In late August a group of Singapore's top finance executives gathered at a roundtable to discuss the operational challenges facing their organizations in an environment of flat revenues. They shared their views on what it means to be a real-time enterprise and how to improve efficiencies by using technology. Here is what transpired.
- Ang Thiam-huat, group treasurer, NatSteel
- Chia Kew-sim, senior manager treasury, Singapore Technologies
- Peter Fontaine, finance director Asia Pacific, PeopleSoft
- Jan Hussmann, managing director, Shell Treasury Centre East
- Ray Kloss, director industry and product marketing Asia Pacific, PeopleSoft
- Lye Peng-yee, regional treasurer, Cargill
- Ng Marn-har, assistant vice president treasury, Singapore Power
- Robert Yenko, regional manager Asia treasury, Intel Technology
FinanceAsia: What operational challenges does your company face in the current economic conditions?
Chia Kew-sim: In this environment our biggest challenge is getting financial information out to decision makers in the most efficient manner possible. We are trying to rationalize how we handle this information flow so that we can spend less time collecting it and more time analyzing it. For those grappling with right sizing, this aim becomes even more important.
Lye Peng-yee: We have seen an increased focus on cost and a push towards finding value-adding opportunities, which contribute to the bottom line of the corporation and/or its business units.
Peter Fontaine: The heightened volatility creates a much greater need to understand the future. We are constantly fine-tuning the business to take advantage of the changing economic climates through the region. In my role as finance director I need to understand what it is going to be happening in the coming quarters. I want to be sure that the decisions we make now support the strategic plan that we have in place. We want to fine-tune our position, not compromise it.
Ng Marn-har: In this environment cash forecasting is particularly important because we don't want to end up with large surpluses when interest rates are so low. Also with banks becoming more cost conscious and starting to charge us for services which they used to offer for free, we have to look at our own processes to see what we can do to automate our systems and reduce some of these costs.
Jan Hussmann: Shell has five business lines and the finance department is there to support them. In this environment there is certainly a push to bring down the cost of our operations without reducing the quality of our service. Our big challenge is to centralize, simplify and automate our systems and processes as much as possible. Through our network of shared service and treasury centres we are getting religious about standardizing our processes because as soon as you deviate it costs you money.
Robert Yenko: We too have centralized our systems so that an analyst sitting in any one of our country offices can call up real-time data from the system and make a decision. This is part of the ERP strategy that we adopted a few years ago. The role of the treasury department has also changed. We used to be known as an in-house bank but now we are being encouraged to become more like consultants to our customers so that we can increase demand for our products. We are helping them with ways to manage various areas of their business from foreign exchange management to real-time inventory management.
FA: PeopleSoft speaks to a lot of finance executives in the region, do these views represent the general consensus?
Ray Kloss: We're hearing about two key impacts, one is the economic volatility mentioned above, and the second is the deregulation taking place in our region. Volatility is driving a need for real time information, everything from improved revenue and cash forecasts to better tools for risk weighted capital and funds transfer pricing management. Deregulation is driving a need to implement world class or best practice processes to drive down internal costs and improve market responsiveness.
FA: How easy it is to set forecasts when there is such volatility in the markets?
Fontaine: Compared to a consumer business or manufacturing business, our business is built on a lower number of transactions, at a higher value per transaction. So our financial forecasting is intimately linked to our sales pipeline. At the same time, our expense side is fairly stable. One measure that does certainly deliver increased predictability is from our CRM system, which enables the finance team to track in real time, where we are with the sales pipeline against budget.
Ang Thiam-Huat: Our company is a conglomerate with many different business lines from steel, construction materials, engineering and chemicals to electronics and properties. In my view it is much harder to forecast cash flows for a diverse set of businesses than it is for a single business. It is vital that internal communication be clear and timely for commercial exposures to be properly hedged. Heads of the different businesses have to keep treasury informed about sizeable planned transactions, so that treasury can optimize the overall hedges. Given the complexity of the business environment and market volatility, it is a constant effort to optimize hedges.
Hussmann: We have a huge retail business with about 12,000 petrol stations in Asia and we really rely on consumer behaviour which is hard to forecast down to the last dollar. We make cash forecasts for the short, medium and long term but at the end of the day it comes down to what is sold at the pump.
Ng: For a power company, one of the variables in our cash forecasting is our capital expenditure. In a slowing economy we can slow down our capital expenditure and in good times we can speed it up.
Lye: Precision short-term cash flow forecasting is not as critical for us because of the way we manage our cash and credit lines. We have an efficient pooling system between the countries in the region thus we can manage the day-to-day fluctuations in the cash flow better. We need to be able to do this because cash forecasting for a trading company like ours is very difficult.
