© 2012 Financial Operations Networks LLC Continuous Process Improvement Strategies that Pay Off...

© 2012 Financial Operations Networks LLC

Continuous Process Improvement Strategies that Pay Off Big

30 year shared services executive with Pfizer (formerly Pharmacia)

Account-to-Report, Procure-to-Pay, and Customer-to-Cash

Director of Performance Management

Six Sigma Motorola-certified Black Belt

Former Regional VP, Council President, Institute of Management Accountants, IMAPenny Weller, PhD, CMA

The Hackett Group Global Business Services, North American Practice Leader

GBS Service Management Performance Study 2011 © 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

97% of the Dow Jones

Industrials

80% of the

Fortune 100

88% of the Dow Jones

Global Titans

80% of the

DAX 30

49% of the

FTSE 100

35% of the

CAC 40

The Hackett Group: We know how the best do it,where they do it, and the benefit of doing it.


Metrics and Benchmarking – Continuous Improvement

Metrics drive performance Metrics should inspire and motivate Metrics show your commitment to service management


Metrics Also Provide

A baseline and target for improvement An opportunity to establish / improve your relationship with the businesses that you serve

An opportunity to showcase your performance to your leadership

Ability to eliminate roadblocks (emotions) from needed changes to grow


Continuous Improvement


Continuous Improvement

•If it’s important to your boss it is important to you!

Why?

•Continuous improvement; it’s the way we do things around here…or is it?

What?

•If the boss doesn’t do it how can I?

How?


World-classTM and Peer Finance Cost as a Percent of Revenue

• ERP implementation• Beginnings of shared services• Shift from mainframe to client server

• Shared services• SARBOX • Globalization

• Standardization• Holistic service delivery strategy

• End-to-end process management

1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010 2011

Peer Group

0.019000000000

0001

0.017000000000

0001

0.015 0.014 0.012 0.011 0.010800000000

0001

0.012600000000

0001

0.012200000000

0001

0.012400000000

0001

0.011700000000

0001

0.0113 0.011570000000

0001

0.012199999999

9999

World-Class

0.015 0.012800000000

0001

0.011 0.010000000000

0001

0.00900000000000006

0.00720000000000006

0.00740000000000007

0.00730000000000005

0.00670000000000006

0.00610000000000001

0.00590000000000005

0.00600000000000005

0.00609000000000004

0.00600000000000005

0.10%

0.30%

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

Revenue decline impact


Continuous Improvement Culture Considerations

Engage senior leadership; commitment and engagement—make it an organizational priority…with clear links to strategic objectives and ROI (speak their language)

Training won’t solve everything; project selection, recognition, execution are critical aspects…establish a strategy with tactical plans that address selection of change agents, competency model, reporting and compensation plans, retention or re-integration plans

Change management fundamentals should be embraced: a compelling vision, a sense of urgency, a strong guiding coalition, communicating consistent messages, recognize, reward, and celebrate successes

Measurement system should be accurate, consistent, and sustainable


Continuous Improvement in Top Three...

Initiatives with Highest Optimization Effect

49%

47%

65%

55%

58%

76%

Continuousimprovement /

quality program

End-to-endprocess design

Integrated ERPplatform

2009 2010

2010 Global Business Services Performance Study


More Important than Outsourcing or Offshoring

78%

70%

51% 51% 51% 49%43%

36% 34%28%

22%18%

Continuousimprovement /

qualityprogram

Measuringsuccess(KPIs,

scorecards)

Compliance /mitigating risk

End-to-endprocess

ownership

Leveragingtechnology

Businesspartnershipwith internalcustomers

Talentmanagement

Processmanagement

(design)

Governance Organisationaldesign

Servicedelivery -offshoring

Servicedelivery -

outsourcing

Question: Which areas are of most interest to you going forward?

2010 Global Business Services Performance Study


Cost Savings Without Continuous Improvement

26%

5%

29%

14%21%

5%8%

14%

32%

8%

38%

60% of SSOs plan to save 20% or more costs

21 to 40%41 to 60%>60% 11 to 20% 1 to 10%

45% of SSOs have saved 20% or more costs

No Change

Source: 2010 Global Business Services Performance Study

AchievedPlanned

2010


Cost Savings With Continuous Improvement

1%5%

21%24%

11%

38%

1%

3%

18%

18%

11%

49%

AchievedPlanned

78% of SSOs plan to save 20% or more costs

21 to 40%41 to 60%>60% 11 to 20% 1 to 10%

70% of SSOs have saved 20% or more costs

No Change


2010


Critical Success Factors

37%

41%

46%

46%

56%

60%

69%

96%

43%

47%

49%

62%

64%

65%

72%

97%

Emphasizing a mentality of 'ChangeManagement'

