MTG’s Ron Moore on Why Finance Departments Should Drive BI

December 22, 2008

Let’s start with business objectives: We won’t succeed by building fiefdoms. We succeed by focusing on shared objectives.

The main objective of all business enterprises is to increase the value of the enterprise. In real terms, that means that you must earn in excess of your cost of capital and that you have to develop a competitive advantage. To fulfill these goals, a conceptual model of how the enterprise creates value for its customers is necessary.

Competitive advantage also requires specialization. The modern enterprise is made up of complex highly specialized layers. Revenue generating layers affect value creation directly by serving external customers. Other layers, such as IT and Finance, affect value creation indirectly by serving internal customers.

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Finance is one of IT’s biggest and most specialized customers. IT also is highly specialized, of course. It’s only through specialization that we get competitive advantage. But that also separates: Sometimes we don’t appreciate the others’ priorities. An example: From the Finance point of view the close has to be completed and the 10Qs have to be filed by a certain date — even if that means making a lot of one-off adjustments.

On the other hand, IT’s priority is to create stable repeatable processes. Both departments are doing their jobs, but they get pulled in different directions.

Claudia Imhoff, a noted data warehousing consultant and author, talks about two centers of competence: Getting Data In and Getting Information out.

Since Finance is IT’s customer it’s up to finance to set the objectives and IT deliver as much as it can. However, Finance also needs to understand why that may take longer or cost more than expected. So it’s up to this department to evaluate investments and set priorities.

It’s also important to realize that competitive advantage is a moving target. Your competition isn’t sitting still either. A really good finance department will constantly be asking for more than IT can deliver because it will always keep pushing then envelope.

In the end finance is in the best position to evaluate investments and set priorities because that’s its specialization. But it also is a good idea for IT to understand the basics of how Finance evaluates investments. We suggest discounted cash flow as the most useful approach and we can also suggest ways to integrate it with the organizations income statement.

Ron Moore is the Founder of MTG.

Posted by Carl · Filed Under Interviews