A Gathering of Innovators

The relationship between Finance and IT is often described as disconnected or in opposition. And, why not? These two teams have different priorities, different audiences and different tools. They even speak different languages - profitability, margins, forecasts vs. maintainability, security, performance.

Yet their corporate goals are often identical. One approaches from a business value perspective, while the other from a technical implementation and maintenance perspective. They are often dependant upon each other for their combined project success, and in many organizations, they often work under the same umbrella of the CFO. As the corporate focus shifts from organizational differentiation, the barriers between IT and business groups can be overcome by their common goals.

I expect to see increasing interest and awareness in the value of creating true business and technology partnerships as companies explore ways to increase profits, streamline operations, and explore avenues for innovation within their organizations. This week's CFO Technology Summit in San Francisco brings together executives from around the country to focus on how they can take control of their IT investments. The summit also includes some of the industry's great innovators and thought leaders, such as Faisal Hoque , Founder and CEO of Business Technology Management (BTM) Corporation , who will be exploring the issues and opportunities that arise with the convergence of business and technology. As Mr. Hoque said in a recent CIO Insight podcast interview:

"We have begun to focus on information versus the technology… We are reaching a converge state where there is no difference between business and technology… The information is driving knowledge and knowledge drives innovation."

This blog is dedicated to financial system innovators, and this week we salute those visionaries at companies large and small who are coming together in San Francisco to explore possibilities for innovation within their organizations.

- Trevor Hughes

Understanding the Impact of New Technologies on BI

"Rather than relying solely on a rigid metaphor like data warehousing, BI needs the ability to access data anywhere it can be found and to perform integration on the fly, if necessary. Locating the right information to solve problems must be a semantic process, not requiring knowledge of data structures or canonical forms."

Neil Raden, Intelligent Enterprise, Business Intelligence 2.0

A long-standing concern between business teams and IT is the question "Have we spent the past years creating some monolithic solution that is now unmanageable?" Can it come close to addressing the needs of the current and future business? Have the Business Intelligence (BI) systems that we've created become rigid metaphors, as Neil Raden proposes that data warehouses have become?

Implementing a BI system has always been hard and costly. But the value, once up and running, can be enormous. Insight isn't something to be taken lightly; it can change the very nature of how a business is run. It is no wonder, then, that the markets for BI and performance management solutions are expanding rapidly.

The business needs for BI are going far beyond traditional analysis and reporting; companies are now expecting information access in real-time, across global constituencies, and beyond the limitations of financial data, or for that matter, data itself. The BI systems that we built over the past decade simply may not scale to meet today's requirements.

New technologies such as software as a service (SaaS) are impacting the very nature of software development and delivery, and are also helping to shape the future direction of BI. Even large vendors such as SAP and Oracle are testing out the on-demand waters, SAP with its' 'Business by Design' on-demand solution, and Oracle delivering Oracle Hyperion On Demand. While SaaS has yet to experience broad acceptance in the marketplace, niche BI companies such as LucidEra, Adaptive Planning, Host Analytics and PivotLink are gaining customers with their on-demand offerings, and open the market to small and mid-size (SMB) companies.

Open source BI offerings may provide a clue into another alternative direction for BI markets – again with potential business benefit. As the time and cost of implementing and supporting BI solutions are reduced, so too will the bar lower to a level where SMBs can take advantage of BI, while larger companies can customize solutions and extend analytics across the enterprise. BI will broaden from the hands of the few into the hands of many.

While the new technologies broaden the BI market offerings, they exacerbate the issues companies currently face managing financial data across increasingly stratified and expanding markets. We are already dealing with a crisis in data management. Critical financial information is stored in proprietary BI systems and cannot be easily extracted or combined with operational data. Information from all source systems must be auditable and compliant. It must exist in standard structures that will support future development of combined data with other content sources. Before we can truly scale to meet the coming needs of the BI market we must create a reliable and consistent method for moving and managing data across the enterprise.

The increasingly complex business demands on BI systems are a further validation of the success and relevance of the market. We can learn from other rapidly-evolving technologies that have gone through major expansions as a result of their cumulative relevance. The Web, and Web based standards come to mind as an example of a technology that has successfully transitioned into a much higher form of relevance. Standardization, interoperability, and security are core Web concepts. Before we can hope to truly leverage new technologies, we must overcome the limitations that we've built into our existing BI systems, ensuring standardized data access mechanisms, real-time, secure access to data, and a framework that will extend into the next realm of BI technology development, and Radan's vision of "Locating the right information to solve problems must be a semantic process, not requiring knowledge of data structures or canonical forms."

