Aligning Strategy and Execution with Enterprise Performance Management (EPM)

Today s Speakers Jim Perry Director, EPM Enablement, Infor Jim is a Director in Infor s EPM and BI practice. With a background in strategy and corporate finance, Jim has lectured extensively on best practices in FP&A and BI. Jim has an MBA in Finance from Rutgers Business School, a certificate in Data Science from MIT Sloan School of Management, and is a registered Six-Sigma Black Belt. 2

Today s Speakers Lee Johnston VP, Finance and Corporate Strategy, LT Apparel Group Lee is responsible for providing insight that enables timely, mission-focused decision-making in addition to ensuring investments and enterprise architecture are aligned with LT s strategic goals. Lee is passionate about communicating data and eliminating inefficient business processes via technology. 3

Infor EPM Practice Overview

Business challenges we see No single source of truth Too much data Too little insights Strategy disconnected from results Lack of visibility into performance and risk 3

What if you could have Single Integrated data platform Business Intelligence everywhere Combined planning and analytics Focused automated insights 4

Strategy alignment and execution framework

Organizational Strategy Alignment Organizational strategy is intended to align individuals, teams, and business units to achieve corporate goals. Business Units Individuals Corporate Strategy Teams

Organizational Strategy Alignment Challenge: When it comes to strategic execution, organizations can run into trouble, especially during times of significant change. The reasons for the strategy - execution gap vary by organization, but typically include the following: Solution: Alignment is needed to embed a framework for strategic execution deep within the operational fabric of the organization. Insufficient executive sponsorship Poor communication of strategy to employees Unclear delegation of duties Lack of alignment between corporate strategy and organizational incentive programs

Two in three CFOs say that their companies do not yet have the capabilities for agile decision making, scenario planning, or decentralized decision making that are required to remain competitive in the coming years. McKinsey & Company December 2016

Organizational strategy alignment According to an April 2016 report by pwc, more than half of all organizations studied are not ready to execute new business strategies in response to rapid, transformational change.

Organizational Strategy Alignment 1. Discuss how to engender a metrics-driven organization 2. Explore the value of deploying an Enterprise Performance Management (EPM) solution to bridge the gap between strategy and execution in business planning and consolidation; profitability management; and governance, risk, and compliance (GRC)

Execution framework

Execution framework In order to create a link between strategies, budget, forecasts, operational plans, and actions, McKinsey & Company recommends that firms utilize best-in-breed software solutions to systematize best practices across the entire enterprise.

Organizational strategy alignment EPM is broadly used to reference a system that controls a set of integrated financial planning and performance management processes: Managerial Reporting Profitability Management Multi-year Financial Forecasting EPM Capital Planning Detailed Budgeting Financial Reporting KPI Definition Scorecards

Execution Framework Planning and measurement activities are often supported by spreadsheets and proprietary applications based on incomplete and fragmented data sets. This requires Finance to manually manipulate data, leading to data integrity issues and less time available for more value-added analysis that can enable better decision support. As the business logic and drivers for these plans gets more complex, existing desktop applications (and even many new EPM technologies) simply do not have the horsepower and in-memory system architecture required to support the business.

Execution Framework Today: Focus on reporting Insights are hard to uncover and locked underneath an abundance of disparate reports Use of Microsoft Excel which has limited analytical and collaboration capability Focus on descriptive analytics using a hindsight lens (rear view mirror) Tomorrow: Focus on analytics Generate value out of existing databases where insights can be buried amongst a veritable mountain of data Liberate the data to enhance decision support and drive profitable outcomes Focus on the future using predictive analytics and what if scenario analysis as you move forward Faster access to insights, quicker response to market shifts, and more innovation

Defining an overall corporate strategy

Defining an Overall Corporate Strategy Many organizations use Microsoft Excel to define strategy and develop KPIs to measure success. What Excel won t give you: Support for collaboration among stakeholders who need to participate in ongoing discussion, work together on financial documents, and gain insight for actionable decision support Scalability or efficiency necessary to be sustainable to perform the complex analyses required for effective execution While Excel is useful for a quick ad hoc analysis, a secure and scalable EPM platform is preferable to address the evolving business modeling, data insights, and scenario planning now required by strategic Finance.

Integrated Enterprise Performance Management (EPM) Process

Integrated EPM Process Having the right data insights is critical for leaders to drive business growth, navigate risk, and optimize value creation in complex and uncertain environments. Finance organizations that support these needs are embracing financial performance analytics. The use of data, structure analysis, and systematic reasoning to make decisions that drive performance is a pivotal capability, powering EPM processes including budgeting, forecasting, and action planning.

Integrated EPM Process The ability to anticipate and react quickly to changes in the market can yield rewards in terms of new business, higher customer satisfaction, and greater customer retention.

Integrated EPM Process As a strategic partner to the business, Finance is now responsible for providing meaningful, actionable insights to facilitate informed decision support. Traditional CFO What happened? Review of static reports Reactive analysis of historical data Modern CFO Why is this happening? Work to understand what actions are needed Focus on what will happen next?

