RESEARCH & RESOURCES

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 TDWI Research at The Data Warehousing Institute. 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 weckerson@tdwi.org.

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 .

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