Finance’s Role in Business Performance
April 2006
Client name / running header 14pt
Agenda
• What’s Going On?
 The business landscape
 Finance’s Priorities
 The Role of Finance
• Business Performance Management
 Improvement Initiatives
 The Hype
 BPM Overview
• BPM Trends
• The Approach
• BPM Tools
• The Parson Strategic Finance Offering
© 2005 Parson Consulting Company All rights reserved
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2
The winds of
change are
blowing
Client name / running header 14pt
Business Challenges
Increased competition
Businesses face increased pressure on several
fronts…
Inflationary cost pressures
Competition from low cost
countries
Increasing regulation
5%
23%
16%
Implementing new technology
Hiring and retaining top talent
15%
15%
5%
14%
7%
Bringing new
products/services to markets
Other
Source: Deloitte Consulting - Maintaining the Right Balance. CFO Survey Results – 2005.
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Finance Priorities
Improving risk management
and internal controls
These businesses challenges translate into several
finance priorities…
Controlling costs in the
business
Reducing finance function
costs
10%
Providing better information
support for the business
15%
4%
4%
3%
Enhancing information
systems
Optimizing the finance
organization
36%
26%
2%
Source: Deloitte Consulting - Maintaining the Right Balance. CFO Survey Results – 2005.
Staff retention and skills
development
Demands of new regulatory
requirements
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Finance Priorities
Growth
The CFO’s role is transitioning from information
stewards to delivering predictive business insight…
42%
Measuringmonitoring
/ monitoringbusiness
business
Measuring/
performance
performance
Performance
69%
31%
Partnering with your organization to
identify and execute growth strategies
61%
28%
Continuous process improvement /
business improvement
61%
Leading finance-related compliance
programs and strengthening the
internal control environment
Highly Effective
Highly Important
50%
59%
66%
57%
Meeting fiduciary and statutory
requirements
0%
Risk
20%
Source: IBM Business Consulting Services, The Global CFO Survey 2005
40%
60%
80% 100%
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
The Finance Picture Summarized
Drivers
 Growth – constant pressure to sustain growth
 Performance – impacting top line growth through performance enhancements that
deliver bottom line improvements
 Competition – proactively addressing the growing and emerging competitive landscape
 Compliance – knowing exactly what the numbers are and where they came from
Impact
 Strategic Partnership – Finance must assume a strategic leadership position and
orchestrate the business performance
 Pursuit of Effectiveness –Finance’s transition away from “Transaction Jackson” to
information insight
 Compliance Cop – enforcer of accounting and risk policies and procedures
 Standardization – reducing the risk of having wrong numbers, while saving money thru
consolidation (reduce number of tools, improve data quality)
Information Democracy
• Deliver actionable insight
• Respond to internal and external constituents
• Establish a foundation for more in-depth analysis and fact finding
This is the core of Business Performance Management
© 2005 Parson Consulting Company All rights reserved
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And Now a Brief Message…
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The Role of Finance
Providing strategic insight is Finance’s highest priority…
CEO
PRIORITY
CFO
PRIORITY
Strategic Planner
1
1
Risk Manager
2
3
Policy Enforcer
3
2
Financial Analyst
4
4
Capital/Funding Optimizer
5
5
Stakeholder Manager
6
6
Recorder and Reporter
7
7
ROLE
Source: Deloitte Consulting - Maintaining the Right Balance. CFO Survey Results – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 9
Client name / running header 14pt
Finance’s Refocus
The Finance organization is shifting from a transaction focus to
decision support activities …
65%
50%
46%
47%
Transactional activities
34%
Control activities
Decision
Support/performance
management activities
20%
26% 24%
27%
26%
1999
2003
Today
3 Years
15%
24%
26%
Deloitte Survey Responses
30%
40%
0%
20%
40%
Source: Deloitte Consulting - Maintaining the Right Balance. CFO Survey Results – 2005.
