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Financial Performance Management Leadership Topics for the CFO

Here's our annual list for 2006.
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Summary
The financial performance management practice at Ventana Research focuses on business problems important to finance organizations that information technology can play a major role in solving. While we assert that IT plays an important role in enhancing the efficiency and capability of finance departments, technology itself is not our focus. Still, often we find senior finance people unaware of IT solutions to their issues, or they resist by invoking the six most expensive words in corporate management: "We've always done it this way." With this in mind, we offer suggestions for where CFOs, assisted by technology, can make an important difference in their company's results.

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We see four areas where finance and information technology intersect today to provide CFOs with leadership opportunities: planning, closing, external intelligence and cooperating with operations.

Better Planning and Budgeting
Planning is one of the activities finance organizations manage least effectively, in our judgment. People routinely use "planning" and "budgeting" as synonyms, yet they are not. Planning formulates a program for action, while budgeting administers the financial position of an entity for a definite period, based on estimates of expenditures during the period and proposals for financing them. The purpose of planning is to set objectives in a coordinated fashion to support the company's strategy and to create a framework and criteria to assess success or failure in achieving those objectives. The purpose of budgeting is to apportion resources. We find companies spend too little time on planning and too much time on budgeting. Our research has found a majority of companies continuing to use stand-alone spreadsheets as the supporting technology for both processes; most finance executives remain unaware of how the time required to overcome the technical limitations of spreadsheets saps the effectiveness of the planning process. Although using dedicated software tools can improve planning and budgeting, Ventana Research contends it takes corporations several years to adopt best practices and make real progress - and even then it happens only if the CFO takes an interest in improving the effectiveness of the process.

The Fast, Clean Close
In the 1990s, companies made substantial progress in shortening their accounting cycles because of the introduction of technologies for enterprise resource planning (ERP), business intelligence (BI) and reporting. Since then there has been little further improvement, even though, according to our research, almost three-fourths of our respondents say closing their books quickly is "important" or "very important" and more than half of companies with more than 1,000 employees want to shorten their monthly and quarterly closing process. There are several ways companies can use information technology to reduce the time spent on the close. Eliminating manual steps through increased automation and replacing stand-alone spreadsheets are two of the easiest to put in place. Based on our research, we estimate that companies that limit use of spreadsheets close their books 20 percent faster than those that don't. Using master data management (MDM) to create a single, enterprise-wide "virtual" chart of accounts can speed the close further because it facilitates automating calculations now done in spreadsheets and manually.

Expanding Intelligence
Our research into corporate reporting found that most companies have addressed the pressing management reporting issues they began to tackle in the 1990s. Yet, while the majority say they get enough basic corporate financial and operational information, most do not have enough information about how well their company is performing against competitors. In the past, collecting such data was difficult, and companies had their hands full simply dealing with internal data. Today, XBRL-tagged data makes it easier to get reliable financial data about public U.S. companies, and organizations such as APQC devise detailed performance metrics about specific verticals that are available on a cooperative basis. Finance organizations should recognize the importance of this type of information and that it is more readily available. Having information about internal operations is necessary, but business is about competition. The finance organization is the most logical place in a corporation to collect, analyze and present this information.

Collaborating with Operations
CFOs who want to play a more strategic role often are advised to avoid being bean counters. Certainly this is not all there is to the job, but productive bean-counting can add considerable value to a company's operations. Finance organizations have analytical skills and an ingrained discipline to produce accurate, auditable numbers that can be put to use in collecting, analyzing and disseminating operational - not just financial - information across the organization. One area where applying these organizational strengths can have an important impact on company performance is in managing customer profitability. Ventana Research believes doing this well will become an important differentiator of business performance over the next three years. Companies must develop a focused, consistent approach to managing profitability that incorporates three essential elements: strategy, analytics and information technology. We advise them to address this issue at the corporate level instead of letting departments take a silo approach. For example, the sales organization may think boosting revenues or increasing gross margin is a good thing, but incentives that boost long-term costs, or pricing that is not in sync with a company's strategy, may be counterproductive. Customer profitability is not a program; it is a comprehensive approach to business. Information technology will be a key component in the success of profitability enhancement initiatives by enabling corporations to gain insights into what impacts margins and to measure how well initiatives are paying off. CFOs should play a key role in managing these efforts from a long-term, strategic perspective.

Assessment
Ventana Research advises CFOs looking for ways to enhance their careers through a more strategic role in company management to consider how information technology could play an important part in achieving their personal objectives. In many larger organizations, the IT organization reports to the CFO, so this could be a natural extension of the CFO's role. Managing this part of the company's efforts well should be a priority for senior finance executives.

About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research