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CFOs don’t usually get involved with CRM systems—namely their sales management component, more commonly known as sales force automation. These systems evolved twenty or so years ago out of contact managers to help sales people keep track of their specific sales opportunities, their progression through the sales cycle and allowed their managers to manage sales strategies by tracking the entire group’s opportunities through the stages of the sales pipeline until they reach the end—hopefully in the form of a win. Sales managers also use SFA systems to build their forecasts. This is done by taking the currency value of each opportunity and weighting it by the probability of closing, which is determined by a defined stage in the cycle. So for example, an early stage opportunity of $100,000 would be weighted by the low probability of say 20% (later stage opportunities will have higher weighting) and you have a projected revenue amount of $20,000. The sales manager simply adds up all the weighted opportunity values resulting in a fairly accurate revenue forecast. Sales managers use the visibility these systems provide into the pipeline can also take action by focusing on problematic opportunities or those that aren’t progressing as fast as expected.

So why would a CFO care? First, the obvious. CFOs care about revenue. They often make forecasts for the board or if they’re publicly traded, the shareholders and need to ensure the company will hit its numbers. If they catch a revenue shortfall in time, they can make adjustments to expenditures so earnings come in on target. CFOs who miss their forecasts are often penalized with a plunging stock price or damaged credibility. There are other reasons. In a troubled economy, CFOs also care a lot about managing cash flow. Since sales revenue is the company’s primary, if not only source of cash, the finance people can use the revenue forecast to construct their cash forecast. They only need to make adjustments for the average time it takes for customers to pay their invoices, add in an allowance for late payers, net that against their projected outgoing payments and you have a solid cash forecast as well.

Some savvy CFOs with whom I’ve worked take it a step further. They use the sales pipeline and with the aid of analytic applications, they can use it as a planning tool. One company I worked with held a weekly conference call attended by the CEO, CFO, EVPs of Manufacturing and Sales along with the regional Sales VPs. They referred to this as the “rhythm of the business” and each week they’d review the pipeline, discuss status of each opportunity and booked orders with the regional VPs who would re-affirm their “commits” for the week. When problem deals were identified, they regional VPs would take action in the form of personal visits or coaching their sales reps to accelerate lagging deals. The CEO himself would often visit these customers to help seal the deal. The information from these weekly meetings automatically updated the company’s rolling revenue, cash and production forecasts. The latter determined how much the company would ramp up or scale down production plans and ensured they never had too much cash tied up in work in progress or finished goods inventory. The other advantage they had was that their sales and financial management systems were integrated so the senior managers were always looking at the most up to date information. They didn’t have to wait for the finance staff to gather data and compile reports.

As you can imagine, this company was a stellar performer and it was also a mid-sized company–though it ran like a Fortune 500. They’ve since gone public and even through tough times, they continue to outperform their competition. By applying the same discipline and making the right technology investments, any company—small, midsize or large—can run their business like this and in a tough economy, it can be the key to survival.

In my next post, I’ll walk you through how SAP Business ByDesign can help companies become a “best run business” just like the one described above.

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  1. Gregory Misiorek
    Hi Jim,

    would be nice to see how ByD would pull financial analysts away from spreadsheets with their hundreds of linked formulas that makes finding errors a very time consuming task. any labor savings there drop immediately to the bottom line which is another metric CXOs like to monitor, in realtime, if at all possible.

    Rgds,

    greg

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    1. Jim Daddario Post author
      Hi Greg

      Yes, i remember all that “spreadsheet hell” very well and still have nightmares :-). In my next post, I will describe how ByDesign does this with its pre-built reports that pull directly from the transactional tables.

      Stay tuned!

      Jim

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