Transforming Finance
By Wayne Eckerson
The New Role for Finance
At an increasing number of companies, forward-thinking finance
departments are transforming themselves from back-office providers
of accounting services to strategic advisors to the business. To
facilitate this metamorphosis, forward-thinking finance departments
have reengineered how they handle information, treating it
as a valuable corporate resource that not only paints a picture of
the past but also paves a clear path to the future.
Historical Role. Historically, the finance department has kept the
books, managed the budget, and looked after cash, capital, taxes,
treasury, and statutory reporting. But there is less tolerance in an
increasingly competitive global economy for people and processes
that don’t add direct value to an organization. As with other shared
services (e.g., information technology and human resources), there
has been a movement in the past decade to transform these finance
functions into more active contributors to the bottom (and top)
lines of the organization.
Finance, in particular, can be a powerful agent of organizational
change. That’s because it sits at the information nexus of the organization.
It collects financial and non-financial data from every
business unit on a regular basis and consolidates that information
into summary and detailed management reports. But to add real
value to the organization, finance needs to move beyond basic data
collection and reporting. It must mine the information it collects
for trends, patterns, and insights so it can advise the business how
best to improve operations, optimize performance, and adapt to
changing business conditions.
Partnering with the Business. Forward-thinking finance departments
form tight partnerships with the business. They collaborate
with business managers on a range of issues that ultimately drive
financial performance: how to optimize pricing, reduce inventory,
rationalize sales commissions, improve the profitability of merchandise
assortments, reduce call center costs without affecting service,
streamline provisioning and procurement processes, and make
build-versus-buy decisions. Finance might also help the business
evaluate whether to extend store hours, source parts from a new
supplier, merge with another company, or take on a new partner.
“We need to collaborate with the business if we are going to improve
the financials,” says a CFO from a major online retailer who asked
not to be named. “Showing them actuals and targets isn’t enough;
we need to help them reengineer fundamental processes. In short,
we need to change from being a financial record keeper to a proactive
partner with the business.”
Room to Improve. Unfortunately, the majority of finance departments
have yet to adopt this new role to a significant degree. Our
survey shows that although the finance department has made
strides toward becoming a trusted partner with the business, it still
has a long way to go.
Less than half of financial professionals who responded to the survey
believe their finance departments, to a high degree, help the organization
“achieve its objectives” (41%), “refine strategies” (35%), “drive
sales” (29%), or “optimize processes” (29%). In fact, more than 20%
of finance professionals gave their finance teams a low rating in these
areas, with a larger percentage saying in effect that the finance department
does little or nothing to help the business “optimize processes”
(43%) or “understand and help drive sales” (50%). (See Figure 1.)
However, when you examine the high and medium scores in each area,
about three-quarters of finance professionals believe the finance department
helps the business in these areas to some degree. This shows that
finance understands its new role and is making progress toward fulfilling
it but is not yet executing at a high level. This is good news, since
the rallying cry about the need to transform finance has been around
for more than a decade.
Divergence from BI. Not surprisingly, finance/business respondents
had a more favorable opinion of the finance department’s impact
on the business than BI professionals did. This gap reflects a yawning
divide between finance and the BI professionals who manage
the finance department’s most precious asset: data. This report will
examine this organizational divide in detail and prescribe remedies
to close it.
Single Version of Truth
Information Infrastructure. Finance departments that proactively
advise the business have at least one thing in common: they’ve standardized
financial information throughout the organization and
harmonized it with detailed transaction data used by the business.
This provides a consistent set of information that both finance and
business unit managers can use to understand past activity, forecast
the future, and make important decisions.
This so-called “single version of truth” liberates the finance
department to focus on value-added activities that drive business
performance. “Our finance community has been a big proponent of
a single version of truth and enterprise business intelligence because
it has helped them undergo a major transformation,” says Bobby
Ghoshal, manager of enterprise business intelligence at Freescale, a
semiconductor manufacturer in Tempe, Arizona. “Our finance team
now spends 80% of their time analyzing data and providing value to
the business, and 20% collecting it, instead of the other way around.”
