After years of working capital deterioration, companies are beginning to understand the importance of working capital as it relates to sustaining day-to-day operations and stimulating growth. According to PwC's 2015 Annual Global Working Capital Survey, last year was the first significant decrease in global working capital in four years, with a 2.9% year‑on‑year improvement. This trend is also linked to an 11.3% spike in the level of cash held by companies -- the highest surplus of readily avialable funds in five years.
Improved working capital performance is a sure sign that despite the current low interest rates, top performing companies are focused on improving operational cash flows and working capital efficiency. And, while some executives we've spoken to are preoccupied with external financing to keep the momentum going, the capital they need is often trapped within their own balance sheets.
So how can senior execs develop a cash management culture that will allow them to unlock the potential of the working capital they already have? It starts with an unwaivering commitment to enterprise-wide financial discipline and a well-defined capital optimization strategy.
Actions speak louder than words
Without proper execution, working capital improvement initiatives are destined to fail. In order to leverage opportunities that increase cash flow, cut costs, increase shareholder value or stimulate growth, a supporting cast of drivers and metrics (KPIs) must be in place to sustain the new culture and measure ongoing performance. Equally important is the CEO's responsiblity of communicating new policies and procedures on every level of the organization, which can be extremely challenging.
According to Gallup’s State of the Global Workplace report, only 13% of employees worldwide (30% in the U.S.) feel emotionally invested at work.
Changing the culture requires employee engagement from all levels of the organization. “Engaged” employees, ones that understand the importance of their role as it relates to the new work environment, are much more likely to accept change. Based on past experience, our findings show companies often underestimate the amount of bandwidth necessary to engage every employee.
To read our working capital brochure, click on the image below.
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