Basware Research Summary: The Cost of Control

Research Summary The Cost of Control June 2009 © Basware Corporation 2009 | www.basware.com 1 Contents Executive Summary 3 Cost cutting pressures 5 Cost cutting challenges 5 Perceptions of finance on purchasing 7 Purchasing impact on finance objectives 8 Supply chain risk 9 Spending integration 11 Automation links to best practice 12 Conclusion 13 Recommendations 14 © Basware Corporation 2009 | www.basware.com 2 Executive Summary Supply chains form the backbone of many businesses today, and lots of the high profile business failures in recent months can be, at least in part, attributed to financial fractures within the supply chain. An unrelenting focus on cost cutting and uneasy relationships between finance and procurement professionals further combine to create an environment where supply chain risks, if left unchecked, can threaten company stability. The Cost of Control survey, commissioned by Basware in association with IESE Business School (Europe) and the Kelley School of Business (USA), explores how the relationship between finance and procurement functions is symptomatic of wider operational strengths and weaknesses. It also evaluates how the management of financial and procurement processes affects wider business performance. The study is based on the views of 550 financial directors and CFOs from large enterprises around the world. The key findings of the Cost of Control survey can be summarised as follows: Despite a high risk economic climate, CFOs in organisations struggle to recognise the importance of closely managing supply chains through procurement • Only 28% of respondents believe that procurement has a significant impact on financial risk exposure • Risk analysis (39%), margins growth (39%) and other strategic goals are all sacrificed in place of bottom line cost reduction (64%) as a strategic priority Finance underestimates the strategic value of purchasing and the supply chain to business performance • 52% of financial decision makers think purchasing is becoming a more strategic function, although 36% believe it is still largely administrative • Only 29% of respondents describe procurement as a function that has a positive impact on enterprise growth Businesses are experiencing efficiency gaps in data capture, automation and integration across purchasing and finance functions • On average, only 42% of indirect spending is captured • Only 50% of the processes supporting purchasing are automated • Less than half (46%) of CFOs consider that purchasing and finance functions are integrated effectively Satisfaction with cost saving strategy is influenced by levels of process automation within businesses • Businesses with highly automated* purchasing processes are more likely to consider that purchasing and finance have maximised savings in the past 12 months (68%) than those with lower levels of process automation [58%] • Satisfaction of ‘delivering on cost saving targets’ increases from 47% in low automation businesses to 62% with high automation businesses *High automation - Businesses that stated the percentage of purchasing processes that are automated is above 50%. Low automation – Business that stated the percentage of purchasing processes that are automated is below 40% © Basware Corporation 2009 | www.basware.com 3 The Cost of Control report explores the complexities of supply chain management during unprecedented economic difficulty from the perspective of those who actually hold the corporate purse strings. The report concludes by highlighting how the perception of procurement and its impact on financial operations and risk are in need of review. A lack of automation and integration, coupled with an absence of importance associated with risk and profit in relation to the purchasing function, are sources of concern. The degree to which any of these weaknesses is present within a business will influence the achievement of strategic cost cutting and efficiency goals. However, it appears that only an exclusive minority of companies are currently in a position where the impact of these issues can be avoided. For the rest, there are evident opportunities to achieve cost saving improvement by bringing areas of financial systems and the supply chain under greater control. Integrated core of accuracy, automation and spend capture Majority of processes operate outside the ‘core’ 42% of indirect 50% of spending captured processes Au re supporting to ptu m purchasing are at Ca ion automated Integration Are these levels of 46% of FDs consider ‘disintegration’ sustainable that purchasing and in light of corporate spend finance functions are pressures? integrated effectively Figure 1: Levels of data capture, automation and integration show room for improvement Research Approach The Basware Cost of Control research features insight from 550 CFO and CFO level respondents, across USA (100 interviews), UK (100), Scandinavia (100), Germany (100), Spain (50), Benelux (50) and France (50). Interviews were conducted by telephone during May and June 2009. The research is endorsed by Professor Adrian Done of Barcelona’s IESE Business School and Mark Frohlich, Professor of Operations Management at the Kelley School of Business in Indianapolis. The research was conducted by Loudhouse Research, an independent research agency based in London. © Basware Corporation 2009 | www.basware.com 4 Cost cutting pressures The economic downturn has seen companies uniformly throw the spotlight on cost cutting in order to survive, let alone thrive. Figure 2 shows that cost reduction looks set to continue dominating strategic priorities for businesses into 2010 – with 64% of respondents focused on reducing direct costs and 60% looking at reducing indirect costs. This cost cutting trend is consistent across company size and regions. Further results shown in Figure 2 suggest that CFOs are putting growth and profit issues firmly down the list of importance as priorities such as risk analysis (39%), maintaining / improving margins (39%) and increasing profits (37%) are significantly diminished alongside cost reduction imperatives. There are regional differences particularly in the focus on boosting profitability. Specifically, Scandinavia (46%), the US (45%) and the UK (44%) are seen to be focusing more than other regions on boosting profitability although interestingly, the US is also one of the most aggressive cost cutters (71%). At the other extreme, France (12%) and Spain (10%) are the least likely to be looking at boosting profitability, remaining fixated on reducing costs (France: 82%, Spain: 72%).