By Jeff Jacoby and Michael Gobbo, Oracle
Research from the American Institute of CPAs (AICPA) and Oracle shows that finance teams want to be more strategic—spending less time on data gathering and routine tasks, and more on data analysis and business influence.
The research, Agile Finance Revealed: The New Operating Model for Modern Finance, found that the most agile finance teams have embraced a new operating model, encompassing three pillars:
The problem is, only 30 percent of nearly 500 leaders surveyed agreed that their finance function can support this model.
If you’re one of the 70 percent of leaders whose finance teams are not agile, it might be hard to envision what agility looks like.
Today, we’re going to show you.
Imagine that you’re a VP of finance at Vision Corporation, a midsized manufacturing company. You start your day with your cup of coffee and your tablet—where you can see profitability, period close, payments, or any other area for which you might be responsible.
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There’s a quarterly business review coming up, and you need to be ready for it. You check the strategic plan, and see that the business isn’t meeting its revenue targets.
This is not good news. If your CFO sees a potential shortfall, she’ll want to know what you’re doing about it. You want to go into the meeting with recommendations already at hand.
You need to come up with a revised plan, fast.
Using social collaboration, you send a notice to your FP&A team. Frank is your director of FP&A, who reports to you directly. You ask him to identify opportunities to grow revenue by 10 percent—a tall order.
The fire drill is on, but Frank isn’t worried. An agile finance organization like yours has access to better information so that you can make strategic recommendations quickly—thereby increasing your influence on the business.
Frank gets to work analyzing profitability by customer population using “whale curves.” The left side of the whale curve reflects each profitable customer, while the right side reflects each unprofitable customer.
Right away, Frank sees that there are a small number of customer segments that are unprofitable. He decides to compare this under-performing segment to his most profitable segments, to identify opportunities to improve operations and reduce costs.
Frank quickly sees that warehouse costs are eating up 40% of revenue for the under-performing customer segment, while they only account for 20% of revenue for the most profitable segment. Overtime is exorbitant, making up more than one-third of personnel expenses.
Using this information, Frank can recommend that the operations team take steps to align the workforce and reduce this cost, thus increasing profitability.
Next, Frank takes a look at his most profitable customers, looking for ways to grow revenue in those segments. Using strategic modeling, Frank can set sales goals to determine the volume and/or average selling price required to grow annual revenue by 10 percent.
Based on this strategic model, Frank sets new targets for the financial plan. The ability to link back to the forecast allows your finance team to correct course early—much earlier than if you had to wait for reports pushed out during the monthly close. This is a great example of what agile finance looks like, because it’s a value differentiator for the company.
Frank shares the new targets with Diane, the director of marketing, so that they can determine how to meet the new revenue goals. You can see below that Frank has access to campaign analytics from marketing. This is because the company’s finance and marketing clouds run on the same data model—a silo-busting feature that pulls together data across lines of business, adding to Vision Corporation’s agility.
Together, Frank and Diane run an analysis of the company’s most profitable campaigns, and uncover an opportunity to launch a promotion for a new product. The target demographic for this campaign is women aged 30-37, on the east coast of the United States, who shop primarily online. Diane recommends that the company promote its new goat hair brush, which has been selling well with the target audience.
Frank asks the team responsible for marketing finances to generate a plan. They build out the costs of the campaign using a standardized, driver-based approach:
As a director of FP&A, Frank is happy to see that the operational plans have the same controls and best practices that his team uses. He’s also happy to see that the projected revenue for the campaign—calculated based on drivers from historical operational metrics—is right on target.
Frank concludes that this campaign will generate the right revenue at a reasonable cost.
Frank then checks with the supply chain team to make sure that they can meet the potential increase in demand. Based on the new forecast, the increase in the demand will result in overloading resources and exceeding supplier capacity. Armed with this information, the supply chain team can negotiate with the production team and suppliers to see if they can increase capacity.
Frank re-runs the plan with the increased capacity, comparing it to his baseline. He can see that the increased capacity will bring supply in line with demand.
Now, Frank has provided you with a viable plan that you can recommend to the CFO—a plan made in collaboration with finance, marketing and supply chain.
In preparation for the QBR, you want to put all of this into a report and present it to the CFO at your meeting. Luckily for you, Vision Corporation uses a full-featured reporting cloud for creating and generating reports across multiple data sources—further increasing your team’s agility.
First, you preview the report to get a sense of how everyone is coming along in the process:
From finance to marketing to supply chain, all of the departments are able to input their analyses and assumptions into a single report. Each department can provide charts, graphics, and narrative detail to support their contributions.
All that’s left is for you to publish the final report for your CFO’s review. When she meets with the board, she can explain where the shortfall is and make a recommendation with confidence.
In a non-agile finance organization—70 percent of the teams out there, according to the AICPA/Oracle research—a process like this would have taken weeks, if not months. The typical finance team spends hours on manual tasks like gathering data, combining numbers into spreadsheets, and cutting and pasting charts into PowerPoint slides.
Agile finance organizations, by contrast, have automated as many routine tasks as possible using finance systems in the cloud. And that’s not even taking into account all the possibilities available with emerging technologies such as machine learning, artificial intelligence and robotics process automation.
The 30 percent of finance teams who have embraced the new, agile operating model have freed up their teams to analyze and strategize, so that they can respond quickly and recommend course changes as challenges arise. They are more focused on skills development and influencing the business. And finance agility pays big dividends: companies with agile finance teams are more likely to report positive revenue growth (89%) than those with non-agile finance (63%).