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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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2009 IBM Corporation
Building a smarter planet
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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2009 IBM Corporation
Building a smarter planet
-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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2009 IBM Corporation
Building a smarter planet
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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2009 IBM Corporation
Building a smarter planet
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 Global Business Services
IBM Institute for Business Value
On the journey to becoming anIntegrated Finance Organization
September 2009
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IBM Global Business Services
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
Whats Important to the CFO? Everything.
Source: IBM Global Business Services, The Global CFO Study 2008
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
Source: IBM Global Business Services, The Global CFO Study 2008
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
Source: IBM Global Business Services, The Global CFO Study 2008
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
But is there a silver bullet to becoming an IFO?
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IBM Global Business Services
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
The entry points for transformation can be either data, process,technology or delivery model encompassing all three
IFO Journey Starting Points
Different paths, shared objective
Greater Transparencythrough Commonality
Stricter adherence tocommon data
Process ownership
Greater systems commonality
Commonality helps tomanage the transformationrisks
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
The drivers of transformation can differ based on objectives,initial priorities, culture and context
Different paths, shared objective
Culture andContext
TechnologyCompany
EntertainmentCompany
Consumer ProductsCompany
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
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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
Globallymandatedstandards
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
EntertainmentCompany
Different paths, shared objective > Balance of standards
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
Globallymandatedstandards
Standardchart of
accounts
Commondata
definitions
Standardcommon
processes
Mostlyachieved(50-75%)
Fully(>75%)
Mostlyachieved(50-75%)
Mostlyachieved(50-75%)
IBM Global Business Services
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
IBM Global Business Services
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
Globallymandatedstandards
Standardchart of
accounts
Commondata
definitions
Standardcommon
processes
Mostlyachieved(50-75%)
Fully(>75%)
Mostlyachieved(50-75%)
Mostlyachieved(50-75%)
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
IBM Global Business Services
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
The delivery model led transformation hadservice level agreements focusing onprocess, data and technology
Different paths, shared objective > Delivery model led
Globallymandatedstandards
Standardchart of
accounts
Commondata
definitions
Standardcommon
processesFully (on a
regional basis)(>75%)
Fully (on aregional basis)
(>75%)
Fully (on aregional basis)
(>75%)
Fully (on aregional basis)
(>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)
IBM Global Business Services
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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
Moving along the IFO journey has brought beneficialoutcomes and new capabilities
Outcomes and Capabilities
Different paths, shared objective > Outcomes and capabilities
TechnologyCompany
EntertainmentCompany
Consumer ProductsCompany
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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IBM Global Business Services
Copyright IBM Corporation 2009On the journey to becoming an Integrated Finance Organization
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
IBM Global Business Services