Page 3 of 47

More Data Doesn’t Always Lead to Better Decisions

Thanks to advancements in technology, our digital lives are producing expansive amounts of data on a daily basis.

In addition to this enormous amount of data that is produced each day, the diversity of data types and data sources, and the speed with which data is generated, analyzed and reprocessed has increasingly become unwieldy.

With more data continuously coming from social spheres, mobile devices, cameras, sensors and connected devices, purchase transactions and GPS signals to name a few, it does not look like the current data explosion will ebb soon.

Instead, investments in IoT and advanced analytics are expected to grow in the immediate future. Thinking back, investing in advanced data analytics to generate well-informed insights that effectively support decision making and drive business performance have been the paragon of big corporations.

And smaller businesses and organizations, as a result, have for some time embraced the flawed view that such investments are beyond their reach. It’s no surprise then that adoption has been at a snail’s pace.

Thanks to democratization of technology, new technologies are starting to get into the hands of smaller businesses and organizations. The solutions are now being packaged into simple, easy-to-deploy applications that most users without specialized training are able to operate.

Further, acquisition costs have significantly reduced thereby obviating the upfront cost barrier, that for years, has acted as a drag on many company IT investments.

While the application of data management and advanced analytics tools is now foundational and becoming ubiquitous, growing into a successful data-driven organization is about getting the right data to the right person at the right time to make the right decision.

Distorted claims such as data is the new oil have, unfortunately, prompted some companies to embark on unfruitful data hoarding sprees. It is true that oil is a valuable commodity with plentiful uses. But, it is also a scarce resource not widely available to everyone.

The true value of oil is unearthed after undergoing a refinement process. On the contrary, data is not scarce. It is widely available. Nonetheless, akin to oil, the true value of data is unlocked after we have processed and analyzed it to generate leading-edge insights.

It’s a waste of time and resources to just hoard data and not analyze it to get a better understanding of what has happened in the past and why it has happened. Such insights are crucial to predicting future business performance scenarios and exploiting opportunities.

More data doesn’t necessarily lead to better decisions. Better decisions emanate from having a profound ability to analyze useful data and make key observations that would have otherwise remained hidden.

Data is widely available, what is scarce is the ability to extract informed insights that support decision-making and propel the business forward.

To avoid data hoarding, it is necessary to first carry out a data profiling exercise as this will assist you establish if any of your existing data can be easily used for other purposes. It also helps ascertain whether existing records are up to date and also if your information sources are still fit-for -purpose.

At any given time, data quality trumps data quantity. That is why it is important to get your data in one place where it can easily be accessed for analysis and produce a single version of the truth.

Unlike in the past where data was kept in different systems that were unable to talk to each other making it difficult to consolidate and analyze data to facilitate faster decision making, the price of computing and storage has plummeted and now the systems are being linked.

As a result, companies can now use data-mining techniques to sort through large data sets to identify patterns and establish relationships to solve problems through data analysis. If the data is of poor quality, insights generated from the analysis will also be of poor quality.

Let’s take customer transactional data as an example. In order to reveal hidden correlations or insights from the data, it’s advisable to analyze the information flow in real-time; by the hour, by the day, by the week, by the month, over the past year and more. This lets you proactively respond to the ups and downs of dynamic business conditions.

Imagine what could happen if you waited months before you could analyze the transactional data? By the time you do so, your insights are a product of “dead data”. Technology is no longer an inhibitor, but culture and the lack of leadership mandate.

As data become more abundant, the main problem is no longer finding the information as such but giving business unit managers precise answers about business performance easily and quickly.

What matters most is data quality, what you do with the data you have collected and not how much you collect. Instead of making more hay, start looking for the needle in the haystack.

Reimagining Business Processes in an Era of Cognitive Technologies

For years, the focus of many organizations has been on standardizing and automating existing business processes to achieve significant gains in efficiencies.

Within the office of finance, mundane transactional processes such as order-to-cash, procure-to-pay and record-to-report have been the epitome of standardization and automation.

As a result, a number of finance and accounting professionals have had their jobs taken over by automation or machines.

Compared to humans, machines are best at handling repetitive tasks, analyzing enormous data sets, and handling cases with usual modus operandi. On the other hand, humans are best at resolving cases that are complex, requiring application of critical thinking and problem solving capabilities, listening skills, and empathy.