Hussmann: We have developed an internal web-based tool that allows our operating companies to forecast their cash flow for all maturities. We try to encourage them to renew it on a weekly basis so that we can get a rolling five-week forecast that we can then combine at group level to see what is really going on.
FA: Managing cash flows is easier if you can sweep across borders in Asia. Are any of you doing this effectively?
Hussmann: We sweep US dollars and local currencies where we can and swap them into US dollars. Where we can't translate funds into US dollars we deal in the regional market on behalf of the local company. The aim of having three treasury centres is to be cash free in Asia and Europe at the end of each business day and leave the final position to the US to invest or borrow the remaining balances.
Lye: We have the same sweeping processes but it is not always easy to pool in Asia. About 70% of our cash can be swept and this is mostly US dollars. In many countries we still face currency controls and transfer restrictions, limiting our efforts.
FA: So the concept of regional pooling is a myth in Asia?
Lye: Yes, because there are still some currency restrictions in place. Where you can swap the local currency into dollars there is no problem but in places like China, Korea and Taiwan this is not possible. In these countries we keep a short-term loan book running in order to have more flexibility in managing our cash position.
FA: Let's move on to information management. How important is it for you to have good information flow through all layers of your company?
Chia: Information flow is crucial. The idea is that you want everyone in the organization contributing to the collection of the data and then you want them to benefit from this combined effort by having access to that data themselves.
Kloss: In our experience, giving everyone access to this data does make it easier to standardize processes within a company. One of Peoplesoft's clients is Oxfam. They ran the finance function as a centralized process. But Oxfam needed to support the complex decision making taking place out in the field. As a result, they decided to decentralize down into eight regional centres with each centre supporting 10 different countries. They wanted to be able to pass information and business process down the line using a standard browser interface so that line managers and project managers could see what was going on and act. Key to the success has been the ability to maintain centralized policy, centralized processes, information standards and the appropriate financial controls while still giving line managers the power to make decisions.
FA: Are there any obvious ways of making information flow more reliable and more efficient?
Hussmann: We have decided to consolidate our banking relationship in the region and give our local currency account to one bank in 10 countries. The idea is that we get information quicker and faster through one bank through one system.
Yenko: We started by focusing on the customers and trying to get them to send us information in a standard format by using our web tool to place their orders. This helps us to manage our inventory more closely. For our vendors we give them the ability to send us invoices over the web. The key to information management is giving everyone in the supply chain the right tools.
FA: Is it easy to instruct people down to the level of the customer and are they comfortable with using the web?
Yenko: Because we are a technology company we usually don't have a problem with our customers understanding the concept of the web, but it still takes a lot of time and effort to train everyone to use the systems. We had to do a lot of training for our customers to show them how to use the ordering system. It was a slow process but eventually it paid off.
Lye: We deal with a lot of customers in the rural sector who don't have access to the internet, so getting them to use the web is impractical. On the supplier side, however, we can encourage them to use these automated systems.
Kloss: We're finding that deploying business processes through a web browser is driving down training times as people find the portal a much more intuitive way to access applications and information. They can customize their content, and we can drive key workflows to their tasks lists to help them prioritize their activities.
Fontaine: We have simplified a lot of our processes and that has allowed us to focus on the key drivers that impact our business rather than spending a large amount of time on collecting the data. People in the finance department can be much more productive if they are focusing on analyzing major transactions and adding value rather than just processing transactions. This really helps in a dynamic environment where a company is growing very quickly.
FA: Implementing new systems is a costly business. Is it possible to overcome these hefty outlays by introducing systems in a stage-by-stage manner and, if so, where do you start?
Lye: It would be great to switch to a global system overnight but the cost of conversion is significant. There is also the risk of dislocation as countries decide to add their own fields and functions to the system to suit their needs. So we prefer to handle it through a staged approach. At the moment we are in the process of reducing the number of regional treasury systems used worldwide. We will centralize our operations where feasible and then maybe relocate them to a place which may be more cost efficient.
Yenko: Intel decided a few years ago to embark on an ERP revolution for the whole company and we chose a phased approach. We started off with order management, then went down to the factory floor and now we are up to the final link in the implementation which involves revamping our financial reporting system.
FA: Is it easy to make a case to your superiors for implementing a new system? How can you quantify the return on investment?
Chia: It isn't easy to explain how a piece of new software will save a company money. Often the savings are qualitative and difficult to measure.
Lye: When we began our centralization programme we used our move from Malaysia to a hub in Singapore as a pilot. Luckily the Malaysian currency was a pegged currency so it was easy for us to quantify the pickup. Malaysia is cheap in terms of salaries but by pooling into Singapore we managed to save on headcount and benefit from a team with a higher level of finance expertise in Singapore. By using Singapore as a hub we pay a little bit more for services but we have achieved huge efficiencies through consolidation. Other benefits came in our foreign exchange operations. Overall, we have been able to bring down our all-in-funding costs.
