ESPOO, Finland, May 26, 2010 /PRNewswire/ --
- 58% of CFOs see improving profit margins as a strategic priority in 2010, up from 39% in 2009 - Cost saving has declined as a strategic priority, dropping 5 percentage points from 2009 - Appetite for automation within purchase-to-pay processes increases in search for efficiencies and visibility
CFOs' poor visibility of key financial information is undermining confidence in their departmental and company performance, and ultimately leaving doubts around profitability, according to the annual The Cost of Control independent report, released today by Basware ( http://www.basware.com/). Constrained by this limited visibility, businesses are struggling to make informed decisions and effectively forecast and manage costs.
The Cost of Control 2010 is the second annual global study of its kind by Basware, producing insight into the opinions and priorities of 550 finance executives around the world. Direct comparison with the 2009 research enables analysis of finance and procurement department trends over an economically turbulent 12 month period, while new investigations identify the levels of - and reasons for - confidence among senior finance professionals. The report is prepared with professors Markus Maedler and Adrian Done of Barcelona's IESE Business School, and Steve Jones and Mark Frohlich from the Indiana University Kelley School of Business.
Just 50% of finance executives participating in the study declare a high level of confidence in the performance of their department and only 44% continue this level of confidence when considering the company's performance overall. Confidence in the regional economy drops to just 19% and to 9% for the world economy. Successful collaboration between finance and procurement was most strongly linked to confidence in company performance although 40% believe the relationship between finance and procurement could be improved. By working together, these two much too often isolated departments can share responsibility for both cost and risk reduction when it comes to reducing expenditures, cutting transaction costs, mitigating potential liabilities and identifying ways to improve the bottom line.
Financial executives that ranked their performance in 'efficiency' as high were most likely to give equally positive scores for confidence in their departmental performance. Overall, visibility of cash within the business was the broadest driver of confidence - an area in which finance executives rated themselves poorly (just 45% percent claim to have a high visibility of cash within the business).
In April 2009, 64% of CFOs claimed that raw cost cutting was top of their list of priorities over the next 12 months but this year that focus seems to have fallen away (to 59%). In its place, CFOs cited much more strategic goals of improved profit margins and increased top line performance (58% and 51%, up from 39% and 37%, respectively in 2009).
Possibly reassured by the sharp cost cutting efforts over the last 12 months, finance professionals are more likely to consider that procurement has a positive effect on profitability (48%) than in 2009 (29%). Finance is also becoming more aware of procurement's impact on risk. A more vigilant 39% of respondents cite procurement as a financial risk exposure, up from a more insulated 28% last year. These findings indicate that lessons have been learned in the last 12 months, probably as finance departments were rocked by unpredicted turbulence within supply chains.
Automating purchase-to-pay processes from requisitioning to invoice handling and approval is gaining traction globally with 72% of companies either implementing or planning more invoicing automation in the next 12 months, and with 65% having or planning for more purchasing automation.
Dr Matt Lees, Country Manager, Basware UK commented on the report: This year's Cost of Control report is packed with insights into the changing world of the CFO. Last year we uncovered a lack of collaboration between finance and procurement departments, both working separately towards shared business goals. This year our assertion of the importance of collaboration was supported by the participants, with a clear correlation between successful collaboration and confidence in company performance. Despite this, only 38% of respondents rate themselves as achieving a good standard of collaboration within their businesses, and in the 51% of cases where Procurement reports directly to the board, bypassing Finance, effective collaboration was stated as even lower. Recognition of this challenge is manifesting itself in an increase in integration and automation of purchase-to-pay systems and processes; a trend that looks set to continue amid a search for greater profits in uncertain market conditions.
Commenting on the findings, Professor Maedler said: In its second year, the Cost of Control report is picking up on the growing realisation among finance professionals that there is something utterly wrong with the internal visibility to financial information at many companies.
CFOs are concerned that they do not have crucial information about where pockets of profit and risk reside. Successful cost management, efficiency improvements, interdepartmental collaboration and, ultimately, company profits and risk all rest on the same anchor of good financial information.
Tightly integrated systems offer the potential to help mitigate these concerns. They deliver comprehensive and timely financial information that comes from a shared source and that is expressed in a common language decision makers across multiple departments can understand. However, only fewer than one in six departments have a tightly integrated system in place and the majority still relies on manual processes.
