Executive summary

Why is this?
The survey documents that improving working capital, and thereby a company’s competitiveness, is still on managements’ top-five agenda six years after the financial and economic crisis of 2008. But it also suggests that how companies are addressing these issues is changing.

Equivalent to what happened with the quality agenda of the 1980s, the technology agenda of the 2000s and the Lean agenda of the 2010s, working capital is currently making the transition from a project initiative whereby CFOs and the finance organisations centrally drive improvements, via somewhat isolated actions, towards a more ongoing, operationally-founded and integrated continuous improvement approach.

After the storm – working capital that works is in some ways back to business, but as a more mature and process-integrated way of improving working capital. For most companies, the low-hanging fruits have all been picked. Now, the issue to tackle is continuous improvement across the value chain.

This, however, challenges the way primarily CFOs currently approach the subject. Traditional ways of enforcing corporate policies are not sufficient.

Leader-driven processes across the value chain, involving colleagues in stocks, procurement and sales, based on transparency, knowledge sharing, information and solid follow-up on metrics, is needed in order to address the three main processes in question:

  • Procurement to Pay
  • Order to Cash
  • Forecast to fulfil – (sometimes also called conversion)

This means that optimising working capital is no longer a policy-deployment game executed from the desk of the CFO, but a transformation that aims to anchor the focus on working capital in how employees work – in other words, embedded in the corporate culture. We see the change from project to day-to-day operations as the right way to move, but also as a challenging transition that will require new behaviour from not only the CFOs, but increasingly also the rest of the C-Suite.

Consequently, if you wish to harvest the full competitive potential of working capital, you should put it on the strategic agenda.

We have extracted five areas of focus

Recommandation #1

Companies must develop skills to improve the ability to forecast capital demand and the cost of the capital needed to support the overall strategy, as well as the ongoing business requirements.

Recommandation #2

Companies should strive to fully understand the diversity of financial instruments; perhaps this is the time to reconsider the mix of instruments.

Recommandation #3

The core decisions in working capital initiatives have built-in internal conflicts of interest. To reap the full benefit of working capital improvement, initiatives must be sponsored by top-level management.

Recommandation #4

The CFO must be able to transform the initiatives from a finance task to an integrated cross-organisational continuous improvement process that engages the C-suite.

Recommandation#5

The CFO must display a more outward-looking comprehension of how working capital is a competitive lever that can be improved significantly through strategic decisions.