Fortune 500 Finance Function Benchmark & Transformation Exec Presentation by frederic.fasan

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									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

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