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1 Prepared by Research in collaboration with SAP research resear research resear research resear research The Future of Financial Planning and Analysis FINANCE LEADERS ON THEIR FP&A MANDATE AND THE TECHNOLOGY INNOVATIONS THAT WILL HELP THEM TO FULFILL IT

2 Contents About This Report 3 The Future of Financial Planning and Analysis 4 Agility is an increasingly important source of competitive advantage, and the appetite for actionable, real-time analysis is growing. 5 IT systems for FP&A are falling short of intensifying demands for real-time, ad-hoc analysis. 6 Tight integration between financial planning systems and core ERP supports more effective decision making. 7 Pressure on finance teams to improve their contribution to high-value planning and analysis is increasing. 8 Sponsor s Perspective 10 PUBLISHING LLC OF 2

3 ABOUT THIS OF About This Report In May of 2015, Research conducted a global survey of senior finance executives at large companies, seeking to better understand how finance leaders aspire to support business decision makers in the pursuit of value creation and how leading-edge financial planning and business analysis capabilities factor into those aspirations. This report is based on 335 survey responses from senior finance executives at companies with more than US$500 million in annual revenues, representing a broad range of company segments, as follows: TITLE Director or manager of financial planning or financial operations 19% Director of finance 15% Chief executive officer (CEO), president, or managing director 14% Controller 14% Chief financial officer () 13% EVP or SVP of finance 7% Treasurer 7% VP of finance 6% Other 6% REVENUE US$500 million - US$1 billion 27% US$1 billion - US$5 billion 31% US$5 billion - US$10 billion 20% US$10 billion - US$20 billion 11% US$20 billion or more 11% INDUSTRY Financial services/real estate/insurance 19% Business/Professional services 10% Auto/Industrial/Manufacturing 10% Construction 8% Software/Internet/Networking 8% Chemicals/Energy/Utilities 7% Wholesale/Retail trade 6% Food/Beverages/Consumer packaged goods 5% Health care 4% Telecommunications 4% Education 4% Transportation/Warehousing 4% Media/Entertainment/Travel/Leisure 3% Hardware/Electronics 3% Aerospace/Defense 3% Pharmaceuticals/Biotechnology/Life sciences 2% Public sector/nonprofit 2% REGION Europe 30% Latin America (including Mexico, Central America, and South America) 25% Asia/Pacific (including India and Australia) 24% United States/Canada 20% PUBLISHING LLC OF 3

4 OF The Future of Financial Planning and Analysis Each and every day, s feel the pressure building on the finance function to contribute more to business success. And it doesn t appear likely that making incremental improvements to traditional financial planning and analysis (FP&A) practices that is, doing things the way they ve always been done will be enough to meet the new demands on finance. This was the primary theme to emerge from a recent study conducted by Research and sponsored by SAP. In a global survey of 335 senior finance executives conducted in May 2015, Research sought to gain a better understanding of how finance leaders aspire to support business decision makers in the pursuit of value creation and how leading-edge financial planning and business analysis capabilities factor into those aspirations. s are in the business of seeking a competitive advantage for their firms, but this task is becoming more difficult and complex. More than two-thirds (68%) of the finance executives surveyed indicate that over the past five years it has become harder for their company to maintain and extend a competitive advantage in its markets, and six in ten (59%) indicate that over the next two years this task will become even harder. When asked about their finance team s overarching goals and priorities for improving FP&A over the next two years, a controller highlights the strategic role of finance and of the : Our priorities are now focused not only on the company and its profits, but also on opening new possibilities to expand, earning new customers. Echoing this sentiment, a director of finance adds that finance s goal for FP&A is: Setting priorities, developing new management models, making finance more room to play, maximizing use of funds, and creating value. FIGURE 1 Greater agility will become a larger source of competitive advantage over the next two years. Over the next two years, greater agility in responding to business threats and opportunities will become a source of competitive advantage to my company and its peers, compared with today. Smaller No change Larger 76% Larger 2% 15% 6% 50% 26% n Much smaller n Somewhat smaller n No change n Somewhat larger n Much larger Percentage of respondents PUBLISHING LLC OF 4

