White paper - Future of expense management · The future of expense management – 5 Remarkable findings – January 2013 - Cardwise NV Five Remarkable Findings While using any business

Whitepaper

The future of

Expense management Issued January 2013

5 remarkable findings

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The future of expense management – 5 Remarkable findings – January 2013 - Cardwise NV

Research shows that business expenses are

growing at 12% annually

For almost all classes of businesses in Europe and the United States, expenses form an important part of

their revenue expenditure. A recent study has shown that apart from salaries and benefits, these

expenses are the next highest level of controllable cash outgo. They comprise nearly 8% - 12% of the total

budget of large businesses1. For smaller businesses, the percentage is slightly smaller but at 7% it still

represents a large amount of their budget.

This trend shows no signs of abating and an earlier Survey by RPMG research Corporation2 highlighted

that overall travel spending by businesses and government in the US was $ 205 billion. Annual growth in

this sector has been estimated at about 12% and therefore business expenditure deserves to be closely

monitored.

Yet another aspect of business expenditure is about extracting

strategic value from the dollars companies spend. Businesses that

are at the leading edge of managing their business expenses have

found that they can derive strategic benefits besides merely traveling

and entertaining. However, this value can only be extracted if

companies look to change their focus from mere compliance and expense control and actively look for

strategic value. It has also been seen that it is easier to extract strategic insights from business

management systems that are integrated with corporate information systems.

In this whitepaper we will highlight 5 remarkable findings:

1. Cloud based business software increases compliance

2. Cloud based analytics of business expenses increase organizational intelligence

3. Cloud based analytics of business expenses increase ROI

4. Cloud based business expense managements systems allow better collaborative functions

5. There are differences between how small & large enterprises see business expense

management

But letʼs start with a moment to discuss the importance of cloud based solutions. Standalone systems of

business expense management were the norm till a few years ago. Companies had not begun to

appreciate the strategic advantage that could be extracted from an analysis of this expense head. The

focus - perhaps understandably so - of the accounts vertical was on accuracy, compliance and budgeting.

1 http://www.aberdeen.com/Aberdeen-Library/7866/AI-cloud-expense-management.aspx 2 http://www. jpmorgan.com/ cm/ContentServer?c=TS_Content&pagename=jpmorgan%2Fts%2FTS_Content%2FGeneral&cid=1159315885663


Using cloud computing small businesses are able to use the same class of software as

Fortune 500 companies

Modern business expense management systems go several steps beyond these capabilities. These

systems rely on cloud based solutions and are tightly integrated with the rest of the companyʼs information

systems. As a result, travel is not seen in isolation as an independent activity but rather as an action taken

to support business goals. We notice that the adaption of cloud based software today is higher in the US,

but EMEA countries are catching up.

Cloud based information systems The term ʻcloudʼ itself refers to a very large data center that consists of thousands of servers that are all

kept in a single data center and connected together. Enormous economies of scale are obtained by

operating servers together in this manner.

A user can rent a small part of this data center. There are many advantages of using this approach in

preference to using a privately owned computer center. Renting computing power (and storage) from the

cloud costs you a fraction of setting up systems in house. You do not need to hire expensive manpower

because managing the infrastructure is the responsibility of the service provider.

The cloud provides connectivity to mobiles and smart phones without requiring any additional work. This

allows your users to update their business expense data even while they are on the move.

In cloud based systems, since companies tend to use a common database, there are fewer possibilities of

maintaining individual databases and department wise information that tends to create data islands or

silos.

Costs - You hire the software on a per user basis. Costs will

often be a few dollars per user per month. You can pay for

additional user licenses as your needs (and capability to pay)

increases. Many small businesses are now able to use the

same class of software as the Fortune 500 companies simply

because they have switched over to a cloud based rental

model.


Presently 27% companies still use a paper based process, this will nearly vanish and while about 25% of

users will still rely on systems that are hosted in-house, the balance will move to cloud based systems or

to a hybrid of cloud and in-house systems. This data is summarized in the graph (SaaS in the graph refers

to Software as a Service where you hire the software and work purely in the cloud).

Interfacing with ERP and other backend systems - The above graph also indicates the nearly two fold

increase businesses will see in hybrid systems. These systems use specialist cloud based expense

management systems to get the best out of their expenses. At the same time these systems interface with

ERP solutions to deliver greater strategic value to users.

If your business expense solution interfaces with your customer care application, it becomes easier to

distribute expenditure more accurately to the customer care head and to other similar verticals. This allows

for more accurate budgeting and forecasting.

