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5 Ways to Break Down Operational and Strategic Silos

  • By Amber Christian
  • Published: 6/27/2016
Silos exist throughout many organizations. These silos threaten to derail our progress in accomplishing our working capital objectives. Integration of operational and strategic intent is necessary to ensure our working capital projects continue to accomplish their objectives.

Recognizing the tension between strategic and operational goals is the first step toward better coordination and decision-making. The following five practices can help organizations that seek to avoid process optimization efforts occurring in silos throughout the organization.

Cross-functional representation on working capital teams

Best practice includes functions such as supply chain, sales, treasury and cash management, shared services, and the controller. This helps to ensure some level of strategic and operational alignment. However, the IT department should also be represented on these teams. IT representatives understand how underlying systems and processes are designed. In an environment where few companies are unconstrained by project budgets, IT can provide additional input to include in the working capital project determination process. The function can provide key information to the level of complexity for implementing working capital process changes. IT may also be able to point out unsupportable or unsustainable recommendations given existing system knowledge.

Cross-level representation on working capital teams

Multiple levels of the organization should be included in working capital projects and on working capital focus groups. When framed properly, this engages the operational perspective as part of implementation. It also allows operational staff to develop a more strategic viewpoint of the organization, providing an opportunity for operations to develop new skills and ownership for working capital project results.

Adopt detailed, metrics-based reporting

Many companies begin measuring working capital using high level metrics such as DSO, DPO and DIO. These generic measurements mask geographic and regional differences. While they provide an overall picture of the organization, they make it impossible to easily spot opportunities for improvement. In the face of such generic calculations, many executives find the best path to improve working capital is to simply mandate a percentage improvement from all regions or business units. This may force some optimized groups into making less than optimal changes to try to gain savings, or conversely, may simply fail to accomplish the additional percentage objectives.

An organization can only act upon what it can measure. ‘Gut feel’ is not an objective decision-making criteria upon which to base working capital initiatives. More detailed, metrics-based reporting allows for the identification of regions or geographies that are leading versus lagging. For example, customer activity can be analyzed through weighted average days to collect by geography. This detailed level of analysis will expose regional or business unit differences. Once the detailed information is available, new patterns and solutions can emerge.

Utilize tools and applications to support deeper working capital analysis

What tools and applications will facilitate analysis of your data beyond simple DPO, DSO and DIO measurements? Detailed metrics-based reporting may require seeking new applications and tools for analysis. Performing more detailed calculations requires significantly larger quantities of data. Advances of in-memory technology and advanced analytics allow organizations to quickly calculate detailed metrics on millions of rows of data. These technology advances allow organizations to leverage all the data from their ERP system to generate new opportunities for savings.

Layering on advances in data science and the ability to correlate actions with predictions, these technologies allow for exploration of previously untapped data from within the organization. These metrics may come in recognizable forms that describe your data (descriptive analytics) or in new calculations that can correlate and predict outcomes (predictive analytics). Finally, new visualization tools make display of this information easier than technology of the past. These advances allow organizations an ability to look across the data from their financial supply chain to garner new insights.

Manage working capital initiative as a portfolio for monitoring and creating a learning culture

Working capital projects are often managed as ad hoc, one-off initiatives. While these initiatives may be successful, managing as independent initiatives, as opposed to a portfolio or projects, limits the overall knowledge that can be gained. Using a portfolio-based approach makes it easier to create a learning culture where the overall organization benefits from the knowledge gained on the individual projects. More importantly, it allows an organization to learn what initiatives fail and how to improve performance for the future. With detailed, metrics-based reporting and knowledge gained from failures, new ideas and solutions can be pursued.

Because working capital initiatives are imperative for many organizations, it is important to eliminate your company silos. Maximize existing investments and look within to improve return on funds already invested. This will strengthen your company from the inside and create a more profitable organization.

Amber Christian is the founder of Ace, LLC, a treasury and cash management consulting firm.
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