5 OF The four key findings from the survey below illustrate finance executives insights into how they can better utilize their information resources to fulfill their value-creation mandate. Agility is an increasingly important source of competitive advantage, and management s appetite for actionable, real-time analysis is growing. As volatility and uncertainty become persistent features of the business landscape, the s who participated in our survey predict that the ability to sense and respond swiftly to change will be a key competitive differentiator. Writing in the survey, a controller reinforces the vision for finance s role in this context: Up-to-date analysis for decision making is important for the company to understand risks and opportunities and take immediate actions to gain a competitive edge against competitors. In fact, 77% of respondents say that greater agility in responding to business threats and opportunities has become a larger source of competitive advantage over the past five years. Looking toward the future, three-quarters (76%) of senior finance executives agree that, over the next two years, greater agility will become a larger source of competitive advantage, compared with today. (See Figure 1.) Business agility will be tied closely to the finance function s ability to deliver more than just reporting on historical data. s recognize the need to deliver clear, actionable, forward-looking insights to decision makers and the need to do so faster than ever. Eighty-five percent of survey respondents agree that, over the last five years, the demand for ad-hoc decision support and analysis from finance has increased. And nearly the same number of finance executives (84%) agree that, over the next two years, the demand for ad-hoc decision support and analysis from finance is likely to increase even more. (See Figure 2.) Finance executives also recognize that decision makers appetite for real-time, ondemand analysis continues to grow. Ninety percent of respondents agree that over the next two years, the demand on the finance function to supply highly responsive, interactive, and flexible business analysis to decision makers is likely to increase. Given these intensifying demands, the question for many finance teams is whether their processes and systems are up to the task ahead especially when business growth FIGURE 2 Respondents expect the demand for ad-hoc decision support and analysis from finance to increase. Over the next two years, the demand for ad-hoc decision support and business analysis from finance is likely to Decrease No change Increase 84% Increase 2% 12% 3% 52% 32% n Decrease substantially n Decrease somewhat n No change n Increase somewhat n Increase substantially Percentage of respondents PUBLISHING LLC OF 5

6 OF itself increases the complexity of business needs. A controller comments in the survey: As the company grows with more locations worldwide, we need to rely on a single, standardized, comprehensive [financial] system. IT systems for FP&A are falling short of intensifying demands for real-time, ad-hoc analysis. Survey results suggest that the IT systems currently supporting planning activities are in fact falling short and they may fall even further behind as ad-hoc reporting demands intensify. For example, a majority of finance executives (56%) say that their company often trades off the scope and granularity of data it uses in order to produce reports in a timely manner. A majority (53%) also say that their company has to sacrifice some of the sophistication and complexity of calculations it uses for financial planning and business analysis the type of calculations required for what-if analysis, risk modeling, and scenario planning in order to produce timely reports. Yet, 87% of respondents confirm that improving their companies ability to conduct highly sophisticated, predictive business analysis, such as scenario planning and whatif analysis, would yield a substantial, measurable financial benefit. Looking forward, 89% percent of survey respondents say that they expect demands to increase the scope and granularity of data used for financial planning and business analysis will grow over the next two years. In addition, 87% of the finance executives surveyed expect that demands to increase the sophistication and complexity of calculations used for financial planning and business analysis will grow in the same time frame. When queried on a range of prospective improvements to their companies ability to access information and analysis, nearly all survey respondents (93%) agree that improving the speed and responsiveness of the business analysis that finance supplies to decision makers would yield substantial, measurable financial benefit to their company. Survey results also provide insight into the ways that current IT systems are falling short in supporting planning and analysis requirements: most finance executives (83%) agree that reducing the amount of time, attention, and resources devoted to data migration and manual reconciliation connected with financial planning and business analysis would yield substantial, measurable financial benefit to their company. (See Figure 3.) Finance executives are clearly concerned about the speed with which analysis is made available to the business. While only 14% of survey respondents say that their finance FIGURE 3 Improving current IT systems can provide substantial and measurable benefits. Improving the speed and responsiveness of the business analysis that finance supplies to decision makers would yield substantial, measurable financial benefit to my company. 93% Improving the ability to conduct highly sophisticated, predictive business analysis would yield substantial, measurable financial benefit to my company. 87% Reducing the amount of time, attention, and resources devoted to data migration and manual reconciliation connected with financial planning and business analysis would yield substantial, measurable financial benefit to my company. 83% Percentage of respondents who agree with each statement PUBLISHING LLC OF 6

