $ BBB DEPOT T IV MDNS Decisional Reporting Financial Reporting Budget Reporting Dashboard Analysis Reporting & Analysis CCR Reforecast CIS • Entreprise Planning and Reporting Finance Customer Services Cognos Metrics Discoverer Web Web Ordering AP Manager Reporting Reporting Planning Provisioning OPAS Fileade SESAM Cognos Cognos Cognos Impromptu ReportNet PowerPlay Tool project launched Hyperion LOIS SOPM Planning LEVEL 1 Datamarts
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