My wife enjoys a good cup of coffee.  So you can imagine my surprise when I saw her with a styrofoam cup from the local coffee shop.

"It's actually tastes pretty good and besides, they are having a $2 special." she explained.

 "$2 for a small cup of coffee and that's the special price?  What's the regular price?"

"$4"

"What???  I thought our town coffee shop was supposed to be reasonably priced?"

"Yes, but this is a latte, dear" 

What do I know?  Not being a coffee connoiseur, I guess "lattes" are deserving of a higher price.   Honestly, I have never understood the fascination with high priced coffee drinks and wonder how the average citizen can afford such luxuries today with the economy taking a one-two punch in the stomach from the collapsing housing bubble and soaring gas & food prices.  Recent headlines have been downright depressing:  "Net Worth of U.S. Households Declines for First Time since 2002,"  "U.S. Mortgage Foreclosures Increase to All-Time High as Owners 'Give Up', " and "U.S Payrolls Fall Unexpectedly."  It's not a rosy picture -- has the average consumer all but given up on the economy?  It appears so:

You can see that consumer confidence (correlated by 2 seperate surveys) has plummetted to 30 year lows -lows not seen since Mork and Mindy was the top TV sitcom and Jimmy Carter was President.

Make no mistake about it, dear blog reader, the average U.S. consumer is hurting.  It seems unlikely that Joe & Jane Public will continue buying expensive hot beverages if they lose their house and job.  More likely they will spend that last $4 on a gallon of gas ... or a gallon of milk ... or a loaf of bread ... not a cup of cappuccino.

The US consumer is retrenching and it will unquestionably be bad for the economy as 70% of our GDP is consumer spending.  In fact, for the second consecutive quarter, consumer demand topped the list of CFO's external worries in the quarterly Duke University/CFO magazine Global Business Outlook Survey (chart from CFO.com):

But here is what really caught my eye -- 4 of the top 8 internal concerns are about costs.

Traditionally, when CFOs start panicking about costs, this puts tremendous pressure on SG&A functions such as AP.  If the economy slows (and we may already be in a recession), you can bet your "venti, nonfat, decaf latte with chocolate sprinkles" that senior management will demand cost cutting -- especially back-office finance cost cutting.   For AP, the ramifications are clear.  Cut costs or be outsourced or offshored.

How would you reduce overhead if the cost cutting hammer came down? Technology?  Offshoring?  Outsourcing?

Can you articulate the pros and cons of each option?  For example, the whole outsourcing question is a lot more complicated than just reducing costs.  Other pros include lower capital expenditures and speed to benefits.  But on the cons side, we are talking about sensitive financial data here so you need to consider other risk factors such as security, reliability of service and the integrity of your data to name a few.

So let me repeat my question: How would you reduce costs if the cost cutting hammer came down?  I would love to hear in the comments section.

-Rakesh Shukla

 P.S.  For a balanced view of the pros and cons of shared services, offshoring and outsourcing check out the following webcasts:

• Globalization is Mainstream in AP: Now What?
• Demystifying Shared Services

Last week, I volunteered to be a camp counselor/coach at basketball overnight camp for inner city kids.

After 5 days and 4 nights with wakeup calls at 7:00am and "lights out" at 11pm, I was completely and utterly exhausted.  My "team" consisted of 10 fifth and sixth graders -- each one was a good kid but a few had very little respect for authority, most had very short attention spans and all of them had extraordinary excuse-making abilities.

(In hindsight) there were several amusing incidents.  One of my kids (let's call him D) was a chronic liar.  One morning during our dribbling drills, for no apparent reason, D smacked a teammate on the head.  Almost everyone saw him do it.

"Why the heck did you hit Mark?" I asked as Mark was rubbing his head and crying.

D threw up his arms in disbelief.  "What?!?  Why do I get blamed for everything!  Coach, I didn't do anything.  I swear."

