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