You are on page 1of 33

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
Business: 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
Government 37.0% 59.6% 46.0% 67.2%

© 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 Revenue Sector
<$500M, Communications,
Asia Pacific, >$20B, Public, 15% 12%
11%
25% Americas, 20%
43% $501M to
>$10B to $1B, 17%
Industrial, Distribution,
$20B, 9% 26% 24%
>$5B to
EMEA, $10B, 11%
32% >$1B to Financial Services, 23%
$5B, 32%
Title Scope
Board /
CRO / President, 1% BU / Program
Risk, 8% Area, 13%

SVP /
Country,
Controller /
16%
Treasurer,
CFO / Deputy Enterprise /
25%
CFO / Director, Global, 59%
Region,
66% 12%
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%
Meeting Fiduciary and Statutory Requirements
80%
74%
Continuous Process Improvement / Business Improvement 42%
75%
Developing People 37%
75%
Aligning Finance with the Business 55%
73%
Driving Cost Reduction 51%
Leading Finance-Related Compliance Programs and 72%
Strengthening Internal Controls 65%
71%
Inputs into Identifying and Executing Growth Strategies 40%
66%
Supporting / Managing / Mitigating Enterprise Risk 45%
62%
Driving Integration of Information Across the Enterprise 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

18%
Revenue growth rates
Increased effectiveness in driving integration of for overall sample
information enterprisewide 10%

IFO
22%
Globally Standard chart of Average stock price
mandated accounts appreciation 17%
standards enterprisewide
10%
Stock price normalized
Common data Standard common by industry indices 6%
definitions processes
enterprisewide enterprisewide 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 93%
79%
Continuous Process Improvement / Business Improvement 60%
39%
Developing People 58%
34%
Aligning Finance with the Business 82%
51%
Driving Cost Reduction 68%
49%
Leading Finance-Related Compliance Programs and 80%
Strengthening Internal Controls 63%
Inputs into Identifying and Executing Growth Strategies 62%
37%
Supporting / Managing / Mitigating Enterprise Risk 60%
43%
Driving Integration of Information Across the Enterprise 60%
27% 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 Entertainment Energy & Telco Regional Bank Consumer Products


Company Company Company Company Company

1993 1999 2001 2002 2004 2009+

Analysts began to Fortunes began to A severe A profit warning


call for break-up. Disclosure errors was a wake up
change. Segment capitalization decline
The company and restatements call. Analysts call
started to falter after a drop in the
decided to run the provided a call-to- for the break up.
and hit a lull. The telecommunications
business on facts action to get back
new CFO saw an market
and to tighten to fundamentals
opportunity for
controls economies of scale

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 Entertainment Federal Consumer Products
Company Company Department Company
Culture and
Context

Country focused, disparate Lack of integration amongst 14 bureaus with separate 400 highly autonomous
Pre-Transformation systems, low value add autonomous and diverse funding & unique operating units with captive
admin focus segments constituents Finance units
Remove complexity and
Transformation Create one version of the Gain economies of scale Replace an antiquated
cost while quickly getting to
Objective truth and reduce costs and streamline processes system
world-class processes
Strict data definitions and Getting to a common
Control over the process Speed with control through
Initial Priority capturing data integrity at systems platform with a
(i.e., in-house/onshore) a third party
the source controlled implementation

• Strong leadership • Need for a consensus • Strong agency leadership • Top-down after a long
provides top-down driven approach among drove the need for a period of decentralized /
executive commitment segment CFOs led by the consensus driven bottoms-up management
• Initially an edict driven Controller approach • After several failed
approach to standards • „Current‟ and „Future- • A value-oriented case for attempts at transformation,
Culture & Context • Finance evolves into the state‟ workshops defined change „sold‟ to bureaus selected a knowledgeable
steward of the “truth” for path forward • The opportunity to a 3rd party to quickly get to
the firm • Set aggressive shared services model world-class processes with
• The approach becomes milestones arose after technology control and act as a change
collaborative as the • Used internal scorecards increased commonality catalyst
transformation gained to prompt desired • Regionally transforming
traction behavior Finance

On the journey to becoming an Integrated Finance Organization © 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

Globally Standard Common Standard


The data led transformation eventually had a mandated chart of data common
standards accounts definitions processes
Fully Fully
process, technology and delivery model focus (>75%) (>75%)
Fully
(>75%)
Fully
(>75%)

Wave I Wave II Wave III Future


1994 - 1997 1998 - 2002 2003 - 2005 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
Implement the CEO dashboard Implement the CFO portal
tools

Leverage global acctg capabilities


(i.e., local to a global structure)
Strengthen global process
Implement global process owners owners
Conduct benchmark study a Improve integration across
Conduct benchmark study second time transactional processes
Continuous improvement of
Harmonize & reengineer Transform planning process to processes
transactional processes best practice
Begin reducing the number of Continue reduction of the
Create one global ledger number of Finance applications
Finance applications
Continue data warehouse
Create Finance Information Begin rationalizing data
rationalization
Warehouse warehouses
Provide self service to Finance
Begin implementing global data (e.g., CFO Portal)
Provide planning system tools
systems
Create dashboards to provide
Move to one ERP
“headlights”

Drive global transactional, Drive global optimization of


Drive regional transactional pricing and planning shared services / COEs for
shared services / COEs shared services / COEs systems, planning, treasury,
Outsource / globally source services, ledger, etc
select processes