60%
80%
100%
© 2005 Parson Consulting Company All rights reserved
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Source: IBM Business Consulting Services, The Global CFO Survey 2005 (based on 248 face to face interviews)
Client name / running header 14pt
Improving Performance
Improving performance one worker at a time…
© 2005 Parson Consulting Company All rights reserved
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Optimizing Decision Support
How Finance is improving decision support…
71%
Utilize collaborative planning, reporting and decision-making
process
55%
68%
Employ rolling forecasts, based on relevant business events
50%
65%
Use a streamline, integrated budgeting process
48%
50%
Use linked and aligned scorecard metrics cascaded down to
each function and business unit
35%
Organizations with
high effectiveness
46%
Focus of exception-based reporting analytics
31%
Organizations with
medium or low
effectiveness
43%
Create enterprise-wide business performance management
reporting/ access, customize to organizational role
28%
0%
20%
40%
60%
80%
100%
© 2005 Parson Consulting Company All rights reserved
Reference code 12
Source: IBM Business Consulting Services, The Global CFO Survey 2005 (based on 248 face to face interviews)
Client name / running header 14pt
Improvement Adoption Rates
However enterprise-wide improvements have a low adoption rate…
56%
Implemented standard chart of accounts
38%
Implemented standard policies and business rules
35%
Increased extent of common processes
Pursued process simplification
Process
14%
12%
Expanded use of functional best practices
Reduced the number of finance common platforms
27%
Rationalized finance budgeting/forecasting tools
27%
Reduced the number of ERP instances
Technology
24%
17%
Rationalized the number of data warehouses
0%
20%
40%
60%
80%
Percent fully adopted enterprise-wide
Source: IBM Business Consulting Services, The Global CFO Survey 2005 (based on 844 responses)
100%
© 2005 Parson Consulting Company All rights reserved
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Cutting through the hype…
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The Hype Cycle
The genesis of Hype is marketing…
© 2005 Parson Consulting Company All rights reserved
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The Hype Hype (or Hype²)
VISIBILITY
Reality
TV
Great Moments in Hype
Sponge
Bob
TIVO
Beanie
Babies
Low
Carb
El Nino
Mood
Pet Rings
Rocks
Barney
8 Tracks
Lava
Lamps
Sea
Rubik’s
Monkeys Cube
TIME
Technology
Trigger
“Hype Cycle” © Gartner Group
Peak of
Inflated
Expectations
Trough of
Disillusionment
Slope of
Enlightenment
Plateau of
Productivity
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
BPM Hype Cycle
VISIBILITY
BPM Hype
Dashboards
Integrated
Budgeting &
Forecasting
Balanced
Score Cards
Rolling
Forecasts
Automated
Consolidations
ABC
Six Sigma
Collaboration
TIME
Technology
Trigger
“Hype Cycle” © Gartner Group
Peak of
Inflated
Expectations
Trough of
Disillusionment
Slope of
Enlightenment
Plateau of
Productivity
© 2005 Parson Consulting Company All rights reserved
Reference code 17
Client name / running header 14pt
Performance Measurement?
Each company has a different approach to Business
Performance that reflects their own culture…
© 2005 Parson Consulting Company All rights reserved
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The BPM Lifecycle
Budgeting & Forecasting*
• Integrated to performance measurement
• Updated frequently
• Strategic Planning
•
•
•
•
Strategic Business Plan
Strategic Financial Plans
Strategic Information Plan
Strategy Maps
Strategic
Information
Plan
Budget &
Forecast
Strategic
Business
Plan
Plan &
Simulate
Planning & Simulation
•Linked to strategy
•Incorporates all activities
from Performance
Measurement, Cost &
Profitability Management,
Human Performance and
Budgeting & Forecasting
Data
• Human Performance
Human
Performance
• Performance linked to strategy
• Metrics to measure individual
performances
Performance Measurement
• Metrics/KPIs aligned to strategy
• Digital dashboards to manage
the business
Performance
Mgmt
Cost
Mgmt
Profitability
Mgmt
Cost Management
•Cost control techniques
•Cost drivers, pools, flows
Profitability Management
•Product profitability
•Customer profitability
•Geographic profitability
© 2005 Parson Consulting Company All rights reserved
Reference code 19
Client name / running header 14pt
Why pursue BPM?
Strategic Alignment is a primary driver
70%
For which of the following reasons did you implement a BPM solution?
60%
(Multiple responses allowed)
50%
40%
30%
62%
58%
51%
43%
51%
20%
10%
36%
31%
Efficiency
Strategy alignment
12%
0%
Improve Align dayAllow
Achieve
clarity and
to-day
effective
speed and
agreement on activities to manage- accuracy of
true business business
ment
managedrivers
strategy intervention ment reports
Enhance
Reduce
Identify and
productivity cycle time
eliminate
in day-to- of planning non-value
day
and
add activities
activities
reporting and reporting
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
Facilitate
SOX ongoing
compliance
© 2005 Parson Consulting Company All rights reserved
Reference code 20
BPM Trends
Client name / running header 14pt
BPM in Action
“You’ve got to be careful if you don’t know where you are going,
because you might not get there” Yogi Berra
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Who are the BPM Sponsors?
