How CFOs can drive value through digital decision-making

1st December 2015

According to a Deloitte CFO Signals survey only around a half of CFOs say they have the information they need to effectively manage the business. Smart CFOs know that the key to faster and more insightful decision-making.  This paper looks at how CFOs are rising to the challenge of driving value through digital decision-making.

Text Box: How CFOs can drive value through digital decision-making Introduction

One consequence of the digital economy is that organizations find themselves in a constant state of flux, buffeted by new business models, new technology, lower barriers to competition and geo-political change on an unprecedented scale.  Unsurprisingly change on this scale produces new tensions as businesses attempt to prioritise competing initiatives while at the same time balancing an inexhaustible clamour for data and faster decision-making. All of which can have a profound impact on competitiveness and organizational success. 

And it is CFOs whom find themselves at the centre of the maelstrom.  In an era in which mastery of data is the preeminent concern, the CFO’s analytical and partnering skills are considered central to bringing a new professionalism to decision-making, i.e. one in which data is exploited fully to drive value across the organization. 

But as businesses in all industry sectors begin to confront the inevitability and rewards of digital business, many CFOs are feeling overwhelmed.  According to a Deloitte CFO Signals1 survey only around a half of CFOs say they have the information they need to effectively manage the business and about one third express a neutral opinion.

In response to this these pressures many organisations have thrown increasingly sophisticated technology and resources at the problem, hoping that answers will somehow emerge.  But there is now a sense that decision making in many businesses is ‘coming off the rails’ i.e. there is that decision-making is too slow, lacks confidence and conviction.

Smart CFOs know that the key to faster and more insightful decision-making, (“digital decision-making”, as we have called it), doesn’t mean recklessly throwing resources at the problem but a return to the fundamentals, most notably aligning decisions to strategic and operational needs – underpinned by appropriate processes, people and technology. 


 

 

 

Introduction

One consequence of the digital economy is that organizations find themselves in a constant state of flux, buffeted by new business models, new technology, lower barriers to competition and geo-political change on an unprecedented scale.  Unsurprisingly change on this scale produces new tensions as businesses attempt to prioritise competing initiatives while at the same time balancing an inexhaustible clamour for data and faster decision-making. All of which can have a profound impact on competitiveness and organizational success. 

And it is CFOs whom find themselves at the centre of the maelstrom.  In an era in which mastery of data is the preeminent concern, the CFO’s analytical and partnering skills are considered central to bringing a new professionalism to decision-making, i.e. one in which data is exploited fully to drive value across the organization. 

But as businesses in all industry sectors begin to confront the inevitability and rewards of digital business, many CFOs are feeling overwhelmed.  According to a Deloitte CFO Signals1 survey only around a half of CFOs say they have the information they need to effectively manage the business and about one third express a neutral opinion.

In response to this these pressures many organisations have thrown increasingly sophisticated technology and resources at the problem, hoping that answers will somehow emerge.  But there is now a sense that decision making in many businesses is ‘coming off the rails’ i.e. there is that decision-making is too slow, lacks confidence and conviction.

Smart CFOs know that the key to faster and more insightful decision-making, (“digital decision-making”, as we have called it), doesn’t mean recklessly throwing resources at the problem but a return to the fundamentals, most notably aligning decisions to strategic and operational needs – underpinned by appropriate processes, people and technology. 


Driving strategic alignment

Instead of reactively analyzing historical data and presenting static reports, the modern CFO works hard to understand what is happening and why, then provides proactive guidance on what actions to take to support broader business objectives.  But in order for analysis to be meaningful and relevant it has to be ‘grounded’ in real business concerns at either a tactical level or strategic level.

However, recent research2 shows that for many organizations there is a significant ‘disconnect’ between the data and decision making.  For example, more than 50% of companies surveyed say that metrics and KPIs are functionally siloed and do not provide necessary insight, with almost the same percentage of companies saying that the focus of analytics is on gathering and manipulating data rather than generating insights.  Furthermore, any analysis that is generated tends to be very wide of the mark and in 34% of cases does not actually help with root cause analysis. 

It’s a point reinforced by a KPMG3 paper in which the accounting firm refers to the “Lost art of strategy”.  Its author, Rob Hortopp, says “Right now organizations think the answer lies in trying to build ever more complex systems to support ever quicker decision-making but this approach is fatuous and fatally flawed.”  And where analytics have been deployed they are frequently limited to “rear-view” descriptions of what happened, rather than forward-looking insights that can be used to make operational, managerial and strategic decisions. 

So how can CFOs put decision-making on a more dependable footing?  

 

Digital decision-making

It may seem churlish to say it but first and foremost, CFOs must be able to provide guidance on the problem they want to solve, whether it’s

identifying prospective demand for a new product, looking to better understand customer

churn, or identifying methods of increasing market share. If the goals, be they strategic or tactical cannot be clearly defined and articulated with appropriate financial and non-financial KPIs, then any downstream analysis is unlikely to add value. 