On the journey to becoming an Integrated Finance Organization © Copyright IBM Corporation 2009
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 Entertainment
Company Company
Everything is common Everything is unique
until proven unique until proven common
(Top-down approach) (Bottoms-up approach)

Account for pre-existing business conditions since there is more than one finance
Pre-existing conditions
transformation path

Enterprises must determine what is „good enough‟


• „Good enough will be closer to common than unique
What is „good enough‟?
• What may be optimal for a given process or system may not be optimal for the
overall organization

Unique requirements will be driven by legal/statutory, business model granularity and


Unique requirements
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

Globally Standard Common Standard


The process led transformation eventually mandated chart of data common
standards accounts definitions processes
Mostly Mostly Mostly
had a data and technology focus achieved
(50-75%)
Fully
(>75%)
achieved
(50-75%)
achieved
(50-75%)
Wave I Wave II Wave III Future
1999-2001 2002-2004 2005-2008 2009 and beyond
Reduce the differently Implement an enterprise-wide
maintained sets of CoAs standard Chart of Accounts

Started the creation of common Enhance segment common Create enterprise common data
segment data definitions data definitions definitions

Enhance information strategy

Globalize the procurement


process
Conduct full benchmark study of
the Finance function
Conduct „Current State‟ / Achieve and maintain
„Future State‟ workshops Standardize / reengineer Refine/implement best practice
enterprise-wide process
additional Finance processes processes within Finance
Implement global process standards
owners
Begin to rationalize ERP Complete ERP rationalization
systems from 5 to 1 instances
Begin to reduce Finance Continued reduction of Finance
applications applications (i.e., 400 to ~20)
Provide decision support tools

Provide self service to Finance


data

Drive regional transactional Drive additional select global Continue to drive additional Continue to drive additional
shared services / COEs (e.g., shared services / COEs (e.g., global shared services / COEs global shared services / COEs
A/P, Fixed Assets, etc.) Tax Acctg, etc)
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

Globally Standard Common Standard


The technology led transformation eventually had mandated chart of data common
standards accounts definitions processes
Mostly Mostly Mostly
a data and process focus achieved
(50-75%)
Fully
(>75%)
achieved
(50-75%)
achieved
(50-75%)

Wave I Wave II Wave III Future


2000 - 2005 2005-2006 2006 - 2008 2009 and beyond

Create select common data Enhance select common data Increased integration of
definitions definitions financial and non-financial data

Standardize / reengineer select Standardize / reengineer


processes across bureaus additional processes across
bureaus

Drive consensus on single ERP


platform for all 14 bureaus

Begin implementation with initial Continue implementation to Finalize implementation to Making greater use of
bureaus additional bureaus remaining bureaus analytical tools
Provide greater self service to
Finance data

Create the Enterprise Service


Increase the number of Expand services to additional
Center (ESC) for scale
bureaus using the ESC bureaus outside of the Dept
economies

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 Globally Standard Common Standard
mandated chart of data common
service level agreements focusing on standards
Fully (on a
accounts
Fully (on a
definitions
Fully (on a
processes
Fully (on a
regional basis) regional basis) regional basis) regional basis)
process, data and technology (>75%) (>75%) (>75%) (>75%)

Wave I Wave II Future


2004 - 2006 2007 - 2008 2009 and beyond

Create a Global Information Office Create common European, Americas & Deploy a simplified Chart of Accounts
Asia Pacific data definitions by 2010
Implement standard global Chart of
Accounts
Continue to enhance information
strategy

Shift from a decentralized structure to Standardize / reengineer / enable


a regional structure European processes (via outsourcer)

Engage outsourcer(s) to run most Standardize / reengineer / enable


Engage outsourcer(s) to run most Latin
North America &Asia Pacific F&A Americas & Asia Pac processes (via
America F&A processes
processes outsourcer(s))

Rationalize / standardize Rationalize / standardize


ERP / systems (Europe) 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 (N Regionalize & scale most F&A Greater automation and measurement
America) processes via outsourcing (Europe) via outsourcer(s)
Regionalize & scale most F&A Regionalize & scale most F&A
processes via outsourcing processes via outsourcing (Latin
(Asia Pacific) America)
Engage outsourcer to run most
European F&A processes

On the journey to becoming an Integrated Finance Organization © Copyright IBM Corporation 2009
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 Entertainment Federal Consumer Products
Company Company Department Company

• Reduced cost of Finance • Initial ~30% reduction of • Replaced antiquated • Reduced the cost of
by 40% Finance FTE system with new ERP Finance significantly
• Reduced key financial • Reduced the financial • Reduced maintenance • Standardized previously
apps from 145 to 44 apps from >400 to ~20 costs fragmented processes
Outcomes • Reduced financial Data • Reduced the CoA from • Increased transactional • Reduced the size of the
Centers from 67 to 6 >20,000 to <4,500 efficiency European CoA
• Total Finance FTE accounts • Reduced error rates • Rationalized ERP
reduction of ~30% • Reduced ERP instances instances
from 4+ to 1

• Faster close cycle • Faster the close cycle (by • Increased bureau staff • Greater visibility / access
• CEO dashboard provides 33%) time spent on to information
headlights for business • Tripled the time spent on performance • Increased acquisition /
• 70% of Finance activity is business performance management and divesture ability
decision support
and analytics analytics
New Capabilities • CFO portal creates a
„pull‟ versus „push‟ • Shifted skills to more
reporting environment analytical activities
• All F&A processes in
SSCs or outsourced
• Increased acquisition /
divesture ability
• Faster deployment in new
markets

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