A recent Gartner report found that only 18% of business decision makers believe their company’s performance data is decision ready, worse yet is only 22% of finance leaders believed it either.
Finance functions are facing a credibility problem with business leaders in their organizations. Large complex companies are composed of many departments and divisions that deal with a dizzying array of products and services sold across multiple channels to a variety of customer segments. Precisely calculating the profitability across all of these data dimensions is a challenge, and deploying these analytics in a manner that drives more profitable behaviors can be overwhelming. But, the effort is top of mind for CFO’s wanting to provide more expansive performance reporting than just the corporate income statement, and their stakeholders have an insatiable appetite for insights that help them improve the profitability of their businesses.
Aggregated financial reporting, such as the income statement at the company level, only tells the story of what happened. Those reports only provide an evaluation of performance of the current business model. The mysteries of why it happened are buried deep within that data. Business leaders want the answers to vexing questions such as: Who are our most and least profitable customers? What lines of business should we focus onto remain competitive? What business lines should we exit? What products and services require re-pricing to account for increased costs? How do we better manage the primary levers of profitable growth?. The rear view mirror of past performance reporting is failing to provide them with insights into the economics of their business in order to improve the future business model.
The arduousness of undertaking these types of finance analytics initiatives is not easily evident. Slick presentations of ‘silver bullet’ analytics applications, ‘eye candy’ charts and visualizations, are usually a company’s first introduction to the field. But the hard challenging work goes far deeper than the implementation of any technology application. Success requires a collaboration from across all stakeholders in defining how methodology, data, and technology will come together to provide Actionable Profitability Analytics throughout the organization. Failure is a likely outcome for the under-prepared and under-informed. But with only 1 in 5 business leaders believing their current performance reporting is decision ready, the biggest failure would be a ‘failure to launch’, because the strategic demand for better analytics from finance is undeniable.
Why do ‘ad hoc’ reports exist? By definition, these reports are meant to be performed only once for a specific business question which cannot be answered with an organization’s standard reporting. However, many organizations end up regularly running reports which are not included in their standard reporting, defying that one-time definition. There are really three instances for when and why this could occur.
- Changes or developments in the market which require additional analysis valuable to the business.
- Proof of concept: a new idea or way of reporting which requires company buy-in before it can be implemented as a standard report
- Progression of manager knowledge. When implementing a new reporting system, many companies limit the amount of data given to managers to avoid information overload. As managers adapt and begin to understand the information given to them, reports can then be expanded to include additional data for manager use.
While these are valid, if not desired reasons to expand upon standard reporting, regular “ad hoc” reporting is a practice which can lead to multiple inefficiencies, including excess reporting and quality errors, while consuming unnecessary IT resources. Therefore management should anticipate and plan for these occurrences in their organizations, and create procedures to manage and implement the ongoing changes in reporting requirements.
A great way to manage this process is to facilitate manager collaboration. By doing this, not only will it increase manager engagement, but it allows managers to communicate the information they need and how they consume and analyze that information. This can help identify obsolete reporting, and determine where to redeploy those resources to better serve their current information needs.
Collaboration also promotes the transfer of knowledge between managers. Managers are able to share ideas and techniques they use to analyze the data already available to them, which some managers may not be familiar with. In many instances, ad hoc requests and business problems can be solved with data that is already available, but the business managers lack the know-how to alter the data to a format which they can leverage. Facilitating a collaboration group will allow those business managers who have solved those issues to share their techniques, resulting in greater overall efficiency and less demand on IT resources.
As previously mentioned, it is important for an organization to understand that updating reporting requirements should be a continuous activity. Therefore, to best manage those changes, manager review, collaboration sessions, and implementation should be set on an iterated timeline. While it may not be necessary to conduct on a monthly or quarterly basis, performing annual or bi-annual reviews can help de-clutter and streamline the reporting process, all while engaging manager participation.
Implementing a reporting system in any organization, whatever the size, is a considerable task which can consume a lot of resources. Integrating ongoing maintenance into your implementation plan can help preserve the quality and continuity of your investment.