ibm cfo integrated fin org

8/14/2019 Ibm Cfo Integrated Fin Org

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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


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Agenda

Introductions

Economic Overview

On the Journey to Becoming an Integrated

Finance Organization

Q&A


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2009 IBM Corporation

Building a smarter planet

The Economic Environment

Phil Swan

September, 2009


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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.


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-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

Global Real GDP Growth Rates, Q/Q


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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 73.5Other 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%


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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 Regulations 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.


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Copyright IBM Corporation 2009


IBM Institute for Business Value

On the journey to becoming anIntegrated Finance Organization

September 2009


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Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization

Contents

Integrated Finance Organizations outperform

Different paths, shared objective:greater transparency through commonality

Exploring your journey


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The Global CFO Study 2008 is the largest CFO-level study ofits kind with 1,230 participants

Geography SectorRevenue

Title Scope

Source: IBM Global Business Services, The Global CFO Study 2008

CFO Study 2008 Firmographics

Asia Pacific,25%

EMEA,32%

Americas,43%

Public, 15%

Communications,12%

Industrial,26%

Distribution,24%

Financial Services, 23%

BU / ProgramArea, 13%

Country,16%

Region,12%

Enterprise /Global, 59%

Board /President, 1%CRO /

Risk, 8%SVP /

Controller /Treasurer,

25% CFO / DeputyCFO / Director,

66%

$1B to$5B, 32%

>$5B to$10B, 11%

>$20B,20%

>$10B to

$20B, 9%

Setting the context


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Whats Important to the CFO? Everything.


Measuring / Monitoring Business Performance

Continuous Process Improvement / Business Improvement

Meeting Fiduciary and Statutory Requirements

Driving Integration of Information Across the Enterprise

Developing People

Aligning Finance with the Business

Driving Cost Reduction

Leading Finance-Related Compliance Programs andStrengthening Internal Controls

Inputs into Identifying and Executing Growth Strategies

Supporting / Managing / Mitigating Enterprise Risk

CFO Agenda

Importance

Effectiveness

30%62%

45%66%

40%71%

65%

72%

51%73%

55%75%

37%

75%

42%74%

80%

76%

60%84%

Setting the context


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The IBM 2008 CFO Study showed that Integrated FinanceOrganizations (IFOs) outperform non-IFO enterprises

Components of an Integrated Finance Organization

Setting the context

Growth rates 5 year CAGR

Enterprises with an IFO

Enterprises without an IFO

10%

18%

17%

22%

6%

10%

Revenue growth ratesfor overall sample

Average stock priceappreciation

Stock price normalizedby industry indices

IFO

Financial outperformance

Increased effectiveness in driving integration ofinformation enterprisewide

These are the components of process and data commonalityand what we call the Integrated Finance Organization (IFO).

Globallymandatedstandards

Standard chart ofaccountsenterprisewide

Common data

definitionsenterprisewide

Standard common

processesenterprisewide


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How effectively does your Finance organization perform ineach of the following areas?

Measuring / Monitoring Business Performance

Continuous Process Improvement / Business Improvement

Meeting Fiduciary and Statutory Requirements

Driving Integration of Information Across the Enterprise

Developing People

Aligning Finance with the Business

Driving Cost Reduction

Leading Finance-Related Compliance Programs andStrengthening Internal Controls

Inputs into Identifying and Executing Growth Strategies

Supporting / Managing / Mitigating Enterprise Risk

IFOs are More EffectivePercent Effective to Very Effective

IFOs

Non-IFOs


27%60%

43%60%

37%62%63%

80%49%

68%51%

82%34%

58%

39%60%

79%93%

58%80%

Setting the context


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But is there a silver bullet to becoming an IFO?


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Contents

Integrated Finance Organizations outperform

Different paths, shared objective:greater transparency through commonality

Exploring your journey


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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)


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The call-to-action for Finance transformation has often beena downturn or event

Triggering Events

What has been your call-to-action toignite greater transformation?

Different paths, shared objective

Analysts began tocall for break-up.The companydecided to run thebusiness on factsand to tightencontrols

Fortunes began tochange. Segmentstarted to falterand hit a lull. Thenew CFO saw anopportunity foreconomies of scale

A severecapitalization declineafter a drop in thetelecommunicationsmarket

Disclosure errorsand restatementsprovided a call-to-action to get backto fundamentals

A profit warningwas a wake upcall. Analysts callfor the break up.

