Susheel Saboo, Genpact - Driving Effectiveness in Your Finance Function

Driving Effectiveness in your Finance function

Speaker Session – 13th Annual Australian Shared Services & Outsourcing WeekDate: May 12, 2010

2Is your Finance function delivering on its true potential?

• Organizational issues

Barriers to realising the potential

– Geography

– Process

Functional– Functional

– Lack of Enterprise Strategies

• Focus on Process Efficiencies versus Process Effectiveness

• Limited clarity on the linkages between overall business outcomes and operational metrics which tie to EPS and Working Capital

• Lack of external benchmarks for process metrics at a granular level which provide appropriate corrective actions

• Under-utilization of technology for process effectiveness

Genpact Confidential

Under utilization of technology for process effectiveness

3

2-3X variation in average vs. best-in-class performances

YoY Days to ReportYoY reduction in DSOYoY % reduction in spend

Order To CashSource To Pay Record To Report

YoY Days to Report

3X+

17

YoY reduction in DSO

2X+

47

YoY % reduction in spend

2X+

4-5

3X+

5

2X+

23

2X+

1-2

Impact on bottom-lineFor a typical $5 billion company, it could

Best-in-class AverageBest-in-class Average


Best-in-class Average


mean:

• Enhanced controllership and significant capacity for insights into performance

• Critical path process analytics and policy streamlining drive 50% improvements

mean:

• Cash release of $200-300MM

• Eliminating billing input errors improve DSO by 2-3 days: $35-50M cash release

mean:

• A reduction in purchase spend by $ 50-150 million over three years

• An increase 100-300 bps in margins


• Collections Strategy with intelligent payment analytics improve DSO by 20%

4

We spoke with over 50 executives in 35+ large global companiesLeading APAC

t l i tiGlobal FMCG

2 global pharmaceuticals companies Global aerospace

manufacturer

telecommunications provider

Global FMCG company

Others*8%CPG

11%

Leading global healthcare company

Leading biotech company

Industrial Manufacturing

17%

Pharma & Healthcare

14%

company

BFSI50%

4 insurance majors2 global banks


* Others – Telecom, Transportation and IT

5

…and this is what we heard

Organizational silos

Major barriers to realizing value• No single decision maker with full process ownership • Incentives of sub process owners not aligned with overall business outcomes

We have sought to re-engineer large parts of the bank. We’ve undertaken some restructuring and some off shoring yet the silos continue to come in the way” COO global bankoff shoring, yet the silos continue to come in the way

Execution has not kept pace as there is lack of top down sponsorship for G&A break-through initiatives – a full end-to-end proposition starts to run into organizational barriers”

Customers believe that an end to end approach to opportunity identification could

COO, global bank

VP, global automotive major

Fundamentally, end-end outcome based thinking is the right way to go. People who ignore this trend will do so at their own peril”

Process in-effectiveness

Customers believe that an end-to-end approach to opportunity identification could provide the break-throughs

VP, global financial services company

The large amount of value left on the table is because organizations do not work as end-to-end processes”

Business outcome Clarity of linkages between overall business outcomes and detailed operational

EVP, global insurance major

In order to move from output to outcomes, the right framework of measures and drivers is needed to provide line of sight to key business goals”

K i h t t t ti l l l i k h 25 th t h k it

linkages metrics can help companies identify the real operational drivers of value

VP, global financial services company


Knowing what to measure at an operational level is key…we have 25 groups that each makes up its own metrics”

Regional Head, global bank

6A structured approach to drive effectiveness and business impact

Link business

Identify drivers of performance

Develop holistic solutions including process

Identify key business

Map every core business process at a

l l l

Link business outcomes and benchmarks to key performance measures and

variability and provides an improvement roadmap by leveraging

process, analytics reengineering and focused IT

key business outcomes for the company

granular level measures and drivers

leveraging ‘insights’ and ‘best practices’


7

Record to Report – A Deep Dive Framework

Level 1SEP

Record to Report business outcomes• Reliability & Statutory Compliance• Time to Report• Insights into business performance

