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Shifting Focus:
Organizations lived through ERP implementations, both Phase I and second wave. They survived Y2K. Many have completed Year 1 and 2 of Sarbanes-Oxley and are gearing up for Year 3. And while each of these initiatives was imperative to stay current with competitors or regulators, for most organizations they necessitated vast expenditures without yielding much in the way of value-add operational improvements. After years of effort, resource investment, and sunk and lost-opportunity costs, its time for an initiative that improves the bottom line. Something that adds value. Financial process improvement holds that promise for organizations willing to objectively examine their operations and design efficient processes that meet both current and future requirements processes with adaptability built in. One method of attaining that goal is by employing a financial process improvement framework, based on a proven lifecycle model. Using the framework, organizations can assess processes against best practices and define actions to increase process maturity. Using this type of approach can help organizations meet immediate requirements and create the tools necessary to adjust processes to evolving market conditions. Not only can such a framework provide an organization with immediate benefits, it also provides a pragmatic approach that helps eliminate major roadblocks to success.
facing many finance leaders today are: 1) how to gain additional value from those investments; and 2)how to improve the bottom line and financial processes that are legacies of those efforts in less time, using fewer dollars and resources. In fact, the industry is abuzz with white papers and articles on how to implement sustainable compliance programs to reduce the cost of Section 404, or gain secondary benefits from those expenditures. Gartners recently published Executive Program, 2006 CIO Agenda Report identified business process improvement as the top priority, with other top-five priorities including controlling operating costs and improving competitive advantage. Also consider that CFO magazine, in a recent reader survey, identified that respondents wanted the time spent on transaction processing to fall from 44 percent to 31 percent over the next three years, while increasing their spend on decision-support tools and processes from 18 percent to 25 percent. Clearly, organizations are seeking more value from their finance functions. Financial process improvement is not a new concept, but today its drivers are changes in the competitive marketplace, the regulatory environment, and an increased focus by business analysts, stakeholders and consumers. The challenge in this new environment is to achieve a practical, value-driven outcome, leveraging efforts to move beyond a singular focus on specific regulations or events, toward building processes that consistently deliver business benefits in a constantly changing environment. Real-world results tell the story: The best way to meet business objectives and increase stakeholder satisfaction is to execute a series of well-defined, realistic projects that build off of prior efforts and introduce efficiency and adaptability into each process. This approach produces a two-fold benefit for the organization: it brings immediate value by addressing and mitigating existing issues and
Introduction
A shift in focus is taking place among the leaders of finance organizations. That shift is away from largescale, multi-year, enterprisewide programs and toward quick-hit, focused efforts that yield less-costly, moretimely results with quantifiable benefits. The data is in on the large-scale initiatives of recent years, and many companies now realize they generated less value than originally expected. The questions
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challenges, while establishing a structure to help the organization more effectively and efficiently adapt to future changes. Approaching financial process improvement with this mindset allows an organization to establish a culture of continuous, flexible improvement. It enables it to increasingly rely on internal resources to help create significant bottom-line improvements, and allows finance leadership to shift the focus from transaction processing and compliance toward the creation of value for the business.
should consider what its processes would need to look like if it acquires a company, experiences rapid growth, expands into new markets or changes its product offerings. One key consideration is the data requirements for the process. What data are required every time a process is executed and what are optional? How does data flow from and to other functional areas? By building common data definitions and related controls over that data into each process, there is an increased capability to assure accuracy across functions, to build in support for continuous monitoring, and to create metrics and measurements to support business analytics. The carefully designed data model that supports each process, for current needs and future scenarios, leads to near-term efficiency gains by reducing errors and redundancy, while creating an environment that supports future growth and value creation. The same is true with process steps and technology. By developing a value stream that links customer requirements to specific inputs, processes, information systems and management activities, companies can quickly identify those steps that contribute to overall business performance. Once the process requirements for both the current business environment and anticipated future scenarios are identified, technology can be applied to complete those activities faster and more consistently. While these quick-hit opportunities are focused on delivering near-term benefits, it is important for them to be defined and executed so they also support the enterprises longer-term objectives. There are far too many examples of very visible projects that successfully remediated a current issue, but became throwaways when future projects were undertaken.
