iPaper

iPaper Page 1

CFO Survey 2010

iPaper Page 2

Contents Contents Executive summary Creation and method Companies marked by downturn CFOs report on increased management information Scalability at enterprise level not reflected in the finance function Cost of the finance function is growing Resource allocation is immune to changes in business environment Glossary Definitions and explanations Background data page 2 page 3 page 5 page 6 page 8 page 10 page 12 page 14 page 19 page 20 page 21 ”Forløbet har også haft en positiv effekt på indkøbsafdelingens relationer til og omdømme i den øvrige Post Danmark organisation”, siger servicecenterchef Carsten Christiansen (th)

iPaper Page 3

Executive summary The CFOs are facing tougher business conditions ahead including increased pressure on prices and commercial terms from customers and suppliers. This is one of the main conclusions from Valcon’s CFO Survey 2010. These facts seem to have increased the CFOs’ focus on management information which from Valcon’s view is a very positive development – especially because Valcon also sees a toughened business climate after the financial crisis. Managing a profitable business within these conditions will require agile reactions towards market, customers and suppliers based on operational and fact based analyses. Nevertheless the CFOs are mainly focusing on profitability and other financial measures and have downgraded focus on more operational measures like lead time, cash flow, inventory levels, etc. which are important in managing the business proactively through the toughened business environment. Valcon recommends a more balanced focus on these management information parameters. In extension of this, the survey indicates that the CFOs are focusing on close partnerships with suppliers and customers and implementation of new sales channels when asked for which measures they see as a central part of their strategy in securing a company that profitably can be scaled up and down following fluctuating market conditions. However, less central are more controllable measures like outsourcing and leasing. Compared to the CFOs’ indication of tough market conditions ahead it seems odd that very few Scandinavian companies focus on these kinds of scalability measures which enable more flexible cost structures and increase profitability due to a lowering of the break-even point of the company. Results from the survey indicate that the more scalability measures that are applied a more significant lowering of break-even point can be achieved. Exactly this could help manage the company through the tough market conditions profitably! In the same way it seems very contradictory that the CFOs are reporting profitability as a main focus element in management information when profitability management only accounts for 8% of the total resources in the finance function. In addition the transactional processes account for about 60% of the resources, which means that no decrease in the use of transactional resources can be reported compared to the CFO surveys in 2005, 2008 and 2009. When the CFO survey at the same time reports that the total costs of the finance function all in all are increasing, it seems unexplained why so few Scandinavian CFO SuRvEy 2010 • Is a cooperation between Copenhagen Business School and valcon • Has been conducted by anonymised questionnaire survey among more than 1,000 medium-sized and large Scandinavian enterprises (financial excepted) • The enterprises in CFO Survey 2010 represent a revenue of DKK 130 billion and cover a wide selection of industries • Conclusions and future implications are compiled by comparisons with relevant data from valcon’s benchmark database • CBS and valcon have previously conducted CFO surveys in 2005, 2008 and 2009. CFO Survey 2010 follows up on the development in the financial function 3

iPaper Page 4

finance functions have achieved efficiency1 gains through lean, process and IT automation and other tools when other functions of many companies already have realised that type of effects. If the CFOs were not that reluctant to implement such approaches and reap the benefits from them, they could achieve an important transformation of traditional transactional resources into more business oriented decision resources. In the context of the tough business conditions ahead which the CFO themselves report, this would indeed make them better prepared for managing their companies in the coming years. 4 1 See glossary on page 19

