Key to Remaining an Industry Leader: A Finance Team Armed with Business Analytics!
Finance teams are the analytics captains of the corporate ship empowered to provide upper management, business units and support units like HR, IT and Procurement with all the data points to fully understand past, present and future performance for decision making. However, as is often the case, because of the ever expanding list of corporate information systems and growing regulatory requirements shouldered by finance departments, the corporation's most important analytical asset remains mired in just completing mandatory tasks thereby neglecting these higher value activities that companies need to survive and thrive in today's hyper competitive, fast-paced business climate.
Let me illustrate.
In the 1960's, IBM was the 800-pound gorilla in the mainframe business whose technology supremacy went unchallenged and superior performance went virtually unabated into the 1970's. They were the blue suits bearing information-based mainframes to help companies use data to run their large - sometimes multinational - businesses with greater know how about customers, products, operations, and financial performance far more adeptly than any other technology could. Yes, they were considered the masters of product innovation largely due to world-class business practices and industry expertise.
As happens all too often in business IBM's market share eventually disintegrated as they missed the advent of the new information-based technology, which, if they would have had the right analytic capabilities in place, they would have seen it coming: the emergence of the minicomputer. Minicomputers were technologically simpler than mainframes but with stronger computing power while requiring less resources to run them. To be fair, it wasn't just IBM that missed the advent of minicomputers. It was virtually every mainframe company in existence at that time.
Exit IBM. Enter Digital Equipment Corporation.
DEC virtually created the minicomputer business along with a few other aggressively managed companies like Data General, Prime, Wang Computer, Hewlett-Packard, and Nixdorf. Did DEC and others in the minicomputer business learn any lessons from IBM's big miss on the minicomputer market so as to not repeat the same mistake? Of course not. The story of DEC's demise rings almost too tellingly true to IBM's mainframe debacle of the 1970's. In fact, the management gurus and business journals missed it too. Digital Equipment Corporation was considered by all who had some insight into the company's operations as being the ultimate technology company for decades to come. For certain it was a featured company in the McKinsey Study that became the stellar 1980's management book, In Search of Excellence. DEC seemed destined for monster success. Still, despite all this fanfare, DEC missed the next wave in computing technology, the desktop computer market.
Again, where was finance watching past performance by measuring and monitoring it, to get analytical insight into what the future might look like to then advise their constituents across the business on what all of this means to each one of them? Answer: Heads down.
The desktop computing market was predictably seized not by DEC or one of its minicomputer compadres but by Apple Computer, Tandy, Commodore, and IBM's PC-division. (Yes, IBM can't be held down for long!)
What happened next? Like Rick Blaine says in the movie Casablanca, "Play It Again, Sam." Apple, Tandy, IBM and the rest of the desktop computer gang focused on making the best desktop computers they could but ended up missing the next new, new thing. Apple Computer and IBM lagged 5 years behind bringing the latest-and-greatest technology rage to the market: portable computers. That market was owned by Silicon Graphics, Sun, and Apollo - all newcomers to this market.
In each case, the leading companies mentioned were regarded as the gold standard given their product excellence and operational execution only to be quickly pushed aside by an out-of-nowhere, technologically superior solution that reset the market's expectations rendering the prior leader's solution frumpy and stale. Missing emerging trends in the marketplace and not adapting to them quickly enough can ring a death knell for most companies. Think Wang, Silicon Graphics, Apollo. For others, this misstep can set them back 5 or even 10 years before they're back on their feet again.
As a note, in the above example, I simply chose the technology sector but we could have easily used the retail merchandising sector (Think Sears vs. Nordstrom) or retail books (Think Barnes & Noble vs. Amazon), or Automotive (Think GM vs. Toyota). Each situation is an example of a failure to see the changing landscape.
I think finance failed their companies in each instance because they weren't effective enough in managing the day-to-day, or lower value tasks, which, if they had them under control, they would be able to spend more time on higher-value practices like forecasting, predictive analytics and what-if scenario planning to uncover data points that can help the entire business spot emerging market forces before it's too late to respond. This responsibility to identify these threats and opportunities lies squarely on finance. If not them, then who else? Be careful because whomever you'll name will probably expect finance to provide them with the meaningful insight into performance results across the business as well as external information, which, again, means it's incumbent on finance.
So, how does finance get to that point where it's able to provide this kind of insight with the resources it has because Lord knows it's not going to get additional headcount? Well, it all starts with finding a way to better leverage the resources it has. This requires finance teams to get the lower value tasks automated as much as they can so that they can off-load these process management steps to take on added capacity for these analytic practices.
What are the world class finance teams doing to be analytic leaders in their industry? World class analytic finance teams have these repeatable practices down to great consistency and repeatability from end-to-end:
These solutions are the foundational elements finance needs to harness the demands being put on it in the 21st century's version of business so that they can be free to act as advisor in providing guidance to the management team, business units and support units. Excel at the practices mentioned above and you're soon positioning your analytic experts on your finance team to do the real analysis they're supposed to be doing.
It's incumbent upon the CFO's finance department to provide this guidance and leadership given finance's role as the performance managers for the company. It is therefore finance's job to provide insights into past, present, and future performance but also trends, anomalies and market opportunities that become visible only after thorough analysis of the information-based business results gleaned from systems, i.e. ERP, CRM, SCM, etc. and processes, i.e. forecasting, what-if scenario analytics, etc.
Strategic-minded finance departments role explains not only past business performance and its financial effects but also provides essential guidance in determining where the organization, business units and departments should make investments with the resources at hand.
The new frontier for finance as the CFO's analytics team needs to spend less of its time not on the everyday execution of basic, low value process steps, like compiling, validating, and reconciling data for various internal and external reporting needs but also analyzing past, present, and future to present guidance on what's happened, what's happening now, and what could happen.
Only with a performance management infrastructure in place to easily manage the lower value activities which can mostly be automated can the real value-added analytic insights, which finance has the expertise to identify, come to light. Otherwise, these companies will likely become the next Tandy Computer, Silicon Graphics, or Apollo.
It's up to you finance to not let this happen!
Tim O'Bryan, AnalyticsZone by IBM
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