Unlocking adaptability
Companies that want to adapt to the current business environment need to design flexibility into processes and the supporting infrastructure. Once an organization focuses on a particular process, it must clearly articulate the processs current requirements and look at any potential environmental and business changes likely to impact that process in the future. For example, anticipating strategic acquisitions when building a payables process can help drive a company to incorporate remote workflow capabilities and expandability into the process to facilitate the future consolidation of the function. This could generate current savings by improving the speed of existing processes and providing flexibility to address future growth and changes. Adaptability requires a forward-thinking perspective so processes are designed by considering multiple potential scenarios, all driven by likely or significant business changes. In that context, the organization
Unlocking Value
Once an organization designs adaptability into its processes, it can leverage that adaptability to unlock value since adaptable processes become the basis for competitive responses to a changing environment. As a result, efficiency becomes more than a cost measure it provides a competitive weapon to improve customer satisfaction and gain market share. For example, if an insurance companys claims payment
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process is labor-intensive and takes twice as long as the industry average, it not only costs more, but also reduces customer satisfaction and therefore acts as a drag on competitiveness. An operational assessment, with a significant focus on financial processes, can pinpoint those areas in each process where too many people take too much time to do too many things to produce too little value. Going further, if adaptability were designed into the process, the company could begin to leverage the process, by experimenting with alternative processes, going beyond meeting customers expectations to delighting customers. The shift in mindset would take a company beyond compliance to efficiency and the creation of real business value. Obviously, it doesnt do much good to process claims faster and at lower cost if a high percentage of claims have errors that must be corrected erasing not only any original time and cost savings, but customer satisfaction also. Effectiveness is as important as efficiency. If an accounts payable process consistently delivers late payments with a high percentage of incorrect remittances, it is not effective; no matter how quickly or cheaply it processes individual payments. The results of such a flawed process can include loss of prompt payment discounts and a reduced ability to negotiate favorable buying terms. By building and leveraging adaptability into the process, an organization can quickly respond to new regulations or customer requirements without lowering quality or losing hard-earned efficiency gains. Because it can quickly respond to shifts in the market, the organization can gain extra margin and incrementally better customer relations that its competitors cannot match. In a way, by implementing adaptable and efficient processes, companies could begin to welcome each external change as an opportunity to distance themselves from their competitors. At a basic level, financial process improvement failures demonstrate the critical importance of planning, organizing and managing these initiatives, using formal project management tools and techniques. Going beyond the basics, well-documented failures also demonstrate the need for consistent and persistent sponsorship; each initiative must be led by true agents of change, people with both the experience and interpersonal skills to effect change. It does an organization little good to design in adaptability but fail at implementation or initiate changes not aligned with the firms strategic direction.
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Description
Initial/ad-hoc: Few business processes are defined, and success depends more on individual heroic efforts than on following a process and using a synergistic team effort. Repeatable: Basic management processes are established to track efficiency, effectiveness and adaptability of business processes. Defined: Business processes are documented, standardized and integrated into a standard business operations model for the organization.
management focus
Respond; react
key activities
Respond to immediate compliance or customer need Identify growing volumes
Document as-is processes Eliminate errors, redundancy, waste and variation Requirements definition Process design Build in adaptability Project and change management Data architecture Business process management Tone at top Risk management Implement controls Test controls Continuous auditing Select KPIs/KRIs Monitor Data architecture Business activity monitoring Embed in culture Performance management Align rewards and recognition Execute rapid evolution for competitive gain Business intelligence
Managed and measurable: Detailed process and product quality metrics establish the quantitative evaluation foundation. Meaningful variations in process performance can be distinguished from random noise, and trends in process and product qualities can be predicted.
Optimized: The organization has quantitative feedback systems in place to identify process weaknesses and strengthen them proactively. Defects are analyzed to determine causes; business processes are evaluated and updated to prevent known types of defects from recurring.
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management techniques that provide appropriate leadership, direction and resources for each initiative. This includes considering several questions that can provide a basis to define, manage, control and gain buy-in for the initiative: What current shortcomings will the initiative improve? What changes will create the improvement? How will management assess the results of those changes?
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2006 Jefferson Wells International, Inc. All rights reserved. Jefferson Wells International, Inc. is not a certified public accounting firm.
6/06