Outsourcing the Financial Chain Banks as Partners of Non-Banks in Financial Chain Outsourcing
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Outsourcing the Financial Chain Banks as Partners of Non-Banks in Financial Chain Outsourcing Jochen Franke Institute of Information Systems, E-Finance Lab J. W. Goethe University, Frankfurt [email protected] www.is-frankfurt.de | www.efinancelab.com
description
Outsourcing the Financial Chain Banks as Partners of Non-Banks in Financial Chain Outsourcing. Jochen Franke Institute of Information Systems, E-Finance Lab J. W. Goethe University, Frankfurt [email protected] www.is-frankfurt.de | www.efinancelab.com. Summary. - PowerPoint PPT Presentation
Transcript of Outsourcing the Financial Chain Banks as Partners of Non-Banks in Financial Chain Outsourcing
Outsourcing the Financial Chain
Banks as Partners of Non-Banks in Financial Chain Outsourcing
Jochen Franke
Institute of Information Systems, E-Finance LabJ. W. Goethe University, Frankfurt
www.is-frankfurt.de | www.efinancelab.com
Summary
Financial Chain Management
substantial efficiency potential in financial processes using “industrialization” approach, but…
…”everyone is the best”: managers tend to systematically overestimate their process quality and competencies
cultural barriers to value chain redesign
Efficiency Potential by Value Chain Crossing
Banks as suitable partners for specific sub-processes Banks with specific competencies in financial processes
Financial ChainCost and Quality | Sourcing | Sourcing Partners
Financial ChainCost and Quality | Sourcing | Sourcing Partners
„Financial Chain“
ZAHLUNG
FINANZIERUNG
PREISFINDUNG
QUALIFIKATION
Fulfillment
RECHNUNGS-STELLUNG
REKLAMATION
An
alyse
ABSICHERUNG
Gesch
äftsanb
ahn
un
gG
eschäftsab
wicklu
ng
Qualifikation: Überprüfung der Identität und Bonität des Kunden.
Finanzierung: Finanzierung des Geschäfts durchHandelskredite, Leasing o.ä.
Preisfindung: Preisverhandlungen und Auktionen zur Preisfestsetzung und anschließende Angebotserstellung.
Absicherung: Absicherung von Währungsrisiken, Transportrisiken, Kreditausfallrisiken o.ä.
Fulfillment: Auslieferung des Produktes an den Kundenbzw. Erbringung der Dienstleistung.
Rechnungsstellung: Erstellen und Versenden der Rechnung an den Kunden.
Reklamation: Bearbeitung von Einwänden gegen Rechnungen.
Zahlung: Zahlungseingang des Kunden und Abgleich mit gestellter Rechnung.
QUALIFY
FINANCE
PRICE
ASSURE
INVOICE
DISPUTE
PAY
Analysis
Financial T
rade Enablem
entF
inancial Trade S
ettlement
Financial Chain as secondary process
efficiency potentials through Financial Chain Management
technical and cultural challenges
cultural problem: readiness to accept that a prospective sourcing provider has higher competencies than the firm
analysis, if there is impact of outsourcing experience on competence evaluation by managers in charge
Data
CFOs of Germany’s Top 1,000 companies (non-banks)
written questionnaire to top 1,000 firms (revenue) industry segmentation according to NACE rev. 1.1 prior to mailing the questionnaire, each company was contacted by
telephone to identify the chief financial officer to whom the questionnaire was then directly addressed
103 completed questionnaires were returned (10.3%) online benchmarker at http://www.efinancelab.com/benchmarker/
Generic Financial Chain
87% 87%91%
99% 98%
92%85%
70%
42%
7%
71%
33%
22%
68%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Qualify Finance Price Assure Invoice Dispute Pay
process exists
process is owned by respondent
n=100
The Financial Chain
processes exist in 85-99% of firms, but often not in sole process ownership of CFO
indication of lack of integration and process orientation
the more units responsible for operations, the less content managers are with processes
industrialization of financial processes by integrating financial chain a promising optimization approach: majority of the CFOs (77.1%) considers an integration of the processes to yield a
higher optimization potential than an optimization of isolated sub processes
Costs of the financial chain
22% of annual IT budget for financial chain processes
subprocess invoicing
B2B: 67,687 invoices/month (B2C: 230,294)
67% via (physical) mail- avg. costs / invoice: EUR 15.5- electronically: EUR 2
8.3% of all invoices incorrect, avg. costs per dispute: EUR 128
Quality of the financial chain
only 42.5% are content with their financial processes (6.1% fully)
one out of two CFOs has already identified areas to improve upon
less than 25% have fully documented financial processes
But…
despite common dissatisfaction with financial chain, only 3.2% consider their financial chain management inefficient compared to industry peers
this overly optimistic self-evaluation also found when self assessing quality of IT support for primary processes (supply chain), internal data quality, process costs of FC
Financial ChainCost and Quality | Sourcing | Sourcing Partners
Outsourcing of financial processes
BPO to the rescue: outsourcing (parts of) the financial chain as a chance to employ excellent services even for secondary processes higher competencies of sourcing provider as main argument
still, CFOs consider the higher competence in-house (60.9% ) reluctance to outsource
51.5% of CFOs consider selective sourcing of financial chain possible (32.3% don’t)
less than half of all firms (49.4%) have already evaluated possible outsourcing benefits in the financial chain.