iPaper Page 5

Creation and method Again this year, Valcon conducted a survey of the performance level of the finance function among a selection of medium-sized and large enterprises. This year the survey is extended to focus on Scandinavian companies and compared to previous years we have added focus on the enterprises’ wide manageability and scalability, and this theme constitutes a background for practice, resource allocation and development in the finance function. Where relevant we will draw parallels to the previous CFO surveys in 2005, 2008 and 2009. In this report, CFO Survey 20102, we add a number of interpretations and statements, as we want to enable a wider debate of the issues being covered. As background document we present all gathered data material in a separate appendix focusing on mediating facts. This document is comprised of 31 graphs and figures and some small explanatory texts. Please read the report in hand as is – or dig deeper by viewing the background document as well – and do feel free to contact us for further conversation. We are happy to discuss the subjects of the report or other urgent questions on the agenda of management in general and the finance function in particular. Michael Andersen, associate professor at CBS, contributed to the survey with sparring and future implications of the results of the survey. Persons with primary responsibility for analysis and report are Richard Thorsen, Manager in Valcon’s Finance team and Thomas Rosenlund, Director in Valcon’s Strategy team. Please see our contact details in the contact box on this page. CFO Survey 2010 has been conducted as an anonymised web questionnaire. A total of 41 enterprises answered the questionnaire. In total the companies involved had a turnover of more than 130 billion DKK. The enterprises come from many industries – including manufacturing, trade, service and R&D intensive enterprises. CFO Survey 2010 did not include businesses in the financial industry or public sector. The questionnaire was addressed to the enterprise’s head of finance – typically the CFO. The questionnaire comprises of questions in width and depth and touches enterprise agility and hard facts from the life of the finance function as process times, volumes, resource efforts and costs etc. See “Background data” for every bit of data. COnTaCT InFORmaTIOn If you want to know more about the survey, e.g., to discuss themes from here, please feel free to contact:: michael andersen, CBS Tel. +45 3815 2337 E-mail: ma.acc@cbs.dk Richard Thorsen, valcon Tel. +45 2147 0312 E-mail: rt@valcon.dk Thomas Rosenlund, valcon Tel. +45 2049 5427 E-mail trn@valcon.dk 2 Valcon’s CFO Survey 2010 can be downloaded from www.valcon.dk or ordered by phone +45 4580 2037 5

iPaper Page 6

Companies marked by downturn This first section is about macro trends surrounding the enterprises. CFOs see tough business conditions ahead with an increased pressure on prices and commercial terms. valcon’s view is that the financial crisis has toughened the business climate and recovery is still pending. managing the business profitably will continue to require agile reactions to market conditions, clear value propositions and increased focus on fact based analysis on customers and suppliers. The financial crisis sets the agenda for many parameters being surveyed in CFO Survey 2010. In this section we look at macro tendencies for the entire enterprise as viewed from the CFO’s office. According to the CFOs companies are affected and have experienced significant changes in their business since 2008; significant reduction in order book (46% of respondents), increased demands for raising capital (40%), demands for increased credits to customers (28%), and decreasing sales prices (26%). In the coming years a continued pressure on prices and commercial terms can be expected from the customers. From year 2008 to 2010 26% of our respondents has experienced a decrease in sales prices, and 28% has prolonged credits to customers. In the coming two years 68% of our respondents expects that the customers will demand price reductions – in addition to demands for more lenient payment terms (45%), lenient discount structures (37%), demand for unpaid services (37%) – thus increasing the pressure on commercial terms. Also on the operational side a requirement for shorter lead times (40%) will increase pressure on companies. 80% 70% 60% 50% 40% 30% 20% 10% 0% Customers Customers Customers will demand will demand will demand price reductions more lenient shorter lead payment terms times Number of respondents: 38 Agree Customers will demand more lenient discount structure Customers will demand unpaid services Customers will demand smaller order sizes 55% 42% 37% 34% 37% 21% 3% 3% 13% 3% 5% Agree totally Figure 1. Expectations to customers. 68% expects customers to demand price reductions. 6

iPaper Page 7

Also suppliers are expected to increase pressure on prices and commercial terms. Since 2008 49% of CFOs has experienced a decrease in purchase prices and 42% has received longer credits from suppliers. In the coming 2 years 56% of our respondents expects that the suppliers will introduce price increases and 41% expects stricter payment terms (see figure 2). This makes sense as suppliers are expected to exploit their improved power position in a growth scenario after 2 years of unusually high pressure on prices and terms. Interestingly 33% expects the suppliers to shift to a higher degree of paid services – probably as a means of covering extra cost induced by customer behaviour. 60% 50% 40% 30% 20% 10% 0% Suppliers Suppliers Suppliers Suppliers Suppliers Suppliers will introduce will introduce will shift to will introduce will introduce will demand price increases stricter paya higher stricter longer lead larger order ment terms degree of discount times sizes paid services structures Number of respondents: 39 Agree Agree totally 53% 33% 33% 31% 25% 11% 5% 8% 3% Figure 2. Expectations to suppliers. 56% expects suppliers to increase prices in the years to come. 49% of our respondents has achieved decreased purchase prices while only 26% has reduced sales prices – however, looking at the expectations for the coming years it seems like pressure will increase both on our respondents and their suppliers and especially on prices and commercial terms. We are facing a situation where both customers and suppliers are increasing the pressure on each other – indeed a situation where measures must be taken to address this. In order to manage the business profitably it will require deep insight into the sales prices and terms and fact based analysis on the suppliers (e.g. in negotiations) – but also dialogue and collaboration will improve the situation. From the benchmark it is clear that only 8% of the total FTEs3 in the finance functions is allocated to cost and profitability analyses, business cases etc. We would expect that this proportion must increase significantly in the future in order for the CFO to truly support the business with relevant information regarding customer and supplier terms and conditions. Indeed the CFO’s role has become more critical as the provider and catalyst for driving an agenda across the company on both strategic and operational 3 See glossary on page 19 7

