The Internet is supposed to transform business processes - but what about finance ?

News categories: the new role of finance and New Economy financial management, digitizing the New Economy enterprise / Information Technology,

While many corporate functions – including procurement, logistics and order management – are moving online rapidly, the processes in finance still lag behind. For example the process of sending, reviewing and paying invoices is still mired in paper in most companies. Less than 10 percent of Fortune 2000 companies have deployed an end-to-end online billing and payment system, according to research firm Killen & Associates, which projects that it will be 2004 before even half of those companies put such a system in place.

According to a decade long study of Hackett Benchmarking & Research, conducted under 1600 global organizations, cost reduction in the finance area at average have levelled off at 1.05 percent of revenue. But top performers, with finance costs of 0.43 percent of revenue, have begun turning their attention to increasing the effectiveness of the function. And e-business scenarios, such as web based online processing of payment and settlements, decision support self-services for managers and any other decision makers, offer tremendous opportunities to increase efficiency of financial processes, ad value to the business, and cut costs at the same time.

So companies are finding now, after the first E-Business wave of e-commerce, supply chain management and the like has passed, that e-business has also a far reaching impact on finance. Finance professionals are confronted with the following questions:

· Managing for profit and for value has become far more difficult in an e-business environment (business models are more complex, change happens much faster, companies have to manage for short term profits and long term value at the same time): How does finance help ? Which new economic management concepts are available ? How can the company use information systems more effectively to support this ?

· The role of finance has always been the one of an “business integration hub”, providing a consistent financial and economic picture of the business: How does finance handle this in an e-business environment, where transactions are processed across the borders of the enterprise, where most companies are confronted with an extreme heterogeneous and fast changing system landscape which makes it very difficult for finance to automate accounting processes and close the books in time.

· If every corporate functions goes “e”, what does finance do ?

CFO’s of many companies are therefore already reorganizing their finance function. And they have usually 3 main topics on their to-do-list:

· Adapt the finance department’s organization structure to the new e-business world. Establish shared services or even outsourcing scenarios for non-value adding tasks - for example in accounts receivables and accounts payables. Empower frontline mangers and knowledge workers through better financial and economic information and decision support services. Embed decision support and the front tasks of financial processes directly in the operative business instead of having it handled through intermediaries in the controlling department or other financial areas.

Leading finance organizations move to shared service/outsourcing models and empower end-users in the business e.g. through DSS self services

· Use extensively web based portals to link frontline managers, customers and suppliers into financial processes. Such enterprise portals provide not only the opportunity to increase productivity of financial processes, but offer to financial managers the possibility to use such portals as a direct gateway to managers and other people in the organization to provide them with information and DSS services and to push financial and economic policies, such as a new value based management concept, into the entire organization and offer online trainings and Q&A services for these new concepts. Such inbound enterprise portals (such as executive and manager portals) are the means for financial professional to establish themselves as an economic service provider for the business and create a community of financial and economic experts rather then to serve just as a back office administrative function. Such enterprise portals can also be used, to add value to the relationship to outside parties such as customers (in payment and settlement processes) and investors (for information and analysis services).

Financial and Management Portals are a great tool to provide internally DSS self-services, increase economic transparency and drive financial and economic policies throughout the entire organization. But finance can also enrich relationships to external parties such as customers and investors by placing appropriate financial services on related external enterprise portals

· Implement the necessary infrastructure at the backend, to enable the company to operate the financial supply chain as effectively as possible and to move to virtual continuous closing instead of a periodic event, which provides financial results only long after month end. And this is really a challenge, as companies – especially under the e-business paradigm – possess usually extremely heterogeneous system landscapes. They need to think about a new approach to accounting and finance from a system point of view. A new architecture, which decouples accounting and for example a central “payment factory” from the rest of the operations in order to enable for flexibility in operative systems deployment and fast reconfiguration of business processes without affecting and disrupting all the time financial and accounting tasks.

A new e-business financial system infrastructure is needed to provide the necessary system flexibility on the transactions side and assure at the same time a high degree of automated online processing for accounting and payment and settlement processes. The new infrastructure also should supply high flexibility for user and business driven analysis and simulation

The benefits are considerable, if companies move to this new model. Digitising financial processes and automating and integrating these processes with other business processes, can provide not only strategic benefits such as increased customer satisfaction through online payment, settlement and dispute management processes, improved economic transparency, or turning the company into a highly adaptive sense-and-respond organization through improved management processes, but can also cut costs of financial tasks significantly.

Here are some examples about the benefits digitised and integrated financial processes

can provide*:

The biggest challenge for companies, which want to change, will not be IT systems and software. Analysts and observers agree, that the biggest challenge is getting people to change processes that have been in place for many years. It is the people challenge which will be one of the top issues for CFOs everywhere. CFOs, used to focus on business topics and financial processes, will find that they have to become communication experts, both internally and in their relationships with external stakeholders, such as financial analysts, to succeed in the new New Economy. CFO’s who will be able to master this challenge, are likely to become the new business gurus.

This newsletter summarizes a presentation given by Juergen Daum at the European User conference of SAP - SAP’s “Sapphire 2001”, held in Lisbon/ Portugal, from April 22 to 25, 2001. Here the link to the original slides. For more information about finance visit Juergen Daum’s Best Practice Channel on Finance.

More about about New Economy Economics and Management Best Practice in general, and about other related topics will be continued here in this new New Economy Analyst reports. To subscribe for Juergen Daum’s free-of-charge e-mail push newsletter click here.

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* the examples are taken from reliable sources but should serve only for illustration purposes. No guarantee can be given, that such results will happen, if companies implement software and IT solutions to support the mentioned tasks.