The cost of finance at the typical large company has plummeted. According to the American Productivity & Quality Center’s (APQC) Open Standards Benchmarking database, the top-quartile performers now spend less than 0.62 percent of total revenue to perform their required financial management duties. That’s about one half of the cost 15 years ago.
Does this signal a downshift in the pace of financial process improvement? Not at all. An APQC survey of 170 large, North American organizations shows 81 percent of finance executives claim their enterprises are “seriously committed” to an ongoing push for more efficiency and effectiveness.
The survey was part of APQC’s “Fixing Finance” research program. The study aimed to pinpoint CFOs’ top priorities for process improvement and to examine whether such efforts tend to be undertaken mainly to deliver benefits to the finance organization or whether the intent is to spread benefits beyond the walls of finance.
Survey respondents cited the following motivations for fixing finance (in descending order of importance):
- A need to improve the quality or usefulness of information provided by finance;
- A belief that finance can do more to help business managers boost revenues and profitability; and
- A desire to boost labor productivity in finance.
Arguably, CFOs realize that winning approval for large-dollar change programs means promising stronger decision-support for business managers who run profit centers. This kind of work is gaining favor because a growing number of CEOs are embracing what Professor Tom Davenport of Babson College calls “competing on analytics,” i.e., crafting strategies based on data-driven insights. Finance people, with their analytical bent and skills, are poised to play a vital role.
The third most prevalent motivation for fixing finance is perfectly understandable in this context. Take the considerable efforts being made at many companies to automate workflows around core finance processes such as payables processing or administration of T&E reimbursements. The point is to let software carry much more of the processing burden and free up staff to perform work that has lasting intellectual value.
The APQC research also shows that finance executives are generally pleased with the way process improvement programs turn out. This is welcome news — it wasn’t that long ago that we heard steady complaints about this or that change initiative running aground. This shift is due to the steady march of so-called business excellence (BE) methodologies and tools into the realm of finance. In fact, the survey confirms that the majority of finance change programs today involve at least one process-management expert borrowed from an enterprise-level project management center.
Another new twist is a commitment to post-implementation audit. Nearly half of the survey respondents say they make it a point to analyze whether the process repairs produce measurable gains. For example, they benchmark process cost or speed before and after the fix. Another tactic involves conducting (internal) customer satisfaction surveys after the fact.
Fixing finance can mean much more than boosting process productivity. Consider Grant Merrill, the director of project management for financial assurance at Level 3 Communications, a multinational telecom and Internet service provider. His areas of expertise range from cost and margin assurance and lean process design, to systems design and process change management. His job is to ensure the business has adequate monitors and controls to prevent revenue leakage that occurs, for example, when data errors are made during the order process and the customer is under-billed. It’s also his team’s job to recover revenue that has leaked and find the causes of chronic revenue and cost leakage. Finally, his team must find and fix the root causes of problems and present those findings to executive stakeholders.
Revenue coverage is another dimension of his brief. “We’ve developed an internal revenue coverage model,” he explains. “We look at all the revenue that we have in the company, and how much we examine each month, both base and incremental, and we look at the quality of our controls around those revenue streams. For example, is our contract management system working well? Can we prove that we’re billing a certain sales contract in our billing systems? Do we know when the contract expires? Do we know if and when to convert it into a lease payment model? If no one’s double-checking and paying close attention to those things over time, billing can diverge from contract terms,” Merrill explains. “Overall, I’m responsible for a program that aims to bring in about $20 million annually.”
Merrill’s team resembles internal audit, he says, “except we’re responsible for providing the solution, as well, and that aligns really well with Six Sigma methodology. In all, we have to partner with the business to understand and fix broken processes.” Merrill’s team members intentionally do not refer to themselves as auditors because doing so tends to stifle collaboration between their side of the table and the process owners who may need help.
As for ensuring that the fixed process stay fixed, Merrill uses a scorecard to track any service that was corrected. The tracking data goes into a database that rolls up to the executive level.
In all, the picture that emerges from “Fixing Finance” is that finance teams have been learning how to ensure the right fixes are made, the desired benefits are achieved and the causes of chronic conditions are addressed.
(See the free Flash Report on the study findings.)
Mary C. Driscoll is a senior research fellow at APQC.