BPM initiatives are sponsored by the most senior executives…
“Measurement drives behavior, and we need to
know that we’re getting the behavior that we
want and that people are focusing on the right
things. That’s part of the job of the CFO.” -Robert L. Lumpkins, Cargill
Other, 5%
COO, 2%
BU Head or
President,
6%
CEO, 42%
CFO, 39%
“There are so many things that happen
around a company, and the CFO and
other finance people are in a terrific
position to see everything…This puts
you in a unique position to guide, direct,
and influence outcomes.” -- Robert A.
Hagemann, Quest Diagnostics
Source: Resilience Report Not Your
Father’s CFO, Booz, Allen, Hami.lton
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 23
Client name / running header 14pt
BPM Implementation Schedules
BPM has hit the mainstream…
More than 3 years ago
Within the last 1-3 years
Within Last year
4%
23%
Currently Implementing
Not Implementing
36%
5%
32%
…Over 90% of companies are implementing some component of BPM
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Adoption of BPM Techniques
And these are the components being implemented…
Utilize collaborative planning, reporting and decisionmaking process
35%
Employ rolling forecasts, based on relevant business
events
20%
45%
29%
24%
47%
No Plans
Use a streamline, integrated budgeting process
15%
45%
40%
3 Years
Use linked and aligned scorecard metrics cascaded
down to each function and business unit
27%
Focus of exception-based reporting analytics
25%
22%
ERP Functionality
0%
26%
47%
28%
47%
30%
48%
20%
40%
Source: IBM Business Consulting Services, The Global CFO Survey 2005 (based on 859 responses)
Today
60%
80%
100%
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Implementation Timeframes
And this is how long it takes…
6 months or less
6 to 12 months
1 to 2 years
More than 2 years
10%
3%
Ongoing
16%
49%
22%
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
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The Approach
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“What gets measured gets done”…
…unless you spend all your time measuring
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Implementation Approach
Only 24% rolled-out throughout the enterprise in “big bang” style
Roll out throughout
the enterpise
Pilot one area and
roll out across the
organization
4%
24%
37%
Only in targeted
areas where
impovements are
required
N/A
35%
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Process Improvement Timeframes
Most companies focused on process improvements before implementing
software and took less than 6 months to complete the improvements…
Significant changes
Less than 3
Minor changes months
3 to 6 months
11%
17%
25%
< 3 months
3 to 6 months
6 to 12
months
12+
months
6 to 12 months
More than 12
months
47%
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 30
Client name / running header 14pt
The Approaches differed
Most companies defined KPI’s with top management first…
66%
Defined KPIs
Did not
24%
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 31
Client name / running header 14pt
Defining Metrics
Measure mapping: individualizing contribution
Customer
Satisfaction
Company Performance
Objective:
Manufacturing VP
Quality
Plant Manager
Finished Goods
Inventory (Mfg)
Line Manager
Downtime
“How do I impact business
performance?
