“Not everything that can be counted counts, and not everything that counts can be counted.”
CFOs today know this axiom better than any other executive in the C-suite. Where traditionally they focused on pure financial data, such as revenue, cash flow, and profitability, today’s CFOs are increasingly faced with incorporating non-financial data—from supply chain data to customer satisfaction—into their planning, forecasting, and reporting, as these metrics often provide a more accurate, long-term view of their organization’s future. And while the majority (76%) of CFOs are measuring non-financial KPIs today, per a recent survey, the types, volume, and sources of data present both opportunities and challenges for the office of finance.
Many CFOs anticipate non-financial KPIs to increase
Based on the results of the Adaptive Insights CFO Indicator Q3 2016 study released last month, CFOs reported that non-financial KPIs comprise up to 20% on average of the total KPIs they are reviewing. Looking ahead two years, nearly half (46%) of CFOs anticipate that to increase, with non-financial KPIs expected to comprise up to 30% on average of the total KPIs tracked. It is clear that non-financial data is creeping into the finance team’s domain and they must be able to review, track, and report on it.
Why the upward trend for non-financial KPIs? Using a blend of financial and non-financial KPIs enables the office of finance to help business leaders across the organization spot trends early, which helps mitigate risk or take advantage of opportunities—or both. However, assimilating operational and financial data rapidly into a single source of truth that can be used for reporting and planning can be a daunting task for many finance teams. There are three key changes that finance teams must make today to accommodate the rise in non-financial data tracking:
1. Adopt systems that provide faster and more efficient access to data: Today’s finance teams are inundated with data. And, when you add non-financial data, the ability to connect disparate systems across the organization becomes key. Today we announced the findings of an internal audit by our professional services team that showed that non-financial system integration requests are on the rise. With more than 1,500 integrations completed by our team, they noted a 300% increase from 2012 to 2016 for non-financial system integrations to our Adaptive Suite. And overall integrations are on the rise, as finance is increasingly acting as the centralized overseers of data.
This trend aligns with our CFO Indicator survey that revealed an increase in the number of source systems finance teams leverage today. In fact, 12% of CFOs are managing 10 or more source systems, up from just 8% a year ago. Systems that can easily integrate and streamline the data gathering and reporting enable finance teams to spend more time on the actual analysis.
2. Develop a greater business understanding beyond just finance: CFOs have reported that business understanding is one of the top skills missing from their teams today, and they intend to develop their teams through greater collaboration and integration with other parts of the business. The best finance teams are no longer just experts in their function; they are experts in understanding their business.
Top non-financial KPIs we see across our customer base include sales pipeline, marketing pipeline and net promoter score (NPS). Today’s finance team must understand the drivers behind those numbers and why they are trending up or down. While they can be indicators of future growth—far beyond a revenue number—the data behind the numbers is as important as the actual KPI. Understanding the stages of the pipeline, velocity, deal size, and historical conversion rates, for example, all contribute to the final sales pipeline number.
3. Collaborate. Collaborate. Collaborate.: This is easier said than done. While CFOs realize they can and should collaborate with other parts of the business, they have also reported that a lack of time prevents them from collaborating and engaging in strategic tasks, and that more efficient business processes and technology will be used to overcome this challenge. Finance must collaborate with its business partners in order to gain the access and understanding required to deliver the value companies expect.
Successful corporate performance must include both financial and non-financial KPIs
CFOs and finance teams are faced with ever-increasing amounts of data—in terms of volume, sources and types. But understanding what to measure and how to measure it is the real challenge for finance teams looking to glean the insights that will drive their business. The CFO Indicator Q3 2016 survey results reinforce what finance teams are already experiencing: Successful measurement and analysis of corporate performance must include both financial and non-financial KPIs. And, with the right combination of technology, business training, and collaboration skills, finance teams can provide a new level of value to the organization and count what truly counts.