The Role of BI Teams. To deliver a single version of truth,
organizations rely on BI teams to collect and integrate data from
multiple financial and other systems and make it available to users via
self-service reports, dashboards, or analytical tools, including Excel.
These self-service tools liberate finance and business users from having
to request custom reports or views of data from the IT department
and allow users to get the data they want when they want it.
Ideally, the BI team consolidates the integrated, cleansed data in an
enterprise data warehouse and subject-specific data marts that contain
all the subject areas users want to explore down to transaction-level
data. In reality, the data warehousing environment rarely contains all
the data that finance and business users need, so the BI team needs to
provide BI tools that let users query various data sources directly and
combine the results in reports, dashboards, or spreadsheets.
The Upshot. With consistent, integrated data and self-service
reporting and analysis tools, a finance department can spend the
majority of its time analyzing data and advising the business instead
of collecting, compiling, and massaging data. Mirroring the scenarios
described earlier, a comprehensive BI environment allows:
- Financial analysts to spend less time producing standard
financial reports and more time analyzing the root causes
of performance anomalies and working proactively with the
business to fix or avert problems.
- Financial managers to spend less time collecting financial
and operational data and more time modeling scenarios
and forecasting results to assist with major decisions about
investments, product development, and staffing.
- Executives to avoid surprises at the end of the quarter because
they can track daily performance at every level, enabling them to
work proactively with the business to shore up areas of weakness
before the end of the next financial period.
- Business executives to understand the profitability of every
customer, product, and process on a daily basis and make major
strategic decisions with confidence using facts and not just
intuition.
- Business executives to avoid embarrassing audits or costly
penalties for failing to apply adequate controls to financial
reports and delivering accurate data to financial stakeholders.
Office Depot. Many financial departments are now beginning to
reap some, if not all, of these benefits. For example, Office Depot has
constructed an enterprise data warehouse that aligns financial and
product data at a detailed level. By merging financial and product
hierarchies and data, Office Depot now has a common language that
enables finance and merchandisers to communicate about product
profitability and figure out ways to improve it.
In the company’s copy and print center, financial analysts using
a variety of BI tools noticed that black-and-white copiers weren’t
generating as much profit as color copiers, and they worked with
the business managers to shift their inventory to color copiers. In
another instance, financial managers noticed pricing discounts were
edging higher than expected in several locations and notified business
managers who took action.
“In the past, finance had its profit/loss statement and merchandising
had its sales and gross margin reports by product, but the two weren’t
connected,” says James Hoganson, director of sales accounting and
reporting at Office Depot. “Now, both groups can see the profitability
of individual products on a daily basis, which has enabled the business
to change its strategies more quickly.”
Recommendations
Business intelligence can empower the CFO and finance department
in their quest to better serve the business. When implemented
properly, BI can provide timely insights, which the finance
department can use to help business managers make better strategic
and tactical decisions that lead to better financial results.
To empower the CFO with BI, we recommend the following:
1. Get a sponsor, find and understand the pain. Implementing
BI is an exercise in change management. To succeed, you need an
executive sponsor and a chief lieutenant to drive requisite changes and
sustain the initiative for several years until it reaps dividends. The
best candidates are sponsors who suffer from a lack of visibility into
strategic and operational performance and who are willing to certify
and use the reports the new environment will generate.
2. Partner with the BI team. The BI team is responsible for
delivering clean, consistent financial data, applying appropriate
rules and adjustments, and integrating that data with operational
data from non-financial systems. But the BI team cannot perform
this work alone. It needs to work closely with subject matter experts
in the finance department who understand financial rules and
processes and can interpret the data for the BI team. This requires a
tight partnership between the finance and BI teams in which each
respects what the other does and understands the problems each
encounters along the way. To achieve this partnership, executives
often assign finance experts to serve on the BI project team and BI
managers often recruit tech-savvy financial analysts to work full
time in their departments.