iPaper Page 8

issues. In this harsh business environment Valcon would recommend the CFO to sharpen and expand competences in strategic analysis and sparring on cost structures (cost levels, use of outsourcing), as well as efficiency and effectiveness4 in the business operations. This adds new critical dimensions to the business controlling task usually connected to the role of CFO and finance function. Meanwhile finance functions are in terms of resource allocation still predominantly dedicated to transactions5 and financial controlling as opposed to strategic activities. Only 2% of the total FTEs is allocated to the task “strategy development and implementation”. CFOs report on increased management information This section focuses on manageability as a corporate response to tough times. CFOs report on increased focus on verification and use of management information focusing on profitability, price and other financial measures. valcon’s view is that this development is very positive but companies should address more attention to operational management information such as lead times, capacity utilisation that will increase proactivity in the management of the business. During the financial crisis (2008-10) companies have increased the ability to manage their companies by increasing usage and transparency of management information throughout the organisation (86%) and in management forums (65%) as well as increasing focus on verification of data (68%). My company has increased the usage and transparency of management information throughout the organisation My company has increased verification on information data My company has increased the use of management information in management forums My company has a more frequent reporting cycle 0% Number of respondents: 40 35% 20% Agree 68% 18% 60% 8% 50% 15% 10% 40% 60% 80% Agree totally 100% Figure 3. Use of management information. 86 % has increased usage and transparency of management information throughout the organisation. 8 4 5 See glossary on page 19 See glossary on page 19

iPaper Page 9

And the improved management information has indeed improved the ability to predict large increases and decreases on key parameters. The companies have in general achieved: • 13% decrease in number of weeks required to identify large changes in order book • 17% decrease in number of weeks required to identify large changes in EBIT • 8% decrease in number of weeks required to identify large changes in capital requirements 8 7 6 5 Weeks 4 3 2 1 0 2008 2010 2008 2010 2008 2010 Large increase/decrease in order book Number of respondents: 28 Large increase/decrease in EBIT Large increase/decrease in capital requirements Figure 4. Ability to identify large increase/decrease in order book/EBIT/capital requirements. Detection of big changes is speeding up as a response to tougher business climate. It seems, however, that the management information evaluated as most important is ‘lagging’ and financial indicators rather than ‘leading’ and operational. Key information is profitability (90%), however, not likely broken down to EBIT level based on input from CFOs and surveys from previous years, customer satisfaction, price development of finished goods and raw materials, development in variable cost, capacity utilisation and sales pipeline. Operational information is less used: Order book (55%), inventory levels, development in working capital, cash flow and lead time in production. See figure 5 on page 10. 9

iPaper Page 10

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Information on working capital development Increase/decrease in number of employees Development in fixed cost Price development Development in variable cost Information on lost orders Information on order book Lead time in production Break even revenue point Capacity utilisation Customer satisfaction Competitor information Price on raw materials Debtor information Profitability Sales pipeline Cash flow Inventory levels Payment terms 34 44 57 51 66 46 49 39 56 19 24 7 22 24 27 12 20 12 15 51 39 10 7 5 7 5 2 5 39 39 32 39 46 40 39 41 41 37 Number of respondents: 41 Significant Very significant Figure 5. Management information parameters. Key information is profitability (90%) and customer satisfaction (83%). Scalability at enterprise level not reflected in the finance function Scalability measures at enterprise level such as outsourcing make more flexible cost structures and increase profitability. CFOs report on growing focus at enterprise level, but very few Scandinavian companies have a strategic focus on increasing scalability – as the interest in scalability is primarily driven by necessity in specific companies. In valcon’s view increased focus on scalability could significantly improve profitability in both growth and decline scenarios and be used as a means to addressing increased pressure from customers and suppliers on prices and commercial terms. There is a strong correlation between companies’ break-even point (defined as fixed cost compared to revenue) and their profitability. From the survey we can see that the lower break-even point the more profitable the companies are. Perhaps not surprising but nevertheless clearly reinforced by data. 10

