Interview with Mark Smith
CFO: What is the recent activity in the performance management space all about?
Mark Smith: Itâs not just recent activity. For decades, finance has made continuous steps to not just improve financial performance but manage it efficiently, and now the shift is toward financial effectiveness. At the core, this is the foundation for performance management and what is now becoming the next phase in the evolution of finance organizations. Remember that finance in the â90s made significant strides to reduce the cost of operating financial processes. But in the last five years, excluding the Sarbanes-Oxley level of compliance activities, the improvements have not been significant. Now finance is examining ways of gaining extra time for deciding what actions can be taken to improve financial performance or improve visibility and control of critical operational elements that provide leading indicators on revenue and expenses.
These are just a couple of foundation elements of what performance management is all about that we believe represent the intersection of aligning, optimizing and understanding your people and processes through information and technology. This might sound kind of mechanical, but itâs intended to be. Performance-driven cultures emanating from finance can also provide the leadership for operations and IT to step forward. Finance organizations have a real opportunity to establish their leadership across the organization and go beyond their fiscal management responsibilities.
CFO: What is the impact and importance of performance management for finance?
MS: The role of performance management in finance is really just getting started. Many of the early innovators didnât actually call it performance management, but they had the right collection of activities to ensure the right business discipline. The leaders in finance have proven that timely information and focus on performance-driven targets can deliver results. Organizations like Best Buy, DirecTV and Lowes have all proven that smart financial processes will include operational performance imperatives as a part of their core plan. Having insight into how this quarter and future ones might perform is critical for making short- and long-term decisions. Establishing a performance leadership discipline is a critical first step that sets the pace in finance and extends into operations. The impact of this can be seen by leveraging critical metrics to determine the effectiveness of financial investments in people and operational processes.
CFO: What is all the excitement about financial performance management?
MS: Having a market category that covers all the information technology investments is critical both for vendors and their prospective customers alike. Just as the financials applications in ERP from the â90s and Y2K, finance realizes that investments in its people and process are essential for gaining measurable improvement to performance. Financial performance management is now a legitimate category of applications, ranging from budgeting to planning, consolidation, reporting, analytics, scorecards and more specific applications for cash management, treasury and tax, and spreadsheet management. With a focus on performance and managing it for improvement, financial performance management provides the processes and information that can be used across the organization.
CFO: Will all the M&A in the key suppliers impact organization and financial processes?
MS: If you are in finance, you probably have at least one application that has changed ownership in the last 12 to 18 months. This is both good and bad for your future path in financial performance management.
The positive side is that vendor consolidation in the software market can help drive further integration of existing information technologies and simplify your supplier-management-level processes. Of course, this does not come without some challenges, as many organizations are trying to get the maximum life out of their existing investments while still ensuring the longer-range value of their technologies. In many cases, the acquisition of one company by another also generates duplicate products. This means that product road maps have to be consolidated by the vendors, usually putting one product in âmaintenance modeâ so resources can be spent on whatever product has the best value for the larger group of existing customers and potential new ones. For example, the acquisition of Hyperion by Oracle left duplicate budgeting and planning technologies. In this case, Hyperion Planning is a more robust and proven product than Oracle Planning & Budgeting, and thus the Oracle planning application will not be as critical for their future road map.
Do you need to do anything about your software being taken over by a new supplier? I believe you can map where you need to place your focus and dialogue with the software providers by taking practical steps to define your financial performance management processes and the key applications and providers with your current technology life cycle. These small steps can put you in the driverâs seat to ensure you are getting your full value in paying maintenance.
CFO: What can finance do to make changes to drive better operational effectiveness?
MS: I believe that the next milestone for finance is laying out the critical operational processes that provide direct visibility and control points into the major areas where finance should have direct access to planned performance. Of course, this starts with management and monitoring of operational objectives and plans, integration into sales forecasts and compensation, customer-level interactions and profitability, and using workforce performance tools to find the most value of human capital investments. To do this, finance should establish priorities on the operational and workforce processes that could benefit most from investment in solutions with a common platform and applications. This extension and funding of what we define as operational performance management can build an enterprise-level nerve center that can reduce the complexities of coordinating the spreadsheets and emails that are most commonly used today.
CFO: What applications can provide better visibility and control for finance?
MS: Gaining better visibility requires higher participation of individuals in the organization who can feed information into a common system. Applications like sales and operations planning from providers like Cognos, Kinaxis, Symphony-Metreo and sales performance management from providers like Callidus, Centive, Varicent and Xactly and financial and operational dashboards â these provide visibility. Control applications like spreadsheet management, such as those from Compassoft and Prodiance, can provide better audit and structure of spreadsheets for improving accuracy. Cash flow management from applications like Sungardâs Aceva can provide better visibility and control for revenue and accounts receivable management. In general, having a stronger financial master data management technology, like that from Oracle-Hyperion, Kalido or Stratature, can provide common definitions from chart of accounts to business metrics and instill greater confidence.
CFO: What can we expect next for the industry?
MS: The market has consolidated a lot in the last year with both Armstrong Laing and Cartesis bought by Business Objects, Hyperion bought by Oracle and OutlookSoft bought by SAP. These are just a stepping stone to another level of refinement in financial performance management. There are still providers like Applix, Clarity Systems and LongView providing a dedicated set of applications for finance. Cognos, which already made its market consolidation moves and fully integrated three companies over the last three years, has a leg up on others that are only now consolidating companies for a more robust solution. As consolidation spreads, common capabilities are available to companies of all sizes, and they can take advantage of new applications that most havenât yet deployed, like cash management, spreadsheet management, treasury and tax management to name a few. The understanding and awareness of performance management is more commonly known now across the finance, operations and IT departments, providing a significant new market for applications focused on management of goals, plans and execution, as compared to todayâs world of ERP and CRM which really only provide transactional computing capabilities.