In spite of the job losses of the past as a result of standardization and automation, we are continuing to witness a plethora of new technologies come to the fore and play a vital role in adapting operating models and driving business transformation.

For example, modern technologies such as cloud computing, RPA, advanced analytics, artificial intelligence, and machine learning are transforming the finance function and progressively enabling finance and accounting professionals create and deliver value across the organization.

Sadly, because of these technological advances, many finance people have embraced the false gospel that we are in the era of men-versus-machines.

They are of the incorrect view that machines have arrived to oust humans from the workplace. As a result, they are constantly fighting to protect their turf and are hamstrung by old habits.

Although there are always casualties as a result of implementing new technologies or solutions, the simple truth is that machines are not taking over the world, nor are they removing the need for humans in the workplace.

Instead, these new tools are augmenting human capabilities and collaborating with us to achieve productivity gains that have previously not been possible. Further, the emergence of modern technologies is also creating completely new roles and new opportunities up and down the organization’s value chain.

Given robotics and automation are here to stay, it’s imperative for business leaders to let go of this woefully misguided view of men-versus-machines, and embrace the modern era in which humans and machines collaborate to drive business performance.

Instead of becoming stuck on the old way of doing things, making it difficult to envision things that might be, a completely different mindset is required.

The key to achieving the expected benefits from having humans and machines working closely together is laying the proper foundation and sending out a clear message across the organization to alleviate any fears.

Humans and machines should not be viewed as rivals fighting for each other’s jobs. Rather, they should be considered as close collaborators, each impelling the other to higher levels of performance.

Since machines are better at performing tedious or monotonous tasks, and people rarely find delight in fulfilling these tasks on a daily basis, in order to take advantage of human-machine augmentation, companies should discontinue training their teams to work like robots.

Management and leadership must conduct a resolute review of organizational processes, identify and determine which tasks humans do best, and those that are best suited to machines.

The ultimate goal is to have people focus less on low-visibility tasks and more on higher-value tasks, requiring their judgement, experience and expertise.

In determining which processes to change, there are certain elements to look out for in your business operations. These include repetition, replication, redundancy or a well-outlined process. A significant presence of these elements is a sign that tasks or processes are ripe for change.

But before you reinvent business processes, job descriptions, and business models, you need to make prudent decisions about how best to augment your existing employees. For example, they are needed to design, develop, train, and manage various new applications.

A large part of that effort requires experimentation or trial and error to determine what work should be done by humans, and what work would best be completed by a collaboration between humans and machines.

Replicating the best-in-class process of an industry leader no longer cuts it through. In today’s highly competitive environment, to compete, management and leadership must customize processes to the eccentricities of their own businesses. That’s why experimentation is key.

Additionally, to get buy-in from employees across the company, leadership should foster a culture that encourages experimentation and not discourage mistakes. Provide clear objectives and also clarify to employees that you are investing in new solutions to replace tedious tasks and make their day-to-day work more engaging.

Technology is only an enabler of step-level increases in performance. Don’t rush into human-machine augmentation without initially laying the proper foundation.

First, automate routine work and concentrate on developing the full potential of your employees; then they can begin to focus on human-machine augmentation.

Thinking About The Upside of Risk

Making intelligent and informed decisions is intrinsic to effective risk management. Many at times risk management decisions are centered around loss events and the negative consequences that might eventuate. The positive aspects of risk taking are hardly noticeable.

Let’s take as an example, a decision by local-based company to build a sales and distribution presence in a new international market. Some of the risks associated with pursuing such a move include:

  • Regulatory or unanticipated government intervention aimed at foreign players.
  • Currency volatility. Shifts in foreign currency values have both positive and negative implications on the company’s costing and selling prices, and ultimately profitability.
  • Political Uncertainty. Increased political tensions between countries often lead to trade wars, supply chain disruptions and minimal trade opportunities.
  • Heightened Corruption. Companies entering certain markets may be confronted with unorthodox ways of doing business. In a number of countries, bribery is required in order to complete trade.

On the other hand, the opportunities of expanding into the new market include:

  • The business is able to keep pace with competitors by pursuing an international business strategy.
  • Potential to serve more customers. A larger consumer market ultimately means enhanced profit margins.
  • Exploring new markets can lead to innovation through external partnerships.
  • Market diversification. Having a presence in more than one market also spreads risk as the business is not completely reliant on one market.