Clarity of purpose enshrined in long term strategy is a pre-requisite to digital decision-making. If strategy is to be delivered successfully by an organization it must be clearly articulated and communicated throughout the business. In other words, the strategy must be widely understood at all management levels so that operational plans and day-to-day activities and decisions are aligned with corporate goals and objectives. 

Second, it is vital to ensure that the organization has the right infrastructure in place to treat data as a corporate asset.  Talent is critical to this equation: finding data-savvy professionals with the business experience or insights needed to frame the right hypotheses, validate them, and then apply those findings to address specific business challenges or opportunities, will be key to success.

Finally, forward-looking CFOs are empowering their finance teams with sophisticated analytical tools and modern corporate performance management (CPM) applications with embedded business intelligence to enable real-time, forward-looking planning and decision-making capabilities. 

With these foundational elements (strategic framework, analytical skills, infrastructure and tools) in place the scene is set for digital decision making. 

 

Old technologies have let us down

Unfortunately, over the last decade, digital decision-making has been let down by significant gaps in systems architecture which has given rise to concerns over the timeliness and quality of data.  Only 11% of organizations claim to have an up-to-the-minute view of finance data leaving 43% of organizations working with data that is a month or more old4.  In a separate survey2 69% of large CPG (Consumer Packaged Goods) organizations point to timeliness of data as the number one challenge for decision-making.  

Of course this situation is not helped by the number of different vendors’ systems and applications in place in the average multinational.  Take for example, recent research4 which shows that 29% of large enterprises have between two and five different budgeting planning and forecasting systems across various functions and geographies, and a sizeable 43% have six or more different systems in place.  And with the growing popularity of cloud-based (SaaS) solutions available to divisional managers at the mere swipe of a credit card, some commentators are forecasting the situation could become much worse before it gets any better. 

With this degree of fragmentation is it any wonder that businesses have severe doubts about data quality, timeliness, and the availability of the relevant data to make sound decisions?  So is there a better way? 


Technology for digital decision-making

Setting aside organizational factors, skills and methodology (KPIs, strategy setting) there are also a range of technology factors that are important to driving insights out of financial data.  Although, not an exhaustive list some of the main pointers to success are:

  • A unified CPM environment:  There is no point attempting to make decisions when meta data (structural information) and data (financial and operational) is scattered between different budgeting, forecasting, reporting and consolidation systems.  Lack of data governance and control rapidly undermines the value and confidence in data and quickly erodes the ability to make data-driven decisions
  • Computing power: Data volumes and variety (‘finance big data’ if you like) is growing exponentially and therefore there is a fundamental need for the applications which underpin fast decision-making to handle complex data sets (multi-dimensionality, segmental reporting, multi-GAAP consolidations) as well as perform complex calculations at a very granular level on large data volumes.   

This can be achieved through a variety of techniques ranging from fast proprietary calculation engines, to parallel processors and ‘in-memory’ computing.   The sensible segregation of data between relational and OLAP databases, so that data that needs to be held closely available is on hand and not encumbered by huge volumes that can satisfactorily reside in a relational data store.

  • Data discovery and visualization:  Navigating large volumes of data requires user-oriented tools that allow data to be explored and sifted by finance professionals and data visualisation techniques that readily lend themselves to discovery of issues and trends.  For example, BOARD was one of the first solutions in the CPM sector to capitalise on the Microsoft Windows Presentation Foundation (WPF) and Windows Communication Foundation (WCF) enabling it to offer some of the most advanced visualisation techniques in the industry for viewing and distilling financial and other data in scorecards and dashboards.


Summary

Despite the vast sums of money that businesses have lavished on information systems there remain significant doubts over data quality, timeliness and relevance which is acting as a brake on decision-making.  And all of this is happening at a time in which the case for faster and crisper decision-making is more compelling than ever.

One of the surprising trends emerging from recent research is that businesses seem to have lost their way, with decision-making becoming increasingly detached from the underlying business problem.  For example, 62% of companies believe that analytics makes for quicker/more effective decision-making but only 25% habitually rely upon analytics in that process2.  Smart CFOs know that for fast and informed decision-making to take root it has to be tied to a clear understanding of the tactical and strategic issues it is trying to solve.

So CFOs need to drive a return to the fundamentals such as a clear view of strategy and metrics, the involvement of more data-savvy finance (and other) professionals as well as investing in unified and streamlined CPM systems like BOARD that can competently handle large data volumes and that have the data discovery and visualization tools to drive important insights and can quickly put meaningful information in the hands of decision-makers.


 


About the Author

Gary Simon is Group Publisher of FSN Publishing Limited and Managing Editor of FSN Newswire. 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 27 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. 

 

Bibliography

 

Note1 CFO Insights: Data Driven: The new CFO/CIO Dynamic, Deloitte 2012

Note2 Building an Analytics-Driven Organization: Accenture 2013 Research Study

Note3 Decisions at Lightening Speed KPMG 2013

Note4 Empowering the Modern Finance Function, Longitude Research, Accenture and Oracle 2014

 

 

 


 

Disclaimer of Warranty/Limit of Liability

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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