iPaper Page 11

The 7 scalability measures addressed in this survey are: Insourcing, outsourcing, partnerships, sales focus, restructuring supply chain, reduction of capital requirements and leasing of assets. The more measures the companies have taken in the past 3 years to increase scalability, the more the break-even point has been reduced: • Companies working with 3-4 scalability measures from 2008-10 have achieved 11% reduction of their break-even point • Companies working with 1-2 scalability measures have only achieved a 4% reduction of their break-even point. Looking at expectations for the coming years it seems that necessity is the primary driver for working with scalability measures. The results show that the companies that will be working with more than 4 scalability measures in the coming period have a significantly higher break-even point in 2010 than others. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Close New Restructuring Reduction Outsourcing partnership sales of our of capital with approach/ supply requirements suppliers sales chain and channel customers focus Number of respondents: 38 Historic focus Leasing of assets Insourcing 26% 61% 55% 84% 74% 58% 55% 47% 42% 34% 24% 21% 13% 5% Future focus Figure 6. Scalability measures - historic and future. Companies move focus to closer partnerships with customers and suppliers (from 61% to 84%) and to new approaches in sales (from 55% to 74%). The companies will primarily improve scalability by establishing close partnerships with suppliers and customers and by introducing new sales approaches – a trend that is even stronger in the coming years – whereas measures such as outsourcing, leasing and supply chain restructuring are less significant even though these measures are easier for the companies to control themselves. 11

iPaper Page 12

The focus on close partnerships will certainly have a merit as building customer-supplier relationships on ’value transactions’, by creating a broader definition of the value that the transaction creates for the customer e.g. in terms of reduced cost of quality, evening out capacity or reducing working capital, and not purely on product and price, can in effect put the commercial terms discussions which are expected in coming years in second place, bringing forth a discussion on value creation activities on both sides. Scandinavian companies have a low strategic focus on scalability. A broad number of initiatives can be taken to strengthen scalability enabling companies to capture growth opportunities and reducing scope of operations when the business climate declines – thus handling a volatile environment. From Valcon’s findings it is apparent that many Scandinavian companies do not have a strategic focus on increasing scalability as only a limited number of means are applied and only 37% uses the break-even point as significant management information. The CFO has the opportunity to play a significant role in putting scalability on the strategic agenda and providing scenario analyses that will support improved profitability and agility of the enterprise to react on market opportunities and threats. But even in the domain of the CFO very little focus on scalability seems to be in place. On average only 3% of the CFOs has outsourced 4 - 6 out of 10 processes within own responsibility (with taxes, VAT etc. being the only processes actually outsourced to a significant extent of 20%). See figure 21 in CFO Survey 2010 – Background data) Cost of the finance function is growing This – and the following – sections are directly comparable to previous CFO surveys. The topic is the finance function itself. CFOs report that all in all cost ratios are increasing and the differences between top performers and lackers are huge! From valcon’s perspective it is significant that CFOs have not managed to decrease cost ratios significantly compared to 2008 – neither the best nor the poorest performance have shown any significant improvement. When comparing operating expenses of the finance function in ratio with revenue, we find that cost of the finance function is growing. From 2009 to 2010 12

iPaper Page 13

2010 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.6% 0.2% Revenue < 1 billion DKK (23) Revenue > 1 billion DKK (22) Top Middle 0.7% 0.2% All (45) Bottom 1.6% 1.2% 3.4% 2.6% 3.9% Number in paranthesis = number of respondents 2009 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.4% 1.0% 0.8% 0.2% Revenue > 1 billion DKK Top Middle 0.2% All Bottom 0.9% 2.5% 2.4% 2.7% Revenue < 1 billion DKK Number of respondents: 73 Figure 7. The operating expenses of the finance function in percentage of revenue. Growing costs in finance and slowdown in growth points to lack of scalability in finance function, especially as resource allocation internally has transactions as main focus. the “middle” and “bottom” segments have growing expenses from 0.9% to 1.2% of revenue and from 2.7% to 3.9% of revenue. Average cost of finance in 2010 equals 1.2% of the revenue, and compared to 2009 the cost burn rate is increasing. It is evident that the significantly changed business climate in many companies resulting in a massive decreased revenue has an impact on relative cost ratios of staff functions such as finance. However, this also stresses the argument about the extent to which the CFO ensures a scalable and variable cost structure in his/her own departments. A very marginal use of shared service6 centres and outsourcing indicates that no such measures are applied to any significant degree. Hence, the CFO is often stuck with relatively rigid cost structures, resulting in increasing cost to revenue ratios. 6 See glossary on page 19 13