0%

10%

20%

30%

40%

50%

60%

Saas On-‐Premise systems Hybrid systems Paper based systems

Today Future

Figure 1 - Trends in Use of business Expense Management Systems (source: Aberdeen Group)


Five Remarkable Findings While using any business management software improves the quality of the expense management

process, there are major advantages if the software is based in the cloud. There are a few key reasons for

this. To begin with, cloud based software automatically ensures that any mobile / smart phone user is able

to connect to the system if he has the required authorization. This is an important capability because it

permits expenses to be entered into the system as they occur.

As mentioned earlier, the very structure of cloud based applications promotes integration because all the

company data is hosted in the same location. This integration ensures that data duplication is avoided and

the same data can be used by some other applications. Based on this and other characteristics a study of

the cloud based business expense management scenario shows some unique features. These are

discussed in subsequent paragraphs.

1. Cloud based business software increases compliance

2. Cloud based analytics of business expenses increase organizational intelligence

3. Cloud based analytics of business expenses increase ROI

4. Cloud based business expense managements systems allow better collaborative functionsʼ

5. There are differences between how small and large enterprises see business expense

managementʼ


Finding 1 ʻCloud based business software increases complianceʼ

It has been found that in companies where cloud based business expense management systems are

used, compliance with corporate policy is nearly 17% higher than in similar organizations where on-

premise or manual systems are being used. In companies that are considered best in class for cloud

based business expense management systems, the difference is even more at about 31% additional

compliance. Considering that the average, traditionally managed company sees about 59% compliance

rates, the best in class company can achieve 90% compliance. This is summarized in the table below.

This improvement in compliance is due to the improved integration between the business expense

management software and the other company database systems. In such systems data is captured closer

to the event of the expenditure and therefore the system ensures that the expenditure is logged into the

correct head. For example, while outstation; an individual may hold a meeting with clients over breakfast. If

he incorrectly enters this expenditure as personal breakfast, the system will trap this as an error and force

him to show the entry as a business expense. If the same data was to be entered in a manual form one

week later, it would take much longer for the mistake to be caught and the correction to be made.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TradiBonal soDware user Cloud based business soDware users

best in class users

Compliance with company policy

(Source: Aberdeen Group)


Finding 2 ʻCloud based analytics of business expenses increase organizational intelligenceʼ

While compliance with company policy is one aspect of managing business expenses, analysis of cloud

based business expenses takes organizational intelligence to another level altogether. By keeping the

expense management system in the cloud, we are able to ensure that the data of all the divisions and

departments is located in a single database regardless of the physical location of the individual business

units.

This unified view enables companies to determine the locations most travelled to and the executives who

travel the most. Better negotiations are possible with service providers and executives can even see in

real time if there are other company executives already present in the location they are visiting. This allows

improved collaboration and coordination between executives and extracts greater value from the business

travel. 57% of companies that use cloud based business expense management are able to use the

information for improving organizational intelligence as against merely 14% of those companies that use

older methods of managing expenses.

0%

10%

20%

30%

40%

50%

60%

TradiBonal soluBons Best in class cloud based soluBons

ExtracBon organizaBonal intelligence

(Source: Aberdeen Group)


Finding 3

ʻCloud based analytics of business expenses increase ROIʼ

There is no doubt that business travel helps companies generate additional business. It has been

estimated3 that for every dollar spent on business travel, companies generate an additional $10 to $14.99

in revenue and up to $3.80 in profits. Roughly 40% of prospective customers are converted to new

customers following a face to face meeting as compared to just 16% without meeting them. The issue

however is how cloud based analysis of business expense data increases the ROI further. When

companies analyze their business data closely, they find unexpected opportunities to save money. They

are able to see opportunities to take advantage of exchange rate fluctuations and VAT refunds abroad.

Such opportunities are often overlooked in traditional systems but a cloud based system with a global

organizational view is able to show executives the aggregated savings that are possible.

Cloud based business expense management systems are also allowing business expense data to be

linked to other systems such as customer relationship programs and to budgets for specific projects. This

is helping derive even greater value from the expenditure.

Many companies also ensure that a tangible ROI (at least 6x) can be obtained from every trip before it is

approved. This calculation is made easier by an automated system that runs on a cloud platform.

Finding 4 ʻCloud based business expense managements systems allow better collaborative functionsʼ

It has been briefly mentioned earlier that cloud based real time business expense management systems

allow executives to be aware of the locations of other executives who may also be travelling. While only

41% of the companies that use these systems are exploiting this capability, it has the potential to improve

collaboration among executives and give rise to new opportunities. This internal collaboration can also be

used to leverage better terms from major travel agencies.

