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Companies Turn to Digital to Drive Finance Transformation

Organizations can improve their speed and flexibility by upgrading their financial management capabilities

As seen in Crain's New York Business

Entering 2020, few companies could have foreseen the economic instability and market turmoil that the coronavirus pandemic would create.

A recent Crain’s survey sponsored by Citrin Cooperman found that 80% of corporate leaders across a variety of industries had changed their financial outlook in response to the crisis. These leaders offered little consensus about the short-term prospects for the economy: Among the industries represented in the survey, only technology and telecom companies consistently signaled optimism for the remainder of the year. The remaining industries had mixed opinions about their outlooks.

Despite expressing uncertainty, most organizations lack the tools necessary to adapt quickly to changes in the economy or their markets. For example, more than one in five companies (21%) don’t generate a full budget or forecast to inform their planning. Only 41% redo their forecasts regularly enough to adapt to changing business conditions. In fact, some of the sectors that indicate the greatest lack of forecasting capability are also those hardest hit by the pandemic, namely the hospitality, entertainment, and professional services industries.

CFOs and other finance leaders agree that speed and flexibility will be the keys to survival. But the survey results suggest many organizations are failing to develop decision support capabilities, such as flexible financial reports and detailed analytics, that would enable them to respond effectively. Focusing on technology that supports management’s strategic and operational decisions will provide forward-looking organizations a critical advantage both during the pandemic and in whatever new normal follows it.

“Although most companies already recognize the need for fast, accurate forecasting, planning, and analytics, our study makes it clear that many have not yet started the projects required to enable these capabilities. Our respondents indicate that middle-market companies who have not yet adopted the technology and processes required for great decision support now feel they need to immediately do so,” said Steve Ronan, Partner and Chief Strategy Officer at Citrin Cooperman. “Fortunately, the technologies and capabilities that are now available allow most companies to implement these changes relatively quickly.”

Companies see a need to invest in analytics

Financial leaders clearly understand the need to invest in analytics.

More than 60% of organizations say they intend to make such investments in the coming 12 months. In addition, 31% of them see falling behind on technology and innovation as a primary internal threat to their near-term operations.

Organizations are not afraid to put resources behind this push: Eight in 10 report that their technology spending will remain level or increase in the coming year, and more than 60% of respondents expect to invest in their analytic capabilities.

When it comes to how those resources get deployed, however, organizations generally lack a coherent plan of attack. Less than half say they have a digital transformation roadmap to follow.

Most organizations fall short when it comes to financial planning, analysis

The survey results show that most companies whose business models have historically required frequent reforecasting and scenario modeling have already adopted strong forecasting disciplines. By contrast, companies who have only recently recognized this need still require changes to their core technology and competencies of their finance teams, or alternatively need to pursue outsourced options.

Most organizations that responded still need to improve these capabilities:

  • Managers and finance leaders need timely information to drive their decision-making process. More than 80% of respondents say they now make business decisions based on re-forecasting and scenario modeling. But half of the companies surveyed indicate they do not use metrics beyond monthly financial reports to drive those decisions.
  • When organizations do have more frequent information available, it needs to be targeted toward managers’ responsibilities to make decision-making processes more efficient. Of the 28% of organizations that generate reports weekly or more frequently, few customize the reports to align them with each level of management’s specific responsibilities.
  • Putting analytics in historical context tends to make them more useful. But only 17% of organizations use dashboards to measure key performance indicators and trends on a continuing basis.
  • The speed and flexibility of any decision-making process depends on the age of the information coming into it. Only 14% of organizations have real-time operating metrics they can use to manage all their departments.

Organizations that fail to address these shortcomings limit their ability to recognize and respond to changes as they occur. They also hurt their ability to develop contingency plans that can help them predict and respond to potential changes in their markets.

ERP systems play a key role in analytics that organizations may not recognize

Few organizations surveyed expect to evaluate new core systems that could give their finance departments better reporting and analytics capabilities soon. But relying on existing systems could lead to unexpected challenges, especially when dealing with legacy enterprise resource planning (ERP) systems, which may introduce issues with data quality.

Getting actionable data out of a legacy enterprise resource planning system often requires additional improvements and, in the most extreme cases, even wholesale replacement of the system. The survey suggests this type of spending is not currently a part of many organizations’ planning efforts. Only 5% of companies intend to invest in a large ERP implementation within the next year, lagging well behind their spending on other forecasting, planning, and analytics technologies.

This discrepancy suggests a number of companies may run into process challenges when they try to implement their new analytics and reporting functions. These complications could delay implementation, reduce the quality of decision support, and increase technology spending.

This change is secular: Flexibility will be a long-term advantage

The uncertainty spurred by the pandemic demonstrates the importance of flexible planning as organizations have been forced to adapt to unprecedented disruptions in real time. Without hard metrics to guide their planning, however, companies are just guessing at the information that informs their decisions.

Focusing on tools that make an organization’s finance function more efficient and flexible will be the key to developing a more robust decision-support structure and taking the guesswork out of those plans. By investing in new technology that supports budgeting and forecasting, as well as analytics and modeling, organizations will be better able to adapt to the types of rapid changes that likely will continue even after the pandemic has passed.

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