3. Homogenize the general ledger and chart of accounts. To
meet the needs of the finance department, it helps to consolidate all
general ledgers onto a single platform and harmonize the chart of
accounts throughout the organization. This is a major undertaking,
but it greatly reduces the tedious integration work that can slow
down data warehouse deployments (or that requires a boatload of
accountants if done manually). When organizational structures make
such standardization impossible, companies should use financial
consolidation tools to harmonize the financial data. In addition, the
data warehouse can serve as the single point of integration while a
company is migrating to a new global general ledger system.
4. Build an enterprise data warehouse. To deliver the single version
of truth desired by the CFO and other executives, the BI team
should design the data warehouse to be enterprise in scope, linking
operational data with financial data. This enables users to shift from
a financial view of the business to a transactional view to see what’s
driving the numbers, and vice versa. It’s important to remember than
an enterprise data warehouse is built in small steps, one logical data
mart at a time, each providing business value. This process requires
visionary sponsors willing to sustain their commitment and funding
over years.
5. Deliver self-service BI tools. Executives, managers, and other
financial staff must be able to access data directly without IT
involvement. This requires the BI team to implement self-service BI
tools that make it easy for users to drill from summary level views to
detailed data without getting lost, and to preserve views by scheduling
them as regular reports. These reports should be able to pull data
from multiple locations so users can view critical information in one
place with one tool instead of hunting around for data using multiple
software products.
6. Deliver timely, detailed data. Reports that only contain
summarized views of financial and operational data are virtually
useless to financial managers and analysts. To get to the root of a
problem or issue, financial managers and analysts need to view details
and filter data by different dimensions. They also need to see the
freshest data possible so they can identify issues, analyze options, and
work with the business to take action before the problem shows up
on the bottom line. BI teams need to architect the data warehouse to
provide timely data and/or offer robust BI tools that can federate data
from multiple locations in real time.
7. Coexist with Excel. Although financial managers and analysts
are comfortable using Excel, most do not understand its limitations
as a data management system. To enjoy the benefits of Excel without
experiencing the drawbacks, use Excel as a client to BI servers that
manage the data in a consistent way via the data warehouse. It’s also
important to prohibit the use of Excel-based reports that conflict with
CFO-certified reports generated from the data warehouse, to prevent
users from publishing their own reports to a shared server or portal
without permission.
8. Create an ad hoc environment for financial analysts. To
perform ad hoc analyses, financial analysts must combine data from
multiple systems, including the data warehouse. The analytical
environment must be flexible enough to allow them to apply
sophisticated transformations and calculations. Excel is the default
ad hoc analytical tool of choice for financial analysts. But BI teams
should consider exposing the analysts to other tools that extend
the scope and scale of their analyses. This would include predictive
analytic tools that model patterns in large volumes of data; visual
discovery tools that let users interact with data visually at the speed
of thought; and analytic sandboxes that reserve a partition of the data
warehouse for users to combine and merge data warehouse data
with their own.
9. Leverage the data warehouse to support other financial
applications. A data warehouse is more than a reporting vehicle. It is
a corporate resource of integrated data that can support a multitude
of analytic applications either directly or through a series of logical
data marts. These include planning and budgeting applications,
performance management applications such as dashboards and
scorecards, and profitability and risk management applications.
Wayne Eckerson is the director of Research at TDWI. He is an industry analyst and the author of
Performance Dashboards: Measuring, Monitoring, and Managing
Your Business (John Wiley & Sons, 2005). The new edition of his
book will be available in November 2010. He can be reached at
[email protected].
This article was excerpted from the full, 32-page report,
Transforming Finance: How CFOs Use Business Intelligence to
Turn Finance from Record Keepers to Strategic Advisors. You can
download this and other TDWI Research free of charge at
tdwi.org/research/list/tdwi-best-practices-reports.
The report was sponsored by MicroStrategy, Oracle, Teradata, and
Visual Mining.
This article originally appeared in the issue of .