Next Generation FP&A Tools in the Age of Digital Transformation
When business students look back at the first decade of this millennium, they’ll think of it as the age of digital transformation. It will widely be considered as the time when the vast majority of industrial sectors went all in on digital.
by John Murdock, CEO, Centage Corporation
And they wouldn’t be wrong: Digital transformation is a top priority for many large companies. According to a 2018 Gartner survey, 62% of CEOs have a formal management initiative to make their businesses more digital, and nearly half (47%) of CEOs have been instructed to do so by their Board of Directors. Companies, in equal measure, are seeking to transform the way they interact and serve customers, or to optimize their overall operations.
CFOs won’t be left on the sidelines of the digital transformation movement. I know this because I’ve spoken to many of them about what they’d like to see in a next generation financial planning and analysis (FP&A) tool, and their requests align with the objectives of digital transformation.
First and foremost, CFOs are setting goals and KPIs that are linked to corporate strategy. For instance, they ask: can we set specific goals that measure the customer experience and the impact of the omni-channel investments we make on customer acquisition and attrition? How will the customer experience affect our competitive positioning?
This is new ground for companies. Goals and KPIs have traditionally revolved around things like sales or manufacturing costs, and optimization has focused on the supply chain. But now that ecommerce has upended both the traditional selling models and supply chains, companies have had to evolve. One of the things I hear over and over is how businesses want to set essential KPIs, and then have the ability to monitor, forecast and manage performance against those metrics.
To do that, CFOs need connectivity and transparency across the business, not just finance. Specifically, they need insight into operational areas such as sales and customer care. If their organization invests in a new sales channel, product or market, today’s CFOs need to monitor a host of KPIs that were foreign to financial teams thirty years ago. Back then, CFOs wanted to know if sales met, fell short or exceeded expected levels, and if those sales increased operational cost, via calls to customer care or returns. Today, CFOs need much deeper levels of understanding, such as the response time to open tickets, the impact of those response times on customer satisfaction, and how each level of satisfaction translates into profitability and lifetime value.
The digitally-aware business class understand how critical these data points are for financial planning and the immense impact they have on the P&L and cash flow. CFOs can’t wait for the dust to settle to understand what happened and hold the right people and factors accountable, they need real-time insight into their businesses, 24/7.
That’s why they’re clamoring for integrated FP&A tools that bring together financial and operational planning, and link them to the corporate strategy and execution. Just as the internet has merged sales, marketing and customer care into a single transparent workflow, today’s financial planning is difficult to separate from operational planning and accountability.
In terms of analysis, it’s hard not to see the role of AI in predictive analytics and decisioning support. The next generation of FP&A tools will almost certainly leverage AI to model the impact of internal and external factors on future performance, including shortages of skilled workers, customer sentiment, weather, politics and even climate.
The combination of cross-corporate viewpoints and AI-fueled analytics will transform finance leaders into more strategic advisors to management teams. They will be in the position to better advise executives, using astute financial information and operational insights.
By incorporating critical nonfinancial data in FP&A and other financial analytic processes, CFOs, and the organizations they work for, will be able to link financial and operational results to one another, as well as analyze them against budgets, plans and forecasts. And that, in turn, is truly transformational.
John Murdock serves as CEO for Centage. Centage’s Maestro Suite enables faster, more accurate budgeting, forecasting, analytics and reporting for small to mid-market organizations. With over 20 years of experience in the high tech industry, John is the driving force behind the company’s growth and transformation to a leading cloud-based solution provider. Follow on Twitter @centage.