New Focus of Finance

Optimizing performance and avoiding surprises: an insider’s perspective by Shelley Sessoms

Financial intelligence encompasses many things. Budgeting. Financial reporting. Compliance. What are the main focus areas for finance executives and what are they doing to satisfy stakeholders’ requirements? sascom spoke with David Blansfield, group publisher of the Business Technology Group at Penton Media, to get his take on the importance and future of financial intelligence.

sascom: Let’s get right to the point and talk about financial intelligence. First off, how do you define financial intelligence?

Blansfield: We’ve looked at financial intelligence from the finance decision maker’s perspective for the nine years we’ve been publishing Business Finance magazine. We learned early on that some critical business process areas – budgeting and financial reporting, in particular – were of great importance to our readers. So, we look at financial intelligence first from a process point of view. How can financial intelligence influence decision making throughout an organization?

Financial intelligence encompasses quite a bit, but as far as we’re concerned, we see its effect both in collecting and disseminating financial information for use in effective business management. Your general ledger isn’t just a record of transactions. It’s the central nervous system of your business. How finance data is collected, shared, analyzed and acted on is fundamental to effective business management.

sascom: From SAS’ standpoint, performance management is a crucial component of financial intelligence. What do you see as the scope of performance management within this area?

Blansfield: We see performance management as being a very holistic and exciting new business discipline. In the broadest sense, it’s a framework for organizing, automating and analyzing the business methodologies, metrics, processes and systems that drive business performance. It’s a blueprint for better business management. It promotes greater visibility and accountability and better aligns stakeholder goals with strategic and operational planning. Business performance management encompasses what has always been the essential component of an executive’s job – monitoring and managing business performance to achieve maximum value.

We first started looking at business performance management from a finance perspective, because traditionally you find that performance management is introduced in organizations within the finance function. Today world-class organizations are extending the capabilities they’ve developed in finance to other areas within their organizations. Typically, we see pilot performance management projects in finance; once that system is successful it’s extended enterprisewide, encompassing customer-facing as well as internal initiatives.

sascom: Now I want to talk a little about the pains you see in the industry. Let’s break it down to the top three pains or concerns your readers feel and what keeps them awake at night.

Blansfield: What still keeps them awake at night is the economy. Even though popular perception expects modest growth, senior executives remain skeptical. Taken together with new regulatory requirements – namely Sarbanes-Oxley – finance executives are coming out of a "perfect storm" type of situation that has really challenged them over the past three to four years.

Surveys we’ve been looking at show that finance decision makers are still very concerned about costs; cost control and cost reductions continue to be significant mandates. Most companies assume that they’ve wrung all possible costs out of their businesses, but that isn’t necessarily true.

We’ve discovered that a lot of organizations are continuing to look at IT financial management, for example, as an important priority. Some finance executives are losing sleep at night thinking about how complex their IT environments are, fretting over how hard it is to integrate their systems and wondering how they should position themselves now so that they can take advantage of future functionality upgrades to remain competitive in key areas.

Compliance is also a critical concern when talking about costs. It’s a wild card. Certainly, compliance is difficult to quantify and it could represent a very significant expense for organizations. Financial Executives International did two surveys, one in January and one in July, in an attempt to quantify the cost to public companies of Sarbanes-Oxley. The survey in July showed the total cost of compliance is now estimated at over $3 million for companies with average revenues of $2.5 billion. That’s 62 percent higher then what was estimated in January, just six months ago. These statistics not only demonstrate the drama of these increased costs, but, more importantly, I think they show that the level of uncertainty is significant. In such an uncertain environment, not many organizations are going to want to take on increased costs in other areas. But when it comes to compliance management, I think more organizations are going to be looking at how they can rationalize their processes to ensure they’re not only complying but also adding value to their organizations.

I also think outsourcing is a very important issue for finance executives. Outsourcing, shared services and offshoring are among the most talked about ways to cut costs. But even companies that have employed these ideas significantly over the past few years can find ways to get more out of them.

sascom: I know you’re constantly in touch with your audience. What’s the one thing that your readers can’t get enough of? The one nugget that you could, and perhaps do, put in your magazine time and again?

Blansfield: We’ve been doing surveys of our readers every six months for eight years. For the last six years, budgeting and financial reporting, and business performance management have consistently been the No. 1 and 2 topics of interest. Things change, but this remains very constant.

sascom: Let’s switch gears a little and talk about the miscommunication that seems to be going on between CFOs and CEOs, and the roles that CFOs have in the corporation.