1993 1999 2001 2002 2004 2009+

TechnologyCompany

EntertainmentCompany

Energy & TelcoCompany

Regional BankCompany

Consumer ProductsCompany


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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


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The entry points for transformation can be either data, process,technology or delivery model encompassing all three

IFO Journey Starting Points


Greater Transparencythrough Commonality

Stricter adherence tocommon data

Process ownership

Greater systems commonality

Commonality helps tomanage the transformationrisks


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Though starting points varied, the end goal was greatercommonality

Transformation Paths Select Examples

Delivery Model Led

Data & Tools Led Process Led

Technology Led

Different paths, shared objective > Multiple starting points on the IFO journey


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The drivers of transformation can differ based on objectives,initial priorities, culture and context


Culture andContext

TechnologyCompany



FederalDepartment

TransformationObjective

Create one version of thetruth and reduce costs

Replace an antiquatedsystem

Gain economies of scaleand streamline processes

Remove complexity andcost while quickly getting to

world-class processes

Culture & Context

Strong leadershipprovides top-downexecutive commitment

Initially an edict drivenapproach to standards

Finance evolves into thesteward of the truth for

the firm The approach becomes

collaborative as thetransformation gainedtraction

Strong agency leadershipdrove the need for aconsensus drivenapproach

A value-oriented case forchange sold to bureaus

The opportunity to ashared services modelarose after technologyincreased commonality

Need for a consensusdriven approach amongsegment CFOs led by theController

Current and Future-state workshops defined

path forward Set aggressive

milestones Used internal scorecards

to prompt desiredbehavior

Top-down after a longperiod of decentralized /bottoms-up management

After several failedattempts at transformation,selected a knowledgeable3rd party to quickly get toworld-class processes withcontrol and act as a changecatalyst

Regionally transformingFinance

Pre-TransformationCountry focused, disparate

systems, low value addadmin focus

14 bureaus with separatefunding & unique

constituents

Lack of integration amongstautonomous and diverse

segments

400 highly autonomousoperating units with captive

Finance units

Initial PriorityStrict data definitions andcapturing data integrity at

the source

Getting to a commonsystems platform with a

controlled implementation

Control over the process(i.e., in-house/onshore)

Speed with control througha third party

IBM Gl b l B i S i


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Transformation in the face of adversity

Different paths, shared objective > Data led

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 thatalso sought to enhance processes and

technology.

The Technology Companys journey

IBM Gl b l B i S i


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Wave I Wave II Wave III Future1994 - 1997 1998 - 2002 2003 - 2005 2006 and beyond

The data led transformation eventually had aprocess, technology and delivery model focus

Different paths, shared objective > Data led


Standardchart of

accounts

Commondata

definitions

Standardcommon

processesFully

(>75%)Fully

(>75%)Fully

(>75%)Fully

(>75%)

Implement an enterprise-widestandard Chart of Accounts

Create enterprise-wide commondata definitions

Established a comprehensiveinformation strategy

Begin implementing global datatools

Move to one ERP

Drive global optimization ofshared services / COEs forsystems, planning, treasury,

services, ledger, etc

Continuous improvement ofprocesses

Leverage global acctg capabilities(i.e., local to a global structure)

Conduct benchmark study

Drive regional transactionalshared services / COEs

Strengthen global processowners

Harmonize & reengineertransactional processes

Conduct benchmark study asecond time

Outsource / globally sourceselect processes

Drive global transactional,pricing and planning

shared services / COEs

Improve integration acrosstransactional processes

Transform planning process tobest practice

Create one global ledger

Create Finance Information

Warehouse

Begin implementing globalsystems

Begin reducing the number ofFinance applications

Begin rationalizing data

warehouses

Provide planning system tools

Continue reduction of thenumber of Finance applications

Continue data warehouse

rationalization

Create dashboards to provideheadlights

Provide self service to Financedata (e.g., CFO Portal)

Implement the CEO dashboard Implement the CFO portal

Implement global process owners

IBM Gl b l B i S i


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The vision and strategy requires determining the appropriatelevel of enterprise versus localized standards

Enterpriseversus Localizedstandards

UniqueCommon

Everything is commonuntil proven unique

Everything is uniqueuntil proven common

(Top-down approach) (Bottoms-up approach)

Account for pre-existing business conditions since there is more than one financetransformation path

Pre-existing conditions

What is good enough?

Unique requirements

Enterprises must determine what is good enough

Good enough will be closer to common than unique 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 andgeographical benefits

Organizations should determine their starting positionon common and unique definitions

TechnologyCompany


Different paths, shared objective > Balance of standards

IBM Gl b l B i S i


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A transformative CFO streamlines Finance

The Entertainment Companys 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 ascatalyst for broader cross-segment

Finance transformation.

Different paths, shared objective > Process led

IBM Global B siness Ser ices


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Continued reduction of Financeapplications (i.e., 400 to ~20)

Refine/implement best practiceprocesses within Finance

Continue to drive additionalglobal shared services / COEs

Complete ERP rationalizationBegin to rationalize ERPsystems from 5 to 1 instances

Standardize / reengineeradditional Finance processes

Drive additional select globalshared services / COEs (e.g.,

Tax Acctg, etc)

Begin to reduce Financeapplications

Drive regional transactionalshared services / COEs (e.g.,

A/P, Fixed Assets, etc.)

