5 Best Practices for Transforming Financial Planning and Analysis

Transcription

1 WHITE PAPER 5 Best Practices for Transforming Financial Planning and Analysis Accenture s Findings on Transforming Finance

2 Table of Contents 1 Why Transform Finance? Closing the knowledge gap: the Accenture view 1 The Effects of Finance Transformation 2 A Blueprint for Transformation: Five Best Practices Step 1: Get the Right People Involved Step 2: Find the Core Drivers of Your Business Step 3: Define the Performance Management Processes Step 4: Choose Flexible Technology for Performance Management Step 5: Take a Phased Approach 5 Case Study: How a Snack Food Company Found the Financial Ingredients to Greater Success 6 Additional Resources b

3 WHY TRANSFORM FINANCE? Predicting the future with perfect clarity is impossible. Who saw Brexit coming? How about the end of brand loyalty or the rise of Snapchat? Accounting for change when everything is changing can make business planning a difficult affair. And yet, none of this is new. If there s one unalterable truth about business it s that change is constant and there will always be new data, new scenarios, and new questions to answer. In an ever-changing corporate world, finance teams have become the first responders. Few are fully prepared to meet the very real demands of that role today, and it s only going to get tougher in the years to come. Closing the knowledge gap: the Accenture view That s the finding from Accenture s periodic survey of leading U.S. and international companies. Matthew Aldrich, Senior Principal consultant with a specialty in corporate financial planning and analysis (FP&A) processes explains they have seen a shift where finance is expected to do more to meet these changes. Hear more from Aldrich about Accenture s experience and findings in a Host Analytics webinar you can sign up for and watch it here. Below this white paper summarizes the findings and insights. Overall, Accenture finds a growing awareness in finance departments around the world of the need to get more deeply involved in understanding and helping shape everyday operations. Financial insight is essential for profitable decisions, and making good decisions quickly can be a competitive weapon in markets where response time is measured in microseconds. Online retail, for example. And even in industries where response time isn t measured in microseconds, there s always the threat of systemic disruption from large-scale events such as Brexit or the unexpected adoption of a new technology. Like a good vaccine, a fully-aware FP&A function can help address these threats while optimizing overall performance. FOR YOUR ORGANIZATION, WHAT EFFECT HAVE DIGITAL TECHNOLOGIES HAD ON THE FOLLOWING ELEMENTS OF FINANCE ACTIVITY? Digital Impacts on Finance Orginizations 86% 67% 66% 61% 0% 20% 40% 60% 80% 100% Can Better Manage Risk Report Better Decision Making Have Improved Their Forecast Accuracy Say Finance Teams are Dedicating More Time to High-Value WorK Accenture Strategy; CFOs Are the New Digital Apostles, August/September

4 THE EFFECTS OF FINANCE TRANSFORMATION Accenture s view of FP&A may feel out of reach, especially if your systems haven t risen above the transactional norms of most finance departments. Those teams tend to find themselves stuck reconciling transactions, fixing spreadsheet errors, and producing and sending reports. High-performing teams are called upon to execute high-value work. How do they do it? Aldrich points to automation, noting that technology has evolved to the point where spreadsheets are really no longer as necessary as they used to be. Enterprise Performance Management (EPM) platforms are more flexible and able to capture and analyze a much wider array of information while automating transactional busywork. Crucially, automating the mundane does not alleviate the pressure for finance teams to perform at a high level. If anything, all finance teams are being called upon to partner with operating departments to study processes and improve outcomes. Expectations are rising. A BLUEPRINT FOR TRANSFORMATION: FIVE BEST PRACTICES For many FP&A organizations, especially those still mired in spreadsheets or legacy software, this sort of 180-degree overhaul can feel daunting. But it doesn t need to be. Aldrich broke the process down into five best practices any team preparing for finance transformation can adopt: 1. Get the right people involved. 2. Look at all the drivers of your business. 3. Define the performance management process. 4. Choose flexible technology for performance management. 5. Take a phased approach. Let s take them one at a time. What s the goal of finance transformation? To elevate finance from a backward-looking function focused on capturing and reporting results to that of a forwardlooking business partner that captures and analyzes data to assess opportunities and drive new value, Matthew Aldrich, Senior Principal Accenture 2

5 STEP 1: GET THE RIGHT PEOPLE INVOLVED Before you decide to transform finance, it s crucial to know why you re transforming and for what purpose. Answers to those questions need to come from the top. Who needs to see the data? What will better insight help them to achieve? How will the change be executed? When you really dissect and understand how decisions get made, it s easier to get key executives the information which helps them get things done. Just be judicious. According to Aldrich, most executives at companies large enough to need an EPM platform are looking at between key performance indicators (KPIs) ideally, he said. And they won t all be financial. Think of the clothing retailer that depends on a finely-tuned distribution network of trucks that delivers new product weekly or even daily. The speed and efficiency of that network can mean the difference between meeting customer demand and needless spend on inventory that won t sell. Or think of the major drug manufacturer that uses EPM to track demographic data in clinical trials in hopes of finding patterns that could reveal the difference between success and failure. Despite the undeniable promise of good data, Aldrich said Accenture didn t find many instances where there was alignment on the KPIs from top management throughout the organization. Finance must help facilitate this process. It is very surprising when you go into large enterprises, you ve talked to executives about the things that are most important to them, go down one or two layers, and the things that those people are thinking about are completely different, he said. Don t be this sort of company. Learn to track the right financial and non-financial KPIs and data and you ll be better positioned to make a material impact on performance. STEP 2: FIND THE CORE DRIVERS OF YOUR BUSINESS Finance must understand the drivers of the business. Those need to be translated into metrics and indicators that gauge execution and predict performance. Those indicators need to be what matters most to your executive team. Act like the business partner you aim to be and dig deep on the real drivers behind revenue and profit. Usually, that means looking at a well-balanced mix of leading and lagging indicators, Aldridge said during the webinar. He s referring to both prior quarter performance (a lagging indicator) and leading indicators that suggest where demand is headed. What s a leading indicator? In the auto industry, gas prices help inform consumer buying patterns. They re a leading indicator that tells carmakers to build more economy cars when gas prices are high, and more SUVs when they re low. EPM functions best when your system ingests and combines a wide variety of business data to test for insights. Don t do this alone! Ask peers, regional managers, and the top executives what they believe about the leading indicators of success and test their hypotheses. Every test will reveal more about what drives the business, and which are the most useful levers for increasing profits. As Aldrich puts it: We have found that FP&A [teams] have to broaden their skillsets beyond the base level finance and analytics. Most notably, they need to have strong interpersonal skills and a deep understanding of the business including how other functions, like manufacturing, marketing, and sales operate [on a daily basis]. 3