Profitable vs Unprofitable Decision-Making

Oracle finally gets it, at least in words. Frank Buytendijk’s blog on “Management Excellence and Oracle EPM part 1” suggests that Oracle may have tried to solve the challenge of making profitable Operational decisions by including the underlying Financial data. He further suggests that Oracle is two years ahead of their closest integration competitor. While I don’t believe the latter and have evidence as to its untruth, I do believe that Frank is focused in the right direction to suggest that a diet of pure financial data or pure operational data is drought or famine, but certainly not a balanced meal. A truly healthy business will make vital decisions that combine up-to-the-minute financial data with the operational systems data to ensure a data-enriched decision process. Decisions in a financial vacuum are anemic and life-threatening when variables such as gas prices, finance rates, currency translation and inventory levels are critical to a decision process and have a delay or periodic update cycle that is out of synch with the decision-making continuum. Multi-dimensional data still lags behind transactional data in its ability to be accessed in a time-sensitive manner due to the very systems that created the data. The power of the cube, such as delivered by Hyperion, created a one-way flow that is now antiquated in theory. The strong financial instincts of today’s CFOs and rising finance stars begs the use of this cube data downstream, co-mingled with the operational decisions of the lines of business. This is the innovation of which we speak; the ability to ask for more and initiate change to older patterns of behavior to uncover a fresh use of data, propelling the business forward into leadership.

BI Competency Centers: Do CFOs Help or Hinder?

Intelligent Enterprise Editor-in-Chief Doug Henschen moderated a webinar last week titled “Business Intelligence Competency Centers (BICCs): Many Choices, Many Pitfalls” sponsored by Forrester Research. With BI now considered “table stakes,” panelists Boris Evelson and James Kobielus of Forrester, BI consultant Claudia Imhoff and Capgemini’s Joe Moye discussed how enterprises can drive greater value from their BICC investments.

One recommendation was to cross-pollinate BICCs with other CCs in areas such as Business and IT Governance; Enterprise Architecture; Data Warehousing, Data Quality and Data Integration; ERP, CRM, Supply Chain Management, etc. While this makes perfect sense, doesn’t it seem ironic that we still need to encourage coordination after the costly lessons we (hopefully) learned from propagating BI application stovepipes?

Side note: With many of the CCs above revolving not just around competencies but applications and processes, it was interesting that James suggested BICCs be renamed BISCs (BI Solution Centers). We'll keep an eye on a Forrester report in queue on this topic for October.

The idea of coordinating CCs reminds me of conversations I’ve had with an aerospace and defense company that extended their BICC with specialized data integration technology for key applications. As a result of tapping into finance data, the company is supporting deeper BI analytics based on time-sensitive operational insights.

To boost synergy between CCs, one panelist suggested overlapping them and allowing personnel on the teams to create hybrid roles. This brings to mind the success story of a cosmetics company that adopted a war room approach to unite IT and line of business experts for projects.

The most interesting part of the discussion involved who should own a BICC: IT or line of business. Not surprisingly, opinions varied, with Evelson advocating for ownership by C-level business executives and Imhoff taking a more IT-centered approach. Evelson added that most of the successful BI environments he’s seen have had strong business ownership (for more check out his keynote at the Computerworld BI Perspectives conference Sept. 8th). Imhoff underscored the need for technical acumen beyond the skills of the business analyst – areas such as data integrity, data quality and database performance. (Rajan Chandras takes this a step further on his Intelligent Enterprise blog post, urging readers to explore the qualifications needed to influence BICC success)

Imhoff asserted that CCs should not report to the CEO’s or CFO’s offices, going so far as to suggest that CFOs may infuse too much of a finance or accounting flavor. It’s hard for me to imagine many business decisions that don’t impact profitability, competitive advantage or shareholder value, but since time ran out on the webinar, let’s open up that part of the discussion here.

What do you think? Are CFOs the best stewards of these BI centers?

Jumping Ship or Just Jumping?

I just read that Wachovia's Chief Risk Officer, Donald Truslow, is on the way out the door just a week after CFO Thomas Wurtz announced his resignation. Given the sad state of the banking giant, I wouldn't be keen to stay, either. It makes sense. And I'm sure that it makes very good sense if you are sitting in what are probably two of the hottest seats in the house when the risk around one major M&A activity, in this case the Golden West Financial Corp acquisition, may scuttle the company. So in Wachovia's case, the run for the door makes sense.