No number of pushups could extract even a half-hearted apology from D.  Instead, D concocted one of the best excuses I have ever heard - "Coach, I could tell that Mark was thinking of hitting me first so I HAD to defend myself."  Now, even with my patience running very thin, I had to admire the creativity of that excuse.

I had another kid (let's call him O) who came to this 5 day overnight camp with ONE pair of shorts and ONE pair of underwear. 

O's "dirty laundry" solution?  

Steal other campers' shorts and skivvies, of course!  It was hard not to chuckle dealing with the "daily undie theft" but the sad part was that Oliver really didn't understand that "borrowing without permission" was wrong.

This is how my week went - it was truly an exercise in patience as the kids always had some excuse for their (mis)behavior.  Yes, we actually played some basketball, learned some things and had some fun -- but managing and supervising these kids was an all-consuming task from the moment I woke up to the moment I put my head down on my pillow.   A co-worker here at 170 Systems joked that my experience with these kids sounded similar to babysitting invoice approvals from business managers in the field.  It's actually a pretty good analogy.  How much time do AP Professionals waste chasing down approvals?  How many paper invoices have really been "lost?"  How many lame excuses can field approvers fabricate for procrastinating on approvals? 

We all know that accurate approvals and authorizations are a critical internal control.  A robust approval process should ensure that accurate approvals are obtained in a timely manner with accountable audit trails that are tracked in real-time.  From a bottom-line perspective, late approvals also cost money in missed discounts, late fees and productivity-sapping "where's my payment" inquiries.

To minimize the amount of time you have to spend babysitting approvals, you HAVE to do approvals online.  If you are still signing things on pieces of paper, making copies, mailing stuff, matching with signature books, etc. ... then a significant part of each AP Staffer's day will be wasted babysitting approvals and enduring excuses.  To free yourself from approval "daycare," the approval process must be systematic, on-line and have full security controls.

Let me ask you this: How many times have invoices been paid late because of tardy approvals and then AP gets the blame!  Automating AP through technologies such as workflow and imaging can encourage timely approvals with automated routing based on configurable business rules for appropriate spending levels, e-mail reminders and escalations.  With escalations, if you receive an invoice and ignore it, you will get a reminder.  If you ignore that reminder you may get a second reminder. Finally, if you procrastinate too long on the approval, the approval will automatically be escalated to your boss. It usually takes one invoice to be escalated once and then all of a sudden you have timely approvals. It's amazing to witness this change in behavior when approvers realize the process is systematic, controlled and tracked such that there are ramifications if approvals are not carried out in a timely fashion.  With this type of visibility into the approval process, not even D could come up with an excuse!

So, if you have approvers named D and O who always have a "dog ate my invoice" excuse for late approvals and don't understand that overdue approvals are wrong and cost the company money, consider the benefits of automating the approval process.

-Rakesh

 P.S.  So what are the best excuses you have heard from delinquent approvers?  Please let us know by posting a comment.

As a youth basketball coach, the most frustrating skill to teach kids is how to play defense.  Actually, that's not quite correct - the most frustrating skill to teach is wanting to play defense.  Afterall, defense is not as "fun" as offense and playing good defense makes you tired.  This was exactly my son's attitude ... until this season.  Now he loves playing defense.

What changed?

Kevin Garnett came to the Celtics.  Tom Thibodeau was hired as the Defensive Assistant Coach.  The whole team bought into playing hard defense.  Who knew Paul Pierce could play such great defense???  The Celtics transformed into a defensive machine.

"I want to play defense like KG!"  I overheard my son telling a teammate at practice the other night .  Ahhh, sweet music to my basketball junkie ears --  talk about making a youth basketball coach's job easy!  I tried to preach defense till I was blue in the face.  The kids just didn't care ... until this magical Celtics season where defense has been THE focal point.

With the crowd deliriously chanting, "DEE-FENSE, DEE-FENSE, DEE-FENSE!," The Celtics won their 17th NBA championship last night. With their maniacal, suffocating team defense, the poor Lakers didn't stand a chance.

