Changing of the Guard

New analytic approaches can help business leaders reach financial goals and objectives

By Mark Smith

Executive Summary

Mark Smith The CFO is under increasing pressure to meet shareholder expectations. In response, business intelligence technology - which has already augmented the value and efficacy of transactional systems, supply chain management, and front-office applications - is cropping up in new software that is fomenting dramatic change in financial management.

The fundamental business processes of financial operations are well established. But in the last few years, business operations have grown exponentially from these fundamentals. They have become so complex that they seriously hinder the CFO's ability to meet shareholder expectations.

The consequences, along with a lack of visibility into organizational performance and new economic conditions, have been missed earnings announcements. These missed earnings have led to last-minute layoffs, organizational restructuring, and operational expenditure freezes.

This situation is of course a rapid reversal to the last five years of great prosperity. The tightening economy has revealed that most organizations' abilities are primitive. Rather than taking financial control of their operations and efficiently managing the business day-to-day, they react at the last minute when they realize the financials are not going to meet earnings forecasts.

Rapid evolution of markets in the last five years, accelerated by the Internet, has greatly complicated the dynamic business processes for which the financial organization is held accountable. For example, new automated supply chains, shifting customer relationships, and new electronic marketplaces complicate management in our global, 24 X 7 business environment.

On top of these difficulties, the Internet-enabled proliferation of information available both inside and outside of the enterprise has added significant pressure to meet profitability goals and associated financial earnings targets.

Fire Prevention

How does finance move from its traditional role - accounting and fiscal management - to proactively managing the financial health of the company? To reduce the time spent "putting out fires," reacting in panic and using the phone and email to negotiate solutions, finance needs to automate the interaction between people and business processes and give people the information they need to make good decisions. This goal has posed a formidable challenge until recently: Advancements in information architectures, software technology, and application solutions are now more readily available to assist finance and the entire enterprise.

To give finance its necessary speed and agility requires a new set of performance management applications. (See the sidebar, "The Bottom Line," for a definition.) Systems that optimize the financial management processes are only the first step. New financial systems need to better align with organizational business processes. These systems need the right mixture of operational and analytic functionality along with strong collaboration capabilities. These needs are spawning a new class of financial performance management systems that ultimately better equip the business to meet shareholder expectations.

The finance organization must strive for the three key goals of performance management: enabling visibility, optimizing performance, and maximizing assets. (See the sidebar, "Objectives for Success.") Although finance has the primary responsibility, the entire organization must work together because financial systems hold many of the metrics that define success and that must be integrated into systems throughout the company. (See Figure 1.)