Corporate Performance Management

The Time To Align Finance With Operations Is Now

When it comes to financial budgeting and planning, the days of top-down budgeting driven by finance seem to be a thing of the past. Taking its place is a more integrated and collaborative approach to financial and operational planning. Central to achieving this however, is the use of effective corporate performance management (CPM) software.

The fact is that having finance and operations working independently of one-another is no longer a realistic way to run a business. Bringing the entire enterprise into alignment is the most effective way of increasing profitability and expanding into new markets. To start that journey, organisations need to bring finance and operations together.

The state of enterprise alignment

A December 2016 survey of over 100 financial executives, produced by the Argyle Executive Forum in partnership with Host Analytics, examined the top factors driving change within the CFO role. The results reveal that, for many enterprises, finance and operations are already working much more closely, however there is still room for improvement.

Over 70 per cent of respondents to the survey noted that their relationship with the CEO had become more collaborative in recent years, with 54 per cent seeing their role transition from purely financial to more strategic in nature. One of the most significant changes throughout 2016, however, was the number of CFOs envisioning their role focusing on driving and adapting to change in the future - leaping from 37 per cent in January 2016 to 53 per cent in December.

The key to driving change, according to the report, primarily comes down to evaluating new projects and products, and then carefully measuring their success. It's no surprise then, that the survey found 86 per cent of respondents either agreed or strongly agreed that advanced analytics platforms are already proving their worth in the enterprise decision-making process.

Those enterprises that have invested in finance technology are reporting a number of benefits, including:

Increased productivity in the finance team (61 per cent of respondents)
More time for analysis and decision support (56 per cent)
More streamlined management processes (53 per cent)
Greater accuracy in planning, forecasting and reporting (48 per cent)

Despite these impressive results, however, more than half of the CFOs surveyed stated their organisation was not using modern tools to boost the capabilities of the finance department. The opportunity to improve enterprise alignment with CPM software is at hand; organisations merely need the drive to take it.

Strategies for greater alignment

Writing for the Harvard Business Review, Associate Professor of Management Practice at Oxford University's Saïd Business School, Jonathan Trevor, notes that:

"Alignment thinking requires all decision makers to view their enterprise as a value chain, not merely a set of more or less valuable boxes and wires on an easy-to-forget, ever-changing chart."

Breaking down the walls between departments is the first step. Building a truly collaborative environment where finance and operations teams are intimately connected requires work, and it's important to remember that it's a two-way street.

The CFO must be offered a seat amongst the executive team, and the opportunity to offer their expertise for all aspects of operations, not just those that concern finance specifically. The insight derived from CPM software can prove critical, and with the previously mentioned focus on driving change, developing future initiatives without the input of the finance team is a perilous pursuit.

That said, bringing people from other sections of the enterprise into the finance fold is also valuable. Educating executives and teams from other departments about some of the areas where finance impacts them will help to gain buy-in for new initiatives, and spread much of the deep insight that has previously been siloed. By training operational analysts and giving them access to planning and modelling tools, they can contribute their own metrics and drivers to fully flesh out financial models and devise a more holistic strategy.

CPM: The Backbone For Profitable Growth

Firms working within the services sector encompass a broad range of industries, parties and interests, usually in a highly competitive market looking to optimise projects and people skillsets, while seeking growth amidst increasingly complex regulatory and financial challenges. In this environment detailed and flexible enterprise planning, budgeting, forecasting and reporting becomes a critical backbone for profitable growth.

The Evolving Role of CPM In Finance Transformation

We often hear about the immense importance of digital transformation for the modern enterprise, but transformation can take many forms. While digital may be the umbrella term that covers a broad range of aspects, underneath that are a number of discrete aspects of operations that are ripe for change.

Of these varied elements, finance is one of the most essential. Achieving effective finance transformation requires access to critical information, however, giving CFOs the data they need to make the right changes. People, processes, systems - everything involved in the finance team can be adjusted to improve efficiency, accuracy and strategy.

The evolving role of the CFO

The role of the CFO is changing. Traditionally, core functions involved managing the enterprise's assets and building reports on operations and the state of finances to the leadership team, shareholders and any other stakeholders. Alongside this, the CFO was tasked with ensuring finances were managed efficiently, balancing elements of operation with their respective costs.