In the business world, great defense is about managing risk with strong internal controls.  My high school basketball coach always used to say that great offense starts with great defense. Similarly, strong internal controls (i.e. defense) optimizes business performance (i.e. offense).  Here's another way to think about it -- controls are like car brakes.  Cars have brakes so that they can go faster.  If a sports car didn't have brakes, how fast could it really go?  Strong internal controls, like brakes, allows a business to put the foot on the accelerator and compete aggressively.

The issue, of course, is that compliance costs, on average, have added $200K per billion in revenue to the cost of finance since SOX ... unless you are a world class company in which case, finance costs continue to go down as a percentage of revenue (Hackett Book of Numbers Insight, Dec. 2007)

So what are these world class companies doing to strengthen controls while keeping a lid on control costs?  4 things, they are:

• Centralizing and simplifying processes: Shared services is the best way to centralize processes and reduce costs.
• Leveraging technology: Leading companies leverage technology to have fewer ERP systems and minimal duplication of data. For example, having a single vendor master file and a single chart of accounts (which is easy if you have a single ERP system) allows you to have a single source of the truth which is critical for financial data.
• Automating controls: Average companies also perform a LOT more manual control activities than leading companies which means they are operating with an unnecessary level of risk.
• Using more preventative controls: Leading companies have more preventative controls. Of course an environment where deficiencies are prevented in the first place is more desirable and much less expensive than having to detect problems after the fact.

All of these points are especially true in Accounts Payable.  World-class AP organizations have strong internal controls that don't increase operating costs and don't sacrifice service levels.  If you believe the experts, this is only possible through automated, preventative controls that leverage technology -- automated routing of approvals, real-time enforcement of segregated duties at the transaction level, comprehensive audit trails that track ALL invoice touches, etc.

Just like great defense wins championships, strong internal controls enable world-class performance.

The final score last night was: 

131-92.

No, that's not a typo.  That score truly exemplifies that great DEE-FENSE leads to great offense.

-Rakesh

P.S.  for more information about strengthing internal controls & preventing fraud check out our February webcast with Nat Goodman titled "Preventing Procure-to-Pay Fraud - 5 Vulnerable Processes"

P.P.S.  If you want to see an example of probably the worst defense in the history of professional basketball, check out this clip from Game 4 of the NBA finals.  Heck, most 11 year olds play better defense than Laker guard Sasha Vujacic does here!

Recently, I attended a Celtics game with my family after a loooong time.  I hadn't been to a Celtics game since my college days in the mid 80s during Larry Bird's heydays.   What a difference a few decades make!  I was really struck by how much things have changed.

Back then, an imminent Celtics victory was heralded by huge plumes of cigar smoke.  The man doing the pillowed puffing was, of course, the late Red Auerbach.  Today, as the Celtics start to wrap up a game, the new virtual victory cigar is a Jumbotron vintage video from American Bandstand which features a bearded dancer dude wearing a tight "Gino" t-shirt and bell-bottoms with a very big flare.  Watching him "shake, shake, shake his booty" is an absolute hoot as you can see in this YouTube Video:

The total entertainment product has also changed ... quite dramatically.  In the "old days," it was only about basketball without any other distractions.  For example, back when Russell, Havliceck and Bird were winning championships, there were absolutely no mascots or cheerleaders.  Mascots and cheerleaders at a Celtics game?  Unthinkable!

My, how things have changed! 

Today, LUCKY the leprechaun is the Celtics mischievous mascot and, I must admit, he is quite entertaining -- my kids especially love him. 

As for cheerleaders, the Celtics were one of the last teams to have dancers and they are all knockouts (but none of them are as attractive as my dear wife, in case she reads this).  And, yes, they can really dance (but not one is as mesmerizing as my dear wife, in case she reads this).

Now that I have secured my spousal spot in the dog house let me get to my point about Accounts Payable departments. If the stodgy Celtics of old can adapt and change, why can't AP?  Going to a Celtics game is a totally different experience from the old Boston Garden days but unlike the Celtics, many AP departments have NOT changed one iota since the last Celtics championship 22 years ago in 1986.

