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Anthony Satriano, Global Finance Director, Finance operations, Honeywell explains his approach on transforming global Order to Cash in a three-step process involving benchmarking against best-in-class peers, identifying opportunities and ROI impact, and aligning executive stakeholders as per the vision. Learn how his method could help to deliver results on your next big A/R transformation project.

On Demand Webinar

Benchmarking, ROI Analysis & Business Case Presentment for OTC Transformation

Session Summary

Anthony Satriano, Global Finance Director, Finance operations, Honeywell explains his approach on transforming global Order to Cash in a three-step process involving benchmarking against best-in-class peers, identifying opportunities and ROI impact, and aligning executive stakeholders as per the vision. Learn how his method could help to deliver results on your next big A/R transformation project.

webinar

Key Takeaways

Need and essentials of benchmarking
[02:24]
Highlights
  • While benchmarking, don’t limit it to just one metric, have a list of metrics and evaluate all of them
  • Define the major objectives for the Benchmarking like Reducing the percentage of past-due Invoices, etc
  • Split the benchmarking into two buckets; process benchmarking and people benchmarking
Key Considerations to find the right vendor
[17:17]
Highlights
  • Cost consideration : Assess the Return on Investment (ROI) in priority
  • Time consideration : Evaluate the time required for project implementation
Payback analysis of Cost and Considerations
[20:54]
Highlights
  • Figure out the payback from the investment by doing a cost and benefits analysis
  • Drive productivity by redirecting the employees to more value-added tasks
Defining key factors for Business Case Presentment
[23:53]
Highlights
  • Working capital improvement is a major priority
  • Leaders sometimes have to convince people about the need of technological investments
  • Set targets for improvement, figure out the loopholes and problems that need to be fixed

Anthony Satriano  [0:09]

How’s everyone doing? Good morning. So yesterday I had the opportunity to share with everyone. In Honeywell, I called it the good, the bad, the ugly, what, what we needed to do, how we need it, how we recognize the fact that we needed a change and C2C. And today, what I’d like to do is I like to share with everyone kind of our approach to how we landed with, with HighRadius. So a couple of agenda items, I’ll walk you through some of the benchmarking that we did first, to be quite honest, you know, we didn’t know HighRadius at all. And we didn’t even know how we compare to industry and also to some of our company peers. So when we first start started this journey, we felt it was really important to start doing some benchmarking first, just to kind of see how we stack up against other folks,

Anthony Satriano  [0:59]

then we need to find the right vendor. I think we all know, there are plenty of vendors out there. But how do you know how do you land with the right one, then I’ll walk you through actually how we did our business model in Honeywell, whenever we do an investment like this, whether it’s a capital investment in one of our manufacturing plants, or if it’s an IT investment, we always need a business case for it, right? Because we always look for a financial return, we’re a publicly-traded company, we need to continue to grow earnings, we don’t want to be spending money if we don’t think we’re going to get a financial benefit for it. So I’ll walk you through some points on what we look for in terms of when we do our financial analysis. After you do that financial analysis and develop that business case, you have to sell it, because we only have so much capital funds that we can spend in a given year. And multiple projects are competing for those dollars. So there’s a little bit of some salesmanship that has to go on in terms of getting your project approved, compared to the other projects, we’re always in situations where we have more projects than we have dollars or funding for our budgets for and then I’ll finish up just with some key takeaways and, and some lessons learned.

Anthony Satriano  [2:24]

