Continuing my series on reflections from the BBRT Annual Conference… Cindy Hubert from APQC led a fascinating lunchtime discussion on the impact of business technology changes on Finance. One key point is that the new focus on analytics and “big data” is having major changes on organizations, as they strive to focus on niche business areas as a more focused and analytical approach to driving performance improvement. Companies will be increasingly relying on micro-customized products, services, marketing approaches and channels as they seek to improve profitability. There are three impacts on Finance from these strategies:
1. Finance will need to deliver specific and measurable data to support both the development and execution of these micro-targeting strategies. We know that developing these strategies solely based on revenue or gross margin can actually decrease profitability; solid decisions must be made based on solid cost and profitability data that incorporates the differentiated costs of sales and service in these highly differentiated approaches. Ongoing measurement and tuning of these strategies requires an ongoing performance measurement mechanism. We are moving from the realm of broad strategies into techniques that require laser-precision, and Finance must provide the tools to do this effectively – creating “one version of the truth” that can be relied upon by the organization to guide both the development and execution of its strategies. 2. Finance must look at how it positions itself relative to the organization. Many CFO’s have been successfully shifting Finance’s value from “bean counters” to “business partners”. But even this is somewhat vague and difficult to measure. Finance’s opportunity is to help the organization deliver on cost and profit improvement. Finance should begin to quantify the potential savings from these micro-strategies; for example, what is the value from exploiting a neglected profitable segment, or abandoning or improving and unprofitable one? What is the value of capturing cost improvement initiatives, such as improving capacity management through focused staff resourcing or targeting the reduction of non-valued-added (eg., rework) activities? 3. If Finance is going to capitalize on this opportunity to truly help the business improve its bottom-line growth, it needs the data, analytical capabilities and tools to do so effectively. Studies consistently show that FP&A groups only spend 20-30% of their time actually analyzing information; the balance is spent preparing for analysis – obtaining and validating/correcting data, re-structuring and re-formatting data, strong-arming it into spreadsheets, etc… Finance needs more robust tools and enterprise-certified data in datamarts or data warehouses, together with solid analytical (cost and process) models to be truly effective, efficient and time-sensitive. Organizations are preparing to spend “big money” in pursuit of “big data”. Capturing value from this expenditure is a role that Finance must play in a significant way for the organization to truly benefit from this strategy.