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Business computing has undergone a quiet revolution over the past two decades. As a result of having added, one-by-one, applications that automate all sorts of business processes, organizations now collect data from a wider and deeper array of sources than ever before. Advances in the tools for analyzing and reporting the data from such systems have made it possible to assess financial performance, process quality, operational status, risk and even governance and compliance in every aspect of a business. Against this background, however, our recently released benchmark research finds that finance organizations are slow to make use of the broader range of data and apply advanced analytics to it.
Analytics has long been a tool used by Finance. Yet because analytical techniques for assessing balance sheets, income statements and cash-flow statements are well developed and widely accepted, finance professionals have had little incentive to do more even as the opportunities available to them have proliferated. Taking a narrow of finance analytics they have largely failed to take advantage of advanced analytics to address the full needs of today’s enterprise and thus to increase their own value to it.
It’s not that finance departments aren’t aware of their shortcomings. For instance, more than half (58%) of participants in this research said that significant or major changes to their process for creating finance analytics are necessary; only 7 percent said no improvements are needed. We found four main reasons for dissatisfaction with their process: it’s too slow; it isn’t adaptable to change; there aren’t enough skilled people to do this work; and data used in it is inaccessible or too difficult to integrate.
Usually, addressing some business issue requires dealing with a combination of the underlying people, processes, information and technology. Companies often fail to address the issue successfully because they focus on just one of these elements. We think it’s important to use the people, process, information and technology framework to isolate the root causes behind the issues. Let’s look at the role of technology – mainly software – in finance analytics.
Our research finds many companies have trouble with the technology aspects. Only 12 percent of organizations are satisfied with the software they use to create and apply analytics; more than twice as many (27%) are not satisfied. That’s probably because 71 percent of them use spreadsheets for analytics, a higher percentage than for any other tool. Two-thirds of these users said that reliance on spreadsheets makes it difficult to produce accurate and timely analytics. In contrast, fewer than half use innovative techniques such as predictive analytics (44%) to assist planning and forecasting, and just 20 percent are employing big data to process the flood of data into today’s businesses.
The research demonstrates a correlation between the technology a company uses and how well its finance analytics processes work. Two-thirds of participants who said their software works well or very well also said their finance analytics process needs little or no improvement. By comparison, just one in four of those that said significant changes must be made to the software they use have a process that needs little or no improvement.
Here again we find that the inappropriate use of spreadsheets is an issue. When asked whether spreadsheets cause problems in their use of analytics, 67 percent said yes. This is because desktop spreadsheets have inherent shortcomings that make them poorly suited for any sort of advanced analytics. In particular, they cannot readily manage analyses involving more than a handful of dimensions. (A dimension is some aspect of business data such as time, business divisions, product families, sales territories and currency.) Many of these dimensions are constructed in hierarchies: Branches roll up into territories which roll up into divisions of companies, for example. Analyzing data usually requires viewing the data from different perspectives (which translates into dimensions) to isolate an issue or opportunity. One such would be looking at sales by product family and region and then drilling down into specific branches or stock-keeping units (SKUs). In doing analysis, it’s difficult enough to manage the dimensions of the purely financial aspects of a business. Spreadsheets are especially ill-suited to analyzing operational and financial data together, such as the delivery method or product configuration details.
Our research data shows that not having the right technology is impedes finance departments’ ability to create and use more advanced analytics. We found several reasons why companies decide not to make these technology investments. The top three are a lack of resources, no budget and a business case that’s not strong enough. The first two may be valid reasons, but not wanting to commit resources and budget to advanced analytics could be a symptom of a poorly constructed business case, as I noted earlier. A lack of leadership and vision on the part of senior finance executives also plays a role. Many may say they want their department to play a more strategic role in running their company yet fail to follow through to adopt new methods and the necessary supporting technology.
But now a new generation of finance department leaders is emerging. These are people young enough to have grown up with technology and to be more demanding in their use of software and systems to produce results. The time is ripe for change, and it’s up them to drive finance departments to be more strategic in their use of analytics.
Robert Kugel – SVP Research
Anaplan, a provider of cloud-based business planning software for sales, operations, and finance and administration departments, recently implemented its new Winter ’14 Release for customers. This release builds on my colleagues analysis on their innovation in business modeling and planning in 2013. Anaplan’s primary objective is to give companies a workable alternative to spreadsheets for business planning. It is a field in which opportunity exists. Our benchmark research on this topic finds that a majority of companies continue to use spreadsheets for their planning activities. Almost all (83%) operations departments use spreadsheets for their plans, as do 60 percent of sales and marketing units. Yet the same research shows that satisfaction with spreadsheets as a planning tool is considerably lower than satisfaction with dedicated planning applications. But despite general agreement in companies that the planning process is broken and spreadsheets are a problem, companies seem reluctant to break the bad habit of using spreadsheets. This conclusion suggests that either switching to dedicated software hasn’t been easy enough or that the results of doing it have not been compelling enough to motivate change. Anaplan intends to address both of these issues.
Anaplan designed its software to support business planning integrated across an enterprise in a practical way that’s an attractive alternative to spreadsheets. Its HyperBlock architecture is a hybrid of relational, vertical and OLAP databases with in-memory data storage and calculation. To translate that technology-speak into a plain concept, it’s easier than ever for those trained in spreadsheet modeling to transport their skills to a dedicated planning application. Anaplan simplifies the process of creating a planning environment that can be used by sales and marketing, finance, operations – any part of a company. Individual business units can create their plans without IT involvement. Customer companies don’t have to move all plans at once to Anaplan, but when they do, integrating all of the plans into a unified company view is straightforward.
