Changing of the Guard

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

By Mark Smith

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THE BOTTOM LINE

Performance Management: The applied use of technology, tools, and applications leveraging analytic and collaborative capabilities to improve and manage the efficiency and performance of business processes and the organization. - Full Circle Strategies

Financial Performance Management

This quick historical recap brings us to the current environment, where businesses demand financial systems that optimize and manage financially related business processes and the finance organization. These critical "financial performance management" systems are evolving to a packaged, standardized state reminiscent of the financial operational systems of the 1990s.

This development means that fiscal budgeting, financial planning, analysis, reporting, and consolidation join together on an integrated platform and somewhat automated management of financial performance. Such packaging fulfills a dire need to streamline the financial closing process, simulate and perform scenario planning, and manage financial performance.

The last few years have yielded integrated offerings from such vendors as Cartesis, Cognos Inc., Comshare Inc., FRx Software Corp., Hyperion Solutions Corp., Longview Solutions, SAS Institute Inc., and SRC Software.

These financial performance management suites are not all created equal. They vary in capability and architecture. But they all help optimize the financial business processes and organization operations.

Also, each of them absolutely requires a platform that you can extend by building custom applications that meet your changing business needs. Comshare includes this platform by complementing Comshare MPC (management planning and control) with Comshare Decision. Hyperion accomplishes the same end with its Financial Management application and development tools. The larger ERP providers (Oracle, PeopleSoft, and SAP) have begun to leverage their enterprise data warehouse offering as the platform for building out a more complete suite of financial performance management applications.

New Extensions and Applications

Extending the reach of financial processes outside the finance organization is imperative. One key capability that is still maturing in most of these suites is distributed budgeting and planning that can provide the immediate integration of this information from across the entire enterprise. Adaytum Software Inc. raised the bar in 1999 by introducing a distributed, Web-based planning capability that is now required functionality in all financial performance management suites.

In addition, the industry veterans at OutlookSoft Corp. have introduced Web-based planning and analysis in a collaborative portal environment to further optimize the planning process.

Gaps in these systems have led to a new class of applications that bring innovation and a new level of optimization to financial processes. These applications focus on two areas:

• Providing a deeper and systematic analysis of financial processes and their associated value
• Aligning financially oriented tasks along business processes throughout an entire organization.

The first class of applications focuses on providing the ability to measure, monitor, and take action on tangible and intangible assets in an organization. Stern Stewart & Co.'s "Economic Value Added" (EVA) model, which Hyperion recently agreed to incorporate, supports these tasks. Cash flow return on investment (CFROI), from Holt Value Associates LP, is another approach to determining the value of a corporation and how to manage investments. (See Resources.)

SAP has invested in creating a broader set of application offerings related to finance and value-based management. Value-based management is the methodology that enables companies to measure, monitor, and manage business value, which may be intangible but has a direct correlation to financial earnings. SAP recently introduced the Corporate Finance Management application suite for cash flow, portfolio, risk, and treasury management. This suite complements SAP's financial operations and performance management offering and provides additional analytics for performance management applications targeted at value-based management.

The second application class lets finance align applications to the business as a continuous process of collecting, monitoring, and driving action in the organization based on an understanding of the organization's financial responsibilities. This objective requires a mixture of near-realtime operational interaction with business units and individuals, along with analysis of historical information to spur action in the organization. These applications improve the connection between actions and financial goals.

One clear example of this application type is from ClosedLoop Solutions Inc., which provides a set of "dynamic financial control" applications (TopLine Manager, SpendCap Manager, and BizPlan Manager). Its applications enable individuals across the business to manage their financials and make required changes to operational behavior, whether voluntary or mandated by corporate finance. This near-realtime "closed loop" connection between finance and business managers resultes in tighter financial control throughout the enterprise.

Moving toward a financial performance management suite and supporting platform is absolutely critical to optimizing the financial processes and is the centerpiece of a sound financial management framework. (See Figure 2.) It's also the first step toward meeting the goals of performance management highlighted earlier. Many of the current providers need a lot of improvement in the areas of application usability, distributed architectures, and integration with financial operational management systems.