In 1986, most AP departments were entirely paper-based. 

In 2008, recent reports by The Hackett Group and Aberdeen show that most AP departments are still entirely paper-based...only one third of all enterprises have a significant level of automation in place!  We see this all the time when talking to prospects.  One of my colleagues, Larry Concannon, recently gave a presentation at the RECAP AP show.  When he asked the audience what they were currently doing to process invoices, most just looked embarrassed.  Why?  More than a few sheepishly admitted they were still mired in manual, paper processes and doing things more or less the same way as 20 years ago.

I know I am biased but plenty of benchmark and survey data shows that high levels of automation can produce significant benefits including reduced costs, strengthened controls and improved service levels.

Just like the entertainment experience of a Celtics game has changed over the past 20 years, the "AP experience" can be dramatically changed for the better through modern automation building blocks such as e-Invoicing, Imaging & OCR, Workflow, Supplier Portals, etc.  Something for you to consider as Kevin Garnett, Paul Pierce, Ray Allen, LUCKY, the dancers, and Gino "Disco Fever" lead the Celtics to (hopefully) their 17^th championship this year.

-Rakesh

P.S.  If you want a great perspective on why paper still dominates most AP depts, then please join us for our next webcast with Jon Casher as he explores the two critical barriers to paper-free AP processing:

• Technology Adoption: adoption hurdles and how to overcome them
• Process Transformation: dysfunctional AP processes and how to transform them

Here's the registration link. 

My son recently turned 11 years old.  For months leading up to his birthday, he was bugging his mom and me for a cell phone.  But he just didn't want just an ordinary phone, he wanted a phone that browses the internet, downloads video clips, plays music and does his daily chores.  He had a very sleek model all picked out. 

But I know he wanted the phone for one reason and only one reason - to be cool.

But when I asked him why he needs a phone, I got a much more thoughtful answer than I expected.

"Dad,  there are so many good reasons I should have a cell phone - in case of emergencies, in case you need to locate me, and so I can let you know where I am." 

Impressive answer for a yet-to-be 11 year old!  He must have had help from his mother but I have to admit that those reasons played right into my protective instincts as a parent.

"Do you really need a phone that browses the internet and lets you watch video clips?"

"Yea, dad -- it will keep me busy instead of fighting with my sister on car rides.  I can even use it to help with my homework!  I'll just become a lot more productive."

"Hmmm, sounds like you have been thinking about this for a while. How much more productive will you be?" I responded.

"A lot more dad.  A lot more. " he answered very seriously.

"So how much does it cost?"

"Cost?"

"Yes, how much does the phone cost and what is the monthly charge including the extra costs for those internet and video features?

Silence. 

My son didn't have a clue about costs (a trait he must have picked up from his mom).  So what does all this have to do with AP?  Check out this chart: 

Can You Guess the Survey Question? 

 This is a fascinating chart from the recent IOMA report titled, "Paperless Accounts Payable: The AP Department's Complete Guide to Electronic Invoicing."

Can you guess the survey question which elicited these responses?

... It's NOT "Do you plan to use e-invoicing?"

... It's NOT "Do you plan to use outsourcing?"

... It's NOT "Do you like the folks in Procurement?"

... It's NOT "Are approvals done in a timely fashion?"

In fact, the survey question has nothing to do with technology, globalization trends, processes or future plans.

OK then, what is the survey question?   Well, the question is "Do you know the average cost to process an invoice?" Looking at the results ... a stunning 71% of respondents have no idea of costs!  These people are as clueless about costs as my son!  That's excusable for an 11 year old but not a finance manager ... especially an AP manager.

What makes this a real head scratcher though is that survey after survey after survey shows that the #1 priority for most AP departments is cost reduction.  Well, how can you make the case to save money with proposed/desired initiatives if you don't know your current costs???