iPaper Page 14

Another dimension to the development in cost ratios could be the fact that most CFOs want to hold on to strategic competences, also in times of financial decline. However, most of the resources within the CFOs’ area are continuously allocated to transactional processing – and not to more strategic important activities, indicating that the argument for increased cost to revenue ratios is not competence retention. Based on the above Valcon stresses the importance for the CFOs to make their own cost base more scalable and variable. Means such as standardisation, centralisation, shared service centre and outsourcing are all means that are hard to ignore in this context and we expect an increasing use of these means in the coming years. As already clear from the CFO surveys in 2008 and 2009, huge differences between top and bottom performers are evident. Hence it is clear that a significant cost saving potential exists in a number of companies. Some of the most well proven means to realise these potentials are standardisation, process efficiency improvements (e.g. through lean implementation), automation (e.g. through a better use of ERP and BI systems) and structural techniques such as e.g. centralisation of tasks, implementation of shared service centres and use of outsourcing. Resource allocation is immune to changes in business environment allocation of time and resources does not reflect increasing focus on profitability. accounting, transaction and traditional financial controlling are still the predominant focus areas in the finance function. Close to 60% of the CFOs’ resources is allocated to transactional processing – an unchanged level compared to 2005, 2008 and 2009. This fact is in conflict with the massively increased need for business supporting information and analyses and raises two important questions: • Is the unchanged resource allocation due to inability of the CFO to execute process efficiency improvements? • Is the allocation due to the fact that the CFO’s organisation is not capable (from a “business competence” point of view) to actually establish and maintain services with true business impact (controlling and analysis)? See figure 8 on page 15. 14

iPaper Page 15

2010 10% 8% 2009 13% 16% 58% 20% 16% 59% Accounting Business controlling Number of respondents: 44 Financial controlling Management Accounting Business controlling Number of respondents: 71 Financial controlling Management Figure 8. The resource allocation of the finance function into main tasks in percent of FTEs. Accounting consumes 58% of finance functions’ man power. Management issues only 10%. Regardless of size and industry an average of approximately 60% of the resources (FTEs) is allocated to transactional processing. This represents no change compared to 2009 and 2008. In 2005, the CFOs expected only 1/3 of the resources to be allocated to transactional processing within 2 years – not a single respondent is close to this in the 2010 survey. Other departments in most organisations succeed in achieving efficiency gains through lean, process standardisation, automation and other ways of working. From a data perspective CFOs seem reluctant to implement such approaches and reap the benefits from them. CFO Survey 2010 may pinpoint cultural barriers in the CFO’s organisation, or is it a question of the CFOs simply not being able or willing to change? The fact is that Scandinavian CFOs are lagging behind international peers in terms of achieving efficiency gains. 15

iPaper Page 16

Despite of demands of the business lines and surrounding organisation, the CFOs allocate less than 20% of the resources to ”decision support”. Only an insignificant share allocates more than 30% of the total resources to decision support. Compared to the recession putting pressure on the companies the “footprint” of the CFOs in the organisation is not changing accordingly. Focus of the controlling effort is external reporting and internal controls. These disciplines are acknowledged to be “license to operate” related, thus unchanged emphasis on these functional areas is not increasing positive business impact of the CFOs’ controlling effort. 2010 21% 23% 2009 52% 31% 48% 25% External reporting Internal reporting Internal controls Number of respondents: 34 External reporting Internal reporting Internal controls Number of respondents: 65 Figure 9. The resource allocation of the finance function in percent of FTEs subcategories of financial controlling. Within the category financial controlling internal reporting still accounts for one half of the FTE resources, while internal controls are growing from 25% to 31%. Profitability management accounts for only 8% of the total resources. This is in contrast to profitability being the key ingredient in management information. See figure 5 on page 10. In a market characterised by decreasing margins, transparency in customer and product profitability must be key knowledge to be provided by the CFO. 16