The bulk of the changes in the Winter Release are aimed at refining and improving the user experience and facilitating model creation and updates. One of the most obvious changes is in the individual user interface, which opens up with “model tiles” representing each of the plans each individual has in his or her portfolio. It’s fairly typical for individuals to participate in multiple planning activities. Our benchmark research on business planning finds that, on average, employees participate in five sets of plans. Each of these may have multiple versions, and some may have subsidiary plans to a main plan. Some plans may be current while others are no longer used and are archived. The new interface makes it easier to organize this collection, making the most important plans readily accessible. This enhancement and others that will follow reflect Anaplan’s intent to incorporate ergonomics in the design of its software.
Choosing a model opens a dashboard relevant to the specific role of the user and the plan he or she has selected. Organizations can configure the layout of the dashboard, which provides high-level summarized information and different ways of navigating into and around the details in the plan. Navigation is now role-based to enable users to zero in on only those models and dashboards relevant to their function or role. Anaplan can be configured to drill down to specific items or transactions if necessary. Doing this in a multidimensional model is not always straightforward. An Excel add-in is a must for any planning application because it provides a familiar user interface that enhances productivity while eliminating the disadvantages of desktop spreadsheet, since the individual is working with a formal application and an advanced database environment. Anaplan’s Winter Release simplifies installation of the add-in. All of these enhancements go beyond a simple “consumerization” of business software – layering a snappy gloss onto software that remain tedious to use – to provide a more satisfying working environment.
Another notable addition in the Winter Release is “intelligent mapping,” a useful way for one person to create templates of components used in a model (say, all of the costs of adding a store, doing a marketing campaign or performing heavy maintenance on capital equipment) that others can use. Since organizations tend to handle most processes in much the same way, the operational and financial aspects of those processes are likely to be modeled in almost exactly the same ways. Being able to quickly copy a useful exemplar and easily customize it to an individual’s specific needs saves time. Moreover, making it simple to achieve consistency can improve the effectiveness of planning. Using intelligent mapping needn’t be the product of a conscious effort to create a template, either. An equally likely use is when someone looks at a plan created by another business unit and sees some component in that plan that’s useful to his or her model. Intelligent mapping makes it easy to copy and modify it to suit the need.
Effective collaborative planning is a structured dialog. Structured because it involves hard numbers and a dialog because it involves a back-and-forth exchange between executives and managers to mediate between the results desired and what’s feasible. Toward that end, Anaplan has added a capability in its models it calls a “hold,” which fixes one or more values in the model while the rest are adjusted. This simplifies the process of setting month-by-month, line-by-line objectives because it enables executives to impose selective constraints (minimum or maximum values such as sales by a product line or advertising expense) while adjusting assumptions quickly to assess whether the resulting changes are realistic. Fixing and releasing holds iteratively simplifies and shortens the process of assessing specific details to achieve a plan that is workable and agreeable.
For analysts that create or support planning models, the Winter Release adds a floating formula editor. This is a small but important element because it improves the productivity of modelers – typically a constrained resource in most companies.
The new release further advances Anaplan’s strategic objective to provide corporations with a tool that reduces the amount of effort needed for collaborative planning in any part of the business and enhance the value of this planning by better aligning business unit objectives with market opportunities. Our planning research finds that companies have many plans but, other than the annual budget, very little of it connected and coordinated. Anaplan focuses on collaborative business planning as a way to differentiate its offering from budgeting tools – a mature market with entrenched competitors. Its objective is supported by the underlying architecture of the software, which is designed to lower the barriers to switching from spreadsheet planning and budgeting as well as generating greater business value from a company’s planning processes.
Having said all this, I have to add that making it easier not to use spreadsheets is necessary but insufficient to alter corporate behavior. Companies need a business incentive to change. Anaplan’s use of in-memory technology provides that incentive because it adds considerable value to the planning process. Since the software can process even complex models with large data sets in seconds, in-memory computing can change the nature of planning, budgeting, forecasting and reviews. For example, the technology enables organizations to run more simulations during a planning or review session to understand trade-offs and the consequences of specific events. It can change the focus of reviews from what just happened to what to do next. Rather than relying on intuition or simplistic scenarios to make that decision, in-memory systems support structured, numbers-driven conversations to develop the details of a plan. This is the breakthrough to any planning or budgeting process that in-memory processing provides and a good reason for businesses to make the leap to more capable software.
Anaplan’s product doesn’t do everything. For example, companies that want all of the rigor that goes with a formal sales and operations planning effort should focus on applications dedicated to this process. And Anaplan doesn’t have all of the features that dedicated project planning software can provide. That noted, I recommend that companies that are looking for a dedicated application for general business planning and financial budgeting consider Anaplan. This is especially true if their objective is to have a planning environment usable by all parts of the business that can serve as the integration point for all business planning. We have found their customers have made significant progress to improving the modeling and planning which is why it received the 2013 Ventana Research Leadership Award. If you have not taken a look at Anaplan it is well worth your time.
Robert Kugel – SVP Research