3 http://www.ustravel.org/sites/default/files/09-10-09_Oxford%20Economics.pdf


Finding 5 ʻThere are differences between how small and large enterprises see business expense managementʼ

By and large, it has been seen that there are major differences between how the two classes of

organizations see business expenses. It has already been brought out that SMBs spend marginally lesser

than their larger peers on business travel and entertainment (7% against 8% to 12%). However, SMBs are

also lesser up the evolution ladder as far as managing these expenses are concerned. The Aberdeen

study mentioned earlier found that for an SMB manager, the key focus areas lay in

• Improving processes for management of expenses,

• Getting more ROI from the travel and

• Enhancing visibility into the expenditure.

As compared to large businesses, smaller businesses were somewhat behind in major performance

metrics. This is illustrated in the table below

Key performance measure Large businesses Small businesses Compliance with policy 72% 69% Business travel spending under management 66% 53% Cost of processing a single reports $13.10 (€9.95) $19.3 (€14.66)

This difference in capability appears to stem directly from some fundamental differences between how

large and small companies approach business expense management.

It has been seen that large companies are more likely to have formal procedures in place for sourcing of

their business expenditure. This formal method of procuring services like airline ticketing and hotel

bookings allows them to obtain better pricing. In smaller companies, this formal method is often not

insisted upon and therefore some efficiency is sacrificed.

Larger companies also have more formal travel approval procedures. These give greater discipline to the

travel function and once again improve the efficiency of the expenditure. Policies are better developed and

links between the business expense management system and back end databases are better - leading to

better organizational intelligence.


All of the above are depicted in the graph below:

Figure 2 - Differences SMB and Large Businesses (source: Aberdeen Group)

The lesson therefore for smaller companies is to look at their business expenditure management more

closely and to look at it as a strategic business function rather than just as a business need. Fortunately,

the new generation of cloud based BUSINESS expense management systems have made it easy for

companies to hire software in the cloud at a fraction of the hardware and software costs they would have

otherwise had to incur. This allows SMBs to match the software capability of their larger peers.

0%

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50%

60%

70%

80%

Formal sourcing methods

Formal travel management

Formally developed policies

Link with back end databases

Large Businesses Small businesses


Considerations for a cloud based expense management solution When you are selecting a cloud based business expense management system, there are some issues that

must not be lost sight of. If the solution is implemented with care and foresight, there will be both cost

savings and increase in overall capability. Here are some essential considerations that must not be missed

out.

• Ensure integration – resist any impulse to implement a standalone system. Integration with your

companyʼs back end databases will ensure that you get the best results from your investments.

• User Friendly – any solution you select must be intuitive and user friendly. It should also be

automated to the extent possible. Any payments due to your employees must be comprehensively

documented and processed promptly.

• Control and oversight – the solution must implement company policy automatically without any

user intervention. It must adapt to your companyʼs business expense approval policy and the entire

process from approval of expense to settlement of claims must be transparent and clearly

documented.

• Generation of e-receipts – the expense management system must accept data from a variety of

sources and generate electronic receipts that can be traced to the expenditure. This will ensure that

erroneous entries are minimized.

• Comprehensive reporting modules – your solution must have very elaborate and capable

reporting tools that allow you to draw strategic insights from your expense data. The aim is not to

minimize expenditure but to maximize value.

• Support for mobility – the solution must support users using tablets and smartphones. This will

ensure that your users can continue to enter data even when they are away from the corporate

network and that managers are able to see and approve expenditure even when away from their

desks. This ensures that expense data is kept updated and accurate.


Conclusion Business expense management is a critical part of running a successful business. For many years,

companies accepted this as a necessary function with the focus firmly on compliance with corporate policy

and budgeting. It is only in recent years that executives have begun to look at business expense

management from a strategic perspective.

This change of perspective has opened up new vistas of efficiency and capability. Systems are now

integrated with corporate databases and the resultant visibility into expenditure is helping align business

expenses with company strategy.

Cloud computing and the Software as a Service model has provided companies with a low cost,

standardized method of managing expenses. Cloud based systems also interface with smartphones and

tablets with ease. This ensures that expenditure is captured into the database soon after the event.

There are a number of considerations that must be kept in mind if you are implementing such a solution for

the first time. This paper looks at these in depth and makes recommendations that will improve the

efficiency of any solution you deploy.

While large businesses have adopted these solutions energetically, smaller businesses have some way to

go. CEOs of small businesses need to realize that by implementing cloud based business expense

management solutions, they will reduce costs and increase capability and strategic insights. This is

something that no competitive business can afford to ignore.

Documents

White paper - Future of expense management · The future of expense management – 5 Remarkable findings – January 2013 - Cardwise NV Five Remarkable Findings While using any business