Measures
On-time
Must Link
Delivery
with
Strategy
Units Products
% Assembly
Accuracy
Cycle
Time
Units/Shift
Line Workers
Set-Up
Time
vs. Plan
Total Cycle
Time
Defects
per Lot
Measures
Must Link to
Operations
Equipment
Failure Rate
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Prioritize Measures
Measures need to be relevant, actionable and mapping:
individualizing contribution
High
Illustrative
Executive Dashboard
Labor Efficiency
Committed to Date
Scrap & Yield
S&OP
FG Inv
Cycle Time
RM/WIP Inv
R&D Project Mgmt
Cust Fulfillment
Customer Care IBP Contract Mgmt
Complaints
Headcount
Sales Analysis
Strategic
Product
Cost
Market & Sales Prod Holds
Fin Planning Sourcing
Financial Mgmt
Force Effectiveness
& Forecast Sales Forecast
Regulatory
Value
Accounts Receivable
Compensation
Market Analysis
Administration
R&D Resource
Management
Treasury Recruiting
Corp Compliance
Current Scope
Potential Future Scope
Training
Strategic Clinical
Statutory
Tactical Clinical
Litigation
Royalties
Low
Difficult
Ability to Realize
Feasible
© 2005 Parson Consulting Company All rights reserved
Reference code 33
Client name / running header 14pt
Defining Threshold for Metrics
Gross Margin
$
$
Illustrative
34,719.00
18,755.00
Net Income
$
$
17,761.87
7,537.00
Return on Sales
24.8%
17.0%
Total Expenses
$ 16,957.14
$ 11,218.00
Net Profit
ROI %
To Be
As Is
To Be
As Is
Cost of Goods
$
36,870.00
$
25,690.00
To Be
As Is
Operating Expenses
$
16,957.14 To Be
$
11,218.00 As Is
Depreciation & Interest
$
$
Total Sales
Sales
$ 71,589.00
$ 44,445.00
30.1%
19.0%
Sales
$
71,589.00
$
44,445.00
n/a n/a -
Inventory
$
10,777.70
$
9,876.00
Asset Turnover
1.21
1.12
Sales
Total Assets
Total Assets
$ 58,966.76
$ 39,607.00
Current Assets
$ 42,970.74
$ 29,738.00
Other Assets
$ 15,996.03
$
9,869.00
To Be
As Is
To Be
As Is
Accounts Receivable
$
$
22,296.21
13,756.00
To Be
As Is
Other Current Assets
$
$
9,896.82
6,106.00
To Be
As Is
© 2005 Parson Consulting Company All rights reserved
Reference code 34
Client name / running header 14pt
BPM Effectiveness
The results were generally effective, with some room for improvements…
Very effective
Somewhat
effective
20%
21%
1%
Not very
effective
Not effective at
all
Huh??
10%
48%
Source: Seventh Annual Survey of Technology Issues for Financial Executives – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 35
Tools of the Trade
Client name / running header 14pt
Types of BPM Tools
Over 80% used packaged applications to enable BPM…
Integrated Suite
Integrated Suite and
Best of Breed
Best of Breed
3%
19%
Custom Application
Other
52%
11%
15%
© 2005 Parson Consulting Company All rights reserved
Reference code 37
Client name / running header 14pt
Decision Support Tools
Of course some people consider MS Excel an application…
Spreadsheets
Reporting Tools
ERP/Financial Systems
30%
46%
24%
Source: Deloitte Consulting - Maintaining the Right Balance. CFO Survey Results – 2005.
© 2005 Parson Consulting Company All rights reserved
Reference code 38
Client name / running header 14pt
Proliferation of Tools
Companies have too many tools, fueling a major effort to
consolidate and standardize …
15%
6%
4%
10%
Unsure
0
1
2 to 4
34%
31%
“Business Intelligence Perspectives” Forrester, September 2005
5 to 9
More than 14
© 2005 Parson Consulting Company All rights reserved
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Client name / running header 14pt
Trends
The most recent Gartner market assessment…
Magic Quadrant for CPM Suites
Magic Quadrant for BI Platforms
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The Forrester Wave for BI
Forrester Wave Diagram – BI Analytic Reporting Q1 2006
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Market Share Trends
Just because it’s interesting…
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Trends – Consolidation of Vendors
Market share of the top vendors is on the rise, indicating a
consolidation in the market…
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Customer Satisfaction
Best of breed solutions scored higher in customer satisfaction…
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“Business Performance Management Solutions Satisfaction Survey” – BPM Research Services (Feb 17, 2005)
Parson’s
Strategic Finance
Offering
Client name / running header 14pt
Parson’s Value Proposition
Identifying areas for improvement
Impact
Insight
Quantifying value
Reducing the amount
of routine work results
Streamlining and improving
processes
Management &
control
Maximizing the effectiveness of
business applications
in higher profitability,
Insight
increased time and
resources for
decision activities,
Achieving the optimal mix of insourcing and out-sourcing
and enterprise impact
Management &
control
Competitive advantage
Optimizing finance operations results in increased value
© 2005 Parson Consulting Company All rights reserved
Reference code 46
Client name / running header 14pt
Parson’s Strategic Finance Offerings
BUSINESS PERFORMANCE
BUSINESS INTELLIGENCE
MANAGEMENT
• Performance Measurement
• Human Performance
• Enterprise Insight and Management
Reporting
• Budgeting & Forecasting
• Financial Insight and Consolidations
• Planning & Simulation
•Cost Management
• Profitability Management
• Data Governance
• Reporting Strategy
Strategic Finance
© 2005 Parson Consulting Company All rights reserved
Reference code 47
In Closing…