Then I read the following list of CFOs on the Move, which covers just the week of August 1: Wachovia, Campbell's Soup, The Children's Place, Navigators, Forbes.com, United Plastics Group, Icahn Enterprises, Hayes Lemmerz, ARI, Orisis, Michaels, JP Morgan Cazenove, EnBW, Friends Provident, Ascom, AP Moller Maersk, Sistema.

While I've been posting about the changing role of the CFO recently, I haven't written about the individual impacts of that changing role upon CFOs. According to Heidrick & Struggles, 106 CFOs at Fortune 1000 companies left their positions in the first half of 2008. What the heck is going on here? Where are all the CFOs going? Are these voluntary resignations, jumping ship like so many of the Wachovia team, force-outs, or is this a trend brought about by the expanding nature of the role.

Are CFOs leaving companies when there is little opportunity to participate as a contributor at the strategic level? As regulatory compliance becomes stricter, the risks associated with the CFO role increases. Well beyond job pressure, CFOs are putting their legal necks on the dotted line every quarter. I believe in this time, when the CFO manages such a large portion of the corporate risk, that the benefits of the position have to outweigh the risks they're been forced to assume. If data is accurate and trusted, performance management systems well-designed and implemented, and the business practices sound, much of the fear of compliance is eliminated.

Companies that are focused on innovative ways of running their businesses, with Finance as a key contributor to the strategic and operational vision, tend to be exciting places to work. If the CFO can trust the accuracy of data coming from their systems (and with a 3-5 year CFO tenure at the best of times, unless it's a startup, you can assure that most CFOs have inherited their accounting, G/L, performance management etc. systems), then they are freed up to focus on contributing to the company at a more strategic level.

My opinion: perhaps the incredible CFO turnover that we've seen in the past several years has less to do with the company as the role.

Thoughts?

Continuous Planning Architecture, Phase 2

Back in April, Kimberley Bermender posted on the finance systems architecture needed to support a continuous planning environment. The overall design goals included:

• Lower cost of maintenance,
• Standards-based data integration,
• Support of accurate, near real-time views into operations,
• A platform to support detecting, modeling, selecting and implementing change and then measuring results.

The main ingredients were:

• financial and operational data stores,
• an analytic (OLAP) engine – with reporting, and
• planning applications

Inherent in the architecture is the movement of data between data stores and OLAP cubes, as well as fact and metadata management. To build on that architecture, “phase 2” can include two other components that build on those design goals and get you closer to enterprise performance management nirvana.

The first is master data (or ‘reference’ data) management, and the second is a common enterprise performance management rules or calculation engine.

Master data management includes the tracking and control processes of data relationships (especially hierarchies) and instances across the enterprise. For example, product sales for a store in Ft. Collins, CO could roll-up to a ‘Central’ region one quarter, and then to the ‘West’ region the next quarter after a re-org. It’s important to keep track of which region it belonged to when doing quarter over quarter comparisons and other management reporting (not to mention statutory reconciliation and reporting). And that hierarchy could be contained in the store reporting application, the sales forecasting system, the G/L, the customer relationship management (CRM) system, and so on. Right now, those relationships are probably being manually managed and ‘lightly’ controlled. Our more complex financial systems require more automation and more rigorous control over master/reference data. And it certainly addresses at least the first 2 design considerations of Kimberley’s architecture.

For more on master data, see this DMReview landing page.

The second component is a central business rules/calculation engine. In any enterprise performance management environment, users can easily get bogged down in the definitions of data and information. For example, that Ft. Collins store could be looking at a ‘revenue’ report and not know if it’s booked revenue, commissionable revenue, recognized revenue, and so on. And even when they find out what kind of revenue it is, there can be a question of it’s accuracy: how did head office calculate it, where did they get the data from, and does it include intercompany sales or not?

Having one business rules engine lets the enterprise define ‘recognized revenue’ once, with control over the algorithms, the data refresh frequency, the data sources, and so on. Once the rules engine has certified a number, it can be used by all other enterprise performance management systems: planning can use it for prior actuals, strategic financial models can use it for long term scenarios, same store sales dashboards can use it for ranking, and so on.
The three-fold goal is to get better transparency into financial information (how did we get that number), better accountability (finance owns and certifies the number), more efficiency (define it once, don’t reinvent the wheel), and ‘believe-ability’ (start debating what to do about the results, not where the number came from).

