Q. 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
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.1
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.2
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.
Q. 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?
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
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).
||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
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,
- 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
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
applications3 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.
Q. How does mySAP Financials support this mix of newer, more adaptive
forecasting approaches and traditional financial practices?
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 Management4 help CFOs:
- Run their own operations (the Financial Supply Chain and CFM/Treasury)
- 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.
Q. What advice can you offer IT teams as they start to support CFO-driven
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:
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.
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
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!
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.
Strategic Enterprise Management (SEM)
- Strategic Planning & Simulation, Budgeting, Rolling Forecasting
- Strategy Management (based on the Balanced Scorecard)
- Business Consolidation
- Performance Measurement using Balanced Scorecards, Management
Cockpit, or Value Driver Trees
- Stakeholder Relationship Management
- Monitor strategic success factors using Balanced Scorecards
and benchmarking information
- Streamline financial consolidation and reporting processes
- Increase economic transparency through improved forecasts and
efficient planning processes
- Improve investor relations through online self-services and
efficient information system support
- Financial Analytics
- Customer Relationship Analytics
- Supply Chain Analytics
- Human Resource Analytics
- Product Lifecycle Analytics
- Optimize operations and improve the economics of the business
- Provide relevant and useful information that describes the
actual business situation and supports better decisionmaking
- Identify and exploit hidden value potential in your customer
base through CRM analytics
- Financial Statements
- General Ledger & Subledgers
- Revenue & Cost Accounting
- Job & Project Costing
- Product & Service Cost Calculation
- Close books in record time through a high degree of online processing
and tight but flexible integration with operational systems
- Prepare financial statements both for internal and external
purposes - in a heterogeneous system environment
- Produce a complete, consistent, and accurate financial picture
of the business
Financial Supply Chain Management
- Customer Payment & Settlement
- Collaborative Financial Processing
- Vendor Invoice Verification & Processing
- Bank Process & Relationship Management
- Increase your service level for customers through web-based
bill presentment and payment services (e.g., EBPP)
- Streamline the financial supply chain, reduce working capital,
and decrease costs
Corporate Finance Management (CFM)
- Management of financial (money and securities) transactions
end-to-end, from the financial deal to accounting and risk management
- Minimize external borrowing through central inter-company cash
- Effectively manage financial deals and associated risks
|Real Estate Management
- Management of real estate-related processes
- Optimization of the real estate investment and leasing portfolio
- Optimize available real estate resources and reduce costs
- Handle leasing and rental activities more efficiently
- Business travel management (optimization of travel processes
with direct links to SABRE and AMADEUS)
- Travel Manager's Marketplace
for the procurement of travel services
- Travel expense reporting
|Reduce administrative costs associated with business
trips through optimized travel planning and expense reporting processes
||Horizontal and Vertical Extension
of Financial, Controlling, and Management Porcesses with mySAP Financials.
For more on EBPP, see the article "Empowering Customers with Electronic
Bill Presentment and Payment (EBPP)" by Jürgen Weiss in this
issue of SAP Insider,
and online at www.SAPinsider.com.
Customers have started to implement these "payment factories"
as a private exchange using SAPMarket technology and mySAP Financials
functionality. Such a private exchange receives payment orders from operational
units in electronic format. Since they are linked electronically with
financial service providers, or even with public marketplaces where they
"buy" financial services, these "payment factories"
or "payment hubs" provide these payment services for the entire
enterprise on a worldwide basis in a very efficient way.
Financials Business Analytics include: Financial Analytics, Customer Relationship
Analytics, Supply Chain Analytics, Product Lifecycle Analytics, and Human
For more information on Travel Management, see the article "Intelligent
Business Travel: SAP Travel Management" in this issue of SAP Insider,
and online at www.SAPinsider.com.