Midsize Bank Implements Planning

Prophix tool enables more effective management.
Midsize companies face different business challenges than their larger or smaller competitors. They are no longer as nimble as when they were small. Yet when it comes to purchasing IT, midsize companies lack the resources of the Global 2000 (in both funds and people); they need software capabilities comparable to those designed for larger corporations but at total costs for implementation and ongoing support and maintenance that fit their budget. Our research finds that, in the vital area of budgeting, the vast majority of midsize companies use stand-alone spreadsheets. We advise them to investigate purchasing a dedicated application that can support a shift from budgeting to planning. One company that has done this successfully is Charter Bank of New Mexico, which uses tools from Prophix Software.

Smaller concerns are able to get by using informal channels of communication and coordination between managers, but as they grow or make acquisitions, the flow of information between business units or functional silos inevitably slows. Effective planning is particularly important for rapidly growing midsize companies, and a formal, rigorous planning process improves communication and coordination. Our research has determined that while almost all Global 2000 managers believe they spend too much time on budgeting and planning, in midsize ones the view is different: As many think they spend too little time on the process as too much. Some smaller companies avoid committing resources to this activity because they think it is nice to have but not imperative, and so they choose not to devote scarce administrative resources to it.

Perhaps dedicated planning software is not an absolute requirement, but in midsize companies it can catalyze and facilitate valuable process improvements. While stand-alone spreadsheets are "free" in that they need not be purchased anew, they consume far too many resources when used for collaborative, iterative processes, such as planning, that span the company. Moreover, for certain kinds of activities (such as running several what-if scenarios and comparing the results), using a dedicated application is often the only practical approach since people in midsize organizations cannot spare time to unravel a tangled set of spreadsheets.

Charter Bank's use of Prophix illustrates the potential for meaningful process improvement. Serving New Mexico, Charter is a community bank with growing mortgage and insurance operations. Hands-on management was increasingly becoming necessary to handle the rapid growth, but senior bank executives found themselves hampered by the need to use stand-alone spreadsheets to do detailed planning, particularly for employee headcount. While the company carefully managed its spreadsheets, as new branches and businesses were brought online, the difficulty of using and maintaining these spreadsheets increased. Moreover, it became harder to do meaningful analysis of changes in the business and variances from its plan. To involve effectively all of the more than 30 managers in the planning process, the bank needed to automate workflows, which reduced the administrative burden - an important factor for a business this size with limited resources.

The lack of automated workflow manifested itself in several problematic ways. The bank is small enough that it required detailed headcount planning, something that is difficult to do without this capability. Also, while stand-alone spreadsheets can be used to integrate a P&L budget with a balance sheet and a statement of cash flows, this is not a straightforward process. Because asset and liability management are a core part of a bank's system (to a far greater degree than in the case, say, of an advertising agency or software company), being able to integrate the balance sheet into a planning model is important.

The bank decided on Prophix as its planning application, in part because it would allow high-participation planning. By bringing all of the business unit managers into the planning process, the company was able to facilitate a meaningful forward-looking dialogue. For example, in looking ahead several months management saw a potentially sharp fall-off in deposits as a result of a spike in maturities caused by an earlier time-deposit promotion. After batting around some ideas on how to respond to it, the managers came up with a far more sophisticated (and more profitable) approach to dealing with the roll-over of deposits than they probably could have devised had they been in a reactive mode. In addition, Charter found other uses of the system beyond planning, such as replacing spreadsheets for calculating allocations.

Market Impact
The market for planning software remains fragmented, particularly when it comes to offerings for midsize companies. Prophix has been around for many years but only now is making a concerted push in sales and marketing efforts. The biggest competitor companies like it face is stand-alone spreadsheets. Until now, dedicated applications have had a clear advantage because stand-alone spreadsheets are simply the wrong technology for company-wide planning. The introduction of a server-based version of Excel will mitigate some - but not all - of the problems organizations have using the spreadsheet for their planning process. Particularly for midsize firms, Excel still will lack important features, such as workflow, that are necessary for effective planning processes. We believe many companies will find a dedicated application more cost-effective for their purposes.

Ventana Research strongly advises midsize companies to re-evaluate their budgeting and planning process. Going beyond simple budgets to disciplined planning is an important step that can help midsize companies deal with growth and avoid making unforced management errors. We recommend that companies looking at dedicated planning applications include Prophix in their evaluation process.

About Ventana Research
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2006 Ventana Research

Editor's Choice
Joao-Pierre S. Ruth, Senior Writer