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If Not Now, When? Business Conditions are Ripe for SaaS CPM, Part I

January 14, 2009

Economic conditions are bad. Experts agree the economy will probably deteriorate further in 2009 before improving. Some of the current economic meltdown stems from banks and other companies that made risky bets without modeling the potential risks and understanding the profitable parameters and probabilities of those bets. While a lack of modeling and forecasting have helped the economy reach the current crisis point, it is precisely this type of behavior that will be required for businesses to survive in the short term and eventually thrive again. In addition, even in this tough economy, business growth is imperative and companies can’t sacrifice their future based on surviving now.

Economic Conditions Pose Challenges

It is unavoidable that each company will have to analyze and adopt their own approach to navigating this tough economy. Inevitably, companies will pick one of three approaches:

  • Wait and see what happens.
  • Hunker-down and focus heavily on cost-cutting.
  • Proactively navigate the crisis by making course corrections that create long-term benefits for the company.

The natural reaction of many businesses in this economy is approach one and two. That is, backing off any plans for process improvement, especially if it involves technology. Conventional wisdom is to “make do” with your existing processes regardless of their ineffectiveness or inefficiency. However, a company’s ability to effectively plan and navigate rough economic times is critical to its survival. All three of these approaches require real-time analytics complimented by continuous planning so the company does not sacrifice its future to survive today.

As a quick test to see if a company is a candidate for real-time analytics and continuous planning, companies have to ask the following questions:

  • Does the company have confusion over what the data means?
  • Do business objectives change annually even though the goals set for the previous year weren’t achieved?
  • Does the business respond in a timely manner to business/economic events?
  • Is there a lot of rekeying of data into different systems just to produce reports?
  • Are hundreds of spreadsheets flying around the enterprise email?
  • Is there massive data redundancy and fractured inconsistent data?
  • Does the business have real-time insight into product sales/customer bankruptcy?
  • Is budgeting the curse of the CFO’s existence and despised by the budget preparers as a useless exercise?

If a company answer’s ‘Yes’ to any of the above questions, it should consider a corporate performance management (CPM) solution. Companies that successfully grow in this economy understand how important it is to not only monitor performance but understand the results and take action.

Corporate Performance Management Can Help

Implementing a full CPM strategy includes the integration of a number of disciplines, and needs to be treated as an incremental journey. The major components include:

  • Financial consolidation.
  • Budgeting and planning.
  • Financial reporting.
  • Strategy management through scorecarding.
  • Profitability modeling.

To reap the full benefits of CPM requires a fully integrated solution that addresses all five areas. However, incremental benefits are achieved as companies incrementally implement the individual components of CPM. The incremental implementation also creates the momentum within the company for additional CPM implementations while creating insight into the business. As an example, companies may choose to initially implement the budgeting and planning process or sales and profitability modeling. Both processes, in a non-CPM environment, typically are based on spreadsheets.

The problem is, today’s economy goes beyond Excel’s ability to provide a nimble, efficient and effective way to react to the velocity of change in budgeting and planning. Effective planning and budgeting should empower your whole organization to further its mission. But Excel – which was designed for single-user productivity – is too limited to help companies do this.

To set the stage, think about using Excel for corporate and operational budgets and plans. In this environment, businesses will be making multiple revisions to the plans on a daily, weekly and monthly basis. Reductions in spending and hiring, changes to product mix and the dynamics of the economy will require multiple iterations of potential future scenarios. Many times we see companies that leverage Excel require a minimum of two weeks to turn around a scenario, while senior management can visualize five potential scenarios in a two-minute time-span. Excel just can’t keep up.

Also, this approach only focuses on how the existing budget/planning process is stretched to accommodate a tough economy. It does not address the proactive planning a company needs to survive, nor does it address the strategic measurement provided by the balanced scorecard methodology or analytic reporting, to quickly understand the details that support the overall outcomes.

Because the market is so dynamic, another area to consider for automation is encapsulating the strategic plan in a system. Your strategic plan should be dynamically managed. Gone are the days of perfectly written and leather-bound strategic plans that are a testament to a company’s vision but not to the implementation. A strategic plan must provide the vision, roadmap and methods to implement it in a tough economy.

As market conditions change and as the strategic plan is implemented, scorecarding supports the dynamic update and monitoring of the strategic plan. It enables the cascading of scorecards throughout the organization, so the entire organization can access a snapshot of performance against goals without having to search through analytical reports. Charts and graphs complimented by the collection of additional intelligence like notes, assessments and initiatives provides tracking performance against strategic goals and creates a benchmark for revising the plan.

Correctly implemented a CPM process allows management to:

  • Monitor performance and steer the business to success.
  • Understand key drivers of business performance and ensure earnings forecasts are met.
  • Sustain profitability in the face of harsh economic conditions.
  • Ensure costs are minimized and operational efficiency is enhanced without sacrificing the company’s future.
  • Act quickly to rectify problems when the business goes off course.
  • Constantly adjust expected corporate profits as rapid change is inflicted on a company.
  • Keep departments or divisions on course to ensure overall corporate goals are met.
  • Monitor territory sales and customer profitability.

A fully integrated and unified CPM solution enables organizations to drive improved financial and operational performance by optimizing planning, budgeting, sales forecasting, speeding financial consolidations, and measuring and monitoring performance consistently across the entire organization. It helps to uncover previously hidden information to better analyze and report key performance information. It empowers companies to easily monitor the ongoing financial, sales and profitability performance of the organization.

Organizations that lack sufficient clarity or sophistication in the execution of their financial processes should consider CPM. Corporate performance management solutions provide a more detailed and accurate measurement of current performance and enable organizations to better manage future performance.

Next: How to implement CPM and why software-as-a-service is the way to go.

About Ric Ratkowski: Ric oversees product marketing of the Host Analytics CPM Suite. He is actively involved in the design and development of Host’s on demand solutions. Ric has over 25 years experience in Finance and Accounting and has held strategic roles in the design of financial analytic and performance management applications within the top software companies in the industry including Braun Technology and Arbor Software. Additionally, Ric held financial executive level positions at multi-national corporations with first-hand involvement in the financial planning and budgeting process. He has been a key member of the executive team at Host since 2002 and pioneered the SaaS infrastructure at Host. Ric has a Masters in Finance and a Bachelors degree in accounting from St. Louis University and is a CPA. He lives with his family in St. Louis, Missouri.

Posted by Carl · Filed Under Business Intelligence 

Comments

One Response to “If Not Now, When? Business Conditions are Ripe for SaaS CPM, Part I”

  1. Business Executive on January 14th, 2009 7:41 pm

    It helps a lot in my work. But i think business will start to recover this year. Thanks for the good post.

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