These aspects of the job still exist and are a critical part of the CFO's role, but as technology has evolved and CPM and business intelligence solutions have become key drivers of insight, new channels have opened to allow finance teams to have greater input into enterprise strategy. The development of innovative digital tools has allowed finance to emerge as a technology-driven strategic arm, capable of devising business improvement initiatives and deploying them.

Value of CPM for financial transformation

Change for a modern enterprise is good, but not always easy. Given the pace at which innovation occurs, many leaders may find transformation daunting, but there's little argument that the digital climate calls for some new measures. Finance teams must weigh their ability to keep pace with the evolving needs of the enterprise, adopting new solutions and processes to improve efficiency and performance.

The Hackett Group has identified that improving finance performance management is an essential part of transformation, giving finance teams the ability to demonstrate its value and gain the trust and support of leadership. Through the strategic use of financial CPM tools, the CFO can implement the changes necessary to keep up with the modern landscape:

Better planning for the future
Improving flexibility to support corporate activities such as mergers and acquisitions
Reducing the financial risks to the organisation
Streamlining financial close and reporting processes
Ensuring compliance with regulations

"The number one priority is to focus on integrating enterprise information in support of better analytics and improved corporate decision-making," says Jim O'Connor, Principal and Finance Advisory Practice Leader at Hackett Group.

"Finance is in a unique position within the company, with access to all of its financial and much of its operational data. By better integrating this data through Enterprise Performance Management and business intelligence systems, finance can help companies understand performance, improve forecasts, and take action to close gaps and take advantage of opportunities."

4 Keys To Effective Financial Performance Management

The pressures on finance teams are similar to those throughout the rest of the organisation. Finance is being asked to do more with less, however CFO's are also being tasked to be true strategic leaders, not only in their own department, but also throughout the rest of the organisation. As businesses require the ability to react quickly to unforeseen events and to seize opportunities. With financial and operational risk a rising concern, business leaders - led by finance teams - need to look to the future, the past and inside and out for answers to their questions. This is where effective Financial Performance Management comes into play.

But most finance teams still spend too much time in manual, spreadsheet-based processes or relying on complex systems - collecting, consolidating and validating their data before they even begin to analyse it. And as a result this impedes the ability to deliver reports, plans, budgets, forecasts and value add analysis that stakeholders need in time.

The main objective of Financial Performance Management or Corporate Performance Management (CPM) as it's otherwise known, is to help organisations maximise performance in terms of revenue and operating margins, and increase shareholder value by linking strategy to plans and execution through the key processes of goal-setting, modelling, planning, forecasting, close management and financial reporting. In essence, the glue that brings together all of an organisation's disparate financial and strategic data to improve planning and decision making, and light the way forward.

Let's have a look at 4 key areas that finance teams should consider when delivering an effective financial performance management process.

1. Be Insights Driven

According to a survey by the Economist Intelligence Unit on data-driven enterprises, there is a clear link between improved financial performance and the use of data to fuel decision making. While top-down guidance was considered the most important factor to those companies whose own cultural development has been successful, leaders of agile enterprises understand the value of collecting, analysing and deriving insight from business data.

With the office of finance often seen as the custodians of information, there is a critical part to play in leading or participating in this change. Finance has long been data-driven in terms of managing the business with upper level 'strategic' decisions such as planning, budgeting, forecasting and reporting. However, to be truly data-driven, finance is required to demonstrate best-practice leadership within these core financial areas and to use these strategic components to influence the 'running of the business' with day-to- day operational decisions. It is then that CFO's can strengthen ties throughout the business, and expand influence outside core finance functions.

Each organisation will need to find its own path, but a few key steps will assist, such as placing a high value on data transparency, coming together around the numbers and putting in place the right CPM capability. A capability that drives efficiency throughout core financial processes in a way that strips out complexity but adds granularity. Perhaps most importantly though, implementing a data driven culture, where the CFO and his team lead by example, will be an important step in delivering a more resilient, forward-looking business.

2. Simplify & Systemise Where Possible

The transition towards a data-driven culture presents greater opportunities, with many organisations identifying and moving to more flexible driver-based planning where performance is planned based on changes in the most critical variables that impact the business. Essentially, this results in a simpler planning process that can be delivered much faster, and is flexible enough to be updated as the business and operating landscape evolves.