In spite of the opportunities lingering on the horizon, the tendency for decision makers is to fixate on the negative side of risks.

Rather than identify and exploit the upside of risk for value creation, decision makers resort to singing the default anthem ‘No, no, no. It’s too risky.’

Risk taking is strictly eschewed or mitigated – always from the downside. Given today’s surging economic uncertainty and volatility, and the integral role of effective risk management in driving business performance, an unreserved mindset change is necessary.

It’s not about eliminating or even terminating risk as risk will always be present. It’s about mastering what might happen, considering all the potential opportunities, including the potential risks, evaluating whether this is acceptable and then acting as required to effectively pursue set business objectives.

Therefore, instead of always being risk averse, decision makers need to start thinking about the upside of risk and develop an understanding that there is a benefit to taking on more risk, provided this is done in a controlled way and not higgledy-piggledy.

As a strategic advisor to the business, finance can play a critical role in helping management make better informed decisions about uncertainties.

We can achieve this through taking initiative and integrating ourselves in operational and strategic performance discussions, understanding the business and its entire operations, and asking smart questions aimed at helping management perform their jobs better.

Doing so empowers us to provide decision makers with cogent advice that ensures they have solid information about both the upside and downside of the company’s business strategy, and ultimately help them make enlightened decisions.

In other words, the advice we allot to decision makers should not act as an impediment to the achievement of business objectives. Alternatively, it should help them understand the odds of achieving the objectives and business success.

Effective risk management far exceeds risk protection and compliance, loss avoidance or arranging insurance cover to mitigate negative consequences.

Old habits die hard. Nevertheless, growth and progress ensue from challenging the status quo and embracing new habits. Stop paying attention on avoiding loss and start taking a broad, strategic view on the upside and downside of risk.

Resolve how you can literally create value and support the successful execution of business strategy and achievement of objectives.

Challenge of Finance Best Practices and What CFOs Should Do About It

The modern CFO is touted as the right hand man of the CEO, providing strategic and operational decision support. No longer is the CFO only responsible for preparing and interpreting financial statements based on historical accounting data, but also for taking a holistic view of business performance and helping the organization move forward.

Thanks to new technologies and improved business operating models, CFOs across industries have been able to transform finance into a value creation function. Further, finance leaders are overwhelmed with finance best practices advice from professional services firms, research analysts and consultants.

Finance leaders are advised to standardize ERP systems, adopt financial planning and analysis technologies and ditch spreadsheets, streamline budgeting processes and implement driver-based rolling forecasts, automate and accelerate financial close and reporting etc.

The list is endless, but does a complete reliance on best practices advice improve finance’s performance and value creation?

Best practices and benchmarks are meant to help business leaders assess the progress of their companies against “leading performers” as opposed to being aspirational ideals to be attained.

The challenge with viewing best practices as standards of excellence is that, their attainment might mistakenly be interpreted by business leaders that no further effort, experimentation or thought is required.

By their nature and application, best practices are transitory. Given today’s business world which is constantly changing – practices, processes, systems and operating models that have enabled us to drive business performance are no guarantee of future success.

CFOs therefore have to realign their functions if they are to keep pace with the demands of an increasingly dynamic marketplace. Always keep in mind that best practices are only beneficial as long as the circumstances in which they are established remain stable.

Unfortunately, volatility and uncertainty are the norm today.

As a finance leader, you should be weary of copying best practices from other businesses with little adaptation otherwise you risk stagnating creativity and commoditizing innovation across the organization.

Rather than continue to depend on the widely accepted best practices, CFOs need to adopt a new mindset, break old habits and promote a continuous improvement culture.

Many at items promising ideas never experience the light of the day because the culture management has created rewards success and punishes failure. Leave some slack for experimentation and encourge constructive failure.

Simply following a complete set of rules or principles will not, on its own, drive finance function effectiveness. Before jumping at the so called best practices, at least ask yourselves:

  • How are we doing what we are doing now?
  • Why are we doing what we are doing this way?
  • What would it look like if we didn’t do things this way?
  • Who expressed this is the best practice?
  • Why is it considered best practice?
  • Does the best practice work for our business?
  • Is the best practice still valid or outdated?
  • Under what circumstances was the best practice established?

Answering the above questions will help you validate the best practice and its potential to boost organizational performance.