I. Define and Plan

Strategic planning Plan: Develop a multi-year plan (usually 3 to 5 years) to establish the organization s strategic positioning and long-term goals Challenges: Inability to clearly articulate strategic goals Poor understanding of key drivers of business value Internally focused objectives that don t align with the external market or stakeholders expectations Solution: Focus on strategic alignment utilizing driver-based planning and forecasting

II. Execute and Operate

A. Business planning Plan: Develop key strategic initiatives by BU to demonstrate how to execute strategies and reach targets, including identifying gaps to execution Challenges: Failure to align BU plans to overall corporate strategy Ignoring intangible assets such as employee engagement and brand value in the planning process Underplaying planning significantly Solution: Link business unit objectives closely to corporate strategy and targets Balance planned investments between tangible and intangible assets Achieve agreement on all key initiatives at the BU level

B. Forecasting This encompasses the prediction of the expected performance of the organization over a predetermined time horizon and is performed periodically to reflect changes in the internal and external environment. Organizations may undertake forecasting without a clear purpose in mind and fail to differentiate it from target setting and resource allocation. Many Finance professionals focus on lagging gaps between forecasts and actual performance, depriving themselves of the much-needed lead time to pivot to changes in the business.

C. Driver-based Approach to Execution Financials Reported actuals are outcomes and are by nature lagging indicators on past performance. Key Activities/ Drivers The activities or drivers that generate financial outcomes must be identified in order to understand and model the enterprise. They are, in modeling terms, the independent or predictor variables. Plan Execution There needs to be a focus on the main causal factors that should be highlighted and leveraged for financial planning.

C. Driver-based Approach to Execution Benefits of incorporating operational drivers: 1. Enable organizations to design financial models that focus on the leading versus lagging indicators. Note: Too often budget systems are constructed by keying in financial outcomes with no real insight into how those outcomes will be achieved. 2. Provide much greater insight into what s actually going on in the organization. Note: All BvA reports can and should include not only financial variances, but operational variances as well. 3. Enable planners to evaluate alternative scenarios. Note: No one knows the future, but a well-constructed driver-based model enables planners to understand and model the sensitivity to key assumptions. 4. Increase the predictive accuracy of your forecasts and models. Note: Once drivers are collected and incorporated into the business logic of your budget or forecast, one can back-test and fine-tune the logic based on actual experience, improving the predictive quality of your planning model through time.

C. Driver-based Approach to Execution Driver-based and history-driven logic can help to seed the plan mathematically in alignment with corporate goals, greatly reducing the amount of input required by planners and ultimately helping to automate and shorten budgeting cycles. The nuances of driver-based planning models are especially difficult to manage using conventional desktop applications like Excel. Driverbased logic Historydriven logic Strategy execution & corporate goals alignment

III. Analyze and Monitor

A. Data Aggregation Plan: Gather and present data in a report-based summary to support business objectives Challenges: Building consistency in data structures and centralizing data quality management Local performance responsibilities mean that BUs and functions may develop their own master data, reporting and analytics capabilities Risk of moving away from focusing on information that is linked to measuring overall enterprise strategy execution Solution: Under an EPM framework individuals involved in the setup and maintenance of master data elements are educated in the need for increased consistency in data structures and improved quality management More consistent and broad-based data can ultimately be used to generate insights focused on internal measures and/or combined with third-party information, which can multiply the value of information exponentially

A. Data Aggregation Plan: Collect and organize information and present insights drawn from review Challenges: Key information may be made available in reports and dashboards, but regular performance review routines may not be established Lack of structured agenda when reviewing information during meetings, derailing decision process Key documentation to support decision making may not be available before the meeting, or may be too lengthy and/or detailed to be of real value Solution: Focus instead on performance reviews which determine specific actions to close gaps between forecasts and committed targets The reviews should then articulate how strategies are executed. The health of the business should be tracked at all levels, with a focus on trend analysis of actual performance

C. Action Planning The final element of Analyze and Monitor is action planning, the process of identifying specific activities intended to close the gaps between forecasts and targets. The action plan includes recommendations for reducing the gap to target, with the expected outcomes from decided upon actions added to the forecast for the remaining months of the year and beyond fiscal year-end.

D. Conclusion More is being asked of Finance professionals than ever before. The complexities and uncertainty of today s global economy is demanding that Finance be more agile and responsive to organizational needs. As performance management frameworks become increasingly more integrated across financial and operational sources, the level of modeling sophistication required will continue to increase.

EPM Best Practices at LT Apparel Group

1. Why not Excel? 2. Three keys to strategy alignment 1. Integration and collaboration 2. Business intelligence 3. Transparency & agility 3. Successes, challenges and next steps

Let s Be Fair

ERP GL AP Updating Models With Current Data VLOOKUP() SUMIF() INDEX((MATCH))

Workbook Maintenance or Lack Thereof

Formula and Link Errors

Version Control

Frustration

1. Why not Excel? 2. Three keys to strategy alignment 1. Integration and collaboration 2. Business intelligence 3. Transparency & agility 3. Successes, challenges and next steps

Integration

Collaboration

Enterprise Performance Management

1. Why not Excel? 2. Three keys to strategy alignment 1. Integration and collaboration 2. Business intelligence 3. Transparency & agility 3. Successes, challenges and next steps

Leverage Your Data & Identify KPI s and KPD s

Good News or Bad News?

1. Why not Excel? 2. Three keys to strategy alignment 1. Integration and collaboration 2. Business intelligence 3. Transparency & agility 3. Successes, challenges and next steps

Budgets Or

Promote a Culture of Transparency

Re-forecast Often Continuously Improve

Project Far Enough Into the Future to Allow for Action Concept Consumer

1. Why not Excel? 2. Three keys to strategy alignment 1. Integration and collaboration 2. Business intelligence 3. Transparency & agility 3. Successes, challenges and next steps

Successes: Single Source of Truth for Financial Information Inter-departmental collaboration

Successes: Reporting Time Agility and Decision Making

Challenges: Data Management Culture Shift

Next Steps: Expand User-base Balance Sheet, Cash Flow Modeling

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