Here’s a good article by Robert Blasum in DM Review on central rules (he also connects them to master data management)

Thanks to Kimberley and the team for letting me guest blog, please feel free to visit the Business Foundation blog over at http://businessfoundation.typepad.com/

Fuel Costs on the Mind: A Little Innovation Required

As Duke University/CFO.com released their Global Business Outlook Survey, it came as a real shock that as much as inflation or the weak US dollar, rising fuel costs were identified as a key concern for many CFOs. Equally surprising, that almost half of the companies surveyed are dealing with this by raising prices (by up to 4%), while wage increases are estimated to grow by only 3%. Most surprising, that we’re just now dealing with fuel costs as a major business impact. Fuel costs have been rising for years. Every commuter has watched their gas bills jump, often to the point of impacting their monthly household finances. As a finance community, we have only to look as far as our own households, take the lessons learned, and apply them to our companies to find cost-saving opportunities.

For several years now, chip manufacturers have battled as hard on energy efficiency as processor speeds. Why? Because energy costs have soared and companies know that there are huge savings to be found in lower energy-consuming server farms. Technology companies have had telecommuting programs for years, realizing diverse savings from facility management to employee retention. To what percent can we reduce business travel? What opportunities exist in our manufacturing departments, shipping, alternative fuel source options? What are the impacts to our internal processes and external stakeholder groups as we consider these changes?

There is still opportunity for companies to streamline operations, even within manufacturing, where most companies tend to focus efficiency programs. Unfortunately, it tends to be at points where we hit economic crises that we get creative about searching for these opportunities. This is one area where the Finance team has the chance to take a leadership role in driving change within your organization. Finance teams that have access to both the financial and operational data have a unique perspective into the entire business model. Who better to be able to identify opportunity, model scenarios and impacts to internal and external stakeholders, and educate line of business teams on potential areas for improvements across business lines?

The Global Business Outlook Survey provides a bleak picture for the economy, with raised prices and layoffs in the forecast. But it is exactly at these points when the true value of the innovative CFO can be felt across the organization. Ours is the only team that has access to the financial and operational data, combined with the tools to analyze and model the impacts of potential scenarios on the business. By working with the executive team and lines of business, we can explore creative improvements or alternatives to current processes and company business practices. The opportunities are myriad.

Tips from the Big Guys: Yahoo Shares Planning Architecture and EPM Strategies

With so much focus on Yahoo’s search advertising strategy and ongoing battles with Microsoft, a webinar that focuses solely on their internal planning and back-end processes is a welcome diversion, not to mention a fascinating education. The Yahoo EPM Webinar, sponsored by Star Analytics and Key Performance Ideas, provided insight into how one very large company deals with key performance management issues, including:

• Creating highly efficient planning systems
• Maintaining data integrity
• Improving corporate reporting standards

Bob Yau, a Director of Corporate Applications at Yahoo, walked through their Enterprise Performance Management strategy and architecture and discussed how they have successfully implemented a project to help Yahoo efficiently manage change in a highly competitive market.

Yahoo has created a technical architecture for managing and exporting Hyperion Planning and Essbase data that provides their global business community with 24x7 access to near real-time planning and reporting data. Data is scheduled and automatically exported frequently throughout the day from the Planning application and is (again, automatically) synchronized with their Oracle Data Warehouse, eliminating data latency. Other benefits (and key project requirements) include their ability to maintain corporate reporting standards and improve compliance.

While the webinar does get technical (that’s right, architectural diagrams and everything) Mr. Yau does an excellent job of focusing as much on the business requirements and user needs as the technical implementation. Mr. Yau finishes off the webinar with his ‘Top 10’ lessons learned from his implementation, which covers both technical and business experience. #10 – Partner with the business for success. Good advice. Thanks Yahoo for providing such an insightful view into some of your key processes that support your enterprise performance management.

View webinar

The "Empowered Chief Financial Officer"

In my last post, I referenced a recent CFO Research study of 171 finance executives that found that over 70% of finance activities are still focused on routine finance and accounting tasks. What the heck? That percentage really threw me. So I started looking at posted CFO job descriptions to find out what companies really want from their CFOs, and sure enough, there was the standard list. The following job description actually came with the job title "Empowered Chief Financial Officer:"

1. Prepare Management Reports
2. Manage Routine Accounting Functions
3. Manage Administration Functions

Where is the empowerment here? Then, as I continued perusing job descriptions from various sites, I started seeing some different twists on the CFO role. Job requirements included:

• Act as a change agent within and outside Finance
• Partner with business units
• Internal process improvement
• Investor activities

The primary difference that I found in the job descriptions was that these were postings for larger companies. Do these companies have their governance processes established and can now focus more effort on decision management? Are their investors demanding more participation from the CFO? Are their businesses in extremely competitive markets? All of the above?

