How Corporate Finance Got Its Groove Back

Sep 23rd 2014
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In today's volatile marketplace, companies, regardless of their size, are dealing with more complexity than ever before. Global markets, which bring both new opportunities and new competitors, far-flung supply chains that require precise organization, disruptive technology, increasingly empowered customers, and lingering economic uncertainty, which continues to fetter many firms' plans for growth, have all exponentially accelerated the pace of change in nearly every industry.

To thrive in this volatile and ever-variable business climate, a new report, conducted by the Business Performance Innovation (BPI) Network, is advising CFOs, management accountants, and other finance professionals to literally "rethink" the way their finance departments do business.

The report, "Predictability Through Planning Agility: Best Practices in Collaborative Budgeting and Continuous Business Rebalancing", released this August, says finance professionals must "consider new agile financial processes that improve predictability and responsiveness to changing business conditions" if they want their companies to grow today's capricious business climate.

"The role of the CFO and the finance organization is central to providing the insights needed to steer the company forward and deliver bottom-line value", according to the report. "To do so, finance professionals must rethink their way of operating to provide not only a historical snapshot of business performance, but also predictability about future growth opportunities."

Dave Murray, director of thought leadership for the BPI Network, a peer-driven thought leadership and professional networking organization, said financial professionals are essential to this transformation, because they can make their companies more responsive to change and more data-driven in their decision-making.

"The roles of the CFO and management accountants are key to steering companies forward and delivering bottom-line results", Murray said.

Murray said the report found there is a strong correlation between companies that embrace financial best practices and those that outperform competitors in overall business performance. "High performing financial teams are doing away with cumbersome top-down budgets and embracing more collaborative and iterative planning. They're moving away from manual, Excel-based processes, toward leveraging automated systems that improve business integration and time to insight", Murray said.

The report examined how finance professionals in several global companies are changing their business processes and systems to improve the accuracy and timeliness with which they deliver financial information to their companies.

Study authors looked at the roles modern budgeting and forecasting played in helping companies spot new opportunities, such as mergers and acquisitions, and anticipate potential shortfalls.

The report concluded that finance professionals must implement new best practices that stress flexibility and continuous improvement to "drive business agility and keep pace with the rate of change."

These new "best practices" included adopting continuous planning and budgeting processes and next-generation technology platforms to help improve the business value of financial and operational insights. Key findings also suggested that companies that embrace new financial management practices such as rolling forecasts and analytics achieved greater data accuracy, flexibility, predictability, and timeliness.

The report highlighted six key changes being made by companies to improve the value and relevance of financial teams and processes. They included the following shifts in financial planning, forecasting and budgeting:

  1. From annual to continuous. Transform forecasting and budgeting from a one-time event to an ongoing process that monitors changes inside and outside the business and reflects those changes in investment and spending decisions.
  2. From top-down to bottom-up. Give the business units more access to information and the ability to provide more current data on the business.
  3. From disconnected to integrated. Do away with manual data input (i.e., Excel) in favor of integrated, automated systems.
  4. From budget-driven to model-driven. Use model-driven planning to more clearly define inputs and expectations—from competitive and market issues to commodity and vendor costs and economic shifts.
  5. From inflexible to agile. Incorporate more agile process and systems to be more responsive to business change, including allowing the financial group to engage more meaningfully with the business units.
  6. From universally disliked to widely embraced. Do away with despised processes (like annual budgeting) that inhibit rather than enable in favor of processes that engage the entire organization.

BPI also found companies are increasingly achieving these goals with the adoption of new cloud-based platforms, such as cloud-based EPM, that automate key planning processes and functions, deliver greater business insights, and free financial professionals to become more valued advisors and partners with the business groups they serve.

An underlying premise of this new era finance department, Murray said, is the idea that finance pros must evolve from static, reactionary "tacticians" who generate monthly reports with the rote inevitability of boxes falling off a conveyor belt into more dynamic, strategic members of their companies' decision making team.

That means doing away with outdated finance practices like old-school annual budging and forecasting which, Murray said, are typically obsolete and irrelevant as soon as they are completed and inhibit a company's ability to respond to the changes and competitive issues that are actually affecting the company.

Companies that have pulled themselves out of the muck of manual and time-consuming rote financial processes for consolidation like close and reporting can also focus more of their financial group's time helping the business units bring more insight and analytics to their operations and decision-making, Murray said.

That approach is already in play at Jazz Pharmaceuticals, which is one of the companies featured in the report. It's a Dublin-based specialty drug maker that has grown rapidly over the past 4 years through mergers and acquisitions. "[Our] rapid growth has required the finance teams and other business heads to closely collaborate in managing the budget and producing forecasts that are as accurate and timely as possible", said Tami Gordon, senior director of financial planning and analysis at Jazz. "Our growth strategy demands real-time visibility into the state of the business and the flexibility to reallocate resources as business requirements change."

Alex Ortiz, head of product management for Enterprise Performance Management (EPM) solutions firm Host Analytics, the company that sponsored the report, said the stakes couldn't be higher for companies who chose to disregard the competitive pressure driving CFOs to rethink how they operate.

Those companies simply won't survive in today's marketplace, Ortiz said, unless they ditch their rigid, outmoded processes for more flexible financial practices.

"In the war to be at the top of any given market there is intense pressure to win customers, investors and talent. The history of business is littered with companies that have failed to respond to changing market conditions", Ortiz said. "It only takes one player in an industry to leverage new technological weapons, like cloud computing, that improve finance processes and ultimately improve business agility. History shows that nimble companies out-perform slow ones."

BPI will host a Financial Forecasting and Planning webinar on October 16 featuring CFO thought leaders discussing the issues raised in the report.


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