Interview With Tom Manley, CFO of Cognos

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Cognos

Cognos’ Tom Manley discusses the changing role of the CFO, the acquisition of Adaytum, and the future of CPM.

CFO: In a time of contraction, market skepticism, and increasing regulation, demands on CFOs are unprecedented. Is this a good time or a bad time to be a CFO?

TM: I would put it this way: It’s a great time to be a good CFO, and a bad time to be a bad CFO. Certainly CFOs and other top finance officials are being asked to do more than ever before, while grappling with new regulatory mandates. We’re no longer just finance people. You’ve got to have all of the traditional finance skills, but you also need to know the business intimately and really understand the value drivers. You and the CEO need to ask the right questions. Are priorities for the business aligned across the company? Are people empowered to make decisions?

Some of the additional demands on the CFO are bound to put more pressure on the entire finance organization. So, we definitely see the need for stronger people — not just at the CFO level, but at all levels of finance management.

CFO: Beyond the typical finance skillset, what qualities are especially important for CFOs in today’s environment?

TM: The breadth of the job is amazing. You need the full range of financial skills — control, treasury, risk management, and investor relations expertise, as well as the strategic skills to be a full business partner with the CEO. Even more so, you need to contribute as a thought leader and change agent as part of the executive management team.

As a CFO, I’m pretty confident in saying that my job will not get any easier. It’s going to be more demanding from every single aspect. CFOs have to have passion and tremendous energy to do the job. For that reason, it’s even more vital that a CFO asks himself or herself: Is this really what I want to do? The answer needs to be an enthusiastic “Yes.” Now is not the time for non-believers.

CFO: Much of the attention devoted to compliance regulations, such as Sarbanes-Oxley, has focused on auditor independence, records management, and officer certification. However, Sarbanes-Oxley also prescribes sweeping disclosure requirements for accounting and financial reporting. What can a software company bring to this challenge?

TM: We have to be honest: there is no out-of-the-box software solution for meeting the requirements of Sarbanes-Oxley, and frankly, I think a lot of software companies are over-promising in this regard. SOX is primarily a process challenge, and to that extent the software companies best positioned to give companies relief in this area are those with strong partnerships with the auditing and consulting firms. Cognos has both the partner relationships and the technology that supports the required process change — technology that delivers accuracy and predictability throughout core financial processes. Another thing SOX will do is convince CFOs who’ve been reluctant to embrace certain technologies that the time is right.

It’s important to keep perspective. Yes, there are regulatory pressures right now, but in time, compliance with SOX will be part of the normal course of business, and CFOs will get back to their main objective, which is providing leadership in setting strategy and managing the financial performance of the business. That’s ultimately what we promise CFOs help with.

CFO: Industry and financial analysts, as well as the media, took a positive stance on Cognos’ acquisition of Adaytum. Why the acquisition?

TM: Adaytum was truly a breakthrough acquisition for us. The acquisition gives us leading offerings in both enterprise planning and enterprise business intelligence. Combined with our scorecarding capabilities, this makes us the only vendor with deep domain expertise across all three pillars of corporate performance management — enterprise planning, scorecarding, and enterprise business intelligence.

CFO: There’s a lot of buzz about corporate performance management. Is this just hype? Can you explain how Cognos defines corporate performance management?

TM: As I say, Cognos’ corporate performance management solution depends on three interlinked capabilities — enterprise planning to drive performance, enterprise scorecarding to monitor performance against plan, and enterprise business intelligence to report and analyze issues for maximum effectiveness. We feel we’re the first vendor to deliver a comprehensive framework for CPM, with proven products that support every part of the process.

In our vision of corporate performance management, we see the combination of end-user control and the ability to deploy across the entire enterprise. The executive management team, including the CFO, can reach out to the entire organization and engage each department in the performance management cycle — planning, budgeting, forecasting, scorecarding, analysis, and reporting. The end result is that all contributors understand the business goals, execute the plan to achieve them, and measure and manage actual performance.

The key is engaging the people closest to the business, giving people at the front lines a feeling that they are personally connected to plans and performance. It’s impossible to create an adaptive sense-and-respond organization in a command-and-control environment. People need tools that show them how their individual decisions affect the bottom line — how they affect other parts of the business. And they need to see those connections continuously, not once a year or once a quarter. It’s cultural. Companies that refuse to break out of a once-a-year budget cycle will never achieve any kind of meaningful performance management.

CFO: You’re talking a lot about planning. Is this an area companies are focused on right now?

