How CFOs can bring agile planning to the whole organisation

6th September 2016

The quest for agility is nothing new.  Organisations have been utilising agile software development and production planning processes for several decades.  But in the face of constant change businesses are being challenged to take agile thinking a stage further, allowing it to permeate all business functions so that agile planning, forecasting and decision-making becomes second nature and organisations can respond smartly and quickly to changing business circumstances. 

The perceived wisdom is that the digital economy, (technology-infused business models and Silicon Valley start-ups) is largely responsible for the rapid pace of change, but the reality is much more prosaic. A 2016 global survey of CFOs1 shows that 41% of organisations are being strongly disrupted by changes in consumer behaviour, compared with only 12% who say they are being strongly affected by start-ups. The rest are being blown off course by structural changes in their business sector (36%), changing business models in the sector (34%) and technology innovation by competitors (24%).  But overall the analysis shows that no business or business sector is immune to change.  And with businesses failing at a rate 30 times faster than 30 years ago and the average tenure for S&P 500 companies reaching an all-time low2, (the so called topple rate), businesses realise that the ability to accommodate change is becoming a matter of business survival.

So how does a CFO imbue an organisation with the agility to respond to such volatility and change? 

 

 

What is agility?

There is no agreed definition of “agility” but borrowing from the field of software development it is commonly considered to include elements of collaboration, adaptive planning processes, evolutionary development, early delivery, continuous improvement, and the encouragement of rapid and flexible responses to change.

These characteristics sit very neatly with modern approaches to business planning and decision-making.  And since Planning, Budgeting and Forecasting (PBF) weaves its way through the entire organisation (or should do) introducing agility into this process enables a profoundly more agile organisation as well.

 

So what are the features that matter?


Agile modelling

The ability to make crisp decisions confident that they are grounded in sound data starts with the underlying business model that describes the operational and financial environment on which the business is founded.  The agility of the business model, for example, its extensibility and the ease with which plans, budgets and forecasts can be recalculated in the face of fresh requirements has a direct bearing on organisational responsiveness. 

Having the right technology plays a crucial role in improving the quality of decision making and accelerating the ‘time to decision’. But moving to a more data-rich planning environment which straddles operational and financial data as well as structured and unstructured data requires industrial strength hardware and systems software solutions to process, churn and synthesize large and varied quantities of data.

Agile planning models take change in their stride, allowing for example, business reorganisations, changes to information requirements and dimensional analysis to be accommodated without major disruption.

Earlier generations of software and systems could not support an enterprise-wide environment but with increasing computer power, for example, parallel processing, in-memory calculations, highly scalable databases and ever-more sophisticated calculation engines it is now feasible to build and maintain a centralised planning model for even the most demanding and granular business plans.

 

Handling multiple data feeds and business complexity

Most finance functions face large data volumes for sure, but it’s the sheer variety of new data and number of data sources that is proving most challenging. The customer-centric mantra, i.e. putting the customer centre-stage, has created a clamour for data about customer behaviour, buying habits and propensity to buy. So today’s information systems have to cope with swathes of data about customers much of it derived from new sources such as web, social analytics and even location data derived from mobile technology.

So the ease with which business models can integrate seamlessly with many and varied data sources as well as handle the intrinsic complexity of such diverse data is becoming a prerequisite for success.  But so too is the ability to join customer-facing processes with core financial processes so that customer behaviour and buying patterns inform decisions about pricing, product bundling and promotions. Customer behaviour can be very fickle and with competitors only a mouse-click away, smart finance functions know that organisational responsiveness and agility vests in their ability to see the whole picture.

 

Collaboration

Multinational businesses with sprawling and diverse operations often struggle to keep their ‘finger on the pulse’.  On the other hand, the ability of modern technology to support high-levels of user-participation across all of the functional areas of the organisation vitally ensures that business plans and decision-making benefit from timely input from people at the sharp end of the business. Companies that cannot ‘connect all of the dots’ between their financial and operational plans, for example, sales demand planning, supply chain plans, product management, human capital planning are at a severe disadvantage. The intimate involvement of all personnel adds to the richness of any forecasts and plans and supports agility by ensuring that decisions are based on best market intelligence available at the time.

But agile decision-making is an enterprise-wide responsibility which has both strategic and tactical consequences.  High levels of user participation allied to collaborative technologies such as workflow (and more latterly embedded social capability) help ensure that the workforce remains strategically aligned, i.e. that whether decisions are taken at a strategic or operational level that managers know that their decisions are value-adding and contribute to the overall strategy.

 

Continuous decision-making

An agile philosophy also marks a departure from the shackles of monthly reporting. After all, if market conditions are continuously on the move shouldn’t decision-making follow suit? Collaborative technologies and high participation of users coupled with straight-through processing of information from front to back office enables continuous visibility of performance.  In these circumstances decisions no longer need to wait for the board pack at the month-end.  Decisions can be made in real-time, especially as strategic CPM (Corporate Performance Management) systems such as prevero allow the re-computation of business models on the fly. 

 

Summary 

Agile methodology is not new but the application of agile thinking to CPM is definitely innovative. Recent research1 shows that 81% of senior finance professionals believe CFOs will be more influential in decision making but one third of CFOs are still making decisions based on gut feel.  Unable to tap into enterprise-wide information they are at a serious competitive disadvantage.

Modern CPM systems such as prevero, with strong and adaptable data modelling based on powerful technology that harnesses multiple data sources and collaborative tools allow organisations to more easily respond to change and break free from the routine of monthly reporting.

Of course technology isn’t a panacea.  Moving to a more agile philosophy is as much a change of mind-set as of processes. But with the cost of finance as a percentage of revenue being 40% lower in top performing organisations, modern finance professionals know that for those businesses that ‘grasp the nettle’ the rewards are potentially high.3

 

 

 

 

Bibliography

 

Note1 FSN “Future of the Finance Function Survey 2016”

Note2 Deloitte University Press, “Success or struggle: ROA as a true measure of business performance” October 2013

Note3 PwC Global Finance Benchmark report 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

About the Author

Gary Simon, is rated by Linkedin as one of the UK’s top 10 business leaders in 2015 and is leader of the FSN Modern Finance Forum on Linkedin with more than 46,000 members.  He is a graduate of London University, a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than 30 years’ experience of implementing management and financial reporting systems. He is the author of four books, many product reviews and whitepapers and as a leading authority on the financial systems market is a popular and independent speaker on market developments.  Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.

 

 

 

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Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. The publisher and author make no representations or warranties with respect to the accuracy or completeness of the contents of this white paper and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose.  No warranty may be created or extended by sales representatives, or written sales materials.  The advice and strategies contained herein may not be suitable for your situation.  You should consult with a professional where appropriate. FSN Publishing Limited and the author shall not be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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