Midmarket Change Agents: Finance Executives and the Flow of Actionable Data in Middle-Market Firms

Midmarket Change Agents: Finance Executives and the Flow of Actionable Data in Middle-Market Firms A Middle-Market Executive/BlackLine Systems Report September 2014

Content Executive Summary... 3 Impacts... 6 Q & A... 7 Featured Findings... 12 Methodology... 21 Respondents... 22 2

Executive Summary Finance Professionals as Midmarket Change Agents FINANCE EXECUTIVES INSIDE MIDDLE-MARKET COMPANIES ARE WIDELY VIEWED AS AGENTS OF CHANGE ACROSS THEIR ORGANIZATIONS, ACCORDING TO A NEW SURVEY OF MORE THAN 200 SENIOR EXECUTIVES REPRESENTING A ROSTER OF MIDDLE-MARKET FIRMS FROM A VARIETY OF INDUSTRIES. The survey s findings highlight how the role of finance professionals at middlemarket firms is being viewed as every bit as transformational as that of finance professionals employed by large-enterprise firms. Although there are many studies on change management and finance, the role of middle-market finance professionals has not always received the attention that it has in larger firms. According to the study conducted by Middle-Market Executive for BlackLine Systems, nearly 60 percent of middle-market executives said that they view members of their finance team as continuing to focus on strengthening their change management skills in order to better address the finance function s changing priorities. Meanwhile, only 5.3 percent of middle-market executives said that they did not view their finance executives as focusing on strengthening their change management skills. nearly 60 percent of middle-market executives said that they view members of their finance team as continuing to focus on strengthening their change management skills in order to better address the finance function s changing priorities. Top Obstacle for Midmarket Change Agents: Lack of IT Resources The survey revealed that more than two-thirds of middle-market executives believe that finance professionals would like to improve the flow and usability of information supplied to their firm s lines of business (LOB) decision-makers. Three-quarters of the middle-market executives surveyed agreed that quicker access to the right information would help their organizations to more rapidly alter course and adjust plans to achieve better results. However, a lack of IT resources topped the list of primary obstacles that continue to curtail the ability of middle-market finance professionals to respond effectively to the information demands of LOB decision-makers. 3

Executive Summary Nevertheless, two-thirds of the middle-market executives surveyed said they believed that diminished use of manual processes has already led to an increase in the flow of more actionable information to LOB decision-makers. As the flow of actionable data to LOB decision-makers grows at middle-market firms, finance executives are able to become more integrated within their firm s overall corporate strategy. According to Middle-Market Executive/BlackLine Systems survey findings, more than 25 percent of middle-market executives report that their organization s data entry and business measurement processes are fully integrated with overall corporate strategy, while 56 percent of middle-market executives report having achieved some integration with corporate strategy. Period-End Close, Budgeting Top Midmarket s Automation Wish List Shrinking finance teams have also curtailed the adoption of more finance tools within middle-market organizations, according to the survey s findings. Nearly a third of middle-market executives said that limited finance resources and personnel had prevented the adoption of new tools. Despite lacking finance and IT resources, middle-market executives indicate that they are busy automating a variety of financial processes, of which budgeting and forecasting and the period-end close top the list, having been identified by more than a third of the middle-market executives surveyed said that their firms were currently automating processes for account reconciliation, account analysis, and journal entry allocations. more than 50 percent of the middle-market executives surveyed. Meanwhile, more than a third of the middle-market executives surveyed said that their firms were currently automating processes for account reconciliation, account analysis, and journal entry allocations. To properly automate processes and facilitate the flow of more actionable data, middle-market executives said, their organizations were interested in leveraging mobile devices (ipads and/or other tablets). Among the areas executives said that their organizations would most like to leverage with mobile devices were planning and analysis (35.8 percent), budgeting and forecasting (31.52 percent), and period-end close (22.28 percent). 4