most firms with outsourcing projects reported success, operational cost savings of 10.3%
Financial ChainCost and Quality | Sourcing | Sourcing Partners
Suitable sourcing partners
Who are competent sourcing providers for parts of the financial chain?
banks: finance, assure, payment
other FS providers: qualification
IT service providers: invoice and dispute
Qualify
Finance
Price
Assure
Invoice
Dispute
Pay
company of the sam
e branche
own foundation
consulting companies
IT-service comapnies
other financial service companies
banks
no outsourcing
0
10
20
30
40
50
60
number
process
potential partner
Suitable Sourcing Partners
Value Chain Crossing
ZAHLUNG
FINANZIERUNG
PREISFINDUNG
QUALIFIKATION
Fulfillment
RECHNUNGS-STELLUNG
REKLAMATION
An
alyse
ABSICHERUNG
Gesch
äftsanb
ahn
un
gG
eschäftsab
wicklu
ng
Qualifikation: Überprüfung der Identität und Bonität des Kunden.
Finanzierung: Finanzierung des Geschäfts durchHandelskredite, Leasing o.ä.
Preisfindung: Preisverhandlungen und Auktionen zur Preisfestsetzung und anschließende Angebotserstellung.
Absicherung: Absicherung von Währungsrisiken, Transportrisiken, Kreditausfallrisiken o.ä.
Fulfillment: Auslieferung des Produktes an den Kundenbzw. Erbringung der Dienstleistung.
Rechnungsstellung: Erstellen und Versenden der Rechnung an den Kunden.
Reklamation: Bearbeitung von Einwänden gegen Rechnungen.
Zahlung: Zahlungseingang des Kunden und Abgleich mit gestellter Rechnung.
QUALIFY
FINANCE
PRICE
ASSURE
INVOICE
DISPUTE
PAY
Analysis
Financial T
rade Enablem
entF
inancial Trade S
ettlement
Empirical study with top 500 banks to subprocess finance
Each company was contacted by telephone to identify the chief credit process officer to whom the questionnaire was then directly addressed
129 questionnaires were returned (25,8%)
Bank
Value Chain Crossing
What are specific competencies of banks in financial processes?
Fraction of financial process documentation is much higher in banks
Empirical evidence: documentation has significant impact on process quality
fraction of documented processes (Credit Process)
79,9%
11,6%
8,5%
>60%
40-60%
<40%
n=129
fraction of documented processes (Financial Chain)
22,5%
27,5%
50,0% >60%
40-60%
<40%
n=103
Value Chain Crossing
What are specific weaknesses of banks in credit processes? Internal Integration
internal integration of our credit process could be better
58,9%17,1%
24,0%
agree
neutral
disagree
n=129
Value Chain Crossing
What are specific weaknesses of banks in credit processes? Multiple manual data entry
Banks‘ strengths are located at the business layer (documentation of processes), banks‘ weaknesses are located at the IT layer (internal integration and multiple data entry)
reducing multiple data entry would significantly optimize the credit process
87,6%
8,5%
3,9%
agree
neutral
disagree
n=129
Conclusions
Main findings
substantial efficiency potentials in industrial financial processes outsourcing of the financial chain still quite rare cultural barriers due to CFOs systematically overestimating their
process quality and competencies compared to process experts banks are seen as potential partners for finance, assure and
payment processes Financial processes in banks are much better documented A lot of optimization potential lies in the internal integration of IT
systems
Further research: cooperative sourcing coordination mechanisms for “financial value chain crossing”
e.g. db-eBills for invoicing
