The Financial Performance Management practice at Ventana Research focuses on business problems important to finance organizations that information technology can play a major role in solving. While they assert that IT plays an important role in enhancing the efficiency and capability of finance departments, technology itself is not their focus. Still, often they find senior finance people unaware of IT solutions to issues, or who might resist by invoking the six most expensive words in corporate management: "We've always done it this way." With this in mind, they offer suggestions where CFOs, assisted by technology, can make an important difference in their company's results.
Ventana sees four areas where finance and information technology intersect today to provide CFOs with leadership opportunities: planning, closing, external intelligence and cooperating with operations.
Planning is one of the activities finance organizations manage least effectively, in Ventana's judgment. People routinely use "planning" and "budgeting" as synonyms, yet they are not. Planning formulates a program for action, while budgeting administers the financial position of an entity for a definite period, based on estimates of expenditures during the period and proposals for financing them. The purpose of planning is to set objectives in a coordinated fashion to support the company's strategy and to create a framework and criteria to assess success or failure in achieving those objectives. The purpose of budgeting is to apportion resources.
Ventana finds companies spend too little time on planning and too much time on budgeting. Research has found a majority of companies continuing to use standalone spreadsheets as the supporting technology for both processes; most finance executives remain unaware of how the time required to overcome the technical limitations of spreadsheets saps the effectiveness of the planning process. Although using dedicated software tools can improve planning and budgeting, Ventana Research contends it takes corporations several years to adopt best practices and make real progress - and even then it happens only if the CFO takes an interest in improving the effectiveness of the process.
In the 1990s, companies made substantial progress in shortening their accounting cycles because of the introduction of technologies for enterprise resource planning (ERP), business intelligence (BI) and reporting. Since then there has been little further improvement, even though almost three-fourths of Ventana's respondents say closing their books quickly is "important" or "very important" and more than half of companies with more than 1,000 employees want to shorten their monthly and quarterly closing process. There are several ways companies can use information technology to reduce the time spent on the close. Eliminating manual steps through increased automation and replacing stand-alone spreadsheets are two of the easiest to put in place. Ventana estimates companies that limit use of spreadsheets close their books 20 percent faster than those that don't. Using master data management (MDM) to create a single, enterprise-wide "virtual" chart of accounts can speed the close further because it facilitates automating calculations now done in spreadsheets and manually.
Ventana's research into corporate reporting found that most companies have addressed the pressing management reporting issues they began to tackle in the 1990s. Yet while a majority say they get enough basic corporate financial and operational information, most do not have enough information about how well their company is performing against competitors. In the past, collecting such data was difficult, and companies had their hands full simply dealing with internal data. Today, XBRL-tagged data makes it easier to get reliable financial data about public U.S. companies, and organizations such as APQC devise detailed performance metrics about specific verticals that are available on a cooperative basis. Finance organizations should recognize the importance of this type of information and that it is more readily available. Having information about internal operations is necessary, but business is about competition. The finance organization is the most logical place in a corporation to collect, analyze and present this information.
CFOs who want to play a more strategic role often are advised to avoid being bean counters. Certainly this is not all there is to the job, but productive bean counting can add considerable value to a company's operations. Finance organizations have analytical skills and an ingrained discipline to produce accurate, auditable numbers that can be put to use in collecting, analyzing and disseminating operational - not just financial - information across the organization. One area where applying these organizational strengths can have an important impact on company performance is in managing customer profitability. Ventana Research believes doing this well will become an important differentiator of business performance over the next three years.
Companies must develop a focused, consistent approach to managing profitability that incorporates three essential elements: strategy, analytics and information technology. Ventana advises them to address this issue at the corporate level instead of letting departments take a silo approach. For example, the sales organization may think boosting revenues or increasing gross margin is a good thing, but incentives that boost long-term costs, or pricing that is not in sync with a company's strategy, may be counterproductive. Customer profitability is not a program; it is a comprehensive approach to business. Information technology will be a key component in the success of profitability enhancement initiatives by enabling corporations to gain insights into what impacts margins and to measure how well initiatives are paying off. CFOs should play a key role in managing these efforts from a long-term, strategic perspective.
Ventana Research advises CFOs looking for ways to enhance their careers through a more strategic role in company management to consider how information technology could play an important part in achieving their personal objectives. In many larger organizations, the IT organization reports to the CFO, so this could be a natural extension of the CFO's role. Managing well this part of the company's efforts should be a priority for senior finance executives.
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