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Summary
Finance organizations can and should play more of a strategic role in managing the performance of their company. Our research shows that most business people believe finance departments must do more than serve as the “bean counter.” In fact, the role of Finance extends well beyond executing the finance and accounting functions. It defines control metrics and handles performance reporting. It also administers the planning, budgeting and review process. Often, a key step toward making finance departments more effective is better use of IT assets. The Financial Performance Management practice at Ventana Research will focus in 2007 on six major research topics that address this issue: bringing spreadsheets into the 21st century; accelerating the close; enhancing the effectiveness of management reporting; getting more value from enterprise resource planning (ERP) systems; managing compensation; and increasing the value of budgeting and planning. Each of these issues has both business and IT aspects; we will identify them and best practices that companies can adopt to address effectiveness.

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The Financial Performance Management practice selects a research focus topic based on two key criteria: It must have pressing relevance to finance executives as a means to improve their company’s performance, and information technology likely will play a role in addressing the issue. Below we outline the six topics, each a part of establishing the effective CFO, providing technology for the effective CFO and addressing financial process improvement, that we will focus on in 2007.

21st Century Spreadsheets
Desktop spreadsheets have spurred considerable productivity among individual users, particularly in finance organizations. The application appears to be a quick and inexpensive way of handling a range of recurring processes. Yet when pushed beyond their original role as personal productivity software, spreadsheets have become time-wasters. In recurring enterprise processes, the benefit of their versatility is offset by errors in manual data entries and formulas and their lack of referential and data integrity. These inherent defects lead to a greater risk of financial misstatements than in more automated methods, as people struggle to find data entry errors, inaccurate formulas and mistakenly hard-coded values, among other problems. Until recently, companies have had few workable alternatives. But a new generation of applications for managing and controlling spreadsheets has arisen, as have tools that facilitate collaborative use of them. Since the spreadsheets used in enterprise processes or recurring analyses are not going away, corporations must find ways to control them and limit their negative impacts. Our research in 2007 will examine spreadsheet alternatives and ways they can improve companies’ process execution.

Accelerating the Close
Since the late 1990s companies have made little progress in achieving a “fast, clean close.” Our research shows a majority want to accelerate the completion of their accounting cycle, some by a significant degree. We will be drawing on our research study “Fast Clean Close” (sponsored by Longview Solutions) to highlight challenges facing companies, their objectives and potential solutions. The same issues that affect how quickly they can complete the accounting cycle also influence getting accurate, useful information to executives, managers and employees in a timely fashion. Master data management (MDM) is one technique that can help on both counts. It can be used to harmonize a Global 2000 company’s fragmented chart of accounts with far less difficulty than other approaches, eliminating many time-consuming manual steps in closing and reporting. Our research in 2007 will focus on how information technology is being used and can be used to accelerate the accounting cycle.

Enhancing the Effectiveness of Management Reporting
Finance organizations can take a leadership role in corporate performance improvement by expanding the scope of information provided in management reports and making this information available sooner. Our research also shows companies need to extend the scope of their reporting beyond the standard corporate and business unit reports. People need greater visibility into operations as well as financials, they need to know how they are performing, and they want information about how competitors are doing. Moreover, finance executives must keep up with trends in financial analysis, as more companies adopt activity-based costing and other analyses that sharpen their ability to manage costs and improve profitability. Our research in 2007 will focus on the reasons for expanding management reporting and techniques for doing so.

Increasing the Return on ERP Investments
Ventana Research’s recent study “ERP Innovation” examined the use of enterprise resource planning software and how effectively companies are using the capabilities provided by these systems. We found only a minority of companies have extended themselves to adapt business processes in ways that fully incorporate the technology capabilities of ERP systems. Most fail to capture or use information that could help them manage their business better. Companies can achieve substantially more with these core enterprise systems than ever before, but most are held back by outdated perceptions of what they can and should do with ERP. Our research in 2007 will examine the many ways companies can increase the return on their considerable investments in ERP by using it more effectively.

Compensation Management
The recent news concerning stock option backdating has turned the spotlight on the importance of greater visibility and control in incentive compensation and the larger issue of how senior finance executives should deal with compensation management. Our research in 2007 will focus on how better use of information technology can help reduce risks to reputation and compliance associated with compensation.

Better Budgeting and Planning
Most companies have an immature budgeting and planning process. A majority use desktop spreadsheets, which are the single biggest obstacle to making this activity a truly useful management tool. Replacing them with software dedicated to the task can make the process much more efficient and remove barriers to transforming planning and budgeting. Fully utilizing the capabilities of dedicated planning and budgeting software will enable corporations to plan more effectively, drive efficiencies throughout the organization, increase agility and improve the performance of both individuals and business units. Unfortunately, too few companies are using their software to the fullest. Our research in 2007 will focus on the alternatives to spreadsheets and how dedicated software can enable companies to increase the effectiveness of the process.

Assessment
Ventana Research believes finance departments must improve their effectiveness. They can do this by automating more transaction processes and by eliminating the root causes of defects in their financial processes. They must provide more information about how well individuals and business units are performing to key objectives. They should provide more predictive indicators that enable decision-makers to anticipate issues and should collect and disseminate more information about competitors, key customers and partners. Finance organizations also must work to make their core processes more controllable in today’s Sarbanes-Oxley environment. Intelligent use of IT resources can assist all these efforts. Efficiency improvements should enable companies to invest more time in supporting strategic initiatives such as effective planning and profitability management.