You are currently browsing the tag archive for the ‘cloud’ tag.
Our recently published Office of Finance benchmark research assesses a broad set of functions and capabilities of finance organizations. We asked research participants to identify the most important issues for a finance department to address in a dozen functional areas: accounting, budgeting, cost accounting, customer profitability management, external financial reporting, financial analysis, financial governance and internal audit, management accounting, product profitability management, strategic and long-range planning, tax management and treasury and cash management. Among the key findings is this: Not using the most capable software is an underlying cause, often unrecognized, of process, analytics and data issues.
Process design, analytics use and data availability and quality were the three most frequently cited issues, each selected by slightly less than half of participants. Software was the least frequently named issue, chosen by just 24 percent. That software was the least cited factor either means that most companies have this aspect of their business nailed down or – more likely – that they are focused on the symptoms and do not recognize the root causes of many of their process, analytics and data issues.
The lack of concern about software in finance departments points to a problem we have observed in our research for a decade. There is a connection between the technology that a company uses to support its processes and the issues that arise when it uses ineffective technology. Persistence in using such tools to execute finance processes is an ongoing barrier to improving the performance of finance departments. For example, companies often handle the mundane chore of accounting reconciliations with desktop spreadsheets. When electronic spreadsheets were introduced decades ago they offered a major improvement in the time required to perform processes. Today, however, dedicated software can perform the process even faster and more cleanly. Our research shows that companies that use software designed to automate their reconciliations process can close faster than those that have manual, spreadsheet-driven processes: More than twice as many that use automation (57%) can close their books in six or fewer days as those that do not (27%). Other research we have done consistently points to reliance on desktop spreadsheets as a root cause of process, analytics and data issues.
Software can have a profound impact on how well a company carries out essential processes. We find that the best-performing finance organizations adopt a total quality management approach to finance and accounting. As in a manufacturing operation, the objective in any finance department process should be to design quality into the process (for example by addressing root causes of errors in calculations and classification) and to ensure consistent execution of that process. Yet spreadsheets often are a source of errors: More than one-third (35%) of research participants said they have found data errors in the most important spreadsheet they use. The inappropriate use of spreadsheets instead of a dedicated application is often the source of problems that result in unnecessary work for the finance organization to correct them. Such glitches also affect other departments, operations and even customer-facing roles such as billing and credit. Inconsistent execution can even nullify the benefits of a well-designed process, but software with built-in workflow can eliminate the root causes of issues that arise when processes are managed with spreadsheets and email.
One of the most important roles that a finance department has is providing the rest of the company with analysis and perspective on business results to enable them to understand “the why behind the what.” Here, too, using the appropriate software can be a critical factor. Desktop spreadsheets are fine for relatively simple ad hoc analyses. However, because they are two-dimensional grids, desktop spreadsheets have a limited ability to manipulate data in multiple dimensions such as by business unit, product family, currency, geography and time. Moreover, creating periodic reports in spreadsheets consumes valuable time that would be better spent focused on addressing other, more valuable tasks. Self-service reporting, which I have advocated, and using the reporting capabilities of enterprise software are two alternatives. Replacing desktop spreadsheets with more capable software can address analytics issues.
The results of our research show that many finance executives and managers are unaware of the negative impacts of using inadequate software, especially the misuse of desktop spreadsheets. People “know” that desktop spreadsheets are the wrong choice; there is overwhelming evidence of their shortcomings. Yet they continue to be the default choice to support many repetitive, enterprise-wide processes because their convenience and familiarity have trumped their shortcomings. Until recently the alternatives were not sufficiently better to convince people to change their habits. That is no longer the case.
There are many compelling reasons for finance and accounting departments to increase end-to-end process automation by substituting dedicated applications and controlled data flows for spreadsheets. Ultimately this is a management issue. Finance executives must periodically evaluate the applications they use and determine whether there are better alternatives. They should routinely triage the desktop spreadsheets commonly used and replace them with more efficient and fully capable automated systems.
