Sunday, March 22, 2009

Is Innovation Magic?

There seems to be this perception that if you are introducing innovation or a new way to capture information and, as yet, no one else is doing it that way that it must be magic. Hardly. The paradigm of "thinking outside the box" is about enabling a perspective that has either been overlooked or underutilized. The simple concept of combining finance data with operational data should not be new or insightful or magical. It should be a simple everyday occurrence, but yet, it has been cited as unnatural or innovative.

In today’s economy the only way a company can guarantee success is by careful planning. If we think of the three elements driving the financial aspect of the business: the Plan, the Budget and the Forecast, only one of those has to be in constant motion to achieve success with the other two. If you are constantly planning and adjusting your plan, your budget and forecast will follow and you can take adjustments to the budget and forecast in lesser increments than the planning process. The key to enabling the continuous planning process is in having access to the financial data. That data is derived from the business and starts with a baseline plan. It needs to be continually fed with operational data to be reflective of the immediate business health. Then the Forecast will be adjusted and consequently the Budget to meet that Forecast and the iteration of the Plan.

Robert Kugel from Ventana Research sums up the path of the source of the data nicely in his blog of March 13th. CFOs Need Better Financial Information Management. I contend that it is not only the CFO who needs better Financial Data, but the Office of the CFO who must deliver the aggregated Financial data back down to the business to assist them in planning and creating profitable plans. This constant loop of data means that IT and Finance have to be in synch in the granularity of the data and the delivery of the data regardless of the tools in place. Today, it is less about the end-user technology than it is about data access and data delivery. Bad data yields bad decisions. That’s the obvious parable here.

So if we tie this back to innovation and magic, the result is that Merlin has yet to be uncovered in this economy and we suffer from a simple problem of a lack of access to the right data or information to be able to make the right decisions in real-time with the most current and scintillating data. And, more importantly, we have to bring together the education necessary to see what the data is telling us, but that is left for another blog post. Here we advocate continuous planning. The next phase is continuous data education. Can we achieve success in the future by always assessing based on the events of the past? That is where innovation may help.

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