Published on March 31, 2014
August 2013 Research Study: The Strategic Finance Gap Executive Summary | 2 Routine Procedures | 4 The Innovation Gap | 5 Finance Professionals | 6 Conclusion | 7 Highlights by Region | 8
August 2013 | The Strategic Finance Gap 2 New technologies such as cloud/SaaS continue to take shape in the finance field, offering the possibilities of both greater flexibility and efficiency. However, in some cases, finance professionals are using these tools without clear information about or engagement with issues viewed as the domain of the IT department. The Strategic Finance Gap report attempts to understand the causes of this confusion, the extent of information finance professionals have, and where they may be leaving money on the table through poor technology choices. The research outlines the core findings from a global research study of financial executives conducted on behalf of NetSuite by Loudhouse Research between June and July 2013. The survey interviewed 334 finance professionals across the US, UK and Australia with strategic and management responsibility. The findings revealed that the role of the senior finance professional is changing rapidly. Strategic decision-making responsibilities form more and more of the finance remit. As business goes global, finance professionals provide the reporting and monitoring that not only allow companies to measure success and identify risks, but also play key roles in activities such as global expansion and M&A. Often enough, the systems in place to manage critical finance processes are not changing as fast as the role itself, leaving finance professionals stressed and isolated. Executive Summary Figure A: Sample by Country Research Methodology Online interviews were conducted with 334 finance professionals in the US (128), UK (106) and Australia (100) in June and July 2013. All respondents were based in finance teams, and interacted directly with financial management systems at least 3 days per week, along with any other strategic or management responsibilities. Research managed by Loudhouse, an independent re- search agency based in London. 68% say that the finance function is so immersed in time- consuming tactical processes that it has limited ability to innovate. Financial professionals who want to be using data to drive the company forward are instead bogged down in close procedures, reporting and follow-up requests for data. To this point, finance professionals noted that their top challenges include too much time on routine reporting and close procedures, data gaps and system and tool issues. The need for access to data is increasing as the data volumes themselves increase, making control of information a challenge for finance professionals and the corporation as a whole. Without a single version of the financial truth of a company, updated and accessible to those who need it in real-time, conversations about financial information become stalled in the monthly reporting cycle. Data often resides in siloed systems across departments and geographies and is poorly integrated across these solutions. This results in business information being difficult to access, time-consuming to compile and often outdated. The demands of routine tasks take so much time and energy that strategic analysis is often squeezed out, depriving companies of potentially crucial input from the finance function. Financial management systems must facilitate seamless working and collaboration, rather than simply supporting the status quo. USA 38% AUS 30% UK 32%
August 2013 | The Strategic Finance Gap 3 Executive Summary Cont’d The increasing volume of information available to companies has opened up tremendous new opportunities for profit and growth driven by innovative uses of information. Senior finance professionals, with their global view of the company and their unique understanding of business data, should be leaders in this change, providing insight and direction. However, this opportunity has not been realized as only 17% of survey participants said the company they work for was primarily data-driven in its strategic decision-making. In order for finance leaders to influence this change, they need systems which provide them with real-time access to accurate data across departments, geographies and subsidiaries, while also maintaining central control and compliance across all of these groups. They also need routine functions to process faster, such as month-end reporting and close procedures that are frictionless and do not take time and energy that could be used on higher- level strategic contributions to the business as a whole. The research highlight stats include: Are “Routine” Procedures Truly Routine? • Top challenges in finance roles include too much time on routine reporting and close procedures (45%), data gaps (40%), and system and tool issues (36%). • 93% agree that improved tools and systems could increase their effectiveness and efficiency. • 91% agree that better tools would make it easier to protect company assets from loss or misuse. • Only 27% feel that their financial management systems adapt quickly to changes in their roles. The Innovation Gap • 74% see their strategic responsibilities increasing, and half of these see no related decrease in tactical responsibility. • 68% say that the finance function is so immersed in time-consuming tactical processes that it has limited ability to innovate. • Only 17% of survey participants say the company they work for is primarily data-driven in its strategic decision-making. • 45% of companies are not using completely integrated tools – they have different systems between locations, a hodge-podge of tools, or no discernible financial management strategy. • Anytime, anywhere access to data is not a reality: 45% of finance professionals are using financial management tools that are installed on their own desktops or a team server. • 64% are either using or planning to adopt cloud / SaaS solutions to better manage at least a few core business functions, led by 70% of companies in the United States. Finance Professionals Feel Isolated and Ignored • 85% feel that non-financial managers do not understand the financial position of the overall company as well as they should. • 79% feel that non-financial managers do not understand their own teams’ contributions to the overall financial position of the firm. • 73% feel that ideas driving growth and profitability within their companies do not originate in finance.
