Global corporations have made extensive investments in information technology over the years, and typically they use these systems to their benefit. Yet when we look at the functioning of finance organizations, we consistently find that most underutilize their information technology assets. Digging further, we have concluded that they can get more value out of these systems simply by understanding better what they can do and making the effort to apply these capabilities to key processes.
In the spirit of the new year, then, we offer a few suggestions about where finance organizations likely can improve their performance and thus contribute more to the business overall.
First, work to get more of the right information to the people who need it. Financial information continues to be the data most relied upon to manage organizational performance because it is both the most readily available and the most reliable. Many companies collect potentially useful nonfinancial information about their operations, but they don't use enough of it. For instance, only about half of companies involved in our research provide managers and employees with enough information about their own job performance.
Similarly, most of the data people receive in reports looks backward. Only 9 percent have enough leading indicators to help them anticipate changes in their business, while half reported that they get little, if any, of this kind of information. Most organizations are good at collecting internally focused data, but few systematically provide insight about a company's external environment. For example, only 21 percent regularly track how their competitors are performing. Business is not an us-vs.-us exercise, yet management reports rarely touch on the world outside.
A considerable amount of information on key aspects of performance resides in the company's enterprise resource planning (ERP) system. This software has helped to reduce the cost of operating the finance organization, but ERP systems contain other capabilities that most users have not taken advantage of -- and may not even know exist.
A case in point is the ability to automate the management of tasks that span multiple organizations or silos of information in business units. Two-thirds of companies in our research have used their ERP software to support purchase-to-pay processes that handle buying end-to-end, from the initial request through the creation of a purchase order, sourcing, receipt of materials, and, finally, payment. But from the sales end, only half have implemented an order-to-cash system, which manages the process from receipt of an order to confirmation that money has been deposited. If your finance organization isn't one of these, there's potential here for performance improvement.
Likewise, most companies reported extending the use of ERP in functional finance processes such as financial reporting and the accounting close. However, they did so to a much lesser extent when it came to management reporting, and fewer than half have used it for planning and budgeting or performance management, even though most said that it could play a role in these processes. Again, consider these as opportunities for 2008.
Speaking of the close, it is generally acknowledged that companies take too long to close their books and publish their final management reports. In our recent research, 85 percent of participants said that shortening the closing period is important or very important. After advances during the past decade in speeding the close, progress stalled, principally because continued improvement would require more challenging process improvements beyond just improving ERP functionality. We found that those who reported the most success in closing more quickly manage the improvement process formally, reviewing progress regularly and often using software dedicated to consolidation. In contrast, companies that still use desktop spreadsheets extensively in the closing process are much more likely to encounter errors or other data quality issues, which inevitably slow the closing. So if a faster, cleaner close is one of your organization's 2008 goals, consider a project to explore process and technology steps in that direction.
Ventana Research recommends several possible New Year's resolutions for dealing with the problems spreadsheets cause. Designed as an ad hoc tool for individual productivity, spreadsheets simply are not well suited for enterprise tasks. Spreadsheet mistakes costing tens of millions of dollars and adversely affecting a company's reputation are well documented. In the past, your only option was to replace them with enterprise systems -- which for all practical purposes meant not changing them at all.
Today, software for discovery, management, and control can automatically control thousands of spreadsheets to reduce errors and the risk of fraud without requiring people in your company to change the way they use them. Such applications can locate every spreadsheet on every PC on the corporate network. Companies then are able to monitor all spreadsheets in use and the relationships between them.
In other cases, replacing spreadsheets in a given process with an application dedicated to that particular task is more affordable and easier than ever. Budgeting, incentive compensation management, and sales and operations planning are instances when this often is a good choice. Finally, there are tools that can help you to manage spreadsheets used for management reporting and others for access and version control when people collaborate using spreadsheets.
Over the years, IT has streamlined many tedious manual processes in the area of finance. Organizations have made large investments in these systems. Looking closer, they will find that, with incremental additions, they can derive more value from their enterprise applications and networks and use them to drive performance improvements that impact the bottom line. How's that for a plan for 2008?