Why the level of connectivity among people, processes and systems is the key to unlocking finance’s true value.
By Nilly Essaides
Finance used to sit in an ivory tower.
Over time, brick by brick, we have been dismantling the walls that kept the finance organization separate from other functions and business operations. However, there remain barriers to connecting finance professionals, processes and systems within the function and throughout the enterprise. These structural impediments create unnecessary friction and information gaps that reduce process efficiency and effectiveness and prevent the finance organization from unlocking its full strategic value.
- Clearing roadblocks through peer-to-peer knowledge exchange is critical to NeuGroup’s mission of connecting every finance professional who wants to share and learn. Now more than ever, it’s vital these exchanges take place between and among finance functions but also with business partners across the corporation.
Confronting Pain and Frustration
We hear about the pain created by siloed approaches from NeuGroup members in multiple contexts. During a recent FX peer group session, one member shared his frustration with the difficulty of extracting exposure data from business units and segment-level finance teams. His problem was compounded by an Excel-based data collection and analysis process that involves multiple sources of information and sits outside of the rest of the finance organization’s tech stack.
- In one case, this member recalled, the wrong value was pasted in a spreadsheet, leading to significant over-hedging and resulting in a significant P&L hit. “I had to explain that, and it wasn’t fun,” he said wearily.
- He also emphasized the importance of soft skills in creating trusted relationships with the various constituents who, for P&L reasons, may be reluctant to divulge a complete exposure picture.
Members of our mega- and large-cap FP&A peer groups have expressed similar frustration in accessing operational and financial data to build forecasts and annual plans. With a mandate to forecast cash flow and the P&L, these members face data coming from divergent systems and through different pipelines that not only slows them down but also introduces more friction into the process. That, in turn, hampers their ability to monitor and manage enterprise performance and support strategic decision-making
In another context, respondents to our May 2022 Cash Forecasting Survey ranked lack of visibility into data as the No. 1 reason that cash forecasting remains a huge pain point for treasury.
A Connective Tech Tissue
Let’s start with the prevalent technology landscape: Most finance teams currently operate within a fractured system environment with different ERPs and different instances of the same ERP. In addition, many have legacy applications that are hard coded into the source system. In a recent NeuGroup survey of 25 companies’ FP&A groups, we found most are also still relying on Excel for data collection, analysis and visualization.
Finance executives have long yearned for a one-stop solution, and corporates spent billions trying to achieve this nirvana. While cloud-based ERPs are gaining a growing share of the market and helping to streamline core system’ integration, their level of functionality often falls short of the finance organization’s requirements.
The dream of a single solution is being supplanted using maturing technologies like APIs and RPA. They can link up cloud systems quickly and cheaply to construct a finance ecosystem that includes the automated flow of data among systems and into an enterprise data warehouse.
Breaking Organizational and Process Barriers
A key benefit of a cohesive technology ecosystem is that it enables finance to connect processes within finance and across finance and operational processes and construct a more agile operating model. At the core is a single source of data, overlayed by fit-for-purpose solutions, e.g., for planning or FX risk management. At the heart of this structure is a common set of data definitions and a single source of the truth, increasingly a data lake or warehouse.
- By breaking barriers between different areas within finance and finance and operations, e.g., treasury and AR or FP&A and business finance, executives can gain an end-to-end view of core processes such as customer-to-cash, account-to-report and procure-to-pay. The E2E view supports better insight into enterprise cash and performance, thus delivering greater insight to aid in decision-making.
- By standardizing data definitions, information can be shared and understood, across the organization, driving greater insight and foresight.
- The emerging tech stack also allows FP&A, treasury, accounting and other areas to share new functionalities, e.g., analytics. Everyone can access the data and take advantage of advanced analytics to make smart decisions. Leading finance organizations are also establishing analytics centers of excellence, which can build algorithm libraries and deliver analytics support to different parts of the organization.
Building a Connected Community
Enabling partnerships is essential to leveraging a coherent tech stack and standardized E2E processes. While data must be exchanged, so do best practices and expertise. The importance of personal relationships between people in different parts of the finance organization and outside of it cannot be underestimated.
We see this trend most noticeably in the connection between FP&A and the business. In a quick poll at our July FP&A summit meeting, 100% of participants said they have dedicated business partners who are embedded in the operations. By working side by side:
- Finance and business managers can develop mutual trust and establish credibility.
- Finance professionals can build up their business acumen and identify key drivers, to better assess performance and provide advice on possible courses of action.
- Business managers can evolve their financial understanding to foresee the financial repercussions of business decisions.