Essential Priorities for Finance Departments in 2010
February 11, 2010

Our work at Ventana Research has outlined the importance of effective use of technology for business (See: “A New Decade and Technology Charter for Business and IT Starts in 2010”) and as my colleague has referred as the necessity of finance to lead the proper application of technology for financial performance (See: “Smart and Effective Finance in 2010”). Finance departments in North America and most of Europe will be heading out of their collective “heads down” survivor mode they began to adopt 18 months ago in the wake of the financial crisis. They are beginning to adapt to the “new new” realities of the current economic recovery and – in the United States – a more complex and taxing regulatory environment. Information technology will continue to offer corporations solutions for managing their finance departments and finance related functions not just more efficiently but – of greater importance - more effectively as found with financial performance management. Here are some of the most relevant issues that I think are of greatest importance to assess and improve:

• Managing profitability – There were recurring surprises to Wall Street analyst earnings projections throughout 2009 related to North American-based companies because these companies slashed spending at a much faster rate than they had in past recessions. As North American and European companies emerge from the recession, maintaining margins will be a focus. To be sure, holding the lid on spending will be popular, but we expect an increasing number of companies will start looking for more intelligent ways to address the issue. Depending on the nature of its business and its particular strategy we see an increasing number of companies developing customer and product profitability disciplines and the underlying analytical capabilities (such as activity-based costing ) to support these efforts. They also will need to use “talent management” to ensure that they add headcount in the most cost-effective way.
• Planning, not just budgeting – Companies have found that their ponderous annual budgeting process was not suited to a period of economic volatility as several years in a row they found that these documents were dead on arrival at the start of their fiscal year. More companies will be focusing on integrated business planning (which includes workforce to increase their responsiveness to changing business). Increased agility is a way to take better advantage of market opportunities (increasing revenues) and avoid unnecessary costs (enhancing profitability). Improving the planning process also involves better use of analytics, especially predictive analytics. Improving planning also means improving cash management and better, more granular visibility into cash flows.
• Analytics – Over the past decade, corporations have invested billions in applications that collect an ever wider array of operating data as well as ways to make this information accessible. Moreover, software that makes predictive analytics (those that borrow a variety of techniques from statistics, game theory and data mining to improve forecasts of future business outcomes) used with a richer set of operating and financial data requiring the improvement of the quality, accuracy and timeliness of information for activities like business planning.
• A more volatile and more heavily regulated environment increases the systemic risks companies face. Enterprise risk management has become more important because the impact of cross functional risks is growing and because increasingly headquarters-level controls are the most effective method of risk mitigation as part of the focused efforts with governance, risk and compliance (GRC) for finance but also across operations and IT.
• US public companies will have to get a better grip on using eXtensible Business Language (XBRL) for external reporting to ensure they can efficiently comply with the mandate.
• Taxes, taxes, taxes – Companies operating in the United States will be facing a more challenging tax climate as a result of the huge deficits at all levels of government. State governments have only started to use better technology to enhance their collections and businesses must be certain they are ahead of the game. Having better control over sales and use taxes and managing business tax exposure strategically must be a priority starting this year.

There also are two perennial business/IT issues that have been dogging CFOs and controllers for more than a decade that continue to need attention:

• Accelerating the close – One of the most important benefits of business computing has been its ability to automate the process of collecting transactions data and transforming it into actionable information. Nonetheless, Ventana Research fins that about half of companies with 1,000 or more employees take more than a business week to close their monthly and quarterly books. Accelerating the close and producing management numbers faster and more efficiently must be a priority for the slower half. Also, in a similar vein US public companies must automate their reporting cycle, partly to offset the increased workload imposed by the SEC’s mandate to file their reports using interactive data (aka eXtensible Business Reporting Language or XBRL).

• Use spreadsheets more intelligently – Spreadsheets have substantially increased finance department productivity since their introduction three decades ago but paradoxically our research shows they are also a significant drag on productivity when used inappropriately. Finance departments must find alternatives in situations where spreadsheets are used by for collaborative, repetitive tasks, especially where the consequences of errors can be costly or time consuming. Years ago, replacing desktop spreadsheets was difficult, expensive and often alienated users. However, today’s solutions are cost effective and often use Excel as the interface so that users may not even notice the difference.

I usually frame business/IT issues in that order. However, “cloud computing” and Software-as-a-Service (SaaS) are two important technology trends that will affect how companies invest in, and deploy business software. Increasingly, they will provide companies – especially midsize ones – with IT capabilities they could not afford and capabilities that are only feasible when corporate networks are fused with the universal network, the Internet. Finance can play an instrumental role to sponsor and support the advancement of applications and information that can increase the efficiency of the organizations and visibility for them into revenue related activities across customer and sales organizations, cost bearing activities in human resources and operational areas and effective use of the workforce towards financial objectives.

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Robert Kugel
SVP of Research


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