August 2013 | The Strategic Finance Gap 4 Are “Routine” Procedures Truly Routine? Figure 1: Challenges in the Finance Role Figure 2: Room for Systems Improvement (Percentage agree) Reporting and the monthly close process that enables accurate reporting are key parts of the responsibilities of senior finance professionals. They are, however, supposedly routine parts of the finance function, performed along the same lines on a regular basis. In practice, it seems that the close process takes an inordinate part of survey participants’ time and energy. Add increasing responsibilities to this equation, and it is clear that financial management systems are failing to make reporting routine enough to adapt to the current finance workload. The challenges of the finance role itself are exacerbated by systems failings (Figure 1). 45% of respondents rate the amount of time spent on routine reporting and close procedures as a major challenge in their positions. They list data gaps (40%) and system and tool issues (36%) as other major issues, shedding some light on some of the specifics of what makes close take so much time. Only 27% of participants think that their financial management systems are adapting quickly to ongoing changes in their roles. The missing ingredient seems to be efficiency. Without a way to make reporting more automated, with data moving through the system to create “a single version of the truth” at the end of each month, close procedures become inefficient and incomplete. Managers outside of finance can’t always get the most relevant data for their needs as quickly as they want it. This situation results in missing information at close, and requests for extra information from non-finance managers outside of close periods. 93% of survey participants agree that improved tools and systems could increase their effectiveness and efficiency, while 91% agree that better tools would make it easier to protect company assets from loss or misuse (Figure 2). Clearly, the problem is creating widespread costs in both time and money. Increased efficiency and data visibility are so valuable to finance professionals that they are willing to incur additional costs if improved tools can help overcome these issues. 62% of respondents rank “the ability of the financial management system to improve and streamline financial process efficiency and management” as a highly influential factor in purchasing such systems. 52% feel that “the ability of the financial management system to improve real-time visibility into business performance” is key. In contrast, only 17% prioritize “the cost of purchasing and ongoing maintenance of the financial management system” as a critical requirement. The lack of efficiency has a cost to the company in strategic opportunities missed and productivity lost. 40% 40% 39% 36% 33% Too much time spent on routine financial reporting or close procedures (such as creating accurate financial reports and disclosure documents) Distribution of responsibilites (too much for current staff to do, hard to balance strategic and tactical responsibilities) Difficulty performing analysis because of gaps in data and/or challenges marrying data from multiple data sets Increasing operational costs in the systems/tools that support my role Lack of consistency and uniformity or business Problems with the systems I use to do my job (out of date, too many, missing tools, too much is outdated or manual etc.) Difficulty implementing needed controls or complying with legal or regulatory standards Improvements to the tools and systems we use for our financial management processes and reporting could increase the effectiveness and efficiency of our operations Improved tools and procedures would make it easier for finance and accounting teams in my business to safeguard the company’s assets from loss or misuse 93% 91% 45% 44%
August 2013 | The Strategic Finance Gap 5 The Innovation Gap Figure 3: Only 17% of Companies are Truly Data-Driven All of this raises the question of whether the tactical processes can be streamlined enough to allow finance to take a more strategic leadership role. The research indicates that finance professionals are in part suffering from a problem of company culture, but are also affected by deficiencies in the tools they use. When finance professionals are asked what is driving their organization’s strategic decision-making, the most common answers are that their companies are “compliance-driven” (25%) or “people-driven” (26%). Only 17% characterize their firms as primarily “data- driven” (Figure 3). Despite the business world’s focus on “big data”, it seems that data is not flowing or being utilized effectively at most companies. In the absence of data-driven insight, companies fall back on policy and compliance needs, doing what they are required to do instead of realizing their full potential for success. Central, unified financial management systems are rare. 45% of companies in the survey are not using integrated tools – they have different systems across locations, a mix of tools, or no discernible financial IT strategy. Siloing of business data between different business locations and divisions is a potentially serious problem. Just under a third of businesses (29%) are running multiple disparate systems throughout headquarters and at other offices and locations. Accessibility to data is a highly common issue. 45% of survey participants use tools that are installed on their own desktops or a local server. Finance professionals seem to believe that cloud/SaaS-based tools may be part of the solution as a clear majority (64% of respondents) now either have cloud solutions fully or partially implemented or are planning such implementation – rising to 70% amongst US respondents. This hodgepodge of outdated systems across departments, divisions and geographies contribute to the overall problem: the finance function is bogged down in administrative work when it should be free to lead data- driven innovation. 68% of the respondents agree that the need to focus on tactical functions is limiting their ability to innovate. People- driven 26% Data- driven 17% Policy- driven 19% Compliance- driven 32% Tools- driven 13%