Alright, so you know, why, why benchmarking? Well, one thing that drove this is, two years ago, we had a new CEO that came in and in 2018, was his first full year at the helm. And he went out publicly to the investment community. And he said, one of the top five priorities for Honeywell is to improve overall working capital by one term. So if you’re not a finance person, what working capital is, it’s your accounts receivable, plus your inventory that’s on your books, less your payables. Okay, that’s your net working capital. And you could calculate turns by looking at that net number compared to your revenue dollars. So our goal was to improve that number by one turn, and that would generate about 600 $650 million for Honeywell in freed-up cash. Well, accounts receivable is a big part of it. And we knew we did not have the most robust accounts receivable process based on some of the benchmarking that we did. So overall, we wanted to focus on reducing past dues pass through this is a big challenge for us, we are currently running about 20 25% passes. And we also wanted to reduce the unapplied cash we were measuring where we measure unapplied cash as our total unapplied cash to our total receivables balance, and we were running in about the two to two and a half percent range. Oops. So you know, one thing that’s very important to keep in mind is when you’re doing benchmarking, when you start off doing benchmarking, nothing is ever apples to apples. So very important to do benchmarking, but you really shouldn’t limit it to just one metric, you really should kind of have a host of metrics and kind of evaluate all of them. When we looked at this project, we had about 10 metrics that we were targeting to benchmark, and we wanted to benchmark them against some industry standards. And we were also trying to benchmark against some of our pairs, knowing that for the most part, every not every benchmark will be the same. But if you can kind of look at them as a pool, you can kind of get an idea directionally how you guys look right how your company looks.

Anthony Satriano [4:48]

What we did was we broke down our thought process into two groups. We wanted to look at KPIs or key process indicators.

Anthony Satriano [5:00]

that drive processes. And then the other ones, we wanted to look at where people, because the other piece of this whole equation is you can have the best systems in the world, you can have the best processes in the world. But if you don’t have good people making those processes and those systems work, that it’s all going to be for naught. So what we decided to do is we decided to split our benchmarking again into two buckets, right process benchmarks and people benchmarking. And you know, here, you could just see kind of a couple of the themes, but what I’m going to do is I’m going to go into these in a little more detail and share with you. So when we started looking at Process benchmarking, we wanted to see okay, how does our hit rate, right for unapplied cash, compared to industry, benchmarking also to some of our peers, our unapplied cash percentage that I had mentioned earlier, the so day sales outstanding, that’s obvious, that’s a common accounting, financial benchmark, and then pass dues. And we broke past dues out into a couple of buckets. And you know, our view from talking about our businesses is you can look at your overall past dues. But our view is any past due, that’s more than 90 days old that collector is not going to have much more influence over collecting that past due if they haven’t been able to fix that problem in 90 days, that needs to be escalated to someone higher in the business to fix. So we decided to take our past dues and benchmark past dues less than 90 days old, past dues greater than 90 days old. And our thought is for past dues that are over 90 days old. We also need to engage our business partners, our salespeople, our marketing people, our project managers to help drive some of those results.

Anthony Satriano  [6:58]

Interesting. So we have four four business units. In Honeywell, we have an aerospace business, we have a building’s technology business, a safety products business, and a performance materials business, which is primarily a chemical business. So very, very diversified. Aerospace pretty much has the lowest past dues. But from an unapplied cash standpoint, their overall enterprise cash runs about three, three, and a half percent. So that means our other business units run much lower than that, okay to get us to that average of about two, two, and a half percent.

Anthony Satriano  [7:34]

Then we tracked the KPIs. So we benchmark Hackett in terms of an industry standard. And we use them to kind of calculate, okay, this is where, based on our peer group based on our industry rankings, these we thought were the right KPIs that we would measure and then compare ourselves to. And then what we did is we took those KPIs, and we just didn’t look at them at the Honeywell level, we took those KPIs, and we broke them out by each of the four business units. So another recommendation is, you know when you’re starting to think about benchmarking if you can drill at least one layer deeper, it’s really interesting when you start to peel that onion back, and when you look at your, your total company to look at, okay, by business unit, if you have that type of detail, where some of the puts or takes were so you know, we knew that aerospace their unapplied cash runs a lot higher. So we had to focus on a better solution for aerospace. And by the way, from a financial performance standpoint, our aerospace business is our largest revenue generator and our largest earnings generator. And we do about $40 billion a year of revenue across total, total Honeywell.

Anthony Satriano  [8:55]

Then we got into the people benchmarking, and we looked at cost of our people. We already have our C to C teams in what I consider. I call them low-cost regions. We’re in Prague, we’re in Bucharest, we’re in Mexico, we have three locations in Mexico. We’re in China. So we’re already in those low-cost regions. But we still want it to compare what we call our we call it OEF costs, operational efficiency cost, which is basic salary and fringe of employees. We had a couple of metrics that we looked at there, look that there. We also wanted to look at the number of accounts that each of our CTC folks handles, okay, from a collection standpoint, and we wanted to compare that to how the industry ranks and also how we rank against our competitors. But then again, we started thinking about well, do we even have the right people in place and the right skill sets

Anthony Satriano  [10:00]

So I started talking to HR and I started asking about when you go out and you recruit for, for our collections teams, you know, what do you look for? And the general response was, Well, you know, we look for finance professionals. So it was interesting. And we went down. And we talked to some other companies that that do collections for a living, okay? And, and we, we went down, and we talked to them and started asking them, well, what type of people that you hire, and it was interesting, they didn’t just focus on and these are companies that do collections for a living. One of the companies that we benchmark came back and they said, we don’t just look for finance people, we look for problem solvers. And that kind of lit the light up in my head. I was like, wow, that’s interesting because I’m a finance guy. And I’m not the best Problem Solver in the world. And they say, yeah, don’t limit yourself to finance people. We hire people out of the entertainment industry, that are used to communicating with people.

Anthony Satriano  [11:02]

They hire waiters, waitresses, right? People that are focused on fixing problems, bad orders, things like that. Also customer service they look at. So that was another kind of an aha moment for us. And one of the benefits of doing some of this benchmarking was, you know, we, when our hiring profile was completely off track, and we needed to kind of take a redo of our hiring profile, what we ended up doing there was we rewrote our hiring profile for our collectors. We also added questions, in the interview process around problem-solving, we gave them specific examples on how would you solve this type of problem or that type of problem. And again, you know, another big eye-opener for us.

Anthony Satriano  [11:54]

Alright, so

Anthony Satriano  [11:56]

after all, and I’m gonna, we’re gonna cut over here to some of my cheat sheets.

Anthony Satrianor [12:03]

After all, was said and done with some of these benchmarking results. So what we landed on was that, well, certainly,

the base salary that we’re paying our employees was pretty much on track. But we had more FTEs, right full-time equivalents, then the industry benchmark, and also versus our peers. So even though we’re paying people compatibly, right, we had more people than probably what we should have. So that told us, we had a lot of inefficiencies in our process, we knew we had a lot of non-standard ERP systems. So even you know, we are probably about 80% of our revenue is on SAP. But that 80%, that’s on SAP is probably across five different SAP instances. And then the other 20% of our revenue is probably on another 30 Different ERP systems. And that’s just and we’ve heard that common theme all week, this week. That’s a result of acquisitions that we’ve done. In the past, probably our next biggest ERP system is, is probably Oracle out in, in APAC,

Anthony Satriano [13:16]

we certainly had the opportunity to improve our productivity, because when we look at the productivity of our people, versus the productivity of our, our peers and our industry benchmark, we were again, certainly off the mark, we looked at how many FTEs we have as a percentage of revenue, we looked at how many FTEs we have, versus how many transactions does each FTE process on an annual basis, right, and we wanted to get more productivity out of them.

Anthony Satriano  [13:53]

So we certainly had an opportunity to change. And the other big aha was even from an organizational design standpoint, we looked at how some of our peers that performed better than us how their organizations were, were aligned. So in Honeywell, at the corporate level, which is where I sit, we have cash applications, which are centralized. And we also have, to some extent, customer credit that’s somewhat centralized, but not quite there. And then in our business units, and each of our four business units, they all have each of their collections, their C to C teams, but we have lots of silos at the time, no one was using SAP consistently. We all had different processes. So when we looked at that, and we said, well, we also need to make some organizational redesign changes. So one of the two big things we did,

Anthony Satriano  [14:50]

we had customer master

Anthony Satriano  [14:54]

embedded as part of our credit group. And that’s the team that Saara

Anthony Satriano  [15:00]

leads. And that was for two of our business units. The other two business units had customer master as part of their customer service departments. So the one thing we said is that customer master does not belong in C to C, it does belong, part of commercial excellence. So we’re in the process of moving that function out of C to C, and back into the businesses. The other aha moment for us was from a credit standpoint, we looked and we had not Oh, yes.

Anthony Satriano  [15:35]

I’m sorry. Our question was what C to C, our definition of C to C is customer to cash.

Anthony Satriano [15:42]

Okay. And we have p2p, which is procure to pay.

Anthony Satriano  [15:47]

Yep. Yeah, yeah, we’re ordered to cash. But order to cash includes customer service, and I’m not part of customer service. So it’s, we call it customer to cash, or credit to cash, you can use credit to cash also. Alright, good question.

Anthony Satriano [16:03]

So, the other thing we know we looked at is we had credit being performed, both at the corporate level and within our, our businesses. And, you know, again, we’re a publicly-traded company. And if you’re familiar with Sarbanes Oxley, we have a requirement in our business, that we have to do a credit review on 80% of our portfolio once a year. So by having our collectors in the businesses spend time on doing credit reviews, it was taking them away from actually collecting cash. So another redesign that we’re working on right now is moving all of the credit processes into corporate. And then the strategy is that each of our business units then can focus solely on collecting cash, being proactive in collecting cash, working disputes, working problems with disputes.

Anthony Satriano [17:10]

Alright, so we did our benchmarking, you know, we knew where we were bad.

Anthony Satrianor  [17:17]

Now it was time to select the vendor. And, you know, again, as I said earlier, we know there are lots of vendors out there. So, you know, the first thing we needed to do is we kind of sat down and we said I, you know, what do we want to achieve with this thing? What do we want to get out of it when as we look at vendors, first of time, and the cost was a big consideration of ours, as I said earlier, we have to have a return when whenever we do any of these investments, we have to have a financial return, it’s just kind of may not be the way every company operates. But it’s just the way we operate. In addition to that time is a big consideration. We did not want this project to be a five-year project. So he said, as we’re evaluating vendors, you know, the timing of how quickly they can implement was going to be a key factor in this. And then, you know, as I said,

Anthony Satriano  [18:15]

we needed to do a business model based on the RFPs that we got in and we need to look at it from a business standpoint because I knew when I present this project, it’s going to be weighted against you know, 100 other IT projects that other functions in the company are lobbying for dollars for. So we need to have good financial returns because pretty much that’s kind of how they select it. They look at the IRR of the project, they look at the payback of the project. They evaluate how rail they believe those numbers are, and I’m going to get to that in a minute. So how do you prove to senior leadership that this is the right thing to do. And then from there, you always want to make the best investment for your, for your shareholders. So

Anthony Satriano [19:07]

we looked at several vendors, we went through a whole RFP process, we had them do demos, we down-selected, and we still weren’t quite sure because we never dealt with HighRadius before. So what we did, and we didn’t know what we didn’t know. And the reason for that is we’ve outsourced so much work from our IT group that we don’t have true IT expertise any longer embedded in the company. Right. It’s all been outsourced. So we didn’t have a good feel for how good how bad we were using SAP. So we had a HighRadius come in and we asked them to assess us. We said we want you to come in. Assess all the businesses globally across Honeywell. Look at

Anthony Satriano  [20:00]

What we need to do to all get on one plane failed using SAP F SCM. And by the way, if there are any of your accelerators that you think may help us get even further along, then share that with us also. So I thought this was helpful. That was a big eye-opener for us. HighRadius came in, it was in the fall of 2017.

Anthony Satriano [20:26]

Did the assessment for us over several weeks did a great job very detailed, shared it with me with my team, also with the other CTC leaders across each of the other business units.

Anthony Satriano  [20:39]

And, you know, we did the evaluation, we saw what we can do, even just using SAP ourselves to improve things. But more importantly, with some of the HighRadius accelerators what else we thought we they could, they could bring to the table. So we made the decision, okay, let’s try to move forward with a HighRadius, let’s put a business model together.

Anthony Satriano  [21:04]

So in terms of when we do a business model, again, you know, we have one standard process we go through because you can ask 10 financial analysts to do an IRR and 10 to do payback on investment. And you’ll get that that those 10 financial analyses done 10 different ways. So we have a standard model that we use, spaced on a five-year projected cash flow. I mean, in theory, it’s very simple, you take what it’s going to cost you for the investment. So HighRadius after doing the assessment, they knew what they needed to do to, to do the project for us based on their commitment on how long it would take. We had that all broken out in terms of cost, we include in that cost model, any potential internal cost, right? So Honeywell internal IT cost that we would need.

Anthony Satriano [22:09]

And then comes the tricky part, okay? Because that’s the easy part. Because you can pretty much get that from, you know, whoever your provider is, then you got to figure out what your cost savings are going to be. Alright, so this is the benefit that you’re going to get from the investment. And when I looked at benefits, and in my one of my previous roles, I was the finance director for our director of manufacturing. So I did a lot of analysis on capital investments. And in one of our businesses, which is pretty much a chemical business, if you know anything about the chemical industry, huge expenditures in terms of keeping chemical plants operating. So it’s very used to, you know, what do we look for, to get good benefits. And we break out benefits into what we call hard benefits and soft benefits. Hard benefits are actual costs takeout. So in this financial analysis, I made sure that I just didn’t say, Well, we’re going to get this much productivity or we’re going to free up this many hours. Did I bring it down to how many FTEs? Do we think we can drive productivity in terms of redirecting them to do more value-added work? And then we had some of the softer benefits? Obviously, one was around working capital accounts receivable improvement. The challenge with that one is that it’s very hard to track. So you can say I’m going to get a million dollars of working capital improvement, I’m going to get you to know, $50 million of working capital improve it, but how do you prove it? Alright, so because you had to think about it, I still had to sell to our senior leaders that we needed to make this investment. So now it comes time to actually do the presentation.

Anthony Satriano  [24:01]

And the way I was able to sell this was with this particular project in our investment analysis, we had census productivity, and everyone like that, because you know, very easy to get your hands around, you have 100 people today, you can redeploy 2030 of those people. And then your function can operate, you know, at 70%. And you can very easily put $1 amount on that. Also other third-party cost savings, so savings in terms of bank fees, that’s an easy number to get your hands around. And then I certainly included working capital, so I was no dummy. I knew working capital improvement was one of the top five priorities from our new CEO. So I figured that would be a crowd-pleaser also. But what really sold them on going forward with this investment was they were able to kind of get their heads around the cost savings piece of it. So that was

Anthony Satriano [25:00]

That was my strategy in terms of getting a project approved, right? Because we, you know, we all deal with the, with the hardships with the challenges, and we all want to be able to use technology to invest. But you also, depending on the company that you work for, you also have to convince people that that investment is the right thing to do.

Anthony Satriano [25:25]

Terms of takeaways, benchmarking, as I said, you know, it’s not an absolute process, don’t stick with one benchmark. I told you, we had 10 of them, we broke it out between process benchmarks and people benchmarks.

Anthony Satriano  [25:42]

Do a pretty in-depth analysis. When you evaluate beyond bias, you’re always going to have some bias. The other thing we did is we didn’t just engage the corporate team myself. We had each of the business units and their CTC leaders as part of the process. That’s how we were able to drive accountability and buy-in to the project. Certainly lookout for automation opportunities, right? It’s our biggest lever is automation. I think we’ve heard all about that this week.

Anthony Satriano  [26:12]

Also, take a good look at your processes, and where do you have loopholes and problems. And that’s really what you want to focus on and fix. And then on the target side. So I’ve actually set targets for the improvement that this project is going to drive.

Anthony Satriano [26:33]

We’re going to target where we are targeting an 80% first-time hit rate on cash apps, we’re targeting our unapplied cash will be less than 1%. And if you were here yesterday, you heard me talk, we’re also targeting to reduce our past dues by 50%. So those targets are out there. They’re part of my goals and objectives for 2019. But I think it’s really important to set those targets and keep that out in front of everyone. So you know, what you’re shooting for. And I think if you if you were to talk to any of the HighRadius, folks that are part of our project I see today here, areas, you can pretty much vouch you know, we’re all over this, how do we get to this 80% hit rate? You’ve heard it, you know, from the beginning. And you know, it’s every week where we’re looking at that. So

Anthony Satriano  [27:27]

where we’re at right now is we went live with the Americas in December, we were at about a 42% hit rate, we’ve got it up to in the first month a 71% hit rate. So good progress, we’re going to go live for cash apps in media in the month of March. And then for collections and disputes. We’ll be going live with that in December. So a big year for Honeywell in terms of cash and C2C. And it’s probably a big year for Tony because I think my next on the line. But that’s just the way it goes. So I’ll stop there and open it up for questions. We’re probably about out of time Tanya.

Tanya [28:14]

Certainly. Hang on. Hang on. Any questions? Anybody?

Question (Audience 1) [28:16]

So since Aerospace is your biggest business segment, what is your past few percent before implementation, and what you’re targeting in the aerospace segment?

Anthony Satriano [28:28]

Yeah, so interesting. Aerospace past dues are less than 10%. And, you know, we fail good world-class companies operate less than 10%. So their past dues are pretty good. Their biggest challenges. I mean, they have huge customers. Boeing is a huge customer of ours. I mean, but they’re, they’re buying airplane engines. Right. But you know, it’s interesting, our challenge with why their unapplied cash is so high is because we have a lot of US government contracts, and the US government doesn’t pay to an invoice they pay to a contract. So that’s, that’s part of our challenge there. So, you know, that’s one of the benefits, we think we’re going to get out of this.

Question (Audience 1)  [29:18]

You mentioned benchmarking against your competitors, and how did you get that information?

Anthony Satriano [29:26]

When I said my benchmarking guy saw the suit.

Sourav  [29:28]

The way we did it, like, you know, so you know, Hackett, APQC, right, those are, like, you know, where you can get information about, like, let’s say FTE per billion of revenue, like, you know, cost of your operations. So there are certain metrics that you have for order to cash, p2p is R2R kind of process. They have collected this data information from different companies, right. And you can actually see that like for these metrics as you know,

Where do you stand? Because you know that that data is available from Hackett, APQC.,

Anthony Satriano [30:06]

It’s also certain things you can get out well for financial statements and annual reports also. And that’s, that’s the reason why, you know, you can’t take all of that for the gospel. That’s why in my view, you know, you got to kind of have a suite of benchmark metrics and kind of look at them collectively. anything else?

Question (Audience 2) [30:26]

Hi, this is Karen from Wesco. Are you looking for a lot of savings? You try to be breakeven or what? Like, what’s your goal? What’s your company’s goal with this initiative.

Anthony Satriano [30:41]

In terms of payback, less than a two-year payback? That’s our target. And lower on the, you know, much lower than to two years, a little bit over one year. And then certainly from an internal rate of return standpoint, from a financial standpoint, your IRR, always needs to be better than your weighted average cost of capital also.

Question (Audience 2) [31:06]

Can you expand on how bank fees were saved?

Sourav [31:10]

You know, for that, like, you know, obviously there’s you know, banking fees that you pay to your banks for keying in the details, when when you get the bank statements when you get the remittance details. So obviously, like, you know, that fees will get waived off because like, you know, the solution that we have gone with HighRadius is where like probably, you know, all the remittance advice they will just have to be scanned and sent across. So the images and you know, the check image or like any, any kind of images, which are there, they just need to send it across to a HighRadius so they don’t have to keep in details for us. So that’s, that’s the kind of saving we have done. There will be some bit of you know, bank fees involved. But that will not be for keying in and that’s, that’s like a huge cost saving on which kind of bundles of video costs for your investing with HighRadius

Anthony Satriano [32:04]

For us, that number is about $300,000 a year. So we start that’s what went into the financial model. Anything else? All right. Thank you very much. Thank you.

Anthony Satriano

Global Finance Director
Honeywell

Whenever we do an investment, whether it's a capital investment in one of our manufacturing plants, or it's an IT investment, we always need a business case for it, Because we always look for a financial return.

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