CFO Research Services survey finds companies leveraging external relationships to drive top-line growth as recession begins to loosen grip

SUNNYVALE, Calif. — (BUSINESS WIRE) — April 4, 2011 — In the down times, many companies viewed third-party relationships as a source of cost reductions. But as the recession eases its grip on the global economy, an increasing number is beginning to see them as sources for capital, process improvements and expertise they can tap to improve their performance, operational flexibility and profits. According to the results of a recent survey conducted by CFO Research Services (a unit of CFO Publishing LLC) in conjunction with Ariba, Inc. (Nasdaq: ARBA), the leading provider of collaborative business commerce solutions, a majority of finance executives say external relationships with suppliers, customers and business allies will be critical to their ability to thrive in the tentative recovery now underway. And they will leverage them in new ways to improve their performance and profits.

“Finance executives will take the survival tactics they’ve used in recent years mainly to cut costs and ensure liquidity – closer collaborations with customers, suppliers and bankers – and apply them to the challenges of pursuing top-line growth,” said Sam Knox, Director of Research, CFO Research Services. “They will forge new partnerships and deepen existing ones in hopes of improving their working capital positions, forecasting demand with tighter precision and responding to emerging business opportunities.”

In the fall of 2010, CFO Research Services launched a survey and interview program among senior finance executives at companies from North America, Europe and Asia to find out where they see the greatest value in collaboration and to understand the new role that alliances will come to play in managing risk and working capital during the economic recovery. Among the key findings of the resulting report, “The New Deals: Why Companies Are Deepening their Alliances with Customers, Suppliers and Bankers in a Post-Recession Economy”:

Collaboration: The New Strategic Capability

Tight collaboration, achieved in part by a tech-savvy supply chain, is viewed as key to steering through the post-recessionary economic environment.

“Finance officers are preparing as best they can for the unknown, keeping their focus on flexibility as the best safeguard to shield their companies from the consequences of unpredictable movements in demand, increasingly intensified global competition and the need to seize opportunities quickly,” Knox said.

To enable this flexibility, many are leveraging technology-based solutions that give them greater visibility into and control over their spend and cash. More than half of the respondents to the CFO survey, for instance, have invested or are planning to invest in tools to link their procure-to-pay process with their suppliers’ order-to cash process. And these respondents say their forecasting will be more certain in the next two years as a result.

And at a time when credit markets remain tight, an increasing number are participating in early payment, volume discount and third-party financing arrangements to ensure the fiscal health of their underfinanced suppliers.

Looking Outward: Supplier Relationships Gain Importance

Unpredictable business conditions are driving companies to think and act more collaboratively.

“During the recession, companies that had financial strength could use it to their advantage, extracting better prices and more favorable terms from their less-healthy suppliers,” Knox said. “But as the worst of the downturn abates, companies are increasingly looking to third-party relationships as sources of process improvements and expertise through which they can enhance supply chain stability and share the risks and rewards of mining new and mutually beneficial ground.”

More than half of the companies surveyed by CFO Research are taking steps to get to know and manage their suppliers better, gathering information on prices, product quality and performance. A majority are also renegotiating terms and rationalizing their supply bases to ensure they have the right cost structures and partners in place to support their growth initiatives.

Alternative Financing: Sharing Risk and Rewards

Maintaining an efficient cost structure and effectively managing the cash conversion cycle can generate savings and reduce the need for working capital, providing flexibility and liquidity for new investments. While self-funding of this type is a cost-effective way to finance growth, it has its limits. And though credit markets are beginning to loosen, the cost of accessing capital through traditional channels remains high for many companies.

As an alternative, participants in the CFO study say they are beginning to call on their partners to provide funding in ways that lessen financing costs and mitigate risk.

Moving Forward: More Changes Ahead

The recession has certainly changed the way that business is done globally. But according to Knox, “the CFOs in our survey were clear that even though their employers were already thinking differently about their external relationships, more changes are in store.”

But one thing will remain the same. “Collaboration between trading partners – in both the delivery of goods and services and the financial flows that facilitate them – will remain atop the finance agenda,” said Peter Lugli, Senior Director, Financial Solutions, Ariba. “Cash will remain King. And solutions and technologies that deliver greater visibility, flexibility and control over cash flows between trading partners will become a prerequisite for success in this uneven and tentative economic recovery.”