Executive Summary Midmarket Prefers Cloud Apps to Complement On-Premise Solutions How effective change is implemented varies from one organization to the next. However, one common denominator is the growing impact of cloud computing on organizations of all sizes. The rapid pace at which cloud computing solutions are coming to market has led middle-market executives to weigh the economic benefits and potential savings. More than half of the middle-market executives surveyed agreed that cloudbased applications can help their organizations to reduce the cost and time needed to deploy tools that facilitate quicker analysis, planning, and budgeting. According to the Middle-Market Executive/BlackLine Systems survey, many middlemarket executives prefer cloud applications to complement their on-premise solutions. While close to a third of the middle-market executives said that their organizations were deploying or had already deployed cloud-based applications to complement their on-premise systems, another 20 percent said that they were many middle-market executives prefer cloud applications to complement their on-premise solutions. close to a third of the middle-market executives said that their organizations were deploying or had already deployed cloudbased applications to complement their on-premise systems. currently considering deploying cloud-based applications for the same purpose. Operations Risk Poses Unique Challenge for Midmarket Finance The push to transform finance begins within the finance operation itself and extends across an organization s operations at large. Asked where their organization s most prominent risk exposures reside, middle-market executives surveyed identified operations (42.36 percent), human fraud (34.48 percent), and strategic risk (24.63 percent) as the three greatest areas of concern, followed by financial reporting (21.67 percent) and system fraud (19.21 percent). When it comes to managing risk, middle-market executives said that their finance teams were least capable in the area of operations risk, followed by strategic risk, whereas they felt that their finance professionals were more capable of managing risk in the areas of financial reporting and system fraud. 5

Impacts TAKE-AWAYS Finance executives in middle-market companies are widely viewed as agents of change across their organizations. A lack of IT resources topped the list of primary obstacles that continue to curtail the ability of middle-market finance professionals to respond effectively to the information demands of LOB decision-makers. Many middle-market executives prefer cloud-based applications to complement their on-premise solutions. Budgeting and forecasting and the period-end close top the list of processes that middle-market firms are currently automating. Middle-market executives identify operations as their organization s greatest risk exposure and believe that their finance team lacks the capabilities to manage such risk. 6

Q & A with Wendy Shapiro of Atlas Air Atlas Air Transports Automation and Data to the Front Lines of Decision-Making WHEN WENDY SHAPIRO ARRIVED AT ATLAS AIR A LITTLE MORE THAN A DECADE AGO, THE FUTURE STAFF VICE PRESIDENT AND ASSISTANT CONTROLLER RECALLS HOW THE COMPANY HAD MANY MANUAL PROCESSES REQUIRING A LOT OF PAPER, PHOTOCOPYING AND FILING. MIDDLE-MARKET EXECUTIVE RECENTLY CAUGHT UP WITH SHAPIRO AND ASKED HER ABOUT WHAT S CHANGED AT THE COMPANY AND HOW FINANCE AND ACCOUNTING ARE LEVERAGING AUTOMATION TO BETTER SUPPORT AND EMPOWER THE COMPANY S STRATEGIC MOVES. MME: The findings of our study show that Finance appears to be breaking new ground when it comes to supplying information and data to decision-makers. Would the employees of Atlas Air tell us the same thing? Shapiro: Yes, and I think you would be able to see the level in which financial information has been provided throughout all of our operations. One area that we have automated and provided significantly improved visibility is in our invoicing process. Back in 2007, we implemented an invoicing system which has allowed us to automate the approval workflow for all invoices and monitor the status and history of invoices across the company. Before, we had to scan and email paper invoices around the company and obtain manual signoffs, whereas There s no question about it. Our finance team definitely views themselves as change agents. We are continuously implementing automated solutions and streamlining processes that help our operations and ultimately the bottom line. now, we have a system where people can log in and view, code and approve invoices from their mobile device or computer, and once approved, the invoice automatically moves to the next step. We can monitor the progress of the invoice which allows them to provide more timely feedback to vendors. MME: As Finance advances these types of improvements, have the members of the finance team begun to view themselves more as agents of change? Shapiro: There s no question about it. Our finance team definitely views themselves as change agents. We are continuously implementing automated solutions and streamlining processes that help our operations and ultimately the bottom line. 7

