Process Improvements Lead to More than Just a Fast Close
When changes in leadership created an opportunity for Salesforce.com to deploy strategies designed to strengthen the finance division’s ability to meet the needs of the rapidly growing technology company, the first process to go under the microscope was the close cycle.
“We used the close process as a way to go about changing the course and transforming finance,” said Joe Allanson, Salesforce.com’s senior vice president and controller. “We selected the close process because it touched everyone in the global finance organization. It was also a repetitive process, a process where we could quickly see the effect our changes had, and the one that had the most frustration associated with it in terms of re-work, overtime and surprises.”
Cultivating Trust Through Process Improvement
The root cause of the frustration was a process that was cumbersome, outdated and took place in multiple silos across the division, despite the fact that nearly everyone had some hand in its completion. As a result, it was taking Salesforce.com an average of 10 days to complete the month-end close.
Perhaps more frustrating than the length of time it took to complete the close cycle was the frequency with which changes needed to be submitted to the executive team and external auditors, particularly during quarterly closes. Each time that happened, it threatened to erode confidence and trust in the finance organization.
“The close is a finance organization process, and by streamlining and improving it, we wanted to create a brand name for ourselves that exuded trust, transparency and confidence. We wanted a better experience for both our stakeholders and finance employees,” said Allanson.
Allanson, the chief financial officer and a vice president of business processes collectively put together a team and tasked it with an aggressive six-month process improvement project that would enhance the quality of close, improve job satisfaction and shorten the timeframe to an average of three to five days.
It started with one-on-one interviews with anyone who had a hands-on role in the close process in order to map the relationships between departments, and to solicit input from the entire finance team on ways to streamline the overall process.
“The brightest ideas weren’t going to come from an elite few executives,” said Allanson. “They were going to come from the people below who were the most frustrated and most wanted change.”
The information gleaned from those interviews was then utilized to re-engineer the up- and down-stream handoffs, with a particular focus on overhauling when and how different information moved from one set of hands to the next.
For example, by analyzing the differences in the number of entries made throughout the month, a number of tasks were identified that could be done mid-month, rather than waiting until close. Thus, the same amount of work was being done, just timed differently to ease the end-of-month burden.
Some of the more labor-intensive processes like pay and commissions were redesigned, and new protocols developed to better-manage relationships. Duplications within the system were also eliminated.
Within four months, the close cycle had dropped to just five days – and is expected to accelerate even more as workflows continue to be refined. Monthly postmortems throughout the first six months revealed amazing measurable improvements in the accuracy of the financials and in the length of time people spent working on close.
Other benefits included more staff time for analytics, a significant reduction in the number of SOX internal control deficiencies, a reduction in the annual audit fee and less overtime. Subsequent employee surveys also revealed a huge uptick in the division’s satisfaction rating, and turnover has gone from higher than the company average to well below it.
The Return of the Fast Close
Salesforce.com is not alone in its quest to implement process improvements that result in an accelerated close cycle. Since the passage of Sarbanes-Oxley, close times have been increasing gradually. That’s according to a survey by the Business Process Management Initiative that found average close times in 2005 had increased by at least a week and crept up an additional two weeks in 2006.
Slow close can be the catalyst for numerous problems, including delays or disruptions to other finance responsibilities, frustration by senior management and investors and the increased chances for reporting errors.
“There is no correlation between the time spent and the accuracy of the financials. In fact, studies have indicated the opposite. Companies that produce the statements faster generally have had [fewer] errors to correct and less frequent restatements. Also, although the end result – financials – are valuable, the time spent to prepare them is not a value-added activity,” said Brian Johnson, CPA, a Kforce consultant who worked with Salesforce.com on its close acceleration project.
Johnson, who says the ideal close is only one or two days, notes that there are numerous benefits to be realized from accelerating close times, including:
- Improved accuracy
- Increased timeliness of information
- Increased internal control
- Increased decision support
- Improved work-life balance
- More time for analysis
- Improved job satisfaction and retention
To realize those benefits, companies must focus on overcoming the barriers to fast close, the most significant of which is intercompany reconciliation. In fact, a 2006 survey by Cartesis and BPM Magazine in 2006 found that 77 percent of respondents believed that improved intercompany reconciliation would speed the close process.
Other commonly cited barriers include data quality and collection errors; poor performance from consolidation applications; lack of process automation; and weak audit trails.
There is no cookie-cutter methodology for overcoming these barriers or implementing the kind of process improvements necessary to accelerate the close cycle. However, companies will find that undertaking the task of determining how best to do so within their own finance organization is worth the effort – particularly given the critical role a fast close can play in reducing risk.
“An efficient, streamlined, simple, easy-to-understand process has much lower opportunities for errors and an improved process will have greater detective and preventative controls, resulting in a stronger control environment,” said Johnson. “Additionally, a streamlined process is easier to audit and easier to verify, maintain and ensure compliance. In fact this is one of the best reasons to go to an accelerated close. A fast close keeps executives out of trouble and increases both the accuracy and quality of the process and the end deliverable.”
Also in this month's issue: