Turning Failure into Success in Accounts Payable
It was George Santayana who coined the phrase, “Those who cannot remember the past are condemned to repeat it.” Inherent within this quote is the idea that mistakes are made by everyone, and it is important to learn from them.
In the corporate world, mistakes can be costly. However, all risk involves failure. Some of the greatest innovations in our modern world were preceded by a long row of failures. Mistakes have often served as a valuable learning experience that have eventually led to enormous success.
This lies at the heart of what is known as the Agile approach. It quantifies the risk and gain of failure into a mathematical equation for better clarity, and utilizes the scientific process of hypothesis and analysis to learn the value of corporate risk. Each strategy is tested and reviewed for levels of failure and success, then reformulated and tested again. The method is ongoing instead of a single event; it allows for a strategy or product to be continually refined and perfected until it reaches its greatest level of success.
The methods used are explained in greater detail in a set of articles by the Harvard Business Review. An introductory article about the process is “Toward A More Agile Future,” written by Adi Ignatius, their editor-in-chief.
Although the Agile methods were originally intended only for software development, they are fast being adopted at every level of business. This is because product and customer trends are changing so rapidly in the 21st Century that businesses are having to continually adapt. Can the agile process be used to increase the profit created by the accounts payable department? In its present framework, it can.
Crushing Old Methods
Accounts payable automation has made it possible for the AP department to take on greater responsibilities in budgetary control. With greater responsibility has come greater levels of risk. New methods introduced by e-invoicing warrant new ways of defining risk. Failure cannot be limited until it is properly acknowledged and defined.
The Agile process depends upon incremental ongoing production that continually changes in response to customer demand. Customer-driven products cannot be introduced quickly unless the purchasing and accounts payable trains are moving rapidly. Older methods of accounts payable are too sluggish to meet the demands of the Agile process, but AP automation works smoothly within it.
Adopting A New Mindset
The tools provided in AP automation can work side by side with the Agile methods in other departments to aid in the formulating, analyzing and refining of better financial strategies. One of the cornerstones of the Agile method is the “Triple F” review – review of strategy failures that is “fast, frequent and forward-looking.” The detailed data archived in electronic invoicing in real time makes fast review a reality. Data parameters can be manipulated and changed to allow for better definition and control of budgetary strategies leading to corporate profit.
Dynamic discounting can be refined on a per vendor basis to reduce the rate of risk. The Agile process requires constant changes in product, and relationships with vendors may need to be adjusted as well. The visible data in electronic invoicing provides a way of making certain that vendors are still satisfying customer demands. New vendors can be assigned levels of risk based upon geographical location, size of company, total years in business, and other factors. Trials can be set up in response to these factors, and evaluated quickly for success or failure.
Success is not the only measure of profit. Failure can be profitable, too, if it acts as a catalyst for future success. The Agile methods provide a way to quantify and define the reasons for failure, using hypothesis and regular review to increase the rate of success. Electronic invoicing is the backup tool needed to make the Agile process complete.
Adi Ignatius: “Towards A More Agile Future”: hbr.org: from the May 2016 Issue Julian Birkinshaw and Martine Haas: “Increase Your Return On Failure”: hbr.org: from the May 2016 Issue