Optimising financial processes

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What Are You Missing in Purchase to Pay (P2P)?

“It’s not that hard. Just pay the invoice.” I am sure that similar comments ring true in your own experience. And, whilst you feel like banging your head against a brick wall, you could easily argue that there is a tremendous lack of understanding of the complexity of the Purchase to Pay (P2P) landscape. What seems like the simplest of activities to the casual observer can turn out to be one of your most complex end-to-end processes.  

There are many journeys through this end to end cycle depending on whether sourcing direct or indirect materials or services, capital or operating expense, catalog-based guided buying, P-Cards, the lovable Purchase Order, or non-PO purchases, amongst other buying and paying “channels”.

On a recent webcast we wanted to explore what is missing from getting our end to end P2P processes to world class, or at least the “best they can be”. A slight majority of attendees had an end-to-end Source to Pay (S2P) responsibility (52%) and those focussed solely on Accounts Payable (Invoice to Pay) represented 26%.

Our very own Steve Fox, former VP Global Business Services (GBS) at Thermo Fisher Scientific, a veteran in S2P and P2P strategies and in implementing global process ownership models, and now Process Excellence Leader at Consider Solutions, was in his element.

Driving excellence in any discipline is hard, and the P2P process is no exception. When asked for the primary objectives of P2P improvement, the answers always seem to be a subset of the six key outcomes below.  Achieving them is a different matter.

We talked in depth about the ‘real challenges’ that come hand-in-hand with transformation – they’re hard to avoid.

Steve Fox shared some valuable insight from his 25+ years’ experience in building and leading GBS organizations and driving global process ownership (GPO) models.  He also shared a great visual that showed an abstraction of the technology complexity across P2P.

Steve shared his experience as an early “rider” on the Key Performance Indicator (KPI) bandwagon, and the ease with which you can lose sight of the “key” and “performance” element of KPIs. Jumping into the detail of setting KPIs too quickly can hide a harsh reality.

Defining “what good looks like” for a process is not as simple as it sounds. It is nuanced and getting business leaders to articulate the balance of outcomes needed is notoriously difficult. I struggle with this myself as a business leader.

The Dunning-Kruger effect is alive and well here, as an easy confidence in “what good looks like” for a complex enterprise business process should be treated with a healthy scepticism. It is hard to define the right balance for sustained success.

We are led to believe that any leader worth his or her salt should intuitively know the key priority outcomes but it is too easy to be myopic and decide on KPIs that don’t actually reflect the desired outcome.

Consider the very real example of the ambulance service that implemented a KPI for “time to attend” at an emergency request location. Local management redirected ambulances towards the cities, on standby, and prioritized city emergencies as it was always quicker to get to a call than trying to drive through the sparsely populated rural countryside. Worse still, rural emergency calls struggled to even get an ambulance requested. The point is that “time to attend” is just one of a balanced set of priorities of which the overriding one, in that scenario, was to ensure that emergency cases were prioritized on need for critical care and patients got to hospital as fast and as safely as possible.

Steve went on to explain that KPIs tend to be like looking in the rear view mirror, when we need more dynamic forward looking indicators in today’s environment. He talked about the appeal of sophisticated visions of future technology and process operation, which often fail to materialize, but which do burn up valuable time!

He explained how he developed an understanding that P2P process excellence, like any process, is a balancing act. The mythology of herculean feats of single shift transformation is not borne out by experience. In every field of human endeavor, sports, medicine, science, construction, even personal health, the experience is that sustained marginal improvements achieve the greatest sustainable success, as illustrated by the arithmetic below!

Steve learned that performance isn’t the only thing we need to measure. We need to identify, quantify, diagnose and resolve the things that go wrong. He coined a fascinating term, “Defectivity” and this became his focus, delivering substantial improvements on prior performance. Becoming world class at identifying, resolving and preventing  defects became the goal. The by-product was excellent process performance.

Steve shared the leadership lessons he learned over this time;

  • Organization
    • Ensure Clear Accountability
  • People
    • Create and Sustain an Execution Culture
  • Process
    • Focus on “Defectivity”
  • Performance
    • Drive and measure Continuous Improvement
  • Data
    • Measure, Diagnose & Drive Action
  • Skills & Habits
    • Invest in Business Partnering / Stakeholder Collaboration

Steve described the “Pareto Principle” (the 80/20 rule) as it applies to process improvement and technology enablement. It is a powerful way of thinking and delivers meaningful business outcomes fast.

Steve concluded that the three qualities he wish he had appreciated earlier in his career are Humility (the ability to recognize our natural cognitive bias), Tenacity (challenging the allure of the Big Ticket, Big Win in favour of daily and weekly improvements) and Simplicity & Speed (the “ultimate strategy”).

I brought the strands of the discussion together with the observation that we often look at the estimated “business value” of process improvements in terms of revenue, customer satisfaction, savings, cycle time etc without enough appreciation for the “time to deliver the value”. This is not the same, and usually much longer than, the “time to implement a system or process”.

It is worth remembering that, like the accounting principle of Net Present Value (NPV), ‘Elapsed Time Decays the Value Delivered’. The value of a benefit to be achieved in 3 years time, is worth a fraction of that today. Hence speed is key.

We described a “Capabilities Framework” for the organization, typically governed by GBS and the CIO in collaboration, although sometimes the GBS leader is also the CIO, a trend that shows interesting promise.

We shared how the principles that Steve had outlined play out in each of the major domains of Transformation, Process Management and CI and Process/Task Execution.

This is a helpful framework to align short, medium and longer term priorities but as we have learned, as in every discipline of human endeavor, there are no “quick fixes”” or “easy hacks”.

You can watch/hear the full 45 minute discussion, including polls, here . . .

We concluded with an audience question, responses in the word-cloud below, “What, in your view and experience, is the single biggest inhibitor to “Pareto Principle” execution in P2P performance improvement?”

So you may still be asking, “What IS the missing link in P2P?” . . .

We have a plethora of strategies, mechanisms and technologies, we have process ownership and governance, service management and organizational models, but what are we really missing?

Steve summed it up well. We are not short of opportunity, but we ARE short of an appreciation of our natural cognitive bias (individually and as organisations), the tenacity to drive the “hard yards” of incremental process change, and sufficient focus on simplicity and the business value of speed (Pareto Principle).

Food for thought?

Thanks for reading …….