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Summary
Our recent research study, “Finance Innovation in Midsize Companies” shows that many of these organizations do not spend enough time in planning and budgeting. Planning is an important management tool; performed well, it becomes the foundation of managing organizational performance effectively. The research also showed that spending the right amount of time on the process – neither too little nor too much – directly affects how well a company plans and budgets. It confirmed that companies that plan well are better able to control performance as related to budget. One important innovation that CFOs in midsize corporations can implement is to transform budgeting into a more effective tool. We find that the biggest barrier to that is the use of standalone spreadsheets to manage the process. Ventana Research recommends midsize companies replace spreadsheets with a dedicated application designed for their requirements.

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One notable difference between midsize companies (that have 100 to 4,999 employees) and large companies (with 5,000 or more employees) is that employees of the former are more likely to say they spend too little time planning and budgeting, while those from the latter are more inclined to say they spend too much. In our study, sponsored by Lawson and Prophix and media sponsors Business Finance, IMA, Intelligent Enterprise and Montgomery Research, 39 percent of survey respondents from midsize companies said they spend too little time on planning and budgeting, while less than one-fourth (23%) said they spend too much time. In contrast, those from 41 percent of large companies said they spend too much time on this task, while only one-quarter said they spend too little time.

The dominant reason midsize companies spend too little time on these important business processes is that they use spreadsheets as their main planning and budgeting tool (61% for midsize companies vs. 44% for large companies). Ventana Research has found that spreadsheets force companies to spend too much time dealing with the issues that arise whenever spreadsheets are used in collaborative, repetitive enterprise processes – issues such as rolling up multiple files into a consolidated view as well as finding and correcting errors. This takes time away from analysis that, for example, might uncover unnecessary spending or find inconsistencies between business units’ plans. Since midsize companies typically have far fewer resources than large ones to devote to purely administrative functions, we conclude that they see too little return on this important investment of time and should curtail the use of spreadsheets.

Spending the right amount of time on planning and budgeting is also important. Respondents who said they spend the right amount of time also rated the quality of that process considerably higher than those who said they spend either too little or too much time. Nearly three-quarters (71%) of respondents from companies that said they spend the right amount of time also rated their process very good or excellent. In contrast, only 37 percent of those who said they spend too much time and 24 percent of those who said they spend too little time rated their processes as good.

Our research found that a company’s ability to monitor the financial performance of its business units is closely related to how well it performs planning and budgeting. Business strategists speak of “visibility” – the ability to understand easily, in detail and in nearly real time the state of a business process. Companies achieve visibility into their business processes when they are able to assemble data in sets that are concise and relevant. Time, precision and context are important factors. Visibility can provide a competitive advantage, particularly when it enables companies to react faster to changing conditions. Companies that have excellent visibility into business unit performance also do the best job of planning and budgeting. More than one-third of respondents who said they have excellent visibility also rated their planning and budgeting performance excellent, compared to only 17 percent who said they have very good visibility and just 4 percent who rated their visibility as good. In contrast, half of participants who said their company has unacceptable visibility admitted they do a poor job of planning and budgeting.

Assessment
Planning and budgeting are cornerstones of performance management. Research consistently shows that people in finance organizations say these processes are important to a company’s success. The research also shows that spending the right amount of time – neither too little nor too much – affects the quality of the process. This, in turn, affects a company’s ability to perform to its budget. Spreadsheets are a major barrier to making this process more effective. Our study showed that regardless of their function in their company, people believe their finance organizations must take a more active leadership role. Ventana Research believes one of the easiest and most important steps a company can make in this regard is to transform the planning and budgeting process into a useful management tool, something that is difficult to accomplish using standalone spreadsheets. Despite the benefits many companies have achieved with dedicated planning and budgeting software, the rate of adoption has remained low. We hope that our research’s continued emphasis on the link between spreadsheets and problems with planning and budgeting will help accelerate the switch from spreadsheets to dedicated applications.