Poor Visibility of Key Financial Information Undermining CFOs' Confidence in Company Performance

Study reveals that cost savings has declined as a strategic priority; CFOs are automating finance and procurement processes in search of greater control over cash flow

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Stamford, CT — May 27, 2010 — Chief financial officers' poor visibility of key financial information is undermining confidence in their departmental and company performance, and ultimately leaving doubts about profitability, according to "The Cost of Control 2010," the second annual global study and independent report released this week by purchase-to-pay solution provider Basware.

Constrained by this limited visibility, businesses are struggling to make informed decisions and effectively forecast and manage costs, according to the report, which provides insights into the opinions and priorities of 550 CFOs and finance executives around the world.

Compared with research from "The Cost of Control 2009," the new report uncovers the key trends of Finance and Procurement departments over an economically turbulent 12-month period. Additionally, the new study identifies the levels of — and reasons for — confidence among senior finance professionals.

Collaboration Correlates with Confidence

The report was prepared in collaboration with professors Steve Jones and Mark Frohlich from the Indiana University Kelley School of Business, and Markus Maedler and Adrian Done of Barcelona's IESE Business School.

"Last year's 'Cost of Control' survey uncovered a lack of collaboration between Finance and Procurement departments, each working separately toward shared business goals," said Ari Salonen, general manager for North America at Basware. "In this year's research, even though respondents acknowledge that their degree of collaboration is low, they realize the importance of collaboration; there is a clear correlation between successful collaboration and confidence in company performance."

Salonen added that financial executives also recognize the challenge of collaboration, which explains the trend toward an increase in integration and automation of purchase-to-pay systems and processes — a trend that looks set to continue amid a search for greater profits in uncertain market conditions.

Sharing Responsibility for Cost and Risk

According to the new study, just 50 percent of finance executives profess a high level of confidence in the performance of their departments, and only 44 percent maintain this level of confidence when considering the company's performance overall. Confidence in the regional economy drops to just 19 percent, and to 9 percent for the world economy.

Successful collaboration between Finance and Procurement is most strongly linked to confidence in company performance, although 40 percent believe the relationship between Finance and Procurement could be improved. By working together, these often isolated departments can share responsibility for both cost and risk reduction when it comes to reducing expenditures, cutting transaction costs, mitigating potential liabilities and identifying ways to improve the bottom line.

Commenting on the findings, Steve Jones, associate professor of finance at Indiana University Kelley School of Business, said that the second edition of "The Cost of Control" report is beginning to pick up on a growing realization among finance professionals that once the low-hanging fruit is gone, further efficiencies and risk mitigation require collaboration between Finance and Procurement so that they work toward common objectives utilizing more integrated and automated systems.

"Levels of automation are still relatively low with fully automated/tightly integrated systems still only in place in fewer than one in six departments, and the majority are still reliant on manual processes," Jones said

Cost Cutting Gives Way to Other Priorities

In April 2009, 64 percent of CFOs claimed that raw cost cutting was top of their list of priorities over the next 12 months, but this year that focus seems to have fallen (to 59 percent). In its place, CFOs cite more strategic goals of improved profit margins and increased top-line performance (58 percent and 51 percent, up from 39 percent and 37 percent, respectively in 2009).

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Possibly reassured by the sharp cost-cutting efforts over the last 12 months, finance professionals are more likely to consider that procurement has a positive effect on profitability (48 percent) than in 2009 (29 percent).

Finance also is becoming more aware of procurement's impact on risk. A more vigilant 39 percent of respondents cite procurement as a financial risk exposure, up from a more insulated 28 percent last year. These findings indicate that lessons have been learned in the last 12 months, probably as Finance departments were rocked by unpredicted turbulence within supply chains.

Automating purchase-to-pay processes from requisitioning to invoice handling and approval is gaining traction globally, with 72 percent of companies either implementing or planning more invoicing automation in the next 12 months, and with 65 percent having or planning for more purchasing automation.

"In the U.S., CFOs indicate a relatively high degree of confidence in company performance and the finance function, with progress having been made in terms of collaboration between the finance and procurement functions," said Jones. "More so than in most other countries, these U.S. CFOs view systems integration as a significant challenge and a priority for improvement."

Four Steps to Cost Control

To help tackle the challenges identified in The Cost of Control, Basware recommends a four-step plan for CFOs:

1. Visibility: It is vital that all organizations have 100 percent visibility of spend — both direct (such as raw materials) and indirect (such as services) — across the business. Only once it has a single, unified view can a business make strategic financial decisions.

2. Cost Management: Managing cost was the most-cited driver of confidence in company profitability. The research identified a small increase in the amount of indirect spending captured in procurement systems; however, it is still less than 50 percent. Businesses should ensure that the right controls are established regarding who spends money and what they can buy to improve business processes and capital management.

3. Efficiency: Efficiencies are already being found through integration and automation of systems, both of which were up over last year. However, companies enjoying the benefits of full finance and procurement automation are still in the minority. The clear correlations of efficiency with confidence in performance indicate that automation brings reassuring rewards.

4. Collaboration: Collaboration, a key recommendation from the 2009 "Cost of Control" report, also featured strongly in this year's research, identified as the key driver of confidence in company performance. Only by working truly strategically and driving common objectives aligned to business goals, can Finance and Procurement make the decisions that will benefit the business as a whole, Basware concluded.

About the Research

The Cost of Control study was conducted for Basware by independent research company Loudhouse during April and May 2010. Results came from a range of businesses across the globe, with all respondents occupying CFO, financial director or equivalent level roles. The size of organization at which those surveyed are employed ranged from 1,000 to 50,000 employees.

Telephone interviews were conducted to present a proportional picture from across the globe, with 100 respondents surveyed each from the U.S., UK, Scandinavia and Germany, and with 50 responses each from Australia, Benelux and France, completing the total of 550.

The Cost of Control report is available (registration required) at www.basware.com/control.