Today’s financial department is responsible for the financial health, sustainability, and processes of an organization. These responsibilities include facilitating financial transactions, performing financial analysis, making financial decisions, and communicating results. The financial job function participates in a wide range of business operations, including the development of business strategy for an organization, and extending to establishing the policies, plans, and budgets that guide operational and ultimately, tactical, financial decisions. Financial departments are also typically held responsible for ensuring compliance and underlying business performance.
Evolution of the Financial Job Function
Finance departments are increasingly moving from a stewardship role to one involved in the strategic management of the organization. While it’s still important to set financial management policies and ensure compliant reporting is completed in a timely manner, finance adds more value to an organization when it’s involved in establishing strategy and enabling other organizational departments to take part in execution of that strategy. This has moved finance into a job function that must be more collaborative and flexible than ever before.
Collaboration with lines-of-business such as sales, marketing, or manufacturing requires the office of finance to move beyond traditional silos and become embedded with front-line decision makers. Continuous communication with lines-of-business must be established to ensure that the financial strategy of the organization can be met. This means guiding managers on how to allocate budgets to best meet goals while remaining flexible enough to adapt to changes in the market. Furthermore, collection of information from the front lines can better inform the risk-management strategies of an organization.
Risk management (including compliance) must become inherent within all financial management processes to improve decision making and create greater visibility into organizational opportunities across the enterprise. Technology and collaboration can help play a role in achieving this goal. Finance and the IT department can improve service quality and reduce the cost of communicating financial information to the lines-of-business through the delivery of self-service analytics, or through embedding analysis directly into the applications that operational employees use on a daily basis. And there is clearly room for improvement. IDC’s SAP HANA Market Assessment survey in 2011 revealed that only 46% of respondents in finance completely agreed that they had access to the right information at the right time to support decision making, analysis, planning, or forecasting. The top reason cited by 35% of finance respondents who believed they lacked access to the right information was that not all relevant information was aggregated in the manner required.
Innovations in Finance
Incorporating more leading indicators into financial job function has moved the office of finance beyond reliance on structured financial reports alone. For example, financial staff has greater access to information useful in supporting forecasts and strategic plans such as customer satisfaction rates, or early warnings about possible product defects. As the amount of data available increases, analytics must be applied to identify opportunities and risks before they arise, so that appropriate actions can be taken. The increased need for analysis in the financial role is shared across the organization, and the office of finance can directly influence the time spent performing higher-value functions by operating as a shared service for the lines-of-business.
Through a centralized, shared service model, finance can reduce transactional costs and deliver financial information to a large group of internal and external stakeholders. With the need to perform transactions removed from the duties of the line-of-business managers, they can spend more time on analysis of business performance while benefiting from greater insight into transactions, which leads to better decisions.
Just as finance staff benefit from analysis of data outside their domain to make financial decisions, so too can an operational employee benefit from such support. For example, insight into payment history may be used to make decisions by a sales representative in the field on an appropriate discount rate due to timely payment. Enabling operational employees to weigh customer risks versus the opportunity, and take direct action, is a powerful capability that can be delivered through support from the office of finance.
Risk management methodologies have further enabled the office of finance to account for risks inherent in the pursuit of any given opportunity, and weigh non-financial impacts against financial goals. For example, the decision to open another factory can be done completely with financial models, but the impact the factory may have on brand image, the environment, and nearby residents may carry a larger, long-term risk than the financial opportunity warrants.
The Impact of Technology
Companies have told IDC they’ve achieved measurable results from implementing business analytics solutions, including reduced costs (54% of companies surveyed), improved customer relationships (42% of companies surveyed), and better information sharing (37% of companies surveyed). The particular features of the following technologies help to explain these results:
- Predictive analytics uses models to identify trends and leading indicators of performance. Hidden relationships between cause and effect can be discovered, often visually, to help inform the models. Then, the KPIs are monitored by the model to provide an early-warning capability for either opportunities or risks that may arise in the future.
- A metrics hierarchy can provide a roll-up of the key performance and risk indicators, using root-cause analysis models to determine the reason for a change in performance.
- Scenario analysis can model the financial impact of a greater number of variables to ensure that the best plans are in place, and that they can be changed rapidly as market forces dictate.
- Self-service and embedded analytics give power to end users to conduct their own analysis and gain greater insight into decisions they’re responsible for, without the intervention of IT or central finance operations.
- Social collaboration tools help finance professionals and users across the organization share information, discuss and debate its meaning, and take action upon it as a single, unified team.
- Mobility: With the aid of mobile devices, information can be delivered at the point of decision (in the office or field) via real-time alerting and analytics-based, proactive recommendations. But the mobile device is more than a “view” tool. The user can then take action, such as executing a transaction or making adjustments to a contract in the field, using the device’s interactive capabilities. The office of finance can benefit from improved productivity directly when process workflows and approvals are extended to mobile devices.
- In-memory: This technology enables the office of finance to retrieve larger volumes of data to more easily spot trends without getting overwhelmed by the volume. Furthermore, calculations can be performed more rapidly to conduct more frequent cycles of financial planning or budgeting, and to speed the consolidation and close process. With greater flexibility in the type of analysis that can be done, finance department staff will gain greater insight into the organization, spot trends more quickly, and make better decisions.
The combination of mobility and advanced analytics based on in-memory database technology can provide a strong platform for achieving best-in-class strategy development, financial management, and business-operation optimization.
This post has been adapted from the IDC Multimedia site sponsored by SAP titled ‘Driving Business Innovation and Improving Job Performance’ (May 2012). To learn more visit the site.