Ownership of the service delivery platform

Implementing 'quick wins' to buildmomentum

Embedding a culture of 'ContinuousImprovement'

Governance of GBS/SSO customerrelationship

Communicating goals to employees earlyand often

Recruiting and retaining appropriateemployees

Top management support

2009 2010



Greatest Risks…

29%

30%

44%

50%

65%

66%

75%

33%

34%

42%

52%

67%

70%

78%

Business activities are interrupted duringimplementation

Lack of decision-making authority on theservice-delivery platform

Lack of employee support

Information technology problems

Failure to transition work effectively

Poor service quality

Lack of business unit support

2009 2010



Activity-Based Management

Identify Improvement Opportunities

IdentifyRoot

Causes

Monitorthe

Improvement

ImplementBest

Solutions

IdentifyPossibleSolutions

2

4 3

5

1


Activity-Based Management

Identify 5-7 key activities in each department Determine if value or non-value added

– “re-” ~ “reconcile” ~ “rework” ~ “review”

Assign cost to each activity Prioritize which to eliminate or reduce

Drive out Non-Value


Travel Expense Department

Audit Reports

Review Approvals

Respond to Questions

File

Scan Documents

Follow up

$100,000

70,000

100,000

90,000

70,000

60,000

$500,000

Travel Expense Department

Salaries DepreciationTravel ExpenseSuppliesFacilities

$300,000100,000

50,00020,00030,000

$500,000TOTAL

Traditional vs. Activity View of Cost

Activity ViewChart Of Accounts View (Traditional)

TOTAL


Close General Ledger in SAPClose General Ledger in SAP

Run settlements and projects


Preliminary

Close

Preliminary

Close

Entry into Hyperion

Entry into Hyperion

Prepare special ledger


Adjust entriesAdjust entries

Close General Ledger in SAPClose General Ledger in SAP



Preliminary Close

Preliminary Close

Entry into Hyperion

Entry into Hyperion



Adjust entriesAdjust entries

Business Process Analysis

Improvement Focuses on

incremental improvements

Innovation Requires

starting over

Prelim Clo


Final Close

Preliminary ClosePrepare Special

LedgerAdjusting Entries

Financial Close Process

Run Assessment Process

Entry into Hyperion

Run Consolidation

jobs

Reverse Assessment

Process

Run Final Assessment

Process

Process Mapping & Validating Need

#1 CI Tool over 90%


Reason #1 Reason #2 Reason #3 Reason #4

Pareto Analysis – How Often Does it Happen?

Pareto Analysis – “80/20” Rule

Root Cause


5The Five Whys


Ideas to improve customer satisfaction Self-service inquiry and hotline

Job aid with helpful hints

Blank checks

Recurring payments

Return a copy of every document when processed

Ask others – outside the department!

Brainstorming


95% correct X X

or .95 X .95 X .95 X .95 X .95 = 77%

Reducing Defects in a Process; 95% Accuracy

95% correct 95% correct

95% correct X =95% correct 77% correctX


Moving from 99% to 99.99966%...

99% defect-free

At least 200,000 wrong drug prescriptions/year

Two short or long landings at major airports each day

5,000 incorrect surgeries/week

20,000 lost pieces of mail/hour

Unsafe drinking water 15 minutes every day

No electricity for 7 hours/month

99.99966% defect-free

68 wrong prescriptions/year

One short or long landing every five years

1.7 incorrect surgeries/week

7 lost pieces/hour

One minute unsafe every seven months

No electricity 7 hours/5 years

The Vision of Six Sigma: A Roadmap for Breakthrough.

Mikel J. Harry


Six Sigma – Removing Variation

Six sigma is a measurement of the number of acceptable defects produced by a system (used for: productivity, time, quality)

Six sigma means that the output will be 99.99966% good with no more than 3.4 defects per million

Sigma =

+1 +2 +3-1-2-3

PotentialDefects

PotentialDefects

Perfect!


DMAIC - Language of Six Sigma and LEAN

Define – the opportunity - scope

Measure – performance - critical (x) and (y) factors

Analyze – causes - move data to information to knowledge

Improve – performance - select alternatives - root causes

Control – causes - ensure stability of the process


Waste Elimination: Seven Forms of WasteWaste is anything we do that does not add value from the customer’s perspective

When looking for waste, the key question is: Would the customer be willing to pay to perform this activity?

