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Report – Nov 27, 2001
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©2001 Juergen Daum. All rights reserved.
Leveraging e-Business Opportunities for Finance –
Q&A with Juergen Daum
News categories: the role of finance and financial management, Information Technology
The
following Interview has been published in the American SAPInsider magazine – “The inside edge
for SAP technologists worldwide”, issue October-December 2001:
Leveraging e-Business Opportunities for Finance
-
A
Q&A with Juergen Daum,
Director of Program Management, mySAP Financials, SAP AG
In
the new world of e-business, questions are being raised about how financial
organizations best fit in. Clearly, managing for profit and value becomes more
complex as profitability hinges more and more on intangible assets and new
e-business models, both of which are complicated by an alarmingly high rate of
change. CFOs are now enlisting the help of their IT departments as they grapple
with the questions we pose here to SAP's Juergen Daum, Director of Program
Management for mySAP Financials, and a former CFO himself.
SAPInsider: Integrating cross-system supply chain management processes delivers
cost-saving efficiencies and better control, coordination, and execution over
the flow of materials. Can the same be said for integrating cross-enterprise
finance processes?
Juergen Daum: Absolutely, because it's not just materials that flow up and down the
length of your supply chain. Cash (in the form of payments, for example) flows
too. And excess working capital, required by billing, payment, collection, and
settlement processes, as well as related financial transactions, comes with a
price. Bills cost money and resources to generate, resolve (when disputes
arise), and collect. Managing and issuing payments to your vendors comes at a
price, and borrowing money from the bank and other cash management and treasury
activities also comes with its own costs. So there are ample opportunities
along the length of your "financial supply chain" to cut costs with
e-finance activities.
Electronic Bill Presentment and Payment (EBPP) is one
e-finance solution that can reduce the overhead associated with issuing
invoices by as much as 70 percent. For many large companies, that translates
into millions of dollars of savings per year.
On the accounts payable side, "payment
factories" offer another avenue for huge cost savings. In Europe, you
rarely see checks pass between firms; instead, companies rely on bank
remittances. Some of the larger, global corporations have taken this one step
further by implementing "payment factories" that aggregate payments
to suppliers on a worldwide basis, and optimize the routing of these payments
through some preferred banks and financial service providers. In so doing, they
have dramatically reduced the overall number of payment transactions, as well
as cross-country payments. The result? Significant transaction cost savings and
reduced bank fees.
But as a former CFO, and now in my role as a
technologist whose mission is to support CFOs, I can tell you that these
cost-saving efficiencies are not the e-finance process benefits that pique my
interest. It's the prospect of gaining a complete, unified perspective of all
my financial and business activities - even those that take place outside the
borders of my company. E-finance processes can integrate and tame an unruly
heterogeneous systems landscape that includes both SAP and non-SAP systems, and
in so doing:
·
Optimize activities within the financial supply chain
·
Support a comprehensive e-business accounting
approach
·
Enable advanced business analytics and strategic
enterprise management
Through this integration, the CFO (and management)
gains a unified perspective of all financial and business activities, and with
that, the ability to fully measure and manage risk, reward, opportunities, and
performance not only across internal functions, but across the entire business
ecosystem.
Ultimately, Finance must be the hub where all these
factors converge. Adding an "e" in front of long-standing business
functions like SCM, CRM, and HR doesn't change the fact that Finance must
remain the company's business integration hub for these practices.
SAPInsider: The role of Finance is to be the company's "business integration
hub," to ensure that a company stays profitable and gets the return it
needs to satisfy shareholders and other stakeholders. How does SAP support this
charter in an e-business environment?
Juergen Daum: Once upon a time, you could look at a balance sheet and P&L for
the essential information needed to run a business or make investment
decisions. Those days are over. Today, management and investors need a much
broader, keener perspective into both financial and non-financial issues, into
tangible and intangible assets.
It's the task of the CFO to provide these insights
across the entire business - even if it is based on a complicated systems
landscape. mySAP Financials provides the platform to do this. It integrates the
diverse systems that support a business into a seamless financial supply chain,
and provides a consistent accounting view of it to support both external and
internal reporting. Above this layer of integration, mySAP Financials offers tools to
access and analyze all that data in a meaningful way, in order to support
cross-functional decision support - for example, through predictive modeling
for advanced strategic enterprise management (see Figure 1).
Figure
1: Horizontal and Vertical Extension of Financial, Controlling, and Management
Porcesses with mySAP Financials
A CFO could look, for example, at the actual financial
performance expectations of investors, which are already built into the
company's actual share price. He then could analyze the data to determine
whether a value gap exists between those expectations and the existing mid- and
long-term plans of the company's management team. Through advanced modeling and
simulation capabilities, he then could run simulations to assess the impact of
certain market changes and internal activities, and to determine if and how the
company can close that value gap.