Blansfield: We did a cover story on that subject about six months ago. Based on a survey we conducted, we saw there were a lot of problem areas between the CFO and CEO. In general, we found a surprisingly high number of respondents reported that finance faces pressure from CEOs, boards or external influencers to take unethical actions. While CEOs are less appreciative of the salutary effects of the new regulations, CFOs have generally perceived Sarbanes-Oxley reforms as having been good for their companies, even though it’s meant more work for them. I don’t mean to imply that it’s a contentious relationship between the CFO and CEO, but there are strains. Attempts to manage corporate risks are causing friction in the CEO-CFO relationship. You can say that the CEO and CFO have a business marriage, and it’s serious business. Right now, post-Sarbanes-Oxley, some CEO-CFO relationships may need a bit of marriage counseling. But their differences aren’t surprising, given the differences in functional requirements and personalities for these two roles.

sascom: Since we’re talking about Sarbanes-Oxley and some of the international accounting standards, what do you see financial departments doing now to comply with them?

Blansfield: Up to this point, we have seen that most organizations are trying to take a "least common denominator" approach to investing in compliance management. The majority of the companies seem to be thinking, "Well, let’s get through this. Let’s try to do this with a minimal amount of new investment and see what processes we can develop internally to get over that first hurdle." Now that the hurdle has been jumped, many organizations are reconsidering. Obviously, compliance management is here to stay. Organizations are now evaluating and considering how to develop best practices and compliance management over the longer term: the investments they need to make, the processes they need to implement and the kind of oversight or management they need to ensure their compliance management passes muster. The jury is still out as to whether this will result in new investment in compliance management over the next six to 24 months.

We’ve not seen huge amounts of investment in compliance management software to this point. So it will be interesting to see what happens in the future. Many companies are regrouping – assessing how they fared during their initial certification and determining how to move forward. The level of technology investment that will be required is anyone’s guess.

sascom: With all the new things that CFOs are having to be concerned about and keep their eyes on, what makes them successful? What do CFOs need at their disposal?

Blansfield: We did a cover story on John Connors, the CFO of Microsoft, and the new business finance infrastructure they’ve put in place there. Every business division at Microsoft now has a CFO. The CFO is equal in stature to the president of the division, so it’s a shared senior-level responsibility. The CFO is not just a transaction-oriented number cruncher. These CFOs are strategic partners of the presidents of the business units, ensuring that each unit’s business objectives are being adequately pursued and met.

Microsoft’s CFOs are a good example of what it takes to be a successful CFO in today’s business environment. Today’s CFO needs to be equally concerned with strategy and tactics, more so than most senior executives. The CFO also needs to be gifted in communicating with all stakeholders of the organization, both internal and external, including partners, investors and employees. They have to be able to work with all functions in developing and implementing strategies and tactics to balance growth and profitability to maximize value. Basically, more so than any other title in business today, the CFO has truly become the performance management champion.

sascom: Let’s discuss technology a bit. Do you think most finance departments are more or less dependent on IT today than they were, say, 10 years ago?

Blansfield: I don’t know if dependent is the right word. I think we’re all dependent on IT. I would say the more IT-capable the organization from a process point of view, the higher-level performance you’re going to get from that organization. An organization that has a compatible, relatively simple IT infrastructure that supports effective business processes generally produces higher value now and in the future, because it can more easily support and integrate new applications and functionality upgrades, which could translate into real competitive advantage. These are your world-class companies because their technology is so seamlessly integrated into who they are and how they do things. It’s a big part of who they are.

sascom: One final question, talking about financial intelligence: What technologies should be, or have to be, involved for it to be successful for an organization?

Blansfield: The less complex the business and technology environment the better. Integration – getting IT together, so to speak – is a critical issue for organizations today. The better your financial applications are integrated with the other key applications that are used to run your business – say your customer relationship management applications – the more value and performance you’re going to get out of both systems.

Organizations that have multiple ERP systems and multiple charts of accounts are wrestling with greater challenges in bringing the most value to their IT infrastructure. These organizations are looking to make new investments in application integration, trying to get disparate systems and software to talk to each other better. Better decision-making is clearly an endgame, and how technology facilitates that is a fundamental consideration. That’s where the collection, dissemination and analysis of data becomes so essential; where having accurate, reliable, real-time data is critical to keeping a step ahead of your competition. Companies that haven’t streamlined their financial intelligence have a hard enough time figuring out where they are at any given time, let alone making informed decisions to support their business objectives in the future.