Finance executives are feeling tremendous pressure to drive down business costs while maintaining an acceptable level of quality and performance. In order to meet this challenge, finance leaders need three things.
- Access to accurate business data
- Tools to translate this data into actionable insights
- The authority to drive change
The last point, authority to drive change, is critical. In today’s competitive world, if your finance team is not welcomed as a strategic advisor to the business, then something needs to change and fast. And in order for finance to assume its rightful place in the business, they need comprehensive business intelligence tools so they can turn the numbers residing in their enterprise resource planning (ERP) into insights that drive intelligent decisions.
What defines a good finance function and how should it relate to the wider business? Business intelligence software cuts to the core of this question. Business intelligence allows finance to identify and measure activities against a set of key performance indicators (KPIs) will provide the finance team with clear goals. Kelly Clifford provides a useful list of finance KPIs here.
A finance department needs to monitor and ensure departmental and enterprise-wide processes are successful, including:
- Broader business areas:
- Identification and support of opportunities for business-wide improvements
- Successful collaboration and data sharing across departments and working groups
- Provision of data to help make informed business decisions
- Finance areas:
- Ensuring access to accurate business intelligence information in a timely manner
- Rapid accounts receivables
- Timely accounts payable to maximize credit with vendors
All of these processes need to be tied to KPIs that are tracked and managed by an ERP package with integrated business intelligence tools. The tighter the integration between ERP and business intelligence, the greater the availability of real time and actionable data. Moreover, the likelihood data will be communicated and acted on increases. An example of dynamically displayed KPIs in action within IFS Applications can be seen here:
IFS Applications offers a number of paths to this type of embedded business intelligence. One powerful option is IFS Corporate Performance Management. IFS Corporate Performance Management gives you a complete picture of your business—from financials to human resources—through easy-to-use client views. Visual displays give you key performance measurements at a glance, and KPIs help you focus on your corporate goals. In addition, an array of built-in tools helps you analyze the data from a variety of perspectives.
But even with the ideal tool, some things are harder to measure than others. The finance examples in my list above are inherently measurable, objectively and on an on-going basis. The more challenging ones relate to the wider business. How can you objectively measure whether a department has been assisted by finance to make good business decisions? Has the department even made a good business decision? What is a good business decision?
At this point, we can start to see the underlying paradox of measuring finance (or for that matter any department) against objective KPIs. If we take a short term view, finance can advise a business on driving down costs so that shareholder returns can be maximized over the next one to two years. If we take a longer term view however, it is very difficult for finance to be measured objectively on advice that may have resulted in increased costs now, but increased returns in years to come.
I think this challenge is important right now as a number of large multi-national companies are choosing to de-list (a good example is Dell with more detail here). The main reason given for this is to maximize growth and returns over a longer term than equity markets normally allow.
It becomes clear that measuring how well departments and businesses are operating is essential. Without any measurement, there is no opportunity to identify possible improvements. KPIs are extremely useful as they are quick dynamic snapshots, offering a high level of analysis soon after the business events have happened. Finally, for KPIs to be worthwhile, it is important to have a mixture of short and long term targets that are aligned with the strategic business goals. And effective and accessible business intelligence software must be present to convert the business data in an enterprise application into actionable intelligence.