Conduct full benchmark study ofthe Finance function

Conduct Current State /Future State workshops

Implement global processowners

Globalize the procurementprocess

Provide decision support tools

Achieve and maintainenterprise-wide process

standards

Enhance segment commondata definitions

Started the creation of commonsegment data definitions

Implement an enterprise-widestandard Chart of Accounts

Reduce the differentlymaintained sets of CoAs

Create enterprise common datadefinitions

Enhance information strategy

Provide self service to Financedata

Outsource / global source selectprocesses

Continue to drive additionalglobal shared services / COEs

Wave I Wave II Wave III Future

1999-2001 2002-2004 2005-2008 2009 and beyond

The process led transformation eventuallyhad a data and technology focus

Different paths, shared objective > Process led


Standardchart of

accounts

Commondata

definitions

Standardcommon

processes

Mostlyachieved(50-75%)

Fully(>75%)





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A common technology lowers costs and increases time foranalysis

The Federal Departments

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.

Different paths, shared objective > Technology implementation led



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Create select common datadefinitions

Drive consensus on single ERPplatform for all 14 bureaus

Standardize / reengineer selectprocesses across bureaus

Create the Enterprise ServiceCenter (ESC) for scale

economies

Making greater use ofanalytical tools

Standardize / reengineeradditional processes across

bureaus

Increased integration offinancial and non-financial data

Provide greater self service toFinance data

Expand services to additionalbureaus outside of the Dept

Increase the number ofbureaus using the ESC

Create CoEs for decisionsupport

Begin implementation with initialbureaus

Continue implementation toadditional bureaus

Finalize implementation toremaining bureaus

Wave I Wave II Wave III Future2000 - 2005 2005-2006 2006 - 2008 2009 and beyond

Enhance select common datadefinitions

The technology led transformation eventually hada data and process focus

Different paths, shared objective > Technology implementation led


Standardchart of

accounts

Commondata

definitions

Standardcommon

processes


Fully(>75%)





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Leveraging a third party to drive a speedy transformationwith control

The Consumer ProductsCompanys journey

In 2004, a profit warning prompted

analysts to call for companys 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.

Different paths, shared objective > Delivery model led



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The delivery model led transformation hadservice level agreements focusing onprocess, data and technology

Different paths, shared objective > Delivery model led


Standardchart of

accounts

Commondata

definitions

Standardcommon

processesFully (on a

regional basis)(>75%)

Fully (on aregional basis)

(>75%)


(>75%)


(>75%)

Implement standard global Chart ofAccounts

Create common European, Americas &Asia Pacific data definitions

Standardize / reengineer / enableEuropean processes (via outsourcer)

Shift from a decentralized structure toa regional structure

Engage outsourcer to run mostEuropean F&A processes

Regionalize & scale most F&Aprocesses via outsourcing (Europe)

Regionalize & scale most F&Aprocesses via outsourcing (N

America)

Rationalize / standardizeERP / systems (Europe)

Rationalize / standardizeERP / systems (Europe)

Rationalize ERP / systems(Americas & Asia Pac)

Continue to enhance informationstrategy

Regionalize & scale most F&Aprocesses via outsourcing

(Asia Pacific)

Greater automation and measurementvia outsourcer(s)

Standardize / reengineer / enableAmericas & Asia Pac processes (via

outsourcer(s))

Provide decision support tools

One version of ERP

Engage outsourcer(s) to run most LatinAmerica F&A processes

Wave I Wave II Future2004 - 2006 2007 - 2008 2009 and beyond

Engage outsourcer(s) to run mostNorth America &Asia Pacific F&A

processes

Deploy a simplified Chart of Accountsby 2010

Create a Global Information Office

Regionalize & scale most F&Aprocesses via outsourcing (Latin

America)



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Moving along the IFO journey has brought beneficialoutcomes and new capabilities

Outcomes and Capabilities

Different paths, shared objective > Outcomes and capabilities

TechnologyCompany



FederalDepartment

Outcomes

Reduced cost of Finance

by 40% Reduced key financial

apps from 145 to 44 Reduced financial Data

Centers from 67 to 6 Total Finance FTE

reduction of ~30%

Replaced antiquated

system with new ERP Reduced maintenance

costs Increased transactional

efficiency Reduced error rates

Initial ~30% reduction of

Finance FTE Reduced the financial

apps from >400 to ~20 Reduced the CoA from

>20,000 to


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Greater commonality requires a broader vision / strategy

Develop a comprehensive information

management strategy, which elevates

Data as a key lever to transformation

that complements People, Process andTechnology 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

IFO Journey Vision / Strategy

Different paths, shared objective > Broader vision / strategy


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Q&A

Dr. Philip L. SwanChief Economist

IBM

Bill FuesslerGlobal Financial Management Service Area Leader


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