iPaper Page 17

When looking at cost of managing accounts payable it is eye catching that the gap between best and poorest performer is huge. Economies of scale are very significant in this area as the cost of AP processing in large companies is approximately half of the cost for smaller companies. 2010 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0% 0.02% 0.18% 0.04% 0.09% 0.17% 0.02% All (31) 0.14% 1.58% 1.58% Revenue < 1 billion DKK (12) Revenue > 1 billion DKK (19) Middle Bottom Top Number in paranthesis = number of respondents 2009 0.5% 0.42% 0.4% 0.3% 0.2% 0.1% 0.0% 0.09% 0.04% Revenue < 1 billion DKK Middle Bottom 0.02% 0.06% 0.07% 0.02% All 0.27% 0.47% Revenue > 1 billion DKK Top Number of respondents: 52 Figure 10. The cost of accounts payable in percent of revenue. CFOs report on huge differences. 17

iPaper Page 18

The cost per creditor invoice has gone up. Also in this transaction area CFO Survey 2010 detects huge differences between good and poor performers. There is in reality a “one size fits all”. 2010 500 450 400 350 300 DKK 250 200 150 100 50 0 11 Top Middle Bottom 51 460 2009 500 450 400 350 300 DKK 250 200 150 100 50 0 6 Top 42 Middle Bottom 382 Number of respondents: 43 Figure 11. Creditor management - cost per invoice. Cost per invoice is going up from 2009 to 2010. 18 All in all it is surprising that the CFOs have not been able to adapt to the radically changed business environment. At least it is not evident from the data. Cost ratios have gone up, structural changes are not being applied, and resource allocations remain unchanged and biased heavily towards transactional processing and traditional, financial controlling. By and large, efficiency of transactional processing also remains a par with 2009 (with some differences within the different processes). In other words the data supports a “wake-up call” for the CFOs – we must find ways to address the still more apparent need for increased efficiency in transactional processing and at the same time find ways to become an even more proactive “business partner”, providing business managers at multiple levels with timely, relevant and “to the point” information about cost and revenue drivers, providing transparency and true managerial information.

iPaper Page 19

Glossary Effectiveness External effectiveness – the external effectiveness is about doing the right things. Here, there are connections to strategies, to determine how the decision basis should be, to prioritise analyses and to understand your ”customers” properly – in relation to the finance function, the customer will often be the executive board and the remaining persons in corporate management. Efficiency Internal efficiency, i.e., how many resources are consumed in the process of generating a specific product or service. The less the resources consumed for manufacturing a specific product or a specific service, the higher the efficiency. As such, it is not questioned whether the process generates the right outcome, or whether the efforts have the desired effect. FTE Full Time Equivalent – translation of resource efforts corresponding to number of full time employees. The concept is widely used for measuring resource efforts. Shared services Shared services is an organisational form by which a number of the processes of the enterprise – often back-office/transaction intensive processes – are combined in an internal service centre, which according to more specific guidelines (service level agreements) services the enterprise’s operating units with well-defined services. Offshoring Offshoring is re-allocation by a company of business processes from one country to another. Typically transaction intensive processes such as accounting, etc. which are re-allocated to low-cost countries. Transactions Transactions characterising the handling and bookkeeping of the voucher flows. Purchase order match There is purchase order match when a created purchase order is in accordance with the supplier invoice. 19

iPaper Page 20

Definitions and explanations Top The average of the three best performing enterprises in the examination area. Bottom The average of the three poorest performing enterprises in the examination area. middle The average of the enterprises which are not placed in the “Top” or “Bottom” segment in the examination area. 20

iPaper Page 21

Background data Background data is an appendix presenting all gathered data material in 2010 focusing on mediating facts. This document is comprised of 31 graphs and figures and some small explanatory texts. 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.6% 0.2% Revenue < 1 billion DKK (23) Revenue > 1 billion DKK (22) Top Middle 0.7% 0.2% All (45) 1.6% 1.2% 3.4% 2.6% 3.9% Number in paranthesis = number of respondents Bottom Background, figure 1. The operating expenses of the finance function in percent of revenue 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Service (6) Manufacturing (24) Trade (8) Other (7) 0.9% 1.6% 1.5% 1.3% Number in paranthesis = number of respondents Background, figure 2. The operating expenses of the finance function in percent of revenue by industry 21