• Cost of Finance Organization• Standardization of processes

Sub Ledger

E t lLevel 2Sub-process

Closing

• Days from close of period to internal report out

• Recs cycle time• Ageing of variance• %/$ balance of un-

• # of Re- filings• # of SEC Comments• Reporting cycle time

• Time to close• %/# Manual

• Days from SL close to month end

• % Corrections• % of interface

errors


• % payroll inaccurately processed

• Days to close SL

• Absolute $


ReconciliationFixed Assets

Inventory PayrollManagement Reporting

External ReportingAccounts

PayableAccounts receivable

Inter-company

p• % of delays in

internal reporting during a period

• % of ad hocs vs regular reports

• % deviation to plan

%/$ balance of un-reconciled accounts

• % Balance not reconciled in scope

Reporting cycle timejournals /Topside adjustments

• % Interface Errors• # SOX/ Audit

defects

• % interface error • % invoices

accuracy• DSO• % past due• Bad debt write

off to sales %

errors • Days to SL

cut off• # SOX / Audit

Findings• Speed of

Capitalization

• % inaccurately processed

• # of open items identified in recs

• Days from month end to SL cut off

• # of statutory compliance failures

Absolute $ value of intercompany variances

• Aging of transactions, open

• % interface error

• % invoices processed inaccurately

• % absolute variance in Vendor

Key performance measures

Level 3activities

General Ledger Maintenance

Pre-submission review and consolidation

GL submission and Close communication

Post Forex and Tax adjustments

Pass JE (auto Manual, & feed)

Close Planning and Review

Vendor balance recs

Pre-submission review and consolidationconsolidationconsolidation

• # Chart of accounts • # requests per user• % availability of IT

helpdesk in close• % service request

• Accuracy of Tax and Forex rates

• # of tax runs• No. of Pre Tax

Journals posted

• % Correction Journals• # interface errors• % automated journals• % JE’s in last 48

hours of close

• FPY of subsidiary feeds• # entries related to GL

validation errors• # of repetitive errors• % adjustments basis pre

• # errors per submission

• # times GL re-opened

• # times GL close d l d

• % entities on common close calendar

• % entities missing at least one timeline

• # of changes to close l d t ll t

Key performance drivers (not


% service request resolved within TAT

Journals posted after cut off date

hours of close • % adjustments basis pre-close review to total JEs

delayed per yearcalendar post rollout(

exhaustive)

88Linkages between business outcomes, performance measures and drivers. e.g., Time to Report

Level 1SEP

Record to Report Business Outcome

Time to ReportLaggard

Leader

Level 2

Key GL Closing Reconciliations

performance measures

# MJE per billion revenue Time to reconcile (days)

Prepare review and d J l

Compare GL balances to b k

6K <0.5K

Level 3

45 14

record Journals backup

# corrections journals Accruals as % of revenue

2700 0

% auto match

0% 100%

% standard backup

25% 100%

Key performance drivers x% Y%

Key Insights/ Practices

• Use ERP workflow to submit JE & approve• Identify and automate recurring journals• Validation rules set while JE creation • Materiality Thresholds defined for Accruals

• Use of reconciliation tool for resolving open items• Clearly defined approved backup per category• Leverage auto consolidation tools to improve auto match • Stringent analytics on repetitive open items to reduce inflow


Benchmarks helps size opportunity at a sub-process level (WHAT)Key insights and practices provides levers to drive to best in class (WHY & HOW)

9Accelerating Business Impact: Smart Enterprise Processes (SEPSM)

Key Observations About Managing Business Processes

• Holistic and granular framework for managing

Smart Enterprise Processes (SEPSM) –A New Science

• Core enterprise level processes cut across functional Holistic and granular framework for managing business processes

• Highly scientific, enterprise-wide view of processes

• Proprietary IP based on analysis of 200 million+ transactions across 3,000+ managed processes

Core enterprise level processes cut across functional silos

• Typical focus is on driving process efficiency vs. driving effectiveness

• Driving effectiveness delivers 3x – 5x benefits over d i i ffi i , g p

• Maps client performance at every step of a process and measures against best-in-class standards

• Offers solutions including process, analytics reengineering and focused IT based on achieving

driving efficiency

• Companies lack benchmarks to know how good they could be

• Technology is often not the answer – 50–70% of benefits from process and insights

business impact

CFO Suites Insurance Suites Healthcare Suites Enterprise Suites Financial ServicesSuites Lodging Suites

p g

SEPSM is a unique proprietary methodology that can deliver 2 – 5x’s the impact on

Source to Pay Order to CashRecord to Report

Application to In-force P & C Claims

Customer Service Request to RepairHire to Retire Enterprise Risk

CollectionsApplication to Disbursal Commercial lending

Check in to Check outVisit to CashPay to Recover


9999

SEP is a unique proprietary methodology that can deliver 2 5x s the impact on improved cash flow, margins, revenue growth or other metrics.

