Global Study Highlights Increased Risk of Missing Links Between Finance and Procurement
STAMFORD, Conn. –June 22, 2009 – A global study released today by Basware, a leader in enterprise purchase to pay solutions, in conjunction with the Kelley School of Business in Indianapolis, finds that chief financial officers in organizations across the globe are shunning risk management in favor of cost cutting, and are failing to treat supply chain dangers seriously enough.
The current downturn is profoundly affecting businesses around the world, and The Cost of Control is the first major global study investigating the issues impacting finance and procurement. An insight into the views of 550 financial directors and CFOs from organizations around the world, the research is supported in the U.S. by Mark Frohlich, associate professor of operations management at the Kelley School of Business.
Findings from The Cost of Control study reveal that in spite of a high-risk economic environment, CFOs are failing to recognize the importance of closely managing supply chains through procurement, with just 28 percent of respondents to the study saying that they believe procurement has a significant impact on financial risk exposure.
Commenting on the findings, Professor Frohlich, who previously worked as a management consultant with Deloitte & Touche, said, “Businesses today are defined by their supply chains and some of the high profile business failures of the last 12 months point to this as a root cause. Finance departments across the globe have been guilty of ignoring the real value that their procurement teams can bring to the financial health of their organizations for decades now, so there is real truth to the suggestion that CFOs aren’t making the most of what can be an invaluable asset in the fight against the recession.”
The study finds that only 46 percent of financial chiefs see real integration between purchasing and finance processes, representing a major break between two departments that should be working closer than ever to combat the downturn. According to survey results, less than half of the respondents see any level of integration between procurement and finance teams.
Professor Frohlich said, “The fact that only 27 percent of CFOs consider that procurement has a positive effect on enterprise profitability suggests that the procurement role itself and the wider supply chain is not seen as a significant contributor to bottom line performance. However, the companies in the study that take a more holistic, strategic approach realize higher performance.”
Perhaps unsurprisingly, raw cost cutting was seen as a major priority for the CFOs questioned in the study, with 64 percent stating that bringing costs down was the top item on their agenda. At the same time, strategic goals seem to be taking a backseat for many, with only 39 percent citing risk analysis as a major concern for them, and a comparable 39 percent believing that maintaining or improving margins was key. An unexpected finding, however, given the strategic emphasis in recent years on green sourcing and paperless offices, is that only 24 percent of respondents remained focused on environmental practices.
Ari Salonen, Basware’s general manager, North America, said that the results point to a severe disconnect between the finance and procurement departments: “There should be a sense of trepidation on both sides of the fence when reading the results of this study. While heads of finance everywhere are looking at how they can bring greater security and stability to their organizations, they seem to be missing a major piece of the puzzle in overlooking the procurement teams as a major strategic advantage.”
While procurement professionals will likely feel that their strategic value is being missed by their finance colleagues, procurement is a vital function that can give a business the edge when times are economically tough,” Salonen said. “There needs to be serious thought invested into why procurement still isn’t seen as a vital function.”
The Cost of Control also reveals that businesses are leaving significant levels of data and process out in the wild, making accurate visibility of corporate accounting next to impossible. CFOs surveyed admitted that only 42 percent of indirect spending – such as marketing or consulting spend – was being captured by their organizations, and that only 50 percent of purchasing processes were automated, leaving major room for human error.
To help tackle the challenges identified in The Cost of Control, Basware recommends a three-step plan for CFOs and procurement professionals:
1. It is vital that all organizations have 100% visibility of spend – both direct and indirect – across the business. Only once it has a single, unified view, can a business make tough financial decisions.
2. Ensure that the right processes are in place to give precise control over who spends money and what they can buy, leading to improved business processes and capital management.
3. Only by working strategically can finance and procurement make the decisions that will benefit the business as a whole. The businesses that achieve transparency throughout the entire purchasing cycle will be best equipped to emerge from the current economic downturn in the best health.
For a full copy of The Cost of Control insight study, please contact robert.cohen@basware.com or visit www.basware.com/control.
The Cost of Control study features insight from CFO and Financial Director level respondents with 100 surveyed each in the U.S., U.K., Scandinavia and Germany, and with 50 responses each from Spain, Benelux and France completing the total of 550.
About the research
The Cost of Control study was conducted for Basware by independent research company Loudhouse during May 2009. Results came from a range of businesses across the globe, with all respondents occupying CFO, financial director or equivalent level roles. The size of the organizations at which those surveyed are employed range from 1,000 to 50,000 employees.
About Professor Frohlich and Kelley Business School
Mark Frohlich is associate professor of operations management at Indianapolis’ Kelley School of Business. Focusing primarily on operations strategy, process improvement, program management and supply chain integration, Professor Frohlich’s teaching assignments have included the London Business School, Boston University's School of Management and Oxford University's Said Business School.
Founded in 1920 as the Indiana University School of Commerce and Finance, the Kelley School has grown into one of the most respected business schools in the world.
About Basware
Basware is the global leader in purchase-to-pay solutions with more than 1,500 customers and 850,000 users in over 50 countries around the world. With Basware, organizations can reduce the cost of buying and paying for goods and services and gain visibility and control of their entire spending process by automating manual processes, from sourcing, contract management, purchasing and supplier collaboration to invoice automation. Basware solutions and services enable substantial cost reductions across businesses and deliver value by providing compliance and control, as well as fast return on investment. The solutions are distributed and implemented, either on site or as a service, in Europe, the U.S., and Asia-Pacific through an extensive network of Basware offices and business partners. The company’s U.S. business, Basware, Inc., is headquartered in Stamford, Conn. More information can be found at www.basware.com/us.
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