Q & A with Wendy Shapiro of Atlas Air MME: Automating invoice approval appears to have been a big step in freeing up data, but what else is happening? Shapiro: Well, with increased financial controls, we now have systems in place that allow people to update and review their SOX controls online. As the business evolves, we can make changes to controls and approve them. This also provides real-time access to the changes by management and auditors. But this is not just about the finance team. This is IT, human resources, sales and marketing, and other operational groups, as they all have SOX controls. It s the world that we live in as a public company. MME: So how is this a departure from the past? Shapiro: Previously, the internal audit and external audit groups would have to go through a manual process and perform SOX walk-throughs with every group to update our SOX narratives. Now, business owners go in and update and certify their controls, and then any changes are automatically provided to internal and external audit. MME: What are some of the types of tools that your finance team is using to achieve quicker analysis and planning, budgeting, forecasting? Shapiro: We use an online budgeting software for our annual planning process and finance control and automation tools such as BlackLine s Financial Close Suite and industry-specific systems help us to achieve real-time visibility to our data and also allow us to forecast more quickly, with greater accuracy. finance control and automation tools such as BlackLine s Financial Close Suite, as well as industry-specific systems all of which help us to achieve real-time visibility to our data and also allow us to forecast more quickly, with greater accuracy. MME: Did you view the automation of the period-end close as a milestone? Why? And how have things changed? Shapiro: Automating the period-end close with BlackLine has changed how we operate. One, we close on time every month without question. Two, we close faster within the month. The workflow enhancements that BlackLine provides for the journal entry and account reconciliation process have enhanced the supporting documentation and required approvals. BlackLine also has streamlined the process. It has helped us with quarterly reviews with our auditors, as well as with 8

Q & A with Wendy Shapiro of Atlas Air our annual audit, because the information they require is provided consistently each quarter. Our tasks that are set up in BlackLine allow us to ensure we did not miss an entry which translates into stronger SOX controls. Plus, the auditors can pull reports and documentation right from the system ensuring that they have all the information they were asking for as opposed to waiting for a member of the finance team to find and copy the documentation. This has allowed us to spend more time analyzing our data and doing better forecasting. MME: In what ways have mobile technologies impacted this process? Shapiro: Mobile technologies have allowed the financial information and processes to become portable. We can approve journal entries and sometimes reconciliations via our mobile devices from wherever we are. It s the same with invoices and our contract systems. We can review and approve contracts remotely today. There are a whole host of in-house processes that we have system access to from our mobile devices which allow us to reference, review and approve remotely items such as personnel action forms, helpdesk ticket approvals, IT systems approvals so mobile IT certainly has helped. MME: Turn back the clock and reveal to us how Finance spent its days before all of this automation came along Shapiro: Well, speaking specifically about the accounting team before Mobile technologies have allowed the financial information and processes to become portable. We can approve journal entries and sometimes reconciliations via our mobile devices from wherever we are. we automated, I would say that many of the accountants spent time doing administrative work photocopying, passing things on to external auditors, looking for invoices, searching for journal entries, making certain that we had proper approval on everything. MME: Where is Finance spending its time today? Shapiro: Finance is spending its time partnering with the business. It s helping sales identify more value-add service opportunities that Atlas Air can offer our customers. It s doing better forecasting, using trends in the industry to anticipate what s going to happen in the future which is forecasting from a business standpoint. This continuous improvement process has allowed us to consider 9

Q & A with Wendy Shapiro of Atlas Air how we are doing things rather than just doing them. We have been able to find ways to streamline and reduce redundant and non value-added costs out of the organization. We have found that continuous improvement is not only expected in our business but it has driven significant benefits. MME: How have the company s business leaders reacted to finance people playing different roles? Shapiro: Finance has evolved. I think that our focus on continuous improvement and control requirements have made Finance more involved throughout the organization and what Atlas has done through automation has made Finance s involvement seamless. We have made Finance and Financial Controls part of the business culture. Whether Finance touches the front end, where pricing and contract commitments need to be determined, or on the back end, where proper review and accountability impact our bottom line, Finance is now part of the culture of the company and this has worked really well. I think you can judge business leaders reactions by the fact that Finance is involved from the beginning to the end. This continuous improvement process has allowed us to consider how we are doing things rather than just doing them. We have been able to find ways to streamline and reduce redundant and non valueadded costs out of the organization. MME: Still, change isn t always welcome. How does your finance team address pushback? Shapiro: I think that one of the things that we do well is that when we do have a project or a new system, we try to involve all parts of the business that the system would touch and have people from those touch points involved in the process from the beginning. We have learned that buy in to the process is critical and if you can show people how the automation or the process can improve their current role and get them excited, the project has a greater success rate. If you re a global company, you have to think about your global user base and how to get them involved and how to make the acceptance of the system successful. Companies fail when they try to do it in a vacuum and the owner of the system tries to implement something without considering the stakeholders within the organization. 10