August 2013 | The Strategic Finance Gap 6 Finance Professionals Feel Isolated and Ignored Figure 4: Finance Professionals Have Increasing Responsibilities Figure 5: The Strategic Challenge for Finance The role of the senior finance professional is changing with more responsibility for strategy, often in the absence of a decreased tactical role. In fact, of the 74% of participants in the survey who report that their strategic responsibilities are increasing, only half (50%) report a concurrent decrease in the tactical side of their roles (Figure 4). In other words, well over one-third of the survey participants are simply seeing increased workload, while roughly three-quarters are seeing the complexity of the work they do increase. As their responsibilities increase, information gaps between departments leave them feeling isolated within the companies they serve. 85% of survey participants feel that non-financial managers in their companies do not understand the overall financial position of the company as well as they should. Even worse, 79% agree that non- financial managers do not understand their own teams’ contribution to the bottom line (Figure 5). Information is simply not flowing between the finance function and the rest of the business as smoothly as it should be which limits the perceived value other departments place on the finance function. Over half (52%) of the participants in the survey report that they are being asked more often for financial information by non-financial managers, and the most common data requested are basic financials (sales and revenue, order statuses or commission totals), which 76% report being asked for (Figure 6). This is followed by budget data (61%) and operational data (58%). Despite these high levels of demand, finance managers would like to be sending more data outside of finance. 59% would like to give non-financial managers more access to financial and budget data. 46% would like their non-financial managers to have access to self-service reporting and 42% would like them to have tools to better see their own departments’ impact on the company overall. Finance time and resources are disproportionately tied up in routine procedures. Asked to identify their priorities for the closing process, 74% name “making sure that all the financial information is current and relevant in the system” as a high priority. Because the movement of data is not as seamless as it should be, ensuring data accuracy takes time that could be spent on more strategic areas, such as spotting inefficiencies or improving financial performance. The result is that 73% agree that ideas driving growth and profitability within their companies don’t originate in finance (Figure 5). A key source of strategic guidance is not being tapped. Role entails more responsibility then it used to - senior finance professionals are more involved in strategic decision-making analysis in addition to their other responsibilities 37% Role has become more about strategic decision-making and analysis, while their direct role in day-to-day finance execution has been reduced 37% Role has changed very little, or not at all 11% Role has become less strategic, and more about their day-to-day finance execution 15% 37% 37% 15% 11% 73% 71% 68% People in non-finance functions such as operations, sales or service don’t always understand the general financial position of the company as well as they should Managers in non-finance functions such as operations, sales or marketing don’t understand their teams’ contribution to the company bottom line as well as they should The ideas that drive growth and profitability in our company come from outside of finance The finance function spends too much time at close period managing the closing process itself The finance team at my business spend so much time and resource on tactical processes that we have little ability to innovate 85% 79%
August 2013 | The Strategic Finance Gap 7 Conclusion: Finance as an Idea Engine The business world is changing rapidly, with more and more data available to companies. Activities that senior finance professionals used to handle manually and in spreadsheets now involve so much data and complexity that they need to be more automated and systematized in order to manage productivity and compliance risk. The fast, accurate and controlled movement of data between corporate departments and locations is rapidly becoming a data hygiene factor: without it, companies cannot hope for accurate mandatory timely reporting nor strategic utilization of their performance data. Senior finance professionals can lead if they are not locked into an outdated, administrative view of finance and its role. As long as their tools and systems are not adapting to the new reality, finance teams are leaving opportunities and potential profits on the table. In order to reach a truly data-driven model of strategic finance, companies need to: • Cut time and effort on administrative tasks by integrating business and financial information across functions, locations, divisions and systems, and implementing more modern cloud/SaaS-based solutions that are designed for today’s constantly changing business environment. • Create robust control policies for data access and automate these, enabling departments with real-time access to “dashboard” data at any time and from anywhere and freeing finance from the treadmill of fulfilling routine data requests and compiling reports from different data sources. • Refocus senior corporate leaders away from making decisions based on gut feel and towards being truly “data driven” - viewing data as a source of new ideas and insight, rather than just a reporting or compliance challenge. • Refocus finance management on spotting patterns in the data. Freed from excessive reporting demands, finance should be on a constant search for potential efficiencies, opportunities, risks and paths forward. The corporate leaders of 2013 and beyond will be those who can make data the driver of strategic decision-making within their organizations. This entails a new role for finance leaders as innovators. In order to tap the potential of finance, the tools that support finance need to themselves become idea engines. Figure 6: Basic Financial Data is the Most Requested 58% 53% 35% 1% Financial data (such as sales and revenue data, order statuses or commissions) Budget data Operational data Customer data Data on KPIs Another type of data 76% 61%
August 2013 | The Strategic Finance Gap 8 Highlight Findings by Region Describe the company as primarily “data-driven” Agree that improved tools and systems could increase effectiveness and efficiency Agree that better tools and systems would make it easier to protect company assets from loss and misuse See “too much time spent on routine reporting and close procedures” as a challenge in the finance role Feel that financial management systems adapt quickly to changes in the finance role Feel that non-financial managers do not understand the financial position of the overall company as well as they should Agree that the ideas driving growth and profitability within the company come from outside of finance See their strategic responsibilities increasing / see these increasing without a decrease in other responsibilities Not using completely integrated tools for financial management Use or are planning to implement cloud/SaaS solutions for financial management Say that the finance function is so immersed in time-consuming tactical processes that it has limited ability to innovate management strategy Total Sample 17% 93% 91% 45% 27% 85% 73% 74%/37% 45% 64% 68% United States 20% 96% 91% 48% 36% 87% 73% 69%/39% 34% 70% 71% United Kingdom 17% 90% 91% 48% 28% 83% 75% 77%/40% 44% 63% 70% Australia 13% 91% 91% 38% 15% 86% 71% 77%/33% 60% 55% 62%
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