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Technology Imperative for Financial Planning and Analysis – Part 2

by Malcolm Faulkner, Senior Director, EPM, SAP

In part one of this series of blogs I made the argument that most companies are way behind the “technology wave” and struggling with persistent, fundamental issues that are hard to fix. In this blog I’ll argue that there are two additional factors at work, namely:

  1. IT has a full plate which can actually hinder progress and adoption of new solutions.
  2. Business needs to be a co-pilot in driving the introduction of technology.

These need to be addressed in order to make the transition to a top performer.

Let’s begin with IT.

Co-workers working in computer room

IT Has Issues

IT came into existence as a support function – building and maintaining software applications to make business functions more efficient and effective. Starting with automating transaction-based processes, we’ve evolved to where we are today, with much of the back office transactional systems largely automated (although perhaps in need of an upgrade), with the focus being on increasingly sophisticated analytics, visual tools and mobile solutions. Technology has evolved to the point that it’s driving innovation and changing business models. In kind, the role of IT is evolving to support these new opportunities.

The result is that IT is split between operational “keeping the lights on” activities and an increasing opportunity to support business functions by promoting new and innovative uses of technology.

New technology is fun, and development is fun too. The more new technology and new development IT gets to do the happier they are. They would be happy as can be rolling out new stuff all the time especially if they could outsource all the associated support and maintenance work.

Unfortunately, these “keep the lights on” activities comprise 50-80% of IT’s time (depending on what study you read). This limits the time and resources IT can allocate to new projects. Hence, needed investments may not happen-not because the business doesn’t want to spend the money, but because IT can’t get to them because of other work further up the queue.

When the cost of supporting and enhancing an existing solution exceeds any additional value that can be derived from it a decision must be made to either make do with the limitations or to replace it with something better and more cost effective.

The good news is, when it comes to introducing new technology, if we miss one cycle we can leapfrog to the next. So legacy apps can be replaced with cloud apps and technology laggards can jump straight in with the latest technology.

It used to be the case when IT was used primarily to enable internal processes that the CFO would approve spending based on an assessment of the return on investment. This largely hands off approach has changed as CFOs have begun to expand their horizons and look to be more involved in strategy, growth, and innovation. While, correspondingly, technology is now an integral component in business innovation.

Business Needs to Step Up

Increasingly, business is stepping up and working hand in hand with IT on technology projects. Becoming a top performer means implementing best practices to drive process improvements.   Most of the time adopting a best practice requires implementing some form of software. Finance can’t rely on IT to drive that agenda, because as explained above, IT has a full plate and there’s competition with the limited resources needed to implement new systems.

Furthermore, where IT has limited appre­ciation for the financial and operational consequences of its spending, it can leading to investing in technology for technology’s sake. In this case, it is even more important for finance to vet proposed expenditures.

Vendors have also recognized the need to alleviate IT’s workload and have introduced more “self-service” solutions that are intended to be owned by business. This mitigates the need for business to rely so heavily on IT for information. This is also better than finance going off and creating solutions in parallel with IT.

As the CFO research study* stated, forward-thinking organizations are “adopting technologies such as:

  • Cloud computing, which provides rapid and flexible access to solutions that drive efficiency and adaptability while lowering IT costs
  • In-memory computing, which gives finance and the wider business near-instant insight into their burgeoning amounts of big data
  • Mobile technologies, which provide targeted information and analysis and engage colleagues in a two-way collaboration across a widely distributed enterprise
  • Predictive analytics and risk management, which help identify likely scenarios and access how they might impact financial performance”

There’s a huge opportunity now, regardless of the state of IT automation in your company, to make some real improvements. New technologies have not only dramatically changed what is possible but lowered the cost of doing so. The focus is shifting from trying to push down costs to finding ways to push revenues up. This means addressing some of the messier financial planning and analysis functions so they simultaneously become more effective and efficient (or just simpler) and then allow finance to go further and apply technology towards innovating business process so they can get information into the hands of managers and executives faster – leading to more revenue (value).

For business leaders that have taken a hands-off approach, it’s time to change or risk falling further behind.

Fixing the fundamentals remains paramount, but by implementing these new technologies you have the chance to leapfrog the competition.

In the next blog in this series I’ll look at the issues and challenges finance organizations face in improving financial planning and analysis processes and how to kick off performance improvement programs.

* Shaping the Finance Function of Tomorrow: 2013 CFO Research survey among senior finance executives at large companies to explore the key challenges that finance departments will face in the years ahead.

Originally posted on SAP Analytics, 9 October 2014. Reprinted with permission.