While regulatory compliance is obviously a key concern for any public company, it became clear to me that there is a growing requirement for CFOs to broaden their organizational role. While I suggested in my last post that the Finance team should be educating, providing guidance and showing additional value to business teams, it appears that these functions are working their way into the job description, as well. Now there seems to be some opportunity for empowerment.

I’d love to hear from some CFOs out there what your job functions are looking like – are you primarily focused on control and compliance, or does a significant part of your role include collaboration with lines of business, expanded business and performance management tasks? Are you working to roll out reporting tools to expanded user communities within the business? Are you seeing your role change within your organization? What percentage division are you seeing in your tasks? Please share your experience in the Comments section.

Thoughts?

Sources include: finance.cfo.jobs.executiveregistry.com, jobs.efinancialcareers.com, www.careerbuilder.com, www.cfonet.com, www.cfo.com

Resolutions for a New Year

For many companies, June 30^th marks the fiscal year end; as the sales teams’ frenzy wraps up, the Finance team is crunching the numbers to publish reports. And while publishing the annual ‘report card’ isn’t the most glamorous part of the job, it is often the most externally visible aspect of finance, and within many companies, finance and accounting activities do consume the vast majority of the Finance departments’ time.

A Changing Role

In a recent CFO Research study of 171 finance executives, they found that over 70% of finance activities are still focused on routine finance and accounting tasks, with less than 30% of time spent on decision support. But in the next two years, over 86% of respondents anticipate incremental or dramatic improvements for supporting business management. (1)

The role of Finance is changing to take a greater part in guiding and influencing both management and business decisions alike. Many companies are realizing the value of partnering finance with business to streamline efficiency, productivity and profitability. But while the value is recognized, the time and resources dedicated to this aspect of the role still remain limited. So the challenge becomes: how do we in Finance become an active contributor in and supporter of improved business management, while continuing to support traditional accounting and finance activities?

Finance Report Card

It’s the end of the year; the company report-card is being published. Let’s think about our own organizations – how did we support innovation and collaboration through the business this year?

• Educate C-level team. If you are fortunate to have a finance-savvy CEO, much of your work is done. But in many companies, educating the executive team about the opportunities for business collaboration, and the kinds of information that finance can provide to teams, is a critical step.
• Establish relationships with business units. Adding value to business information is the fastest way to become a trusted partner to business units. Creating a two-way channel of communication allows Finance to fully understand the business issues and end-user requirements, in order to provide the most meaningful support possible.
• Collaborate with IT to find best ways to leverage operational and financial data, and to explore future company requirements for information. In order for Finance to provide strategic direction, and for business teams to make appropriate decisions, users must have access to accurate and timely information. In collaborative efforts, scope, budget and prioritization are established to ensure the project best meets the business end goals.
• Internal education. As the role of Finance rapidly expands, there is a need for a broader skillset within the team. Analytical skills must be complemented with market knowledge and an understanding the business functions. Collaboration with technology groups requires knowledge of technical requirements and capabilities as well as a common language. All of which means that ongoing education and external focus is imperative for success.
• Examine existing processes. By refining and modifying existing processes and systems, there is often opportunity for significant improvement. What changes to the planning process would yield greater insight into your market? How fast are you able to get information to business teams? Can they respond appropriately with the information provided? Are the same questions consistently repeated at executive meetings? What is the value of being able to provide this information?

Resolutions

This list just begins to scratch the surface of opportunities to work on innovation and collaboration within a business. Even if you work in an area where the company sees Finance as primarily focused on traditional reporting and accounting tasks, there are myriad opportunities to make contributions that will gradually have larger effects upon the organization. Beginning with the education and support of executive management and business units, you establish yourself as a value-adding member of a larger business team. And as companies experience faster and more significant change in order to keep up with competitive markets, the role of Finance will expand and change as well.

As many companies enter a new fiscal year, and in the tried and true tradition of New Year’s resolutions, the question to Finance: What role do we envision for ourselves in the company? What will our contribution to the company’s success look like in the following year? What changes do we need to make to be leaders within the organization? And once we answer these questions, we’ve already got our new year’s resolutions done. Closing the books is easy after that.

1) CFO Research. “The Evolution of the Finance Function: Teaming with Business Management to Adapt and Thrive.” March 2008