To help tackle the challenges identified in The Cost of Control, Basware recommends a four-step plan for CFOs:
1. Visibility: It is vital that all organisations have 100% visibility of spend - both direct (such as raw materials) and indirect (such as services) - across the business. Only once it has a single, unified view can a business make strategic financial decisions 2. Cost Management: Managing cost was the most cited driver of confidence in company profitability. The research identified a small increase in the amount of indirect spending that is captured in procurement systems, however it is still less than 50%. Indirect spending includes utilities, capital expenditure and services. Businesses should ensure that the right controls are in place to give precise control over who spends money and what they can buy, leading to improved business processes and capital management 3. Efficiency: Efficiencies are already being found through integration and automation of systems, both of which were up on last year, however companies enjoying the benefits of full finance and procurement automation are still in the minority. The clear correlations of efficiency with confidence in performance indicate that automation brings reassuring rewards 4. Collaboration: Collaboration, a key recommendation from the 2009 Cost of Control report, also featured strongly in this year's research; identified as the key driver of confidence in company performance. Only by working truly strategically and driving common objectives aligned to business goals can Finance and Procurement make the decisions that will benefit the business as a whole.
For a full copy of the Cost of Control insight study, please visit http://www.basware.com/control.
About Basware
Basware is the global leader in purchase-to-pay solutions with more than 1,500 customers and 1,000,000 users in over 50 countries around the world. With Basware, organisations can reduce the cost of buying and paying for goods and services and gain visibility and control of their entire spending process by automating manual processes, from sourcing, contract management, purchasing and supplier collaboration to invoice automation. Basware solutions and services enable substantial cost reductions across businesses and deliver value by providing compliance and control, as well as fast return on investment. The solutions are distributed and implemented, either on site or as a service, in Europe, the US, and Asia-Pacific through an extensive network of Basware offices and business partners. http://www.basware.com
About the research:
The Cost of Control study was conducted for Basware by independent research company Loudhouse ( http://www.loudhouse.co.uk/loudhouse.swf) during April and May 2010. Results came from a range of businesses across the globe, with all respondents occupying CFO, Financial Director or equivalent level roles. The size of organisation at which those surveyed are employed ranged from 1,000 to 50,000 employees.
Telephone interviews were conducted to present a proportional picture from across the globe, with 100 respondents surveyed in each of the USA, UK, Scandinavia and Germany, with 50 responses each from Australia, Benelux and France completing the total of 550.
A typical enterprise in the Cost of Control 2010 study:
- Has 49 days sales outstanding (DSO) - Generates 73,299 invoices per year - Currently manages 2,726 supplier relationships - Employs 20 full time procurement staff - Employs 17 full time accounts payable staff - Had a slight drop in revenue (-0.6%) during 2009 - Experienced modest profit margin growth (+2.9%) during 2009 - 61% of overall company spend is managed by the procurement department - In over half (51%) of businesses, procurement reports directly to the Board bypassing finance. In 27% of cases procurement reports to finance with Board visibility whilst in 15% of cases procurement reports to finance with no Board access / visibility - On average, 61% of overall company spend is managed by the procurement department
Dr. Markus Maedler, Professor in Accounting Control at IESE Business School
Markus Maedler is Assistant Professor in Accounting Control at IESE Business School, Barcelona, Spain. A PhD from Columbia University, he teaches, researches, and consults about how companies can exploit internal finance and accounting information to contain costs risks, manage employees, and create sustainable competitive advantages. Before entering academia, he worked for many years in banking and consulting.
About the Professor Done and the IESE:
Adrian Done is assistant professor in IESE's department of production, technology and operations management and research associate with the Advanced Institute of Management (AIM) in the UK. He earned his Ph.D. from the London Business School, University of London and his MBA from IESE. He also holds a Postgraduate Certificate of Education from the Open University and a Bachelors Degree in Mechanical Engineering from the Loughborough University of Technology.
IESE Business School is widely recognized as one of Europe's top international business schools. Founded in 1958 in Barcelona as the graduate business school of the University of Navarra. IESE has facilities in Munich, New York and Sao Paulo. It offers the MBA, Global Executive MBA, Executive MBA and PhD in Management degrees, as well as a wide range of executive education programs for global senior executives and Continuing Education programs for alumni.
SOURCE: Basware Corporation
CONTACT: Contact: For a full copy of the Cost of Control insight study,please contact Karen Airey, Head of Marketing, Basware UK: +44-1606-331234.Lakshmi Rajendran / Sarah Martinez, Octopus Communications:+44(0)8453-700-655.
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