Driving Effectiveness in your Finance function

Speaker Session 13th Annual Australian Shared Services & Outsourcing Week Date: May 12, 2010

Is your Finance function delivering on its true potential?

Barriers to realising the potential

Organizational issues
Geography Process Functional Lack of Enterprise Strategies

Focus on Process Efficiencies versus Process Effectiveness Limited clarity on the linkages between overall business outcomes and
operational metrics which tie to EPS and Working Capital

Lack of external benchmarks for process metrics at a granular level

which provide appropriate corrective actions

Under-utilization of technology for process effectiveness Under utilization

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2-3X variation in average vs. best-in-class performances

Source To Pay YoY % reduction in spend

4-5

Order To Cash YoY reduction in DSO

47

Record To Report YoY Days to Report

17

2X+ 1-2

2X+ 23

3X+ 5

Best-in-class

Average

Best-in-class

Average

Best-in-class

Average

Impact on bottom-line For a typical $5 billion company, it could mean:

Impact on bottom-line For a typical $5 billion company, it could mean:

Impact on bottom-line For a typical $5 billion company, it could mean:

A reduction in purchase spend by $ 50150 million over three years An increase 100-300 bps in margins

Cash release of $200-300MM Eliminating billing input errors improve DSO by 2-3 days: $35-50M cash release Collections Strategy with intelligent payment analytics improve DSO by 20%

Enhanced controllership and significant capacity for insights into performance Critical path process analytics and policy streamlining drive 50% improvements

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We spoke with over 50 executives in 35+ large global companies

Global FMCG company 2 global pharmaceuticals companies Leading global healthcare company
Others* 8% Industrial Manufacturing 17%

Leading APAC telecommunications t l i ti provider Global aerospace manufacturer

Leading biotech company

Pharm a & Healthcare 14%

CPG 11%

BFSI 50%

2 global banks

4 insurance majors

* Others Telecom, Transportation and IT

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and this is what we heard

Organizational silos

Major barriers to realizing value No single decision maker with full process ownership Incentives of sub process owners not aligned with overall business outcomes
COO, COO global bank VP, global automotive major

We have sought to re-engineer large parts of the bank. Weve undertaken some restructuring and some off shoring, yet the silos continue to come in the way shoring way Execution has not kept pace as there is lack of top down sponsorship for G&A break-through initiatives a full end-to-end proposition starts to run into organizational barriers

Process ineffectiveness

Customers believe that an end to end approach to opportunity identification could end-to-end provide the break-throughs
VP, global financial services company EVP, global insurance major

Fundamentally, end-end outcome based thinking is the right way to go. People who ignore this trend will do so at their own peril The large amount of value left on the table is because organizations do not work as end-to-end processes

Business outcome linkages

Clarity of linkages between overall business outcomes and detailed operational metrics can help companies identify the real operational drivers of value
VP, global financial services company Regional Head, global bank

In order to move from output to outcomes, the right framework of measures and drivers is needed to provide line of sight to key business goals Knowing what to measure at an operational level is keywe h K i h tt t ti ll li k have 25 groups th t each makes up it that h k its own metrics

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A structured approach to drive effectiveness and business impact

Identify key business outcomes for the company

Map every core business process at a l l l granular level

Identify drivers of performance Link business variability and outcomes and provides an benchmarks to improvement key performance roadmap by measures and leveraging drivers insights and best practices

Develop holistic solutions including process, process analytics reengineering and focused IT

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Record to Report A Deep Dive Framework

Level 1 SEP Record to Report business outcomes Reliability & Statutory Compliance Time to Report Insights into business performance Sub Ledger Level 2 Sub-process
Accounts Payable Accounts receivable Intercompany Fixed Assets Inventory Payroll

Cost of Finance Organization Standardization of processes

Closing

Management Reporting

External E t l Reporting

Reconciliation

Days from SL Days from SL to Days

close to month end % interface error % invoices processed inaccurately % absolute variance in Vendor balance recs

% CorrectionsDays from % payroll SL

% of interfaceclose to month end errors Days to SL % inaccurately cut off # SOX / Auditprocessed Findings # of open items Speed of Capitalization identified in recs inaccurately processed Days from month end to SL cut off # of statutory compliance failures