The other benefits of a formal cost analysis are a better understanding of your current AP processes and inefficiencies, as well as establishing the groundwork for future benchmarking to measure how you are improving as an organization and how you compare to other organizations.

IOMA also states that when it comes to technology investments, "traditionally, AP has not been a priority, which is why so many organizations rely on completely manual processes. ... The problem is that most AP Managers do NOT build a good enough case."

How can you build a case for any type of investment if you don't have a handle on current costs?  Understanding costs would be a NECESSARY first step to building a case for technology investments or cell phone investments for kids.

-Rakesh 

P.S.  For those of you wondering, yes, I did cave in and get my son the phone.  After understanding the costs and heavily discounting his "less fighting with his sister" claims, we purchased a basic phone with no internet browsing that shares minutes with our family plan.  Honestly, he hardly uses it (because very few of his friends have phones yet) but he is very happy making a fashion statement with a high "coolness" factor and I have peace of mind that we can reach each other if he is in trouble. 

What, talk of peace? I hate the word,
As I hate hell, all  Montagues, and thee

Tybalt (to Romeo)
Romeo & Juliet, I, i

Watching a Grade 5 production of Romeo and Juliet is endearing to the say the least.  As far as I can tell, my son's classmates still have very little interest in the opposite sex.  Unlike the girls who all want the role of Juliet, the love scenes make all the boys cringe. 

"Poor Luke," laments my son about his best friend, "he has to play Romeo and act out ... (he is having trouble finishing the sentence) ... act out .. (he finally blurts out the "L" word) ... love.  Blech!  It's sooo embarrassing."

It is almost cruel to make 10 and 11 year old boys perform this Shakespeare classic.  On the other hand, the feuding scenes between the Montagues and Capulets, are right up the boys' alley!

You are a saucy boy!

Capulet (to Tybalt)
Romeo & Juliet, I, v

My son played Tybalt Capulet, Juliet's hot-headed cousin who is always looking to fight a cursed Montague - especially that Romeo rogue!  He thrived in this saucy-boy role of shoving, fighting, blood and death duels.

The ancient grudge of the Montagues vs. the Capulets reminds me of another ancient grudge: Accounts Payable vs. Procurement.

When invoices don't get paid on time, procurement points the finger at AP.  AP, in turn, points the finger at procurement blaming them for taking too long to resolve price holds in the first place!

When suppliers complain about payment errors, procurement gets infuriated at AP for jeopardizing supplier relationships that have been formed over many years and negotiations.   AP, in turn, is enraged that the supplier Invoice, the PO generated by Purchasing and the contract terms Purchasing negotiated are not even close to being in sync.  How is AP supposed to make a "correct" payment when the PO, Invoice and Contract Terms are all different!

Romeo, the love I bear for thee can afford no better term than this... thou art a villain.

Tybalt
Romeo & Juliet

I have seen very few organizations where AP loves Purchasing or Purchasing loves AP.  More typically, they despise each other.

So what is the solution?  Some argue that since Purchasing is more "strategic," AP should report to Purchasing.  The Hackett Group, in fact, considers an end-to-end purchase-to-pay (P2P) function under common management as an accepted best practice. 

Although management and reporting structures may solve some of the feuding issues, I think enabling real-time visibility into the AP process stops the unproductive finger-pointing in its tracks.  For example, if you have an AP imaging and workflow automation solution that can audit who, when, how and where for each invoice at each step of the process and then report on those metrics, it increases accountability rather dramatically ... and thus virtually eliminates the bickering and unproductive fighting.

BENVOLIO: What, art thou hurt?

MERCUTIO: Ay, ay, a scratch, a scratch; marry, 'tis enough.

ROMEO: Courage, man; the hurt cannot be much.

MERCUTIO: No, 'tis not so deep as a well, nor so wide as a church-door; but 'tis enough, 'twill serve: ask for me to-morrow, and you shall find me a grave man.

MERCUTIO: A plague o' both your houses,
They have made worms' meat of me.

Romeo & Juliet, III, i

-Rakesh