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I recently started a series of blog posts on what CEOs (and for that matter, all senior corporate executives) need to know about IT. The first covered the high-level issues. As I noted there, it’s not necessary for a CEO of a company to be able to write Java code or master the intricacies of an ERP or sales compensation application. However, CEOs must grasp the basics of IT just as they must understand basic corporate finance, the production process and – at least at a high level – the technologies that support that process. This installment is about four supporting technologies that will be drive considerable change in business computing over the next five years. Each of these subjects is worthy of a chapter-length discussion or even a book; what follows is the “elevator pitch” version.

The cloud is a general term for computing capability that is not physically located on a company’s premises and that is purchased as a service, typically for a monthly charge. The name comes from the use of a cloud shape to represent the Internet in network diagrams. The two types of cloud computing that businesses typically purchase are software as a service (SaaS) and platform as a service (PaaS). The former typically allows a company to access application software and a database. Companies can use PaaS as a means to create a custom application without having to invest in and manage the underlying hardware and software or provisioning the hosting capabilities needed to run and manage the application on their premises.

Cloud computing is a hot topic because it has been reshaping – and will continue to reshape – information technology and how business uses it. The cloud gives users more options for how, where and when to engage technology and information. It is transforming how users interact with computing devices – the so-called consumerization of business computing. It is altering the economics of selling and consuming computing power, applications, intellectual property and information. In so doing, it’s enabling new business models, new products, improved business processes and making a greater range of business relationships practical. And, as such, it’s making some existing business models and methods obsolete.

Unfortunately for executives, too little of the discussion of cloud computing to date has focused on business value and promoting better understanding of where cloud computing is – and is not – the right choice. Instead, the discussion has been dominated by marketing agendas and techies debating the finer points of technology, which only promotes confusion. Our benchmark research into business data in the cloud confirms that companies achieve cost savings and process efficiency by adopting cloud computing, and that these are major reasons why companies use this technology. Moreover, for many midsize and smaller companies, applications in the cloud can provide more sophisticated computing capabilities than they could afford in an on-premises deployment. Two notable examples are ERP systems and internal call centers as an alternative to outsourcing this important function.

Cloud computing is not about to replace traditional on-premises deployments, which still can be the best approach. But cloud computing creates opportunities and threats that CEOs and all senior executives need to understand so they are able to make the right decisions for their companies.

Big data is a term that begs the question, “How big is big?” The answer is: any data set so large and complex that it’s difficult or impossible to process it with existing tools in a reasonable amount of time. There are three dimensions to big: volume (the number of bytes), velocity (the speed with which data must be moved) and variety (the number of types of data). Big data has become an issue because businesses are generating an accelerating amount of usable information, and even more useful information exists outside of a company’s walls than within it. At the same time, data processing systems no longer limit organizations to using mainly (or only) structured data; that is, the type that exists in formal databases. Advanced techniques make it possible to mine social media to gauge sentiment or parse audio files to rapidly uncover unhappy customers. Industrial data from sensors in machinery and at every point along a supply chain gives organizations greater insight into ways to improve efficiency and respond faster to changing environmental and business conditions. Our big data benchmark research found the top benefit for the technology, cited by three-fourths of organizations (74%), is to allowing companies to retain and analyze more data. Big data can be an important resource for companies, but it’s equally important to recognize the importance of good data management practices. Failure to institute appropriate practices simply results in “big garbage in, big garbage out.”

In-memory databases and processing use main memory rather than hard drives for data storage, which enables much faster response times. In-memory computing can make analytical applications much more interactive in working with very large data sets, which in turn enables analysts in every part of the business to work faster and smarter. According to our benchmark research in-memory technology is fast becoming mainstream. It is already being used in one-third of organizations and another 17 percent plan to deploy it within 18 months. In-memory is also at the heart of complex event processing (CEP), which can be used by sales, marketing and customer service to identify and make sense of information collected in disparate systems in order to enhance market responsiveness. In financial services, CEP already supports sophisticated algorithmic trading strategies and risk management. Executives also can benefit from in-memory computing, because it can transform a monthly budget review into a much more collaborative, interactive and forward-looking activity. Instead of focusing mainly on past events, organizations can make changes to forecasts, examine the impact of alternative future actions and immediately see how the changes affect revenues, expenses, cash flow and the balance sheet. Most companies don’t do that already because with systems that use disk storage, it can take minutes, hours, days or even weeks to get answers back from even a straightforward business question.

Mobile devices have grown in importance since the introduction of the first Compaq Portable PC in 1983. Mobile devices like smartphones and tablets have become pervasive in business computing. According to our recent business technology innovation benchmark it is the third most important area for technology innovation after analytics and collaboration. Today, people walk around with powerful computing devices in the form of tablets and smartphones, which enables more people to interact with business computing systems anytime and anywhere. They eliminate the barriers to smoother operations that exist when people have to get back to their desks to get information, execute a process, pass along information or make a decision. Mobile computing is especially important for front-office workers in areas such as sales and field service, because these individuals are often mobile, out of the office and beyond the firewall. It’s also valuable for executives, because these individuals often manage by walking around. Being able to summon up data or charts in the middle of a conversation and perform analyses makes any discussion and decision-making more fact-based and rigorous.

CEOs and senior executives must have a basic understanding of these four core technologies and how they will affect each part of their businesses. Everyone running a company must find the time to better understand and manage the information technology dimension of their business. Over the past 60-odd years, IT has grown in its importance to the daily functioning of a business, and increasingly has become a means of competitive differentiation. IT is a major element (and in some companies the major component) of capital spending. Technology continues to advance, bringing threats and opportunities. CEOs must stay on top of how IT can serve their businesses.