Q & A with Wendy Shapiro of Atlas Air MME: Can you explain to us how organizationally Finance is today embedded within the business? Shapiro: While the entire finance function rolls up under the CFO, many in the finance team directly support the company s operational groups. Specifically, while divisional controller teams report into the corporate controller, they are working side-by-side with the various operational groups. The divisional controllers have a dotted line into the operational VPs. They are active in preparing plans, forecasts and performing analyses for the group (with the assistance of the corporate FP&A group), and they ll ensure invoices are coded accurately and with enough information to assist with analyses. MME: What s the next phase for this type of automation? Where are things headed? Shapiro: Forecasting is a big item for us. We re looking into not only our shortrange forecast, but also our long-range plan. By having accurate data available right away, we re able to do this better and lengthen our forecasting range. I think that people at this company are extremely comfortable with technology now, and because of this, everybody is constantly looking to automate more. We have a lot We have learned that buy in to the process is critical and if you can show them how the automation or the process can improve their current role and get them excited, the project has a greater success rate. This means people out in the field, not just those at headquarters, are involved. of projects going on currently where we re trying to find additional processes we can streamline and automate more manual tasks so that we have even more time to focus on special projects, forecasting and closing even faster than we are today. MME: From your personal viewpoint, can you give us some sense of all that s been achieved over time? Shapiro: I ve been with the company over 11 years. The only accounting system the company had was an ERP system with little workflow automation built in. Reconciliations and journal entries were on paper with manual approvals. We had to take a mostly manual process with manual controls and make it best-inclass. As the company has grown and the business has become more complex we added more aircraft types to our fleet, became a passenger airline, and added a Dry Leasing business over the past couple of years we have only added a few employees into our finance organization, and our external audit fees (mostly because of BlackLine and other systems) have decreased. 11

Featured Findings In a typical year, what percentage of the finance team s total time available is spent on collecting, entering, and validating data? Answered: 211 Skipped: 83 1% to 25% 26% to 50% 51% to 75% 76% to 100% No Answer From improving the period-end close process and account reconciliations to the financial consolidation process, our finance team has made achieving greater efficiencies a top priority. Answered: 211 Skipped: 83 Agree Somewhat Agree Neutral Somewhat Disagree Disagree 12

Featured Findings To what extent are your organization s data entry and business measurement processes integrated with overall corporate strategy? Answered: 212 Skipped: 82 No Integration Some Integration Full Integration No Answer The finance team would like to improve the flow and usability of the information to the Lines of Business (LOBs) to empower frontline decision making and engage the LOBs more in financial planning processes. Answered: 210 Skipped: 84 Strongly Agree Agree Somewhat Agree Neutral Somewhat Disagree Disagree 13

Featured Findings The diminished use of manual processes by the finance team has led to an increase in the flow of more actionable information to the LOBs. Answered: 207 Skipped: 87 Strongly Agree Agree Somewhat Agree Neutral Somewhat Disagree Disagree Quicker access to the right information would help our organization to more rapidly alter course and adjust business plans to achieve better results. Answered: 207 Skipped: 87 Strongly Agree Agree Somewhat Agree Neutral Somewhat Disagree Disagree 14