TM: The smart ones are. As our acquisition of Adaytum shows, we see planning and budgeting as high-growth areas of corporate performance management. There’s been an agenda shift. Not long ago, investors asked, “Did you do what you said you were going to do?” That’s a planning question. In other words, were your plans realistic and achievable? Now it’s, “Did you really do what you said you did?” That’s an auditing question. But the pendulum will swing back the other way, and investors will ask more substantive questions like, “Where’s the business going? Do you have a credible plan for getting there? Does your management team speak with one voice about those objectives? How confident can I be that you will quickly correct course if things change?” These are all planning questions.

But even compliance and disclosure challenges, are, like planning predicated on accuracy and predictability. Long before backward-looking financial statements are filed, a business hopefully has created an infrastructure that supports highly accurate planning, analysis, and reporting. Without these things in place, company performance is vulnerable to unfolding events and lacks the predictability that investors and regulators are now demanding. With well-implemented planning best practices, a company’s information, analyses, and decisions are coordinated in rapid, continuous cycles, creating a smarter, more efficient organization.

CFO: What best practices would you offer to those looking to change the organizational model of their finance function?

TM: First, take a wider view of planning. For many, planning connotes a more highly evolved manner of budgeting. That’s an understandable starting point and frame of reference, but to live up to its name, enterprise planning must expand its scope and mission beyond finance to marketing, sales, human resources, manufacturing, and beyond.

Second, build high participation. Let’s face it: few employees relish the idea of planning and budgeting, right up to the CFO. It’s seen as a necessary evil. A lot of the initial interest in our products comes from the controller and the budget director — the people who really feel the pain. They’re often the champions who bring the CFO to the table and push planning out beyond finance. Why? Because they quickly discover that involving more people in the process, with more frequency, actually alleviates the pain rather than compounding it.

Despite its importance, planning is something that most employees feel is largely unrelated to their primary job function and responsibilities. Instead of the old-style command-and-control model, where a few people dictate goals, objectives, targets, and activities to the masses, enterprise planning engages a broader constituency and gathers input — relevant input — from a wide variety of contributors on a more frequent basis. That fosters buy-in, gives managers more control, and helps keep the focus on the business instead of getting bogged down in trying to win the budget game. It also gives finance a much greater level of granularity.

Third, rolling forecasts equal smarter performance. External disruptions and unplanned events — strikes, recalls, natural disasters — can shred even the most well-crafted plans. Long-range plans — ones that have, say, a three- to five-year horizon — might remain largely intact, while the short-term picture is reshaped dramatically. If you have practice and discipline at recasting the plan in the regular course of business, then you can switch into that mode very quickly when the unexpected happens. This really becomes a competitive advantage during a market-wide or industry-wide disruption. You can keep your head while your competitors panic.

CFO: Rolling forecasts are another concept that generates a lot of buzz. How appropriate are they for most companies?

TM: They’re hugely important, as many of our customers can tell you. But here’s an important corollary to what I said: Every business should pursue timeframe-appropriate planning and forecasting. A properly structured, successful performance management cycle aligns all of the appropriate plan elements, performance contributors, and business cycles. What’s more, the method used to derive a forecast varies with the planning timeframe.

For example, when compiling a sales forecast, the revenue projections for the next three months might be event-driven, based on specific sales opportunities in the pipeline and their progress in the sales cycle. For three to 12 months out, the figures could be based on the number of trained sales personnel and their productivity rates. Beyond 12 months, the forecast might be derived from market growth-rate assumptions.

Now consider that a shipbuilder with massive capital and infrastructure investments might find a 20-year planning horizon appropriate. Or a pharmaceutical company might have a multiyear planning horizon that reflects the lengthy process of drug discovery, development, and clinical trial. By contrast, a brewery might use a planning cycle that aligns with hops growing seasons.

In each case, the forecast is based on the most accurate and appropriate leading indicators available. So, it is critical that your planning system has the flexibility to support different modeling techniques for the same variable, depending on the timeframe under consideration.

CFO: What thought leaders should CFOs pay attention to these days?

TM: A couple come to mind. Certainly, Accenture, with their Planning for Value and Business Insight offerings, provides solid research and forward-looking ideas, and they back it up with plenty of customer successes. Another is the Beyond Budgeting Round Table, which we are partnering with quite a lot. That’s a group that started in the U.K. and is now getting a lot of attention in North America. I would encourage every CFO to read Beyond Budgeting, the new book by Jeremy Hope and Robin Fraser, two of the Round Table’s directors.

CFO: What can we expect from Cognos in the coming months and years?

TM: First and foremost, we’ll continue to deliver real value to our customers. We are a very results-oriented, very customer-oriented company.

Second, you’ll see very aggressive product innovation and even stronger integration across our product line and with other parts of the customer’s information infrastructure.

Third, we want to be seen as the leader in corporate performance management, period.