7 OF function currently responds to ad-hoc requests for business analysis instantly (via selfservice, interactive interfaces), the trend toward real-time interaction is clear. (See Figure 4.) One IT director responding to the survey put his personal challenge more bluntly: Our systems are akin to icebergs, slow-moving and resistant to changing course. Tight integration between financial planning systems and core ERP supports more-effective decision making. While 36% of survey respondents indicate that their company s financial planning systems are well-integrated with each other (with minimal manual intervention), only 15% of survey respondents indicate that those financial planning systems are also very tightly integrated with their core ERP systems (requiring minimal data migration). Respondents recognize the benefit of attaining integration among the various finance systems dispersed across a global company s different business units. Sixty-one percent of survey respondents who report that their financial planning systems are well-integrated across the enterprise and require minimal manual intervention, confirm that their financial planning systems substantially contribute to finance s ability to support decision making. In contrast, among respondents who report that their financial planning systems are well-integrated at the corporate level, with separate systems linked by manual processes, only 34% of respondents say that their systems substantially contribute to their teams decision-support abilities. Beyond the integration of financial systems, however, analysis of survey results also shows a relationship between the tight integration of financial planning systems with core ERP systems and finance s ability to support effective decision making. Eightytwo percent of survey respondents who report that their financial planning systems are very tightly integrated with core ERP systems, requiring minimal data migration, confirm that their financial planning systems substantially contribute to finance s ability to support decision making. In contrast, among respondents who report that their financial planning systems are merely fairly well integrated with core ERP systems, requiring some data migration, only 41% say that their systems substantially contribute to their teams decision-support abilities. (See Figure 5.) A VP of transformation summarizes the desire for tight integration between financial planning systems and core ERP systems: [We are a] global organization that is intent FIGURE 4 Few respondents are currently able to instantly respond to ad-hoc requests for business analysis. In general, finance responds to typical, ad-hoc requests for business analysis. Not sure/varies depending on request More than 1 day after receiving request 20% 5% Instantly, via interactive, self-service interfaces 14% Within 1 day of receiving request 61% PUBLISHING LLC OF 7

8 OF on [achieving] consistency in processes and transparency of data throughout the consolidation of data to financial results. Pressure on finance teams to improve their contribution to high-value planning and analysis is increasing. Finance leaders recognize that the need to improve their teams contributions to highvalue FP&A activities will become increasingly urgent in the coming years. Ninety percent of respondents say that their finance function has been placing a very high priority on increasing its contribution to high-value planning, analysis, and decision support over the past five years. Nearly the same number (88%) say that pressure on the finance function to improve its contribution to high-value planning, analysis, and decision support will increase over the next two years. As survey results demonstrate, placing more sophisticated, more forward-looking, and more interactive information and analysis into the hands of business decision makers is an important finance mandate. It is clear that finance executives also are concerned with the ability of decision makers to fully understand the analysis they receive. In the survey, a CEO summarizes his finance function s end goal for usability of analysis: [We want to] streamline reports so they can be understood by all, from the President to the manufacturing floor. At the same time, finance executives recognize that the finance function has a central role to play in making sure that decision makers make sound inferences from increasingly sophisticated, real-time models and analyses. Eighty-eight percent of respondents agree that the growing speed and availability of financial analysis and reporting will increase pressure on finance to ensure that decision makers fully understand the analyses they receive. Ensuring a full understanding includes communicating underlying assumptions and detailing how the analysis is structured. A VP of finance describes what that full understanding might look like: I hope to improve [finance s] ability to support business analysis and business engagement and when [that] business partnership arrives, people will be hooked on it and have an insatiable appetite for more business analysis and engagement. For finance leaders and their teams, the challenge ahead goes well beyond ensuring that high-quality, forward-looking information and analysis reaches the hands of FIGURE 5 Respondents with financial planning systems that are very tightly-integrated with core ERP systems are much more likely to say their IT systems substantially contribute to finance s ability to support decision making. Percentage of respondents in each category who say their companies IT systems substantially contribute to finance s ability to support decision making (n=134). Financial planning systems are very tightly integrated with core ERP systems Financial planning systems are fairly well integrated with core ERP systems Financial planning systems are fairly loosely integrated with core ERP systems Financial planning systems are not at all integrated with core ERP systems It varies greatly among operating units, subsidiaries, and/or functional areas Not sure/ Does not apply 82% 41% 16% 12% 29% 17% PUBLISHING LLC OF 8