iPaper Page 22

5% 3% 8% 4% 14% 66% Number of respondents = 42 Employee related costs IT systems. operating costs and depreciations Overheads Outsourcing Shared service Other Background, figure 3. The operating expenses in the finance function allocated into main groups in percent 10% 16% 58% 16% Number of respondents: 44 Accounting Business controlling Financial controlling Management Background, figure 4. The resource allocation of the finance function into main tasks in percent of FTEs 22

iPaper Page 23

14% 17% 6% 6% 31% 5% 21% Number of respondents: 37 General ledger Fixed asset management etc. Taxes VAT etc. Funding and treasury Accounts recievable Accounts payable Payroll Background, figure 5. The resource allocation of the finance function in percent of FTEs sub-categories of accounting 21% 31% 48% Number of respondents: 34 External reporting Internal controls Internal reporting Background, figure 6. The resource allocation of the finance function in percent of FTEs sub-categories of financial controlling 23

iPaper Page 24

10% 43% 47% Number of respondents: 35 Strategy development and implementation Planning, budgeting, forecasts etc. Cost and profitability analyses Background, figure 7. The resource allocation of the finance function in percent of FTEs sub-categories of business controlling 8% 8% 10% 3% 3% 2% 8% 2% 6% 12% 7% 4% Number of respondents: 34 General ledger Fixed asset management etc. Taxes, VAT etc. Funding and treasury Accounts receivable Accounts payable Payroll 9% External repporting Internal repporting Internal control Strategy development and implementation Planning. budgeting, forecasts etc. Cost and profitability analyses Management 18% Background, figure 8. The resource allocation of the finance function in percent of FTEs all sub-categories 24

iPaper Page 25

0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 0.02% 0.14% 0.66% 0.66% 0.14% 0.03% 0.06% 0.02% 0.11% Revenue < 1 billion DKK (12) Revenue > 1 billion DKK (19) Top Middle All (31) Bottom Number in paranthesis = number of respondents Background, figure 9. The cost of accounts receivable in percent of revenue 250,000 221,427 200,000 150,000 Debtor invoices 100,000 50,000 23,243 0 833 Top Middle Bottom Number of respondents: 32 Background, figure 10. Number of debtor invoices per FTE 25

iPaper Page 26

600 526.0 500 400 DKK 300 200 100 0 2.4 Top Middle Bottom 76.9 Number of respondents: 24 Background, figure 11. Debtor management - cost per invoice 80 70 60 50 Days 40 30 20 10 0 2.7 Top Middle 43.6 79.0 Bottom Number of respondents: 35 Background, figure 12. Days sales outstanding 26

iPaper Page 27

1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0% 0.00% Top Middle Bottom 1.00% 0.07% Number of respondents: 35 Background, figure 13. Loss on debtors in percent of revenue 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0% 0.02% 0.18% 1.58% 1.58% 0.04% 0.09% 0.17% 0.02% 0.14% Revenue < 1 billion DKK (12) Revenue > 1 billion DKK (19) Middle Bottom All (31) Top Number in paranthesis = number of respondents Background, figure 14. The cost of accounts payable in percent of revenue 27

iPaper Page 28

55,000 50,000 45,000 40,000 Creditor invoices 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 52,778 12,277 Top Middle 1,056 Bottom Number of respondents: 35 Background, figure 15. Number of creditor invoices per FTE 500 450 400 350 300 DKK 250 200 150 100 50 0 11 Top Middle 51 460 Bottom Number of respondents: 29 Background, figure 16. Creditor management - cost per invoice 28

iPaper Page 29

80 70 60 50 Days 40 30 20 10 0 Bottom Middle Top 16 37 70 Number of respondents: 34 Background, figure 17. Days payable outstanding 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 99% 69% 23% Top Middle Bottom Number of respondents: 28 Background, figure 18. Purchase order match7 - percentage of invoices 7 See glossary on page 19 29

