by Jennifer Pinney, director at REL Consultancy
Great people, great ideas, great customers – most major companies have some combination of formidable advantages going for them. Like world-class athletes, where the difference between the best and the rest is measured in hundredths of a second, the companies that carry away the gold often do so not because of a single major advantage but through the cumulative power of doing many small things exceptionally well.
For athletes, the willingness to make tiny adjustments in their stance or their training regime gives them what it takes to be a champion. A similar factor for companies is taking pains with their working capital management. Unfortunately, first-rate working capital management skills are not easy to achieve. The 2015 Working Capital Survey of the top 1000 companies in North America and Europe found that only 1% of companies have achieved improvements in cash conversion cycle (CCC) – a key measure of working capital performance – for the last three years in succession. (The cash conversion cycle [days] = days of sales outstanding + days of inventory outstanding – days of payables outstanding.)
Why do so few achieve excellence? Perhaps the biggest reason is that relatively few make the effort. As with social and environmental sustainability issues, most executives pay little attention to working capital except when facing a crisis, and their indifference is transmitted to the entire organisation. Without pressure from the C-suite, no one collects metrics or designs incentives that have a working capital focus, and no one rushes to install the controls needed to manage working capital professionally, or to do the hard work required to simplify payment processes.