By: Hirak Kayal, Vice President - Cloud Applications, Oracle
Gartner calls them the “Nexus of Forces.” IDC says they constitute the “3rd Platform” for innovation and growth. No matter how you define it, cloud, social, mobile, and big data are changing the competitive dynamics of the global economy and creating significant value for companies that know how to create business models leveraging these technologies.
According to new research by Deloitte and OpenMatters, the shift to digitally enabled business models is also influencing shareholder valuation strategies. Investors are paying more for companies with business models that embrace and emphasize “intangible assets” such as,customer, human, and intellectual property, and leverage the wisdom of crowds to co-create products and services.
CFOs who continue to allocate their company’s capital to tangible assets while utilizing previous generations of technology in a supporting capacity are putting their company’s management and shareholders at serious risk. The result is the generation of lower levels of performance and enterprise value, while their digitally and big-data-savvy counterparts are spending their organizations’ resources on building and mining intangible assets powered by today’s technologies.
Not surprisingly, change on this scale has produced new tensions as the C-suite attempts to prioritize competing initiatives to support a more customer-centric approach to business, and meet the growing demands of social-media marketing and an apparently inexhaustible clamour for data. It is becoming increasingly apparent that if organizations are to successfully navigate the challenges of the Digital Age, then the roles of the CEO, CFO, CMO, and CIO must coalesce around a new model of collaboration with the acquisition, maintenance, and consumption of data at its core.
Forward-looking CFOs understand these changing dynamics, and are moving quickly to create modern, technology enabled finance organizations that are better equipped to support more agile, digitally enabled business models and stronger C-suite collaboration. They recognize the need for new rules to measure, manage, invest, and report on changing sources of corporate wealth, and the demand for new finance best practices to benchmark the performance of their organizations in key processes that can drive value creation and organizational excellence. CFOs who master digital transformation are not only helping fulfill their mandate as the stewards of corporate value, but also placing themselves in a better position to potentially assume the role of the CEO when the time is right.
Modern CFOs are embracing their role as business catalysts and technology evangelists, skilled in identifying organizational needs and partnering with other lines of business to support process excellence, better operational performance, and innovation. Indeed, Gartner’s CFO Technology Imperatives survey results reflect the stronger role CFOs have over technology decision-making, with roughly 50 percent of CIOs and CTOs now reporting directly to the CFO, while another 25 percent have a dotted-line relationship. Yet finance organizations are often the last to digitize operations, taking a back seat to customer engagement, sales, and marketing.
What’s changed in the Digital Age?
“Historically, finance has been the recorder of history. Now, finance is leveraging the power of information to predict events, accelerate decision-making, and create more agile organizations,” David Pleasance, senior partner, Deloitte Consulting LLP.
Long-range planning is the formal quantification of the more conceptual strategic plan. It makes specific assumptions and expresses in numbers how a company expects its strategy will play out over time. Companies use long-range planning to determine the best strategy for succeeding in their markets and to ensure they have assets needed to support their strategic objectives.
Traditionally, planning was done by finance with complex spreadsheets using data from on-premises ERP systems. However, in today’s competitive global economy, finance must collaborate with Marketing and Operations in the planning process, using unstructured data from social-media sources as well as the structured data on site. Because of the extensive collaboration required, reliance on complex spreadsheets is giving way to digital technologies like new planning and budgeting cloud services, and the process is being streamlined with mobile collaboration.
The following best practices can help companies modernize the Plan and Predict process:
The classic report and comply function included a sequential series of highly fragmented manual processes that resulted in errors, staff overtime, and significant management anxiety. Today, modern ERP and planning and budgeting cloud services imbued with the latest social and mobile functionality can streamline the close process and speed reporting. In today’s competitive economy, it is critical that companies embrace task automation and collaboration through a well-orchestrated process that streamlines the entire record-to-report cycle.
The following best practices can help companies modernize the Report and Comply process:
#1 Replace complex spreadsheets with modern planning applications
Finance needs modern, packaged planning applications that get away from disconnected spreadsheets and support users in the ways they work. Look for modern functionality, such as mobile and social collaboration that makes it easy for business users to interact and provide input. If the planning application is fully integrated with office tools such as Microsoft Office or Google Office, it will allow users to work with the tools they need to get their jobs done more effectively and focus on the most strategic activities.
Empowering employees with modern planning applications to be more strategic is what drove former Hyatt CFO Gebhard Rainer to upgrade to the latest version of the company’s planning and budgeting applications as part of Hyatt’s “Project Unify” finance transformation initiative. “I would
say the overriding objectives for us have been (and still are) first: gain more efficiencies around how we plan and predict; and second: apply that process and the tools that are available to free up time for people to become as strategic as possible in their thinking.
#2 Drive planning across the enterprise and exploit the “wisdom of crowds”
One way organizations are achieving agility is to get more business users involved in their planning processes and building financial plans based on operational intelligence from various lines of business. It is widely recognized that line-of-business managers and operational staff need to be actively involved in planning and forecasting, as they have the knowledge and a detailed understanding of what is actually happening in the markets where they operate. Such operational information is vital if organizations are to develop financial plans and forecasts on which they can predictably deliver. This practice is often described as tapping into “the wisdom of crowds”. The
resulting scenario is a large volume of users across many lines of business developing financial plans based on detailed operational plans, using large amounts of information, and thus demanding higher performance and scalability from the planning systems.
Driving planning across the enterprise can also be enabled by modern, cloud-based applications with the latest embedded mobile and social technologies. Obtaining the input and intelligence of line-of-business managers becomes much more feasible with a cloud-based model that can be easily and flexibly rolled out across the organization.
#3 Adopt driver-based rolling forecasts
To be truly agile, organizations need to be able to “plan at the speed of business,” which means they always need to be ready to re-forecast and develop the new forecasts very quickly. Many organizations are reducing reliance on the annual budget and are leveraging best-practice methodologies such as driver-based rolling forecasts to keep pace with their business. Key operational metrics relevant for the operational plans are used as drivers to quickly calculate and allocate financial values, thereby reducing the need for time-consuming, detailed, input-based plans.
Embedded social collaboration is another innovation that can be accessed through modern, cloud-based ERP systems. These collaboration tools use conversational capabilities, similar to social media, embedded directly into the actual transactions to provide users with context and allow them to execute faster.
Today’s modern CFOs also recognize the need for new rules to measure, manage, invest, and report on changing sources of corporate wealth, and thus are embracing new finance best practices to benchmark the performance of their organizations in key processes that can drive value creation and organizational excellence. CFOs who master digital transformation not just in finance but across the enterprise are not only helping fulfill their mandate as the stewards of corporate value, but also placing themselves in a better position to ultimately assume a greater leadership role in their organizations.