Featured Findings Cloud-based applications can help our organization reduce the costs and time needed to deploy tools that facilitate quicker analysis and planning from the lines of business. Answered: 208 Skipped: 86 Somewhat Agree Neutral Somewhat Disagree Disagree Our finance organization s current propensity towards cloudbased applications is best described as we: (Check the most applicable answer) Answered: 209 Skipped: 85 Have deployed two or more cloud-based apps in our finance organization to complement our on-premise systems Have deployed 1 cloud-based app in our finance organization to complement our on-premise systems Are in the process of deploying a cloudbased app in our finance organization to complement our on-premise systems Are considering deploying 1 or more cloud-based apps in our finance organization to complement our on-premise systems Are not considering cloud-based apps at this point Are only considering cloud-based apps at this point 15

Featured Findings Our organization would like to deploy tools that facilitate various finance tasks such as quicker analysis, planning, budgeting, forecasting, risk assessment and/or month-end close activities but are unable to because of: (Mark all that apply) Answered: 210 Skipped: 84 Limited IT resources or personnel Insufficient funding available Limited finance resources or personnel Other Priorities Not on This Year s Agenda Other (Please Explain} 16

Featured Findings Our organization is currently using finance tools to better automate the following processes: (Mark all that apply) Answered: 201 Skipped: 93 Budgeting & Forecasting Account Analysis Business Intelligence Fixed Asset Management Account Reconciliation Period-end Closing Journal Entries Allocations Financial Disclosure Billing Purchasing/ Procurement Currency Exposure 17

Featured Findings The following are the greatest obstacles to our finance team s ability to respond effectively to the information demands of management and LOB decision makers: (Mark all that apply) Answered: 203 Skipped: 91 Difficulty measuring or quantifying costs Unrealistic expectations about finance s ability to provide analysis and interpretation Lack of IT Resources Lack of control: Dependence on cross functional teams Demand to provide more information Time required to compile the data undermines the information s usefulness Other (specify) 18

Featured Findings Our organization would like to leverage technologies such as ipads and/or other tablets for the following activities: (Mark all that apply) Answered: 184 Skipped: 110 Budget & Forecasting Planning & Analysis Month-end close management Account Reconciliations Risk Management Other Cloud-based applications can help our organization reduce the costs and time needed to deploy tools that facilitate quicker analysis and planning, budgeting, forecasting, and risk assessment. Answered: 205 Skipped: 89 Strongly Agree Agree Somewhat Agree Neutral Somewhat Disagree Disagree 19

Featured Findings Our organization s most prominent risk exposures reside in the following categories? (Mark all that apply) Answered: 203 Skipped: 91 Strategic Operations Financial Reporting Human Fraud System Fraud Our finance team is continuing to focus on strengthening its change management skills in order to better address the finance function s changing priorities. Answered: 207 Skipped: 87 Agree Somewhat Agree Neutral Somewhat Disagree Disagree 20

Methodology Investigation conducted exclusively for BlackLine Systems. Methodology, data collection and analysis by Middle-Market Executive. Data collected March 3rd, 2014 through March 12, 2014. Methodology conforms to accepted marketing research methods, practices and procedures. Objectives Investigate how the role of finance professionals is evolving inside middle-market organizations. Reveal how finance executives are helping the flow of actionable information to LOB decision-makers. Determine how lacking IT resources and personnel is curtailing the flow of actionable information. Determine automation priorities inside middle-market firms. Methodology E-mail survey. On March 3, 2014, Middle-Market Executive effectively e-mailed invitations to participate in an online survey to a total of 24,323 e-newsletter subscribers and partner participants of Middle-Market Executive. To encourage prompt response and increase the response rate overall, the following marketing research techniques were used: A link was included on the invitation to route respondents directly to the questionnaire. MME s name was used on the invitation to tie the study effort to the online publication. Follow-up mailings were sent to nonrespondents on March 6 and 10, 2014. Response Effective mailing: 24,323 Completed surveys: 215 Effective response rate: 0.8% 21

Survey Respondents Respondents are high to midlevel executives at a variety of firm types. 35% of respondents hold a top-level position, such as CFO, CEO, President, or Owner. An additional 65% are a midlevel executive, such as VP, Director, or Manager. Respondents represent a variety of sectors, including business services(14.5%), retail and wholesale (12.5%), manufacturing (11.31 %), financial services (11.90%), and high tech and communications (10.12 %) 22