Our recent Office of Finance benchmark research demonstrates the importance of using automation to execute finance department functions. Information technology systems do at least two things very well that make better use of people’s time, and both of them can substantially improve organizational performance. First, they eliminate the need for people to do repetitive tasks, which frees them to spend time on more valuable work that requires judgment and skill. IT systems also can be programmed to focus only on relevant information while eliminating the need to get immersed in detail. The latter capability supports a “management by exception” approach, which enables executives and managers to better allocate how and where they spend their time.
Our research shows that in finance operations many companies don’t take advantage of these capabilities. Only half of participating organizations have automated a significant percentage of their finance processes. In particular, just 11 percent have nearly or fully automated their financial close, while almost half (48%) apply some automation and 36 percent little or none. It also reveals automation’s positive impact on performance: 71 percent of companies that nearly or fully automate their close process are able to close their quarterly books in six or fewer business days whereas 43 percent those that have only partially automated are able to do so and just 23 percent that use little or no automation have this ability. Another example is the automation of reconciliation, which is an essential element of the close process. It’s a repetitive task that lends itself to automation, and affordable software for managing the task is mature. Yet just 37 percent of companies have applied automation to their reconciliation process. Automation of reconciliation also correlates with how quickly a company closes its books: 57 percent of companies that use software for this purpose close their quarters within six business days and 30 percent do it in four business days. By contrast, 73 percent of the companies that do not automate reconciliation take seven or more working days to close.
Spreadsheets are a valuable tool for many finance department tasks, but they are out of place when used for repetitive, collaborative enterprise-wide processes. Indeed, they are both a symptom and a cause of dysfunctional processes, systems and data. A symptom because they frequently become the default option to put a bandage over, for example, issues that arise because systems are not properly integrated or a process is not supported by the appropriate technology such as a dedicated application. But spreadsheets remain the tool of choice for a variety of finance department tasks. Almost all midsize and larger companies (those with 100 or more employees) use them for management accounting analysis and nine out of 10 use them to manage their long-range and strategic planning process and to do financial analysis. More than eight in 10 use spreadsheets for direct and indirect tax provisioning as well as treasury management. Spreadsheets have their place, but our research demonstrates that they are frequently misused.
The close is a useful process to benchmark because almost every company does it and there’s a measurable outcome: the number of days after the period’s end in which the company completes the process. To be sure, this metric does not represent the full amount of time companies spend on executing the close. Corporations that close their books the day after the period ends usually have already started parts of the process before the end of the period, and some of these processes are performed weekly or even daily in order to balance workloads over the month. Yet to focus on the total hours spent is to miss the point: Managing to a faster close is not just about efficiency, it’s also about getting the numbers to executives and managers so they can react quickly to issues and opportunities. The research demonstrates a close correlation between when the close is completed and the timeliness of communicating that information to the rest of the company.
Time is the critical ingredient that determines the overall performance of finance and accounting departments. Poorly performing organizations usually are mired in an endless cycle of fighting fires – for example, dealing with the impact of processes that are poorly designed or not properly executed. These departments are constantly contending with the impact of information sources that are unreliable, difficult to access or both. Poorly designed systems add to the problem, generating hours of work in the form of manual reconciliations done in spreadsheets. Think of a finance department that does not apply automation and that has poorly designed or executed processes and systems as a caged hamster running on a wheel. It expends a great deal of effort on repetitive manual processes that are only marginally productive.
Software automation by itself will not address all of the challenges of a finance and accounting organization. To optimize performance companies almost always must deal with an interrelated combination of people, process, technology and data issues in a holistic fashion. Yet confronted with the day-to-day struggle of meeting deadlines, many finance executives put off addressing their productivity and effectiveness issues. They shouldn’t, because a continuous improvement process involving a steady set of small advances can yield impressive results over time. Identifying the biggest time sinks that can be readily eliminated and then eliminating them can free up the resources needed to address the next set of significant problems. Even something as straightforward as uncovering unnecessary work or replacing the worst spreadsheets with better technology (for instance, implementing automated or self-service reporting) will be beneficial. For this to happen, though, senior finance and accounting executives must make automation a priority.
Robert Kugel – SVP Research