Plenty has been said about the office of finance becoming more strategic. Perhaps no one has said it better than Arne Sorensen, CEO of Marriott International, who previously served as the company’s chief financial officer:
“CFOs are among the few corporate officers who, like the CEO, are given ‘carte blanche’ to poke around in every area of the business and ask whatever questions they want.”
And good things happen when the office of finance takes a more active role in business strategy and operations. For example, a $7 billion biotech manufacturer successfully implemented a departmental budgeting and planning solution. But the company realized that while the project resulted in process efficiency improvements, the technology alone did little to affect the lives of the folks on the shop floor. So, the director of operations and finance decided to pilot a program whose goal was to show manufacturing employees how their decisions impacted the plant’s financial performance.
To get there, the biotech manufacturer expanded its financial model with operational KPIs such as yields, shift rate premiums, and excess and obsolete (E&O) inventory. This updated model enabled the company to generate simple, function-specific reports—for managers of quality, assembly and test, inventory control, and other groups—that displayed operational KPIs on one side and their impact on financial metrics on the other. Suddenly, the people in the proverbial engine room had a precise and timely read on how their actions affected the overall business.
The old adage about measurement leading to change rings true here. Indeed, a couple years after rolling out this program, the plant became the most efficient and boasted the highest operating profit in the company. That’s the value of finance connecting line of business metrics to financial outcomes, and providing insights that help drive decision-making.
With outcomes like this, it isn’t surprising that analysts have taken notice of how managing business performance has changed. Finance alone can’t move the needle, and Gartner’s report The Breakup of the CPM Suite speaks directly to this. According to Gartner, the corporate performance management (CPM) category should bifurcate into financial CPM (FCPM) and strategic CPM (SCPM). The former will cover processes traditionally under finance and accounting, like financial reporting and consolidation. The latter will focus on integrated financial planning—precisely like the use case above—as well as strategy and profitability management.
Of course, the emergence of SCPM is very much in line with the expanding role of the office of finance. Here are five tips on how finance can bring other functions into the fold to drive business performance.
1. Forge meaningful connections to your line of business managers.
As finance’s sphere of influence expands, it’s important to keep relationships with business partners healthy and productive. And it’s nice to see that finance folks appear to be doing just this. Chief financial officers highlight collaboration as a key initiative for 2016, but nearly 50% of global CFOs surveyed in the Adaptive Insights CFO Indicator Q4 2015 report cite the inability to align with other departments on key metrics as a top collaboration issue today.
2. Get better at data integration.
Indeed, in order to marry operational metrics to the financial ones they affect, you’ll first need to get at them. This is often easier said than done. In addition to overcoming data governance issues, you’ll likely need to invest in infrastructure to enable your finance team to source and prep this data. Your technology solution will be key. Experience shows that the likelihood of success diminishes greatly if connecting data to your model becomes a bottleneck requiring regular help from IT and consultants.
3. Test and experiment.
First, figure out what it is you want to measure. Run some one-off experiments (Excel is great for this!) by hand to convince yourself and the team that your model and its inputs are sound.
4. Build on a solid foundation.
Once you implement a well-understood process, a strong solution will really drive value across the broader organization. Invest in a flexible, scalable, and user-friendly platform for decision-making. (If you haven’t found a solution yet, I can recommend one.)
5. Start small and celebrate victories.
Building a solution around a well-understood planning process, like budgeting, can ease deployment and adoption outside of finance. Lift your FP&A people out of the Excel morass and free them up to take on projects—like the one the biotech manufacturer implemented—that help you realize the next wave of value.
It will take some courage and effort to get going on this kind of finance transformation. But we’re seeing more and more data points that suggest there’s a big value multiplier when you connect financial metrics to what’s happening around the business—and enable more informed decision-making that drives better business outcomes. So start small, think big, and go for it!
Author bio: Matt Shore, Vice President of Product Strategy, Adaptive Insights
Matt is currently vice president of product strategy at Adaptive Insights, where his charter is to articulate and guide product vision and direction across the Adaptive Suite. Matt spent the past two decades in the data management and analytics space in R&D, strategy, and solutions delivery. He started two analytics software companies and made seminal contributions to the product offerings of Oracle, Hyperion, and Adaptive Insights. He also drove several large-scale CPM implementations in high tech, bio-tech, and CPG industries.