10

SEPSM redesigned Record to Report for brewery Major 10

Key Record to report benchmarks and approach .. ….

Key Process Outcomes* Approach & Impact

Days to Close at Country Level (Number of Days)

Best in class Average

2

Future State

3

Close Cycle Reduction from 6 to 3 days (country level)

Close Monitoring Tool for tacking key activities... with Pre -defined close calendar

Reduction of rework and manual touch points • ~60% journal automation

9

# GL Instances


1 3

60% jou a auto at o

• Standard templates for high volume & recurring journals

• Workflow for input validation & simplification

Rigorous close planning• Standardised closing calendar

• Pre close meeting – updates, dashboards, assess site readiness address issues challenges

16

Future Stateg


1 1

# Chart of accounts readiness, address issues, challenges

Minimise GL Instances • 3 GL instances (LATAM/ Europe/ Asia & Africa) due to large

volumes and Global presence

Standardised CoA

• Significant reduction in mapping issuesR li t C A f SAP f l lid ti

6

Future State

Future State

Reconciliations (Number of Days)


14 14

• Replicate CoA for non SAP for seamless consolidation

Improved Controllership -aged balances, write -offs

• Risk based reconciliation methodology• Facilitates smoother audit of accounts

• Superior documentation, audit trail, tick & tie tool capability30

Future State


g Future State

* Source – Genpact Internal Benchmarking

11

SEPSM redesigned Record to Report for brewery Major 11

Roadmap for moving towards Best-in-Class Processes

Currently initiatives

Further Steps to Best in Classinitiatives Best in Class

– In tang ib le A ssets part of S ub-S ystem as aga inst in G L

– S tandard forms with data v alidat ions

– A utomate pro jec t c reation through workflow

S t t l t f k T & h l d i t f

Fixed Assets

Cash & Bank

Poor Average G ood Best- in-Class

Excellent

– S eparate cont rol acc oun ts fo r known excep tions

– Controls on opening o f bank accounts in G L

– T reasury & cash pool design part of p ro jects on automated feeds

– S ub-accts desi gned to cap ture k ey P ay components to facilita te ana lysis

– W orkflow for payro ll approv als with HR team & A uto journals

Payroll

– V ariance ana lysis reports by Biz un it & Tax / re trials

– Non standard p rocesses e .g . incen tive , bonus etc

– Close monitoring tool with S tandardized Close Calendar

– ~60% Journa ls au tomated

– Inc lude HQ consolidat ion & reporting as part of S cope

– Reduce days to close to 3 day s by t t i f li i t i & ll

Close & Consolidation

automat ion o f eliminat ions & ro ll-ups

– Forced settlement & Thresho ld limi ts part o f the new po lic y

– Restricted acc es s & Cut-o ff dates fo r pos ting in ter-co journals

– T reasury Inte r-Co transaction part of separa te Pro ject

Inter-Company

Poor Average G ood Best- in-Class

Excellent


12A roadmap for driving on-going improvementLevel 2 Outcome ImpactedCh ll L U dI tSub-process

r

Outcome ImpactedChallenge Levers UsedImpact

Accounts Payable

Accounts receivable

AR billing Cycle time reduction

21 day 9 daysBilling cycle time

Billing cycle time reduction from 21 to 9

Accuracy at 99%

Process re-design & invetory tracking tool implementation

Value stream mapping –reducing handoffs and anlytics

Sub

Ledg

er receivable

Inter Company

Fixed Assets Reduce Interco

Balances$2MM 0.7MM

P&L Reserve

62% reduction in disconnects > 30K

Aging of open items

Invoice settlement process redesign

Access to counter party billing info – query resolution

reducing handoffs and anlytics

Reduce manual Journals

7.3k 2.7kManual Journal lines

Payroll

Close & C lid ti

60+% Reduction

Close time savings

Quality time for analysis

Workflows

Auto subsystem interface

Exploited ERP functionality

Reduced financial exposure from open items

25% productivity

Recs prioritization model

Standardized backups

Automation of recsReconciliation

Consolidation

90 days <28 daysDays to Close

Reduce aging of open Items

• 75% reduction CoA standardization

Reduced timelines

40 days

22 days

Improved controllership

Improved TAT for recon

Technology intervention

Web cash reports optimization

Reduction of Reconciliation timelinesManagement

Reporting


8 2%

• 5% reduction in effort Uniform reporting structure

Standardized set of books

Days to reportReduce reporting time

External Reporting

Susheel Saboo, Genpact - Driving Effectiveness in Your Finance Function

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