2010 IBM Global CFO Study (Summary): Where Finance Efficiency meets Business Insight
This is a brief follow up to my prior post where I promised to provide more background around the 2010 IBM Global CFO Study’s results. As you can see from the figure below there are two dimensions that jumped out at the researchers based on their ‘comparative regression analysis’ that the feedback provided. Those two areas are Finance Efficiency and Business Insight. Fall short on either one and the financial outcomes suffer. After breaking out the capabilities across the Finance Efficiency and Business Insight dimensions the data showed that four different levels or quadrants of performers surfaced. As seen below the top group, the Value Integrators, clearly displayed top-tier performance above the rest. Keep in mind that the study’s participants, of which there were over 1,900 CFOs and senior finance executives, the metric EBITDA over a 5-year period in terms of its cumulative average growth rate, or CAGR, included the Value Integrators as having the highest rates. When analyzing this group of companies against the others there were someimportant learnings about the efficiencies and insights that the Value Integrators had that the others lacked in total. Still, most companies were strong in one of the dimensions which allowed them to drive solid financial performance but opportunities were missed for even greater outcomes.
Value Integrators excel in two key areas mentioned earlier: Finance efficiency and Business Insight. The companies in this category were able to effectively reduce complexity in their financial operations having implemented common processes across Finance, such as source-to-report, standardized data/metric definitions, including components of gross margin. The Finance Efficiency side gives them the scalability, agility and speed to get things done more quickly and with more precision leaving more time to focus on higher value processes and analysis making for stronger business insight capabilities. These insights then allow them to drive greater operational efficiencies, spot market opportunities, react faster which enables them to predict changes in the business environment more adeptly. To continue, it’s probably no surprise to learn that they have far greater levels of information integration and analytical capabilities across the enterprise. They have strong partnerships with the rest of the business delivering integrated planning and forecasting, scenario planning, and predictive capability. I know these are the things every finance team wants to be doing but most aren’t because they’re struggling with all of the mandatory activities because they don’t have the processes in place, information standards employed, and platforms to manage everything for which they’re responsible. Still, there is a clear path to victory for finance to becoming a Value Integrator which the study discusses. Yes, the good news is that the study identifies what those areas are that deserve special focus for finance teams to address today transform finance into a world class function.
This post is intended to be a summary of the study which I hope will encourage you to download the entire 2010 IBM Global CFO Study as it gives crystal clear evidence as to what separates the top performing organizations, or Value Integrators, from the rest. I hope you would look at the questions here and answer for yourself how well your company is at each of these areas.
- What’s your corporate philosophy of information standards?
- Do you have a standard chart of accounts?
- Do you have standard data definitions? Is there a common ‘data’ understanding of what a ‘customer’ is and what ‘revenue’ is?
- Are there standard processes employed across the organization, especially processes those managed by finance?
- Do you employ operational planning and forecasting capability? If so, are these processes quickly and reliably integrated and re-executed as business conditions change?
- What about finance talent development? Is there a program in place to manage this?
- Does the company utilize a single planning platform which easily manages and consolidates company-wide plans for a broad view of these strategic, financial, and operational plans?
There’s a lot to consider here, espe
cially if you are concerned about multiple items above? The first question I’d ask is, where do I get started? There’s no boiler plate answer to that but I’d say where is the area where you can get the quickest win along with the greatest impact and start there and keep going. For now, let’s look at what the major challenges organizations faced in terms of Finance
Efficiency and Business Insight. I think the results might surprise you.
The CFO Study uncovered for Finance Efficiency, that the challenges organizations faced are:
- Nearly 40% of enterprise produce metrics manually
- Finance continues to spend nearly 50% of its time on transactional activities
- Over 35% of the companies interviewed lack a common reporting platform
- Over 25% lack the necessary common data definitions and processes
For Business Insight the challenges are:
- Nearly 50% lack a common planning platform
- 55% aren’t satisfied with their operational planning and forecasting analytical capability
- Over 50% manually produce operational metrics
- 44% are poor to average at anticipating external forces
For an explanation of the 4 profiles here’s a quick rundown:
Value Integrator is high on both dimensions having strong business insight coupled with finance operations that are efficient and employ optimal practices to streamline silos of information and critical processes.
Scorekeeper is opposite the Value Integrator, is the least mature of the four profiles. This profile is more the traditional controllership oriented finance organization, primarily focused on accounting operations, controls, closing the books, managing the audit and supporting regulatory and statutory compliance. There is either no mandate or a lack of capability for finance to do much more than that.
Disciplined Operators are more like the Integrated Finance Organization from the 2008 IBM Global CFO Study. They’ve built a strong foundation of finance controls, standard processes, and data. The problem is that they have yet to deploy more mature analytical capabilities and partner with the business. But for all intents and purposes, the Disciplined Operator is driving more out of finance with less.
Constrained Advisor is the opposite of the Disciplined Operator – having done more to deploy greater planning and analytical capabilities, these finance organizations have the best intentions in mind, but are constrained in terms of their execution capabilities. This is largely due to the fact that they still have issues with process and data standards and commonality, leading to fragmented data and having to do drive their analytics through brute force. As a consequence, they continue to be challenged by several things, including 1) Challenges around the accuracy of their analysis 2) They cannot produce these results timely/quickly, and so consequently they are “constrained”
For information about getting a ‘Finance Healthcheck’ from IBM to learn specifics about how to become a Value Integrator, please click this article link, Transforming Finance into a Value Integrator.
To learn more about the 2010 IBM Global CFO Study, click here.
To learn more about Finance Performance & Strategy Management and the solutions for finance, please click here.
To learn more about individual solutions for finance, please click these links which will bring you to their respective pages: IBM Cognos TM1, IBM Cognos FSR, IBM Cognos Controller, IBM Cognos Business Insight and IBM Cognos Business Intelligence,