iPaper Page 30

80 70 60 50 DKK 40 30 20 10 0 Top DKK 33 97% DKK 71 DKK 75 100% 80% 65% 60% 40% 23% 20% 0% Middle Cost per creditor invoice Purchase order match in % Bottom Number of respondents: 24 The cost per creditor invoice and purchase order match is not comparable to earlier figures because of internal dependence Background, figure 19. Cost per creditor invoice relative to purchase order match Other processes Investment management 6% 2% 94% 98% 90% 100% 95% 93% 20% 77% 98% 90% 98% 20% 40% 60% Not used Partially used Used 80% 100% Salaries and wages 5% 5% Accounts payable Accounts receivable 5% Funding and treasury 2% 5% Taxes, VAT etc. 3% Management of fixed assets External reporting General ledger 2% 10% 2% 0% Number of respondents: 34 - 42 Background, figure 20. Use of outsourcing in different processes in percentage of respondents 30

iPaper Page 31

3% 38% 59% Number of respondents: 32 None 1 - 3/10 4 - 6/10 7 - 9/10 10/10 Background, figure 21. Proportion of organisations using outsourcing by number of processes 5 4 3 2 1 0 3.6 3.4 3.4 3.4 Variable costs Focus on core activities Scalability Cost savings Number of respondents: 29 Background, figure 22. Rationale for use of outsourcing - by average rating 31

iPaper Page 32

5 4 3 2 1 0 3.7 3.2 3.6 3.4 Culture/company tradition Data sensitivity/ confidentiality Lack of control Quality problems Number of respondents: 31 Background, figure 23. Barriers for use of outsourcing - by average rating Other processes Investment management Salaries and wages 3% 97% 100% 100% 95% 98% 95% 97% 98% 98% 98% 20% 40% 60% Not used Partially used Used 80% 100% Accounts payable 5% Accounts receivable 2% Funding and treasury Taxes, VAT etc. Management of fixed assets External reporting General ledger 5% 3% 2% 2% 2% 0% Number of respondents: 34 - 42 Background, figure 24. Use of offshoring8 in different processes in percentage of respondents 32 8 See glossary on page 19

iPaper Page 33

3% 3% 94% Number of respondents: 32 None 1 - 3/10 4 - 6/10 7 - 9/10 10/10 Background, figure 25. Proportion of organisations using offshoring by number of processes 5 4 3 2 1 0 3.9 2.9 3.1 Economies of scale/cost savings Quality improvement Consistency of standards of delivery Number of respondents: 27 Background, figure 26. Rationale for use of offshoring - by average rating 33

iPaper Page 34

5 4 3 2 1 0 3.4 3.6 3.6 Culture/company tradition Loss of flexibility to change processes Lack/loss of control Number of respondents: 28 Background, figure 27. Barriers for use of offshoring - by average rating Other processes Investment management Salaries and wages Accounts payable Accounts receivable Funding and treasury Taxes, VAT etc. Management of fixed assets External reporting General ledger 0% 9% 15% 17% 21% 19% 15% 10% 14% 12% 14% 17% 23% 12% 12% 10% 20% 40% 76% 75% 69% 67% 67% 51% 59% 71% 69% 71% 60% Not used Partially used Used 80% 100% 32% 18% 17% 19% 19% Number of respondents: 34 - 42 Background, figure 28. Use of shared services in different processes in percentage of respondents 34

iPaper Page 35

16% 6% 6% 53% 19% Number of respondents: 32 None 1 - 3/10 4 - 6/10 7 - 9/10 10/10 Background, figure 29. Proportion of organisations using sharerd services by number of processes 5 4 3 2 1 0 4.0 3.4 3.5 Economies of scale/cost savings Quality improvement Consistency of standards of delivery Number of respondents: 34 Background, figure 30. Rationale for use of shared services - by average rating 35

iPaper Page 36

5 4 3 2 1 0 3.6 3.1 3.3 Culture/company tradition Loss of flexibility to change processes Lack/loss of control Number of respondents: 35 Background, figure 31. Barriers for use of shared services by - average rating 36

iPaper Page 37

Notes 37

iPaper Page 38

Notes 38

iPaper Page 39

iPaper Page 40

valcon = value Consulting Value creation is the aim of everything we do. Our specialist competences and experience lay the foundation for creating solutions that work - and ensure innovation and added value for our customers. The customers include a broad segment of Danish and foreign companies, from the public sector as well as the private sector. Valcon sets the direction, advises and implements within the areas of: Strategy, operations, finance management, innovation and sourcing. Valcon projects have been awarded consultant prizes for a number of years. Read more: www.valcon.dk Valcon A/S. Management Consultants. Christianshusvej 187. DK 2970 Hørsholm. Tel. +45 4580 2037. Fax +45 4580 8137. www.valcon.dk