Seven Deadly Wastes (TWO DIME)

Waiting Waiting for parts and paperwork Long set-up and lead times

Overproduction Producing more than the customer will pay for Planning full utilization of machines and labor

Extra Processing

Damage Long delays for troubleshooting Rework Dissatisfied downstream customers

Inventory (Excessive)

High stocks of raw materials, parts and WIP Additional space requirements Clutter

Transportation Unnecessary movement Extra handling “Moving inventory”

Typical WorkEnvironment

Waste>85% - 90%

< 10% - 15%

TrueValue-Added

Motion (Unnecessary)

Incorrect layouts of hangar, factory, office, etc. Lack of proximity of machines Off-line resources

Poor machine maintenance Unnecessary processing steps Longer lead times


LEAN – Process Flow Sigma =Reducing Waste in a Process


DIY: How to Create a Localized Continuous Improvement Program


Can I Make a Difference?

Data – Removes EmotionsInspires Team

Engages Others…The Green Room…


Dedicated location / meet frequently

Ground Rules, consensus decision making

Detailed Process Sheets 15%+ effective

Primary focus = metrics

Going well, getting stuck?

Track suggestions, progress, celebrate

My VOTE not weighed more than others

Source: QCD Systems Inc., www.qcdsm.com

The Green Room

http://www.google.com/imgres?imgurl=http://www.halvar.de/images/Ford_Mustang/Ford_Mustang_Logo.jpg&imgrefurl=http://picturesofcar.blogspot.com/2009/11/mustang-logo.html&h=960&w=1280&sz=78&tbnid=jQhcwc7hkhOMOM:&tbnh=113&tbnw=150&prev=/images?q=mustang+logo&usg=__CpGKK4KhCnC71IbwrQaS-MlPMEk=&ei=7StPS9TdLpDQM6KIoZIJ&sa=X&oi=image_result&resnum=2&ct=image&ved=0CAsQ9QEwAQ


Quality, Cost, Delivery, Associates (Morale)

Interruptions – start simple Defects received – delivered

– Track by type

Per transaction cost / delivery per person Deliver by type / automated / legacy Suggestions submitted / completed

Defects received ~ Defects produced – Measure Others First!



The patient is waiting

Quality



Rule #1: If you submit an idea you don’t have to fully develop it….


Key Financial Processes

Total Cost

Cost per Billion

Quartile 1st Quartile Cost/Billion

$ Savings Opportunity

Transaction Processing

$12,955 $ 4,093 3rd $2,431 $ 5,262

Control & Risk Mgt. 5,523 1,745 3rd 959 2,488

Decision Support 3,793 1,198 3rd 607 1,871

Finance Management

1,772 560 3rd 408 481

Systems 7,660 2,420 2nd 1,760 2,090

Overhead 6,561 2,072 2nd 1,275 2,523

Total Finance $38,264 $12,088 3rd $7,440 $14,715

Based on 2001 data, there is a $5 million savings opportunity in transaction processing!

( in 000’s)

Benchmarking: Hackett Cost Analysis



360 Feedback

Delegate…delegate…delegate…Let others have fun!



Mom says, “if no one’s in charge…you are!”

Payment terms$326,000 savings



The Land of Month End…



Watch new people – they have great ideas– If you cannot implement them now – log for the future

Treat performance seriously – hire/fire – Tie to performance metrics



Make it easy to do the right thing…

PUSH



Passion for watching for opportunities…

http://www.med.umich.edu/index.html



Having a Mustang Attitude…We don’t know how to

market ourselves

http://www.google.com/imgres?imgurl=http://www.halvar.de/images/Ford_Mustang/Ford_Mustang_Logo.jpg&imgrefurl=http://picturesofcar.blogspot.com/2009/11/mustang-logo.html&h=960&w=1280&sz=78&tbnid=jQhcwc7hkhOMOM:&tbnh=113&tbnw=150&prev=/images?q=mustang+logo&usg=__CpGKK4KhCnC71IbwrQaS-MlPMEk=&ei=7StPS9TdLpDQM6KIoZIJ&sa=X&oi=image_result&resnum=2&ct=image&ved=0CAsQ9QEwAQ

http://www.google.com/imgres?imgurl=http://lib.store.yahoo.net/lib/mustangtuning/95-snow-white-mustang-gt-2.jpg&imgrefurl=http://www.americanmuscle.com/95-snow-white-mustang-gt.html&h=480&w=640&sz=41&tbnid=Z0VyCeBchRlxCM:&tbnh=103&tbnw=137&prev=/images?q=1995+mustang&usg=__P0j2N45htyDpNlWze-sPDmBxL30=&ei=AipPS561FIreNe_dzZIJ&sa=X&oi=image_result&resnum=3&ct=image&ved=0CAsQ9QEwAg


