Linking Finance, Sales, and Operations

In companies' drive to transform themselves into more integrated, agile organizations, the finance-sales axis is key. Businesses are aligning their finance and sales functions around technologies that improve management of sales territories, quotas, and compensation plans. And they're launching ambitious sales and operations planning (S&OP) projects that link both finance and sales with operations in order to balance product supply and demand and tie day-to-day operations to overall business goals.

The global market for third-party enterprise incentive management (EIM) solutions is expanding at a compound annual growth rate of around 30 percent, according to a 2007 report from Evalueserve, and will hit $1 billion by 2010. By far the majority of EIM solutions are home-grown; however, the proportion of companies that rely on in-house systems fell from 90 percent in 2005 to 85 percent in 2006, the study notes.

The main barriers to more widespread adoption of EIM and sales performance management technologies may be organizational. In a Business Finance online survey conducted in March, 37.5 percent of respondents cited lack of support from leadership as the biggest obstacle slowing the adoption of sales and compensation technologies in their company. Only about 22 percent identified expense as the main problem.

Tensions between the finance and sales functions play a role, too. More than half of respondents reported that a lack of trust between their company's finance and sales departments has slowed the adoption of sales compensation and sales performance management technologies.

For sales and operations planning initiatives, the organizational hurdles often are even higher because of the greater number of functions involved. "Traditionally even getting them onto the same page was very difficult because of the siloed nature in which each of these entities has operated in the past," says Manoj K. Singh, associate partner in the supply chain strategy practice with IBM Global Business Services. "And even after you got these functional entities to the same table, getting finance there was extremely difficult."

As a first step, says Singh, companies embarking on an S&OP project should "define a central planning organization which can have people drawn from different functional areas and which has enough responsibility and authority not only to orchestrate but also to help create multiple options for decisions. And it should have enforcement capability. That's one of the biggest and most important things because you can put together a central planning organization, but if it doesn't have any teeth then it doesn't work."

More and more businesses are finding the effort worthwhile. Companies that implement S&OP can realize performance gains across the board, according to Ventana Research, including improvements in forecast accuracy, customer satisfaction, asset utilization, and inventory value.

And the scope for application of S&OP technologies is huge. More than 70 percent of respondents in the Business Finance poll reported that their organization currently uses spreadsheets to manage this hugely complex set of processes.

Here are the complete results of the Business Finance survey:

What do you perceive as the largest obstacle slowing the adoption of sales and compensation technologies inside your company?
Expense: 21.9%
Little support from leadership: 37.5%
Lack of an IT champion: 6.2%
Lack of a finance champion: 6.2%
Other: 28.1%

A lack of trust between our finance and sales teams has slowed the adoption of sales compensation and sales performance management technologies.
Agree: 51.2%
Disagree: 17.1%
Unsure: 31.7%

What do you use for sales and operations planning?
Spreadsheets: 71%
Dedicated application: 19.4%
ERP/SCM application: 3.2%
Custom application: 6.5%