Analyst Perspectives

We recently issued our 2013 Value Index on Financial Performance Management. Ventana Research defines financial performance management (FPM) as the process of addressing the often overlapping people, process, information and technology issues that affect how well finance organizations operate and support the activities of the rest of their organization. FPM deals with the full cycle of finance department activities, which includes planning and budgeting, analysis, assessment and review, closing and consolidation, and internal and external financial reporting, as well as the underlying IT systems that support them. Our Value Index is informed by more than a decade of analysis of how well technology suppliers and their products satisfy specific business and IT needs. We perform a detailed evaluation of product functionality and suitability to task in five categories as well as of the effectiveness of vendor support for the buying process and customer assurance. Our resulting index gauges the value offered by each individual vendor and its products in supporting FPM, which is necessary for running an organization efficiently and effectively.

To control their fiscal well-being and achieve their strategic objectives, corporations, small businesses, government entities and nonprofits all must be able to set financial objectives, plan and budget, and review and evaluate their financial performance in a timely fashion. Increasingly, finance organizations also are being asked to play a more strategic role, providing analytic support to operating units in areas such as profit optimization. Rather than take a rearview mirror view of performance, Finance can use advanced analytics to support more forward-looking activities, providing early alerts to executives and managers about opportunities and threats, while making robust contingency planning substantially easier to do.

Advances in information technology such as in-memory analytics and mobile devices are pushing out the boundaries of what finance organizations can do to drive the success of their company. Traditionally, managing financial performance has involved well-established processes and analytic techniques. Today, the maturation of IT systems is adding another dimension. The term financial performance management was created to encompass the once separate but now interrelated information systems that have transformed financial management, increasing the breadth and depth of financial and operational information that organizations can access and analyze. FPM enables a much deeper understanding of an organization’s historical performance and gives companies the tools they need to dynamically realign future activities to support internal strategy. Increasingly the focus is shifting to action-oriented analytics, as I have written about.

Using our rigorous benchmark research methodology, Ventana Research examines how organizations execute FPM, including exploring their maturity in planning and budgeting, reporting, analysis, consolidation and closing. We also have done extensive research into how companies use spreadsheets to manage and support these activities and how those tools can undermine the quality, timeliness and accuracy of core business processes. The research shows that in the major FPM processes and capabilities, most organizations are relatively immature, with just 10 to 15 percent at the highest of our four maturity levels. One basic issue that adversely affects a majority of companies is that they fail to provide financial information on a timely enough basis.

Having the right technology and using it to its fullest are essential to achieving better execution of FPM processes. For example, our benchmark research on trends in managing the close-to-disclose process shows that on average, companies that use consolidation software close their books about one-third faster than those that perform this task using spreadsheets, and companies that use spreadsheets sparingly in the closing process encounter fewer errors in preparing their financial statements than those that use them extensively.

Our FPM Value Index examines suites of software that provide a comprehensive approach to finance. The advantage of using such a suite is that it is usually easier for individuals who have to use more than one piece of it to become proficient in them. For instance, a suite almost always provides a single sign-on, which is probably not the case if an organization assembles various pieces from multiple vendors. As well, those managing the software also will find it easier to learn and work with a single suite, especially in handling administrative functions. In midsize and larger companies, administrators can wear multiple hats, and their responsibilities can shift from one piece of the suite to another over time. Then, too, from an IT perspective suites are usually easier and less expensive to maintain.

In assessing the capabilities of the FPM suites, we evaluate a full range of functionality – think of these software packages as Swiss army knives. Some of these capabilities cover core functions that every company does, such as statutory consolidations, dashboards and budgeting. Others support tasks that have been adapted to varying degrees by finance organizations, such as external financial disclosure, profitability management or advanced costing methods. The user experience in working with FPM software is of increasing importance, especially as the baby-boomer generation retires and is replaced by younger employees with more demanding expectations, as I commented on in my 2013 Research Agenda. Finance departments of midsize and larger corporations (those with 100 or more employees) need more tools in their Swiss army knife these days to fulfill their expanding roles, which is why we score based on the full set of functionality, even if your organization may be looking only for budgeting or consolidation software.

The FPM suite category is a mature one, as evidenced by the close and almost uniformly high scores garnered by the software vendors in our Value Index. The company delivering the highest value in an overall weighted evaluation is SAP, followed by IBM, Host Analytics and Longview; all of these companies earned the Hot Vendor rating. They are followed by Infor, Tagetik, Prophix, Oracle and SAS Institute, which earned the Warm Vendor rating. Some of the differences in scores reflect the presence or absence of some piece of functionality such as a disclosure management or the degree of support for mobility. Often, though, the differences are the result of small but consistent differences in some of the hundreds of elements that we evaluate.

I find that often finance organizations take too narrow a view when evaluating FPM software. Technology has evolved slowly over the past decade, but the cumulative result has made software offerings that support FPM considerably more sophisticated in their capabilities and easier to use with less direct support from IT organizations. While those working in finance today may not feel a pressing need for mobile access to FPM-generated data and reports, corporate executives and those in roles such as sales certainly do. Before acquiring or replacing FPM-related applications, I recommend that executives and managers investigate what’s available and how such products can support better management of the finance function.

Regards,

Robert Kugel – SVP Research