1. Leadership Support and Execution

Project plan accepted at the top Walk the talk

– don’t “back down” – acknowledge as a key initiative

Build “tension” – stretch goals– Performance gaps– Make the “tough” decisions– Sense of urgency

Assign “stars” – transformation team, global process owners


2. Passion Around Process

Metric-centric: (scorecards, strategy maps)– Quality, Cost, Delivery

Benchmark End-to-end process design Value ideas and creativity

– Quick wins! Continuous improvement

– 6 Sigma, LEAN– Activity based management

Time

Qua

lity


3. Customer Respect – Internal Partnerships

Service Level Agreements – two way relationship Market the center – clear messaging - ‘VALUE MARKETING” Connections – integrate with other initiatives and teams, customer

councils, governance Invite self and promote contributions End-to-end process design / organization

Alignment of priorities with business Customer surveys – leader involvement Complaints are gift Offer to do the work…it may not be perfect at first….


4. Sourcing and Technology

Focus on reducing business complexity Alignment of functional priorities with business Leveraging ROI on technology for both transaction

processing as well as information access

AutomateBlankBlankEliminate


5. People-Driven Culture

Clear purpose and mission– Engagement

Create the culture – Encourage risk taking– Celebrate success

Formal change management Formal process management Metrics that focus on desired behaviors

– performance Commitment to invest in people

Comparison with and without quality programs


Finance Cost as a Percent of Revenue – World-class, Peer GroupWith and Without Formal Quality Program

Finance cost as a percent of revenue

2011

28%

Source: 2011 Finance Benchmark* Includes credit, billing, collections, cash applications, fixed assets, general accounting, external reporting, accounts payable, and T&E

Overall finance cost* as a percent of revenue

49% 47%

2011 2010


0%

27%

70%

Level of Success in Targeted Benefits - 2010

Corporate Strategy Improve Service, Quality, Accuracy and Timeliness

Group Similar Tasks and Expertise for a Critical Mass Reduce Redundant Tasks

Have a formal continuous improvement process

9%

40%

49%

2%

Do not have a formal continuous improvement process

Moderate successMinimal successNo success High degree of success

33%

63%

4%


13%

54%

33%


20%

77%


9%

37%

52%

2%


1% 7%

34%

58%


28%

39%

31%

2%




Level of Success in Targeted Benefits - 2010Reduce Administration Costs Reduce Headcount and Salary/Wages

Reduce Infrastructure Costs Improve Working Capital

Moderate successMinimal successNo success High degree of success

34%

61%

4%


19%

37%

44%


34%

59%

7%


25%

37%

36%

2%


10%

20%

28%

42%

33%

20%

44%

3%


14%

23%

33%

30%


29%

35%

19% 17%




Questions or Comments?


Contact Information

Penny Weller, PhD, CMA

Global Business Services North American Practice Leader

Phone: +1 269 345 7240

[email protected]

www.thehackettgroup.com

Corporate Headquarters1001 Brickell Bay Drive30th FloorMiami, Florida 33131TEL: +1 305 375 8005

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Chicago525 W. Monroe StreetSuite 1550Chicago, IL 60661TEL: +1 312 325 2900

FrankfurtTorhaus WesthafenSpeicherstrasse 5960327 Frankfurt am MainTEL: +49 69 900 217 0

Hyderabad8-2-120/112/88&891st Floor, Aparna CrestRoad #2, Banjara HillsHyderabad 500034TEL: +91 40 66544000

LondonMartin House5 Martin LaneLondon EC4R 0DPTEL: +44 20 7398 9100

New York110 Wall Street17th FloorNew York, NY 10005TEL: +1 646 354 4400

Paris8, rue de Port Mahon75002 ParisTEL: +33 1 53 43 0400

Philadelphia225 Washington StreetConshohocken, PA 19428TEL: +1 610 234 5500

San Francisco100 Montgomery StreetSuite 2225San Francisco, CA 94104TEL: +1 415 249 3500

SydneySuite 40335 Lime StreetSydney, NSW2000AustraliaTEL: 1300 457 779 (within Australia)TEL: +61 2 9299 8830

mailto:[email protected]



http://www.thehackettgroup.com/

Appendix:www.thehackettgroup.com/research/quality

Participants may participate in this study

http://www.thehackettgroup.com/research/quality

© 2012 Financial Operations Networks LLC

Thank You!

The Accounts Payable Network2100 RiverEdge Parkway, Suite 1010Atlanta, GA 30328Contact: [email protected] 770-984-1184www.TheAPNetwork.com

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© 2012 Financial Operations Networks LLC Continuous Process Improvement Strategies that Pay Off...

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