Key performance measures

close close to month SL end Absolute $ % interfacevalue of error % invoices intercompa accuracy ny variances DSO Aging of % past due transaction Bad debt write s, open off to sales %

Time to close %/# Manual

Days from close # of Re- filings of period to internal # of SEC Comments report out p Reporting cycle time journals /Topside % of delays in internal reporting adjustments during a period % Interface Errors % of ad hocs vs regular reports # SOX/ Audit % deviation to plan defects

Recs cycle time Ageing of variance %/$ balance of unreconciled accounts % Balance not reconciled in scope

Level 3 activities

General Ledger Maintenance

Close Planning and Review

Pass JE (auto Manual, & feed)

Post Forex and Tax adjustments

Pre-submission review and consolidation

FPY of subsidiary feeds # entries related to GL

GL submission and Close communication

# errors per # times GL re # times GL close
delayed per year d l d opened submission

Key performance drivers (not ( exhaustive)

# Chart of accounts % entities on common # requests per user close calendar % entities missing at % availability of IT least one timeline helpdesk in close # of changes % service request calendar postto close l d t rollout ll t
resolved within TAT

% Correction Journals # interface errors % automated journals % JEs in last 48 hours of close

Accuracy of Tax

and Forex rates # of tax runs No. of Pre Tax Journals posted after cut off date

validation errors # of repetitive errors % adjustments basis pre preclose review to total JEs

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Linkages between business outcomes, performance measures and drivers. e.g., Time to Report
Laggard

Level 1 SEP

Record to Report Business Outcome

Time to Report

Leader

Level 2 Key performance measures

GL Closing
# MJE per billion revenue
6K <0.5K

Reconciliations
Time to reconcile (days)
45 14

Level 3 Key performance drivers Key Insights/ Practices

Prepare review and record J d Journals l # corrections journals

2700 0

Compare GL balances to backup b k % auto match

0% 100%

Accruals as % of revenue
x% Y%

% standard backup
25% 100%

Use ERP workflow to submit JE & approve Identify and automate recurring journals Validation rules set while JE creation Materiality Thresholds defined for Accruals

Use of reconciliation tool for resolving open items Clearly defined approved backup per category Leverage auto consolidation tools to improve auto match Stringent analytics on repetitive open items to reduce inflow

Benchmarks helps size opportunity at a sub-process level (WHAT) Key insights and practices provides levers to drive to best in class (WHY & HOW)
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Accelerating Business Impact: Smart Enterprise Processes (SEPSM)

Key Observations About Managing Business Processes
Core enterprise level processes cut across functional silos Typical focus is on driving process efficiency vs. driving effectiveness Driving effectiveness delivers 3x 5x benefits over driving ffi i d i i efficiency Companies lack benchmarks to know how good they could be Technology is often not the answer 5070% of benefits from process and insights p g

Smart Enterprise Processes (SEPSM) A New Science

Holistic and granular framework for managing business processes Highly scientific, enterprise-wide view of processes Proprietary IP based on analysis of 200 million+ , g processes transactions across 3,000+ managed p Maps client performance at every step of a process and measures against best-in-class standards Offers solutions including process, analytics reengineering and focused IT based on achieving business impact

CFO Suites
Source to Pay Order to Cash Record to Report

Insurance Suites
Application to In-force P & C Claims

Healthcare Suites
Visit to Cash Pay to Recover

Enterprise Suites
Customer Service Request to Repair Hire to Retire Enterprise Risk

Financial Services Suites

Collections Application to Disbursal Commercial lending

Lodging Suites
Check in to Check out

SEPSM is a unique proprietary methodology that can deliver 2 5xs the impact on 5x s improved cash flow, margins, revenue growth or other metrics.
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SEPSM

redesigned Record to Report for brewery Major

10 10

Key Record to report benchmarks and approach .. .