SAP SEM, which is
part of our mySAP Financials solution,
supports such tasks, along with related business performance management
processes such as outside reporting and communication. SAP SEM covers the
entire strategic enterprise management process, end-to-end, including:
·
Strategic analysis
·
Strategy definition and its breakdown into strategic
objectives
·
Resource allocation and budgeting
·
Financial consolidation
·
KPI-based performance monitoring based on balanced
scorecards
·
Reporting to investors and financial analysts through
an investor portal
SAP SEM even offers interfaces to an HR system to link
personal scorecards directly to compensation. And we are now adding to mySAP
Financials Business Analytics, a suite of analytic applications that extends
SAP SEM from the strategic to the operational level.
With these applications, it is now possible to control
and optimize operational processes across functional borders by providing a
comprehensive picture of customer-, employee-, product-, and business
partner-related processes. This enables you to do things like track customer
buying patterns, analyze customer profitability and customer lifetime value
from a financial perspective, and then link this information with the product
perspective - in order to ultimately optimize supply chain management, product
development activities, and HR management in a market-driven, outside-in
approach.
One of my personal SEM favorites, something that I
find has enormous value to CFOs and their teams, is that SAP SEM enables
companies to cast and automatically consolidate rolling budgets.
When I started my career, I was asked to submit an
annual budget at the end of one fiscal year for the following year. Many of you
no doubt participated in similar exercises at one point or another. But fixed
budgets don't work today. How can they? How can a static instrument that locks
you into something you thought about last year be effective in a global economy
with rapidly shifting market conditions and quick and nimble competitors?
Taking the "annual budget" - which is, in
essence, last year's reality - and comparing it with actual revenues and
expenditures on a monthly basis simply does not provide you with useful information
to manage a business. It merely locks you into the past. On the other hand,
rolling - perhaps monthly - forecasts and budgets turn the focus to current and
future realities. Managers are forced to think ahead. For the company as a
whole, it provides the possibility of realistic expectations for revenues and
costs, and allows senior management to react before financial figures go into
the red.
Budgets and forecasts are tools for resource
allocation. Resource allocation needs to be consistent with strategy and
prevailing business conditions. You have to manage strategy as a continuous
process, so that it can be adapted to changing business conditions and resource
allocation can follow suit. In this regard, you should approach strategy just
as you do day-to-day operations. As you execute strategy-setting tasks again
and again on a monthly or even weekly basis, you need a good strategic
enterprise management system that allows you to do that very efficiently.
SAPInsider: How does mySAP Financials support this mix of newer, more adaptive
forecasting approaches and traditional financial practices?
Juergen Daum: As you can see in Table 1 (below), mySAP Financials offers a
comprehensive suite of financial solutions that covers both the traditional
finance and accounting processes and new analytic decision-support tools.
Processes for performance management, covered by SAP SEM, integrate
consolidation, reporting, analysis, simulation, and rolling
forecasting/budgeting. These integrated management processes play a key role in
a fast-changing market environment and help an organization nimbly adapt to
changing market conditions.
With Strategic Enterprise Management, Business
Analytics, and Accounting, CFOs can:
·
Disseminate critical business information faster
·
Provide analytic and decision support self-services
for knowledge workers, managers, and executives (for example, through a
Financial and Management Portal)
·
Improve relations with investors, financial analysts,
and other important stakeholders through improved outside communication and
reporting
Financial
Supply Chain Management, Corporate Finance Management (CFM), Real Estate
Management, and Travel Management help CFOs:
·
Run their own operations (the Financial Supply Chain
and CFM/Treasury) more efficiently
·
Execute administrative tasks, like real estate
management, travel management, and expense reporting, faster and with fewer
resources.
In
short, mySAP Financials provides a comprehensive set of solutions and tools to
operate a company in a profitable way, generate long-term value, and leverage
new financial service models and collaborative business scenarios - all in the
interest of optimizing a company's financial supply chain and adding value to
the business.
SAPInsider:
What advice can you offer IT teams as they start to support
CFO-driven initiatives?
Juergen Daum: The basis of every solid partnership is understanding
the goals and needs of your partner, so I would suggest to IT teams that they
understand this about the role of the CFO:
·
CFOs are responsible for a company's ability to
manage for short- and long-term profit, for managing its cash flow, for
enabling it to leverage capital, and for maintaining adequate levels of
funding. They also need to ensure that the company generates enough cash flow
to finance important acquisitions and initiatives and to reward shareholders.
Good CFOs know how to do this from both a business and process point of view.
If the IT team can bolster these initiatives with information technology and
advanced analytic applications, it opens the door for all sorts of process and
decision-support efficiencies.
·
Increasing efficiency and reducing cost is always an
issue with CFOs, especially in their own areas of responsibility. Because they
are the ones who force their executive colleagues to constantly search for
efficiency improvements and cost savings, CFOs are interested in leading by
example.
·
Another top issue of CFOs is to "close"
faster, to provide critical business information nearly instantly, yet ensure
the necessary consistency and reliability of the entire financial picture. CFOs
are interested in automation and stability in accounting. When IT can help a
CFO decouple accounting from operations (for example, through an e-business
architecture) in order to avoid disruption of accounting processes through
changes and business reengineering in operations - and at the same time
maintain a high level of automation through integration - IT becomes a really
important business partner for the CFO!