Ang: Making a case for investing in new software is easier if it is a revolutionary change.
To use an analogy: it is easy to see the benefit of upgrading from a bicycle to a car. But once you are already driving a car and you want to upgrade to a newer model, then the benefits may not be so easy to quantify. Whilst it is important to have post-implementation evaluation of the IT purchase, the framework for objective evaluation is often difficult. Under real-time business conditions, how many finance executives can find the time, once a new system is up and running, to track its performance and determine the returns of the IT investment?
Hussmann: Before we invest in anything new there has to be a business case behind it. We really look into the economics of an activity and then we conduct a post mortem once the system is in place. Three years ago we replaced our treasury management system so that we had one system running in all three of our treasury centres. We are still tracking the success of this project we have to. The decision to change our system was preceded by a broader structural decision to set up three treasury centres around the globe. There was just no way that the old system would have been able to support these centres so the case was pretty easy to argue.
Fontaine: We found the quantitative benefits easy - lower maintenance effort, smaller hardware footprint, greater productivity amongst our people. But the qualitative benefits of a new system are just as important to factor in to the justification. We've increased our speed of information availability, the quality of that information and the broader access to it. This has significant benefit to our business in making decisions quickly, that's a critical component of a system justification.
Kloss: PeopleSoft partnered this year with Hackett Best Practices, a division of AnswerThink. Hackett Best Practices conducts benchmark studies to identify what they refer to as a world-class organization in terms of performing the finance function. Over 2000 companies participate globally. World-class companies can perform the finance function for almost half of the cost of an average company with around half the people. We asked them to take a look at the PeopleSoft application and they certified that it could help companies to achieve this capability by using web-based technologies. I wondered if any of the companies present here use tools like benchmarking to help support replacement business cases?
Chia: Yes it is worthwhile using best practice benchmarks to make your case but ultimately it comes down to how much money the CEO/CFO can save by allowing you to spend money on a project.
Hussmann: Benchmarks are important but you have to be sparing in your use of them because you can benchmark almost every function in your organization. You need to focus on the ones that will deliver returns for your customers.
Kloss: The real opportunity when replacing the finance systems is getting the front office more involved in the finance function. We worked with Danske Bank to install an integrated system that allows the business unit managers to analyze the data flowing from the finance department in the ways that they need. This means they are more involved in financial analysis and decision making for the company rather than just inputting data. Do you think giving the people in your front office access to the data and allowing them to make decisions would help you on the finance side?
Yenko: At the end of the day, if the company stands to gain efficiency and productivity, this will eventually translate to dollars saved and a good justification of a new system.
FA: What is the biggest challenge facing you in the next 12 months?
Ang: NatSteel is in the process of going through a management buyout. Ensuring a smooth transition during this period, especially in the area of counterparty relationships would be a key priority. Decision on technology investments by treasury will have to take a back seat.
Yenko: Our challenge is to do what we need to do with fewer resources. We are in a difficult environment and our systems development gets a regular review by management. The key is to have an integrated cash management solution that will result in fewer entities using fewer bank accounts making fewer transactions - one that would allow seamless straight through processing for our treasury operations.
Hussmann: We need to finalize the implementation of the cash management system that we are installing and have it rolled out to all countries by the end of next year. We also need to successfully centralize the back office functions of the treasury centres into one location
Ng: Our need is to find some more investment products that will earn us the extra dollar on our surplus cash. We would also like to improve the data flow and feedback from our subsidiaries so that we can write better forecasts. We are now looking for some software which may further upgrade our management reporting process.
Fontaine: The challenges we face today in the finance function are the same ones we've faced for the last 10 years. For instance, driving efficiencies in the company and reducing our transaction volumes by consolidating suppliers is an ongoing process. We have found that by switching all of our operations over to a web-based platform that the cost of our hardware has gone down significantly and we have improved our productivity. It is savings like these that we will continue to be seeking in the coming quarters. We have to continue to drive best practice - this will force us to do a better job.
Lye: We are now in the process of rolling out our new IT platform to every country. Going forward the key priority will be to use our treasury expertise to grow the business. We need to work customer solution ideas that will help the business of our customers. For example, we may work on ideas and structures to help our customers to secure funding so that they can buy more of our products.
Chia: Our challenge is to motivate everyone to use an integrated web-based system. If we don't handle this well, all of the benefits that the system is supposed to provide could come to nothing. Some find it easier to adapt when they are provided with the comfort of falling back to their legacy systems if they need to. Others can't wait to jump on the bandwagon and stop operating using printed spreadsheets.
This roundtable was brought to you by Peoplesoft, who kindly sponsored the event.