Key Process Outcomes* Days to Close at Country Level
(Number of Days)

Approach & Impact

Close Cycle Reduction from 6 to 3 days

9 3
Average Future State

(country level)

2
Best in class

Close Monitoring Tool for tacking key activities... with Pre -defined close calendar Reduction of rework and manual touch points
60% journal automation ~60% jou a auto at o
Standard templates for high volume & recurring journals Workflow for input validation & simplification

# GL Instances
1
Best in class

16 3
Average g Future State

Rigorous close planning

Standardised closing calendar Pre close meeting updates, dashboards, assess site

readiness, readiness address issues, challenges issues

# Chart of accounts
1
Best in class

Minimise GL Instances
3 GL instances (LATAM/ Europe/ Asia & Africa) due to large

6
Average

1
Future State

volumes and Global presence

Standardised CoA
Significant reduction in mapping issues

Replicate CoA for f l lid ti R li t C A f non SAP for seamless consolidation

Reconciliations (Number of Days)

14
Best in class

Improved Controllership

-aged balances, write -offs

Risk based reconciliation methodology

30
Average g

14
Future State

Facilitates smoother audit of accounts Superior documentation, audit trail, tick & tie tool capability

* Source Genpact Internal Benchmarking

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SEPSM

redesigned Record to Report for brewery Major

11 11

Roadmap for moving towards Best-in-Class Processes

C urrently initiatives
Ex c ellent B est- inClas s

Fixed Assets
Poor Av erage G ood

Further Steps to Best in Class

A u to ma t e pro jec t c rea tio n th ro ug h wo rkflo w

In ta n g ib le A sse ts pa rt of S ub S yste m a s a ga in st in G L S ta nd a rd fo rms with da ta v alid at ion s

Cash & Bank

S ep a rat e co nt rol a cc ou n ts fo r kn own t t l t f k e xce p tion s Co n trols o n op e nin g o f b a nk a cco u nt s in G L T re a su ry & ca sh p o ol d sig n pa rt of h l de i t f p ro je ct s o n a ut o ma te d f ee d s

Payroll
S ub -a cct s d esi gn e d to ca p tu re k ey P ay co m po n e nt s t o fa cilita te a na lysis V aria n ce an a lysis re p ort s b y Biz un it & Ta x / re trials W orkflo w f or pa yro ll a pp rov als with HR te a m & A ut o jo u rn als No n st an d ard p ro ce sse s e .g . in ce n tive , b o nu s et c I nc lu d e HQ co n solid at ion & re p ortin g a s pa rt of S co pe Re d u ce da ys to clo se to 3 d ay s b y a u t m at ion o f elim i at i s & ro ll to ti li in t ion ll-up s T re a su ry I nte r-Co tra n sa ctio n pa rt of se p a ra t e Pro je ct

Close & Consolidation

Clo se m o nit orin g to ol with S ta nd a rdize d Clo se Ca len d ar ~6 0% Jo u rna ls a u to m a te d

Inter-Company
Poor Av erage G ood Ex c ellent B est- inClas s

Fo rce d se ttle m e nt & Th re sho ld limi ts p art o f th e ne w p o lic y Re strict ed a cc es s & Cu t-o ff d at es fo r p os tin g in t er-co jo urn als

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A roadmap for driving on-going improvement

Level 2 Sub-process
Accounts Payable Accounts receivable Fixed Assets Inter Company Payroll

12

Challenge Ch ll

Impact I t

Outcome Impacted
Billing cycle time reduction from 21 to 9 Accuracy at 99%

Levers Used L U d
Process re-design & invetory tracking tool implementation Value stream mapping reducing handoffs and anlytics Invoice settlement process redesign Access to counter party billing info query resolution

AR billing Cycle time reduction

21 day
Billing cycle time

9 days

Sub Ledger r

Reduce Interco Balances

$2MM
P&L Reserve

0.7MM

62% reduction in disconnects > 30K Aging of open items

Reduce manual Journals Close & Consolidation C lid ti Reduce aging of open Items Reconciliation Reduction of Reconciliation timelines

7.3k
Manual Journal lines

2.7k

60+% Reduction Close time savings Quality time for analysis

Workflows Auto subsystem interface Exploited ERP functionality

90 days
Days to Close

<28 days

Reduced financial exposure from open items 25% productivity Improved controllership Improved TAT for recon

Recs prioritization model Standardized backups Automation of recs Technology intervention Web cash reports optimization

40 days

Management Reporting

Reduced timelines

22 days

External Reporting
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Reduce reporting time

8
Days to report

75% reduction % 5% reduction in effort

CoA standardization Uniform reporting structure Standardized set of books

CONTACT INFORMATION

Susheel S b S h l Saboo
[email protected]

www.genpact.com
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