Regards,

Robert Kugel – SVP Research

I’ve been examining how corporations plan and budget for more than decade. One clear pattern that has emerged is the difficulty that using desktop spreadsheets imposes on the process. Ventana Research recently published findings from our trends in business planning benchmark research, and the research once again confirms this observation. It shows that companies that use dedicated applications are consistently more satisfied (and much less dissatisfied) with the software they use than users of spreadsheets. Twice as many said their third-party planning application performs very well in financial and cash-flow forecasting. While one-third (32%) said their dedicated application performs the complex task of compensation planning very well, just 7 percent of spreadsheet users say so. Dedicated applications also have capabilities that spreadsheets lack; those include easily integrating data from multiple systems, drilling down on demand to understand the underlying causes of variances in reviews and performing extensive what-if planning. All of these enable more accurate planning.

It’s frustrating to see that so many companies continue to use desktop spreadsheets as their main tool for planning in all parts of the enterprise. A large majority (69%) of business units rely on them, either exclusively (22%) or in conjunction with other applications such as ERP (47%); only about one-fourth (26%) use a dedicated planning application developed in-house or by a third party. Spreadsheets are too cumbersome and problematic to be useful in collaborative enterprise-wide efforts; half of the research participants (49%) acknowledge that spreadsheets make it difficult to manage planning processes. This response varied with the size of the company, ranging from 60 percent of the very large ones (with 10,000 or more employees) saying there’s a problem to just 35 percent of small businesses. One reason for the disparity is that smaller businesses are far less complex from a modeling, data collection, analysis and reporting standpoint. Another is that smaller businesses can get by with much less in the way of formal planning mechanisms because communications between decision makers are can be much more direct.

The research also revealed a strong connection between effective planning and the information and technology used to achieve it:

  • Organizations that can drill down on demand to understand the underlying causes of variances in reviews are able to plan more accurately.
  • Those that can readily access supporting data during review meetings and those that use dedicated applications instead of spreadsheets have more accurate plans and budgets.
  • Companies that can easily integrate data from multiple systems have more accurate plans.
  • Companies that use dedicated applications find it easier to do extensive what-if planning.

You can read more of my observations on our overall findings and on what’s wrong with budgeting elsewhere in my blog.

Information technology by itself will not create a mature planning environment. But the benchmark research once again confirms that without capable software, it’s unlikely a company will make meaningful improvements in its ability to use planning as a management tool.

Desktop spreadsheets are extremely useful for accounting (the term “spreadsheet” originally referred to a piece of paper used to present bookkeeping information), for performing ad-hoc analytics and one-off reports and for maintaining simple databases. Because they are so good for some purposes, users often make the mistake of using them for everything. Yet they suffer from several inherent defects that make standalone spreadsheets the wrong tool for any collaborative, repetitive, enterprise-wide function such as planning. They lack referential integrity, which is why it is difficult even for proficient users to combine multiple plan submissions. The more participants, the more difficult it is to wrangle the mass of data into an accurate consolidated view. Once combined, it’s impossible to unscramble the omelet to drill back down into the underlying detail. Spreadsheets are two-dimensional grids, so it’s harder to show scenarios with more than few dimensions in presenting plans, results and results versus plans. Pivot tables can take you only so far, and working with them consumes a great deal of time. Unless designers put a great deal of thought into constructing a spreadsheet, users will find it tough to make global changes to assumptions. Even then, in the process of hard-wiring these global assumptions into a spreadsheet you can wind up with a brittle model that is difficult to adjust as conditions and requirements evolve over time.

Dedicated applications today often combine the best of both worlds by using Microsoft Excel as an interface. Users get to work with a familiar tool, but behind it lies a real database and enterprise application capabilities such as workflow management and sophisticated reporting features.

Integrating planning across business units enables a company to plan with coordination and visibility. Changing from a spreadsheet-based process should enable a company to shorten the time required to produce plans and budgets. It makes it easier to adopt rolling quarters planning and forecasting and to execute faster plan revision cycles. The right software can facilitate an organization’s ability to drill down into underlying details and use that deeper understanding to explore a wider range of responses to changing business conditions. It can transform a monthly review session into a monthly dialog about future directions that ensures that everyone is on the same page.

What should companies look for in replacing desktop spreadsheets? Our Financial Performance Management (FPM) Value Index assesses FPM suite vendors’ offerings in part on their ability to support planning and budgeting. We look at a long list of capabilities in this type of software, and in budgeting and planning applications generally. Some of the most important include:

  • Budgeting capabilities such as scenario management, automated spreading and trend analysis
  • Planning capabilities that can support unit-times-rate structures, driver-based planning and goal seeking/sensitivity analysis
  • Administrative capabilities such as automated workflows and notifications
  • A central data store for easy data access
  • Built-in analytical capabilities, including easy manipulation of core business dimensions such as time, organizational structure, product families and currency, to name some of the most common
  • Built-in reporting and data visualization capabilities

The planning and budgeting software category is a crowded one, and companies have many options today. Some are specifically designed for midsize and small organizations, while others scale to thousands of users. As with shoes, it’s important to choose the right size or use becomes painful. Companies can choose to have the software installed in a conventional on-premises configuration or in the cloud in software-as-a-service (SaaS) mode. With so many options that are affordable for a wide range of companies, it’s a shame that so many organizations still use spreadsheets and limit the business value of their planning activities. I strongly recommend that senior executives of companies that use desktop spreadsheets for these activities consider the value that better planning can deliver.

Regards,

Robert Kugel – SVP Research

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