·
Never underestimate the paramount importance of
"capital marketing communication." I use this term to refer to the
way a company communicates with its shareholders and with financial analysts.
It ranks among a CFO's most critical tasks. It is common sense that failure to
communicate sound reasons for a strategy or prospects for its future can cause
shares to be devalued. But the CFO also must provide a fair view of actual
performance, and must communicate even bad news in a reliable way. Otherwise,
volatility of a company's share price increases, investor trust is damaged, and
financial analysts assign a higher risk and higher costs of capital to
investments in a company's stock. CFOs therefore need to be well versed in the
economic ramifications of customer activities, internal operations and
performance, and market trends and conditions, as well as in the tools to
communicate with outside stakeholders more efficiently. For this they need to
enlist the help of effective IT solutions.
CFOs
are the guardians of a company's economic well being. They need the right tools
to manage for profit and value. They will need to work closely with IT to do
this. As I see it, IT and Finance share a common bond: neither views its
mission as that of merely a service provider, but rather as a partner who
actively contributes to the business strategy of the company. Both are experts
in their fields and can contribute individually in a significant way to a
company's economic success. And when they join forces, the whole is greater
than the sum of its parts! The overall benefit for the company will increase
exponentially.
|
Table 1:
mySAP Financials Overview |
|
||
|
|
Features |
Benefits |
||
|
Strategic Enterprise Management
(SEM) |
|
|
||
|
Business Analytics |
|
|
||
|
Accounting |
|
|
||
|
Financial Supply Chain Management |
|
|
||
|
Corporate Finance Management (CFM) |
|
|
||
|
Real Estate Management |
|
|
||
|
Travel Management |
|
Reduce administrative costs associated with
business trips through optimized travel planning and expense reporting |
||
Additional resources:
Original Text of the
interview by SAPInsider Magazine: Leveraging
E-Business Opportunities for Finance – How CFOs and IT can join forces to
create Value ( -> click here for the
PDF (print) version)
SAPInsider magazine
issue October-December
2001 (including other articles related to mySAP Financials topics)
White Paper written by PWC's global
Financial Management Solutions consultancy team and Juergen Daum: Empowering
Finance for E-Business - How to Exploit Technology to Optimize Value - SAP
White Paper (PDF)
White
Paper co-authored by colleagues at SAP AG, Juergen Daum, and the Consortium for
Advanced Manufacturing International (CAM-I)
Beyond Budgeting Round Table, a not-for-profit collaborative research
consortium: Beyond
Budgeting - SAP White Paper (PDF)
Empowering Finance for
E-Business using Financial and Management Portals - Presentation held by Juergen Daum at SAP's European
User Conference "Sapphire 2001", April 2001, Lisbon / Portugal
(PDF)
Value Based
Management for the New Economy - Presentation held at SAP's
Business Intelligence Conference, November 2000, Hamburg / Germany (PDF)
Unternehmensmanagement als Prozess verstehen - Unternehmensplanung und
Unternehmenssteuerung mit Hilfe analytischer Anwendungen am Beispiel von SAP
SEM. Der Artikel erschien im is-report, Juni 2000 (PDF)
White
Paper written by David P. Norton and Juergen Daum, providing an in-depth
analysis of the principles and benefits of a new strategic (change) management
system: Strategic
Enterprise Management - Translating Strategy into Action: The Balanced
Scorecard - SAP White Paper (PDF)
Stakeholder Relationship Management Vortrag anlässlich der
5. Fachtagung / Das Rechungswesen im Konzern - Wertorientierte Konzernführung
Am 25. und 26.11.1999 in Frankfurt am Main; veranstaltet von Frankfurter
Allgemeine Zeitung, Institut für Wirtschaftsprüfung – Universität des
Saarlandes, SAP AG, Arthur Andersen
Strategic Enterprise Management: A new generation of analytical applications to support management processes – an article by Juergen Daum (1999, PDF)
Previous related new
New Economy Analyst reports related to this topic:
Oct 16, 2001 - E-Business
requires CFOs and CIOs to redefine their roles and relationships
July 26, 2001 - How
accounting gets more radical in measuring what really matters to investors
May 22, 2001 - Beyond
Budgeting: How to become an adaptive sense-and-respond organization
April 27, 2001 – The
Internet is supposed to transform business processes – but what about finance ?
April 10, 2001 – What the
CEO expects from his CIO
I will continue in
future reports to report on financial and IT issues related to managing
companies in our information and Intangible Assets based economy of today. To
subscribe for my free-of-charge e-mail newsletter click here.
The emerging new role of
CFOs and CIOs as well as a comprehensive concept for a new management system
for knowledge and intangible assets based businesses, that integrates strategy
management (strategic innovation) and product and market development (product
and market innovation) with operations management (supply chain management,
customer relationship management) and resource management (finance, hr,
alliances, IT) is described in detail in
Juergen Daum’s forthcoming book "Intangible Assets oder die
Kunst, Mehrwert zu schaffen" ("Intangible Assets or the Art to Create
Value").
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Juergen Daum. All rights reserved.
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