9 OF decision makers with the speed and interactivity that they increasingly demand. In addition to supplying swift, powerful, interactive information and analysis, finance teams will be called upon to make certain that decision makers are in a position to make effective use of that information and analysis. A path to this greater understanding was suggested by several finance executives. A notes that: There must be a leader who can articulate the vision of what can be and why it provides value. An innovative mentality is required that will deliver the automobile while everyone else is asking for faster horses. When asked about the greatest barriers to improving financial planning and analysis capabilities, finance executives cite organizational resistance to change most frequently, followed by lack of data standardization, and then by process deficiencies. (See Figure 6.) Insights into overcoming these obstacles and choosing a way forward to the future of FP&A were provided by several survey respondents. A director of finance notes that consistency of data across the organization isn t helpful unless you get buy-in on the validity of that data. His path toward that goal? Road shows to bring everyone up to speed and training sessions on how and where the data for decisions comes from. Another director of finance emphasizes the necessity of getting the C-suite on board. He writes: Invest time and energy in explaining to the top brass in a stimulating way that they can get more profit from a more integrated financial system. And a adds that broad employee engagement is equally important: Create a way to communicate with employees about new initiatives and their progress [and] provide employees with regular updates at team meetings. Leading-edge financial planning systems promise to resolve many of the technical information gaps that have plagued enterprises. But finance leaders recognize their own responsibility to gain the maximum value from the robust, real-time analysis these systems can deliver, as managers put it to use across the enterprise. As pressure mounts to manage increasingly complex businesses and meet intensifying competitive challenges, finance executives will be called on to deliver the data and analysis that can make the most difference to their business. FIGURE 6 Executives cite several barriers to improving financial planning and analysis The greatest barriers to improving my company s financial planning and analysis capabilities are. Organizational resistance to change 33% Lack of data standardization/poor integration of IT systems 31% Process deficiencies/lack of process standardization 29% Current IT infrastructure cannot support improvement 23% Distraction created by changing regulatory compliance 21% and reporting demands Percentage of respondents Top five responses shown; Multiple responses allowed PUBLISHING LLC OF 9

10 OF Sponsor s Perspective In an increasingly competitive landscape, finance executives face many obstacles as they seek to support the business. Many of these hurdles stem from having disparate information systems leaving finance unable to provide the real-time analysis needed to cope with escalating competitive pressure. These survey findings highlight the growing importance of financial planning and analysis to the enterprise and demonstrate the role that the FP&A function increasingly seeks to play that of a trusted adviser to the business and an agile steward of information and insight that can help the company to navigate these uncertain economic times. As a leader in enterprise performance management, SAP provides the necessary tools to assist the office of the. By providing integrated solutions for financial planning and analysis, SAP offers real-time financial insights into the enterprise. For more information, please click here to learn about SAP Financial Planning and Analysis Solutions. OF 10