6 STEP 3: DEFINE THE PERFORMANCE MANAGEMENT PROCESSES Performance management is a continuous process that works at every level, Aldridge said. First, you set targets, then you plan, report, and ultimately find and fix gaps. Again, this means going beyond spreadsheets or outdated technology, and traditional finance metrics to find areas of leverage. Think of any business that runs on thin margins. A grocery chain could benefit from measuring how its produce suppliers perform relative to weekly spoils that need to be moved off the shelves. A shoe retailer may want to track style posts as well as brand mentions on social media in order to properly serve the latest trend. An auto dealership may want to track seasonal trends in order to be sure the parts and service department are ready for customers preparing their vehicles for shifting temperatures. In every case, there are clear links between performance or non-financial metrics and what the business must do to address the changes and maintain or improve profits. Finance is central in driving the evaluation and process management. Finance teams can add value by helping the business manage to targets, Aldrich said. What this involves is continually evaluating the gap between forecast and targets and developing alternative decisions that would drive closure. And then helping management execute and monitor those gaps to ensure that, at the end of the day, they re doing all they can to meet targets. STEP 4: CHOOSE FLEXIBLE TECHNOLOGY FOR PERFORMANCE MANAGEMENT While EPM is a well-defined software category that includes tools for tracking and reporting, Aldridge advises a proper mix of features is critical, and notes the right combination can produce a huge return on investment. How do you know if you ve found the right mix? Flexibility of analysis combined with proper governance and good management of the underlying data. Only then will you get to one version of the truth instead of 30 Excel spreadsheets assembled in a commingled mess. At that level, automation becomes possible and enables finance teams to get out of Excel to focus on business partnering, Aldrich said. Performance management technology really has evolved quite dramatically in the last five years, especially with cloud, he continued. If you re still in Excel, you really need to focus on getting [an EPM platform]. And even if you do have performance management technology and it s a bit dated, you might want to consider changing it and upgrading. Why? Process automation is always improving, and every new automation increases the odds of the FP&A team getting out of the business of transactional reporting and into the business of strategic business planning. STEP 5: TAKE A PHASED APPROACH Are you ready to perform at the highest levels? Moving from Excel or upgrading an old system to a more automated and intelligent EPM approach takes time and focus. Decide which area you need to improve. For example, if your first step is to automate key performance indicators (KPIs), look at how you get the data today and who needs access to it. Then automate and improve everything that delivers those reports and KPIs to the management team. That s finance transformation in action. It needs to cover all three dimensions of people, process, and technology to be effective, Aldrich said of the most consistent finding in Accenture s experience. Maybe start with planning this year to improve the company s liquidity. Then move to improving the reporting process. Looking at EPM as a process that unfolds over time, with a series of quick wins while focusing on the biggest overall priorities for the business, Aldrich concluded. 4

7 CASE STUDY How a Snack Food Company Found the Financial Ingredients to Greater Success For some companies, fast growth and a global brand aren t enough to ensure sustainable success. In the case of one Accenture client, a well-known snack food company, lack of visibility into the key drivers of financial success took a bite out of profitability. It was difficult for the company. They knew there were opportunities but they were not sure exactly where. Sure, gross margin was good but selling direct to stores required heavy investments in selling and distribution. Standards would also vary. Some customers had networks of stores and used regional warehouses. Other times, deliveries had to be made on a specific schedule, one store at a time. These variances in distribution methods led to wide swings in customer-level profitability, yet there was no single system for capturing the data that would reveal true customer profitability. Accenture first worked with executives to identify key performance indicators around customer and product profitability. Then they developed a phased implementation roadmap around their people, process and technology. They identified the first technology delivery, customer and product profitability reporting. Ultimately, the solution would need to be able to provide planning and modeling capabilities around profitability. For this step Host Analytics was selected as the EPM platform to deliver the capabilities. It s been a month and a half and we re already seeing unprofitable customers and opportunities to take action, Aldrich said. 5

8 ADDITIONAL RESOURCES To hear more of Aldrich s ideas and learn how you can begin leveraging Host Analytics for performance management, check out the replay of the webinar summarized in this whitepaper, titled Insights from Accenture on Finance Transformation. Host Analytics is the industry s leading provider of scalable, cloud-based enterprise performance management (EPM) systems. Companies of all sizes, from $10M startups to $10B multi-nationals, rely on Host Analytics to provide financial planning, consolidations, and reporting. HOST ANALYTICS 555 Twin Dolphin Drive, Suite 400 Redwood City, CA USA T Toll Free: sales@hostanalytics.com Copyright 2017, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. Rev: a