Building metrics for assessing the business value of electronic order-to-payment cycle

Abstract

The purpose of this paper is to build metrics for assessing the business impacts of information technology (IT) in the order-to-payment process. The extant literature provides a plethora of benefits and measures related to process automation within the financial administration. These come, however, generally in the form of one-dimensional lists and concern separate administrative functions. By going through these repetitive lists, organizations struggle with determining potential payoffs. The majority of existing studies suggests that, at first hand, automation increases productivity through decreased processing time and cost. A variety of impacts apart from cost savings has been reported yet their importance is variably stressed.

What is missing in the current literature is a structured, holistic analysis on the potential productivity gains that could be derived from a full-scale digitalization of the order-to-payment cycle – a tool that would help organizations to navigate through the jungle of impacts and measures. This paper takes a structured approach where all potential gains are pulled together in order to create a basis for proper analysis and evaluation. The idea is to construct a model that would not only pinpoint potential benefits of process automation but also explain how the resulting economic value is created.

In this paper, the order-to-payment cycle is first divided into three distinct sub-processes (e-ordering, e-invoicing, and e-payment) in order to identify specific operational level IT impacts. Based on a literature review and expert interviews, a three-stage metrics model is formulated including business value measurements for each sub-process and the entire order-to-payment cycle. Finally, process-oriented approach is used to investigate how the underlying impacts contribute to company-level economic value added. In addition, the importance of electronic system integration is highlighted by pointing out IT impacts on inter-process linkages. Thereby, the final product is a vertically and horizontally integrated evaluation tool.

The proposed measurement model is then tested in a business context – an in-depth case study at a Finnish design company. The case results show that the model works well as an analysis tool. The results also indicate that the impacts of automating the order-to-payment cycle in the case company relate closely to cost avoidance. Consequently, the company makes IT investment decisions based on estimated cost savings potential. However, once the electronic systems are at place, strong emphasis is given to asset utilization as well – better use of IT could enhance the utilization of existing human resources and capital. The revenue-creating impacts of process automation are acknowledged yet particularly difficult to observe and measure and thus treated with some reservations.