Adopt ideas, processes, technologies, and skills that drive change and create value. There is no hard-and-fast playbook. In a culture of innovation, new ideas spring forth from all directions, especially from the unexpected sources.

Just because the organization’s existing structures, systems, skills and processes are driving performance today does not mean they will continue to do so in the future. The past is prologue but not necessarily precedent.

Finance leaders who continue to find comfort in implementing widely accepted best practices to secure competitive advantage or embrace “this is how we have always done it” approach in today’s increasingly uncertain world are not only squandering resources but also destroying value.

Finance as the Custodian of Enterprise Performance Management

The days of having CFOs responsible for only preparing the statutory financial reports of the business and play the role of the bookkeeper are long gone. Today, finance leaders are expected to play the role of the strategic advisor to senior management and the board,and help drive operational and strategic performance across the enterprise.

That is, become custodians of enterprise performance management (EPM) by taking the lead on performance management and delivering informed business insights. EPM takes a completely different approach towards measuring, monitoring and improving enterprise performance.

Instead of assessing business performance in a siloed approach, EPM ensures the business evaluates and monitors its performance holistically. Although a majority of business decisions have either positive or negative financial implications on the health of the organization, evaluating, monitoring and improving business performance extends beyond a sole focus on financial metrics.

In order to perform better in their new business performance custodian role, it is imperative that finance leaders develop knowledge and a deeper understanding what constitutes and doesn’t constitute EPM. 

A simple google search of the words “Performance Management” brings up results that associate performance management to the process of conducting employee performance appraisals and supervising employees and departments to ensure that goals and objectives are met efficiently.

As a result, many people think that performance management is a human resources process that is only people-focused and has nothing to do with finance – Human Performance Management. To a lesser extent, their thinking is correct in the sense that people are part of the process. However, to a larger extent, they are wrong.

Performance management is not entirely focused on carrying out the outdated employee annual performance appraisals or reviews based on isolated individual key performance indicators (KPIs).

Rather, performance management is the integration of multiple managerial methods and or frameworks such as strategy maps, balanced scorecards, activity based costing/management, driver-based rolling forecasts, process improvement, risk management and advanced analytics to support strategic decisions and drive performance.

This is not achievable individually, hence the key word “enterprise.”

As custodians of business performance, finance should play a leading role in implementing a robust EPM framework across the organization. The framework should enable the organization to communicate and translate its strategy into financial and non-financial metrics and targets, monitor its performance, create accountability, and focus its efforts and resources on the key business drivers.

Additionally, the EPM framework should ensure there is alignment between individual KPIs and reward and recognition systems, and corporate objectives, as opposed to mere job descriptions, in order to encourage behaviours which positively contribute to the overall strategy of the business.

When implementing the EPM framework, it is important to ask the following questions:

  1. What do we want to achieve and excel at? This helps define your goals and key value drivers.
  2. How do we know if we are actually excelling at this? This involves defining financial and non-financial KPIs, which are measures that help you understand whether you are achieving your goals
  3. What is the desired level of performance that we would like to see? Defining KPIs is not enough, you also need to define your targets that represent the level of success or failure at achieving your KPIs.
  4. What initiatives should we pursue or engage in to meet our performance targets? These are actions or projects or strategies or processes needed to achieve a target, or improve performance level.
  5. What resources and or investments are needed to achieve our target? Utilizing driver-based budgets and dynamic rolling forecasts will ensure resources are allocated strategically and efficiently.

Asking and answering the above questions helps design and implement management processes and systems that align business strategy to drive accountabilities, decision support and performance improvement.

For example, when KPIs are aligned with business strategy, decision makers will focus on the critical success factors of the organization. On the contrary, if there is lack of KPI alignment, senior management end up getting overwhelmed with an increasing number of performance reports that lack key insights necessary to move the business forward.

As custodians of enterprise performance, it’s important for finance to have the ability and capabilities to consolidate, analyze and interpret business performance in real-time. Rather than simply report on the past, finance teams must be able to explain the reasons behind the numbers (the whys and what-ifs).

Leveraging consolidation solutions enable teams to quickly model and assess the impact of alternative business scenarios and formulate appropriate solutions.  

Given the complexity of today’s business environment, finance leaders need to rise to the occasion and perform the strategic advisory role now expected of them by senior management and the board.

 

© 2019 ERPM Insights

Theme by Anders NorénUp ↑