Manage your assets: an interactive forum with industry experts.

I have found that CEOs and boards of directors are asking their finance organizations for three things: 1)Is the organization under control? 2)Is the finance organization adding value by taking working capital out of the system, shortening the revenue cycle time, getting lower cost financing and maximizing tax benefits? 3) And to what extent is the finance organization able to contribute to corporate strategy and performance management?

One must examine deeply the core structure of the organization, how it all works -- the management processes, how decisions are made and the way resources are allocated. So the question is, exactly what are the new financial outsourcing business models for process and decision-making? How do you develop this financial outsourcing strategy so that it can deliver, not just in singular events, but consistently over time? Let's ask the experts.

Joe Vafi, Senior Vice President of Jefferies and Company

Historically, outsourcing has unlocked corporate value through cost elimination, focused primarily on IT budgets and increasingly, on related business processes. Results have helped buoy the bottom line during slow growth periods, including the last two years. While much of the low hanging fruit in IT outsourcing has been plucked, there still exists significant corporate value to unlock via the balance sheet: better DSO, cash flow, and inventory turns can also be achieved through evolving outsourcing strategies. This type of corporate value creation is just as important as earnings growth when it comes to stock valuation. Ultimately, healthier balance sheets equate to more profitable companies, as returns on equity are increased and external financing needs are reduced.

As a stock analyst, I am focused on return on assets, capital, cash flow generation and DSO.... If you are looking for a short cut, an acceptable trend is to look for financial process outsourcing companies, such as Creditek, which is helping to get more out of the single largest line item - AR.

Contact: [e-mail]

Barry Culman, CEO of EYT Inc.

In our experience working with both Ernst & Young LLP clients and other organizations, the most common factor in a company's decision to outsource business functions is the need to focus on their core business. Whether the company is looking to outsource IT finance support staff, transaction-intensive activities, such as payroll and accounts payable or to fill voids in their financial expertise, smart executives want to keep their best resources focused on generating revenue. In particular, we have noticed a trend among mid-size companies to outsource IT finance support staff for their financial applications. Although the adoption rate of the ASP and managed services business models have been slow in larger organizations, much of that resistance has come from IT departments, not wanting to give up control of the systems or reduce staffing. However, many executives are realizing the benefits of outsourcing these functions and that they should be investing their dollars in areas that generate a high ROI.

The complexity of business today requires a nimble organization that can balance the technical and strategic components of the business. Easier said than done. The trick is to objectively identify the strengths of the organization and align resources behind those functions.

Contact: barry.culman@eyt .com

Richard Roth, Managing Director of Hackett Best Practices

The ability to structure intelligent processes that make the best use of people and technology is a distinguishing feature of world-class finance. World-class companies run finance with 57% fewer full-time equivalents (FTEs) per billion in revenue than average companies. How? By standardizing and centralizing routine processes, which frees up their smaller finance workforce to address high-value activities. While spending proportionally 6% more on technology, in absolute terms top performers actually spend 45% less. It's all about what you do with the technology you have -- Implementing ERPs alone won't provide consistent cost savings. It's the companies combining best practices in systems rationalization, standardization and centralization that have been driven down the cost of finance by 44%.

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Kathleen McCabe, Vice President of Morgan Stanley

While an incremental approach to outsourcing selected functions will not likely impact the share price overnight, improving the quality of critical support functions through outsourcing may have the effect of enhancing key metrics that are important to investors, thus better positioning a company to achieve a premium multiple. For example, improving the quality and shortening the duration of receivables by outsourcing these important functions to best of breed providers could ultimately improve the quality of a company's earnings. And, if a company can demonstrate to its investors that it outperforms its competitors on such key components of earnings quality, the case for a higher multiple and a premium valuation could be strengthened.

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Hackett Research

World-class companies leverage technology to reduce the cost of finance

                               Average  World-class

Technology cost as a percent    0.18%      0.10%
of revenue

Ttechnology cost a percent of    17%        18%
total finance cost

Finance FTEs per billion in      103        44
revenue

Note: Table made from bar graph

Welcome to Cover Your Assets," a series of business topics in which top analysts and consultants share their best advice on the subject. Readers can continue the dialogue on their own by contacting the consultants directly. We also encourage reader response and participation in this column. If you would like to ask a question or are a consultant and would like to be profiled, contact [e-mail] (photo may be required, if chosen).

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