This is usually then complemented with bottom-up planning as appropriate. To move to driver-based planning, a systemised approach is required. Modern CPM tools are designed to simplify financial operations in a number of ways, including:

Reduction of manual processes and dependence on traditional spreadsheet-based approaches.
Transition towards more dynamic planning techniques such as rolling forecasts to more accurately predict earnings and expenses when fluctuations occur, simplifying the planning process, moving away from annual budget cycles.
Improved prediction of future outcomes, with scenario based planning and detailed what-if modelling to maintain an agile plan that can be altered quickly and yield insights on emerging issues and make upfront mitigation strategies possible.
Completely integrating operational, financial and strategic planning processes with reporting and consolidation
Introduction of cloud-based CPM solutions that remove the complexity of managing on-premise platforms while also providing five times the ability to deliver real-time updates to financial metrics. This can improve budget cycles by 7% and deliver higher collaboration and accountability in the budget according to Aberdeen Group.

3. Sharing Ownership Of The Numbers

One of the biggest challenges in enterprise budgeting and planning is, despite significant efforts, gaining business acceptance of the process and owning the numbers as part of that process. Too often than not, finance teams, find it difficult to engage the business and drive accountability in this vital part of the planning and budgeting process.

As we've often found, the key to success here lies in the systems and tools finance teams use to manage these forecasting and budgeting processes. Tackling the 'not my numbers' problem is about providing transparency in the budgeting and planning process, so operational teams are responsible for inputting their forecast and budget information but can also see the roll up effect of these on the company as a whole. By using CPM systems that intuitively link budget details to those items that end users are actually accountable for and which they control, increases ownership of that detail. Advances in forecasting and budgeting applications also enable integrated analysis and reporting capabilities—not just data collection—to be deployed to a larger and widely distributed base of operational end users, providing the ability to further interrogate the data.

4. Financial Systems Must Empower Finance

A finance-owned CPM system will automate many manual tasks and free up time for finance teams to perform data analysis. This is where the most significant value from financial performance management comes from - finance now has the time to work closely with the business and uncover opportunities for value.

Hackett Group, in a recent survey of CFOs, found that companies with superior financial performance management capabilities are more likely to outperform their industry peers on company financial metrics. Examples include reporting and planning more effectively and forecasting more accurately. The survey also showed that by doing this, effective financial performance management also improves enterprise agility. So placing analytics tools like CPM in the hands of finance departments allows them to adapt forecasting and planning on the fly, and align initiatives to close strategic gaps much more easily.

The advent of cloud-based CPM solutions has gone some way to enabling this, and the notion of a system owned and managed by the finance department is becoming a reality. Cloud-based CPM solutions are easily integrated into existing systems to provide a functional, adaptable, secure and integrated financial analytics platform.

Processes and models should be consolidated within a single system, rather than scattered across a number of platforms. Nucleus Research found in its 2016 CPM Technology Value Matrix that for businesses to gain maximum value from their CPM investments solutions need to have above all, high usability and operability by users without IT involvement. The report indicates that cloud-based platforms deliver to this better than on-premise CPM alternatives while also providing 2.3 times the ROI.

To provide businesses the ability to react quickly to unforeseen events and to seize opportunities, finance teams need to improve financial performance management capability and view data and decision making as critical within the business. This involves moving beyond manual, complex approaches and recognising that increases in demand for information requires cultural, process and financial system transformation that will equip businesses to better anticipate and react to unpredictable forces.

Host Analytics Named A Leader In Both Gartner 2017 Magic Quadrants for Cloud Financial & Strategic CPM

There is a shift in the Corporate Performance Management (CPM) market towards cloud-based solutions. Host Analytics was named by Gartner as a Leader in both Cloud Strategic & Cloud Financial CPM. This means Host Analytics is recognised as providing the depth and breadth of capability in the cloud for clients to qualify as a Leader across both areas. Download the Gartner CPM Magic Quadrant reports to learn:

A Guide For CFO's To Deliver Business Agility

Research has shown that improving the performance management capability of finance departments is a key ingredient to making improvements in enterprise agility. This is of particular importance when an organisation is faced with heightened volatility, competitive pressure and where operational and financial risk is a concern. Most finance teams however, are still reliant on manual, spreadsheet-based approaches or overly complex systems which impedes the ability to deliver plans, budgets, forecasts, reports and analysis on time.