Optimizing Back Office Operations E-Book

Zahid Khalid

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 255

Veröffentlichungsjahr: 2010

Beschreibung

According to industry experts, a typical one billion dollar company spends approximately $27 million on unnecessary working capital and inefficient processing functions because they lack visibility into the financial supply chain. Optimizing Back Office Operations: Best Practices to Maximize Profitability uses examples and case studies to show how cost optimization--and not cost reduction--in the core back office operations is the right approach to maximizing profitability and enterprise value. Implementation guidance is provided for Executives, CFOs, and Controllers on transitioning from outdated processes to a fully-optimized financial supply chain.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

CHAPTER 1 - Profits: The Reason a Business Exists

Profitability Defined

Profitability Equation and Related Metrics

Liquidity, Growth, and Financial Flexibility

Conclusion

Notes

CHAPTER 2 - Cost and Capability: Strategic Choices

Capability: One Size Does Not Fit All

Cost: You Get What You Pay For

Measuring Capability

Conclusion

Notes

CHAPTER 3 - Financial Supply Chain: Entering the Gold Mine

What Is the Financial Supply Chain?

Working Capital Defined

Working Capital Processes

Conclusion

Notes

CHAPTER 4 - Platform for Execution: A System for Maximizing Profits

Process Benchmarking

Process Optimization

Process Automation

Process Integration

Process Standardization

Conclusion

Note

CHAPTER 5 - Optimizing Accounts Payable

Implications of A/P Effectiveness

Best Practices

Enabling Technologies

Conclusion

Note

CHAPTER 6 - Optimizing Accounts Receivable

Implications of A/R Effectiveness

Best Practices

Enabling Technologies

Conclusion

CHAPTER 7 - Optimizing Purchasing

Implications of Purchasing Effectiveness

Best Practices

Enabling Technologies

Conclusion

Note

CHAPTER 8 - Optimizing Treasury Operations

Implications of Treasury Effectiveness

Best Practices

Enabling Technologies

Conclusion

Epilogue

Index

Copyright © 2010 by Zahid Khalid. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Khalid, Zahid.

Optimizing back office operations : best practices to maximize profitability / Zahid Khalid. p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-60395-6

1. Industrial management. 2. Profit. I. Title.

HD30.5.K47 2010

658-dc22

2009041459

To my father, M.R. Khalid, who taught me to live without fear. To my mother, Alia Khalid, who taught me to love without conditions.

Thank you for everything. You are always with me but I still miss you!

Preface

According to Killen Associates, “A typical $1 billion company spends approximately $27 million annually on unnecessary working capital and inefficient processing functions because they lack visibility into the Financial Supply Chain. ”

Historically, most companies have consistently focused on the revenue-generating activities and invested heavily in organizational capabilities that support this effort. Over the last two decades, significant improvements have also been made in driving down costs and cycle times in the physical supply chain. Major enterprise resource planning vendors have coined acronyms such as SCM and CRM and generated healthy revenues for their companies. The corporations that bought and deployed these technology-enabled platforms have had varying results, though. Along with the success stories, there are plenty of horror stories still fresh in the minds of those who traveled along these roads to the promised land of profitability.

One of the key reasons for failing to meet the profitability expectations of these companies lies in the back office. Predominantly, these companies ignored the optimization of the financial supply chain (FSC) in a strategic manner. Although this very critical part of a business has seen the introduction of some point solutions from technology vendors, for the most part, the processes in this area still remain very paper -laden and manual. Being considered a cost center, the FSC processes, unfortunately, typically do not get the same consideration during the capital budgeting process as do the revenue -facing processes. This results in a business enterprise in which the front office and the back office are misaligned. The effects of this misalignment are seen in the lack of coordination between the revenue-producing components of the business and the back office. As a consequence, there is friction between employees, customers, and trading partners because the organization is failing to meet the needs and serve the interests of all stakeholders. The resulting lost opportunity to maximize profitability and enterprise value is significant. The fundamental problem is that an organization that does not invest in optimizing its financial back office through process improvement, automation, integration, and standardization has an unbalanced cost and capability structure. For such an organization, the knee-jerk reaction to control costs when faced with an adverse business environment is to reduce headcount, particularly in the support functions in the back office.

The idea for this book originated as a result of conversations with several senior executives and colleagues who hold leadership roles in various functions that affect working capital. A theme that emerged during these discussions revolved around cost reduction and its impact on the capabilities of the organization. None of these leaders saw cost reduction as anything but a necessary evil. The reason for that, although not often articulated, is that cost reduction has become synonymous with headcount reduction, reduction in product and service offerings, or lower quality standards. However, one critical element that is neglected in the reduction -focused approach to controlling costs is organizational capabilities. Ideally, a business would have all the capabilities it needs to be competitive and profitable at zero cost. However, that is not possible, so the obvious question that arises is one of a balance between cost and capability. This balance has a name: optimization; specifically, working capital optimization. This book presents a cost-capability optimization approach to maximizing profitability.

The specific areas that are part of the FSC include:

• Accounts payable

• Accounts receivable

• Purchasing

• Treasury—for managing the overall FSC from a performance viewpoint

The processes in these functions have a direct impact on working capital and are therefore critical to the liquidity, solvency, and profitability of a business. The metrics that are relevant to these processes are the focus of attention of the treasury and key to an efficient and value-creating treasury organization.

The book uses examples and case studies to show that cost optimization and not cost reduction is the right approach to maximizing profitability and enterprise value. Indeed, it is the only way to achieve sustainable profitability. In this book, the science of process improvement, the art of finance, and the enabling powers of information technology come together to make the case for a dependable approach to maximizing profitability and cash flow. The objective of the book is to make a strong case for FSC optimization as a viable strategy for profit maximization.

FSC optimization is getting a lot of attention in the finance world. This trend became mainstream in large organizations roughly around 2004. However, the current economic crisis has pushed FSC to the forefront for most organizations. Some evidence of this trend can be seen by the focus and attention given to this subject by management consulting firms, research and advisory firms, technology solutions vendors, and trade publications.

CHAPTER 1

Profits: The Reason a Business Exists

The essence of a successful business is really quite simple. It is your ability to offer a product or service that people will pay for at a price sufficiently above your costs, ideally three or four or five times your cost, thereby giving you a profit that enables you to buy and to offer more products and services.

—Brian Tracy, Chairman, Brian Tracy International

All too often, we hear and read in the business media business leaders proclaim: “Our focus is on increasing shareholder value.” What is this value, and from whose perspective are they attempting to increase it? Using the definitions provided by titans of the business and investing world including Warren Buffett, Benjamin Graham, George Soros, and Peter Lynch, a shareholder with a short-term interest is merely a prospector. It is the long-term focused shareholder that is a true investor. These people are “owners of the business” in the true sense and those whose interests business leaders should be serving. Wall Street does not usually cater to their interests, and, all too often, business leaders cater more to Wall Street than to business owners. The evidence of this discrepancy between words and action surrounds us in the form of failed corporations, issues around excessive executive compensations, and accounting scandals of historic proportions.