Building World-Class

Finance and Performance

Management Capabilities
Keynote
The ability
to consistently
drive insight Success in creating both business analytics and
performance management capabilities requires
finance executives to move beyond the boundaries

about improving of their organizations to influence the systems,

decisions, and actions across the enterprise. To
make the job even more challenging, the range
business of tools and techniques to collect, organize,
understand, and communicate information

performance regarding industry, competitive position, enter-

prise performance, and specific initiatives
presents a continually changing landscape.

is one of the Many finance executives start to tackle the challenge

by establishing transaction processing, control, and
most important reporting systems capable of rapidly generating
basic information about the enterprise. With these
essential capabilities in place, leading finance organi-
leadership zations are implementing more sophisticated business
analytic and performance management tools.

responsibilities As driving insight from disparate information

increasingly becomes the competitive edge differ-
for finance entiating winning companies across industries, the
impact of well-designed and deployed capabilities
will become more apparent – and the focus on these
executives. capabilities will increase.

It is also one There are several trends that should affect the speed
of implementation and level of sophistication of
new business analytic and performance management

of the most capabilities. The strategies and solutions adopted

in a specific enterprise will vary as these markets
continue to mature, but common themes are emerging
difficult among leading-edge competitors. The substantial
business value to be gained provides a compelling

responsibilities reason to start creating new capabilities now.

to achieve on an
operational basis.
Trends Impacting Business
Analytics and Performance
Reporting
Investors are upset. Regulators are active. All is not Understanding performance inside the walls of an
well with financial transparency and investor relations. enterprise is no longer sufficient – it is expected that
The CEO and entire management team are now under the performance of a supply chain made up of multiple
significantly increased pressure to respond to new companies will be understood and compared to
financial transparency requirements introduced through competing supply chains within an industry.
the Sarbanes-Oxley Act in the United States and
planned revisions to International Accounting The increasing use of global operating models, includ-
Standards. Many finance organizations are placing ing the widespread use of manufacturing facilities in
renewed attention to their abilities to forecast and low-cost countries, requires performance management
report financial performance through changes in solutions capable of easily integrating information
the economic cycle, to communicate effectively with from multiple information platforms, data structures,
investors, and to work across the business to manage and sources.
performance.
Furthermore, the pace of business has accelerated.
Investors don’t want managed earnings, but they don’t Companies are seeking the ability to sense and respond
want surprises, either. The days of smoothly managed to changes in the environment more rapidly than
quarterly results are over as companies struggle with competitors. Performance reporting processes must be
an uncertain economic environment, increasing levels adapted to keep up. From the moment a business event
of sophistication in competitors, and changes in occurs until it is reported in the consolidated financial
accounting standards. While investors are pleased statements, a number of stakeholders are interested in
to have more transparent financial results, they are real-time reporting related to the transaction. Finance
demanding that management teams demonstrate a organizations are expected to have common financial
higher level of expertise in forecasting how changes languages capable of reporting at speed across
in the industry or economic environment are likely to geographies, languages, and currencies.
impact future earnings, future cash flows, and future
capital investment requirements.
Demands on Finance
Executive compensation systems designed to align
management teams with shareholder value measures Business leaders are insisting that the finance organiza-
are under pressure in multiple geographies and indus- tion be a source of impartial financial and management
tries as gaps between investor results and executive information, have the insight to analyze and under-
compensation have widened. Management teams are stand that information, and bring a point of view based
rethinking which high-level measures to target and on a clear understanding of industry and company
how to implement appropriate performance reporting value chains. They expect finance to understand
systems to manage the company. customer, product, and channel profitability. Further,
they want CFOs to put the processes and metrics in
Government organizations are also under increased place to ensure that employees across the company
pressure to implement performance management solu- can measure and report results as they make decisions
tions and demonstrate higher service levels with lower and take actions aligned with corporate strategies.
cost structures. Clear definitions of government entity
scorecards and performance levels are increasingly Companies are being pushed into positions of competi-
important in the process of justifying spending levels tive disadvantage when other organizations, outside
and requesting new funds. of their control, may have the ability to collect infor-
mation, assess performance, and take action on shorter
The basis of competition is shifting from individual cycle times than they can. In these cases, the company
companies to entire supply chains within industry can find itself losing ground as members of its supply
sectors. Supply chains are being formed, modified, chain or direct competitors have insight into weak-
and restructured as industry boundaries blur and nesses before it is prepared to respond or make
competitive environments become more sophisticated. internal adjustments.
Many companies are shifting attention from driving along supply chains to dramatically lower inventory
revenue to optimizing growth in shareholder value. levels and associated working capital. Demand pattern
They need improved business analytics to support the analytics can identify changes in customer buying
revised growth agenda with both increases in revenues cycles and minimize the lead times required to produce
and improvements in profitability. Industry analytics for expected demand levels. Sophisticated demand and
and value chain analytics can help make optimal deci- price elasticity analytics can apply real options theory
sions on where to invest resources to capture segments to determine the optimal mix of products to be pro-
with high growth potential. Customer analytics can help duced from available production capacity.
identify, acquire, retain, and sell to customers to drive
new revenues and protect existing revenue streams. Corporate and financial risk management have moved
Related credit analytics can increase the number of up the list of priorities as companies face continued
customers targeted while holding credit risk and related pressure to understand and manage enterprise risk.
bad debt to optimal levels. Finally, product and pricing An emerging set of analytics is being constructed
analytics can help improve the offers made to cus- to address enterprise-level risks and optimize the
tomers and improve the average price received in allocation of resources to manage those risks.
specific customer segments.
These trends impacting both business analytics and
Working capital effectiveness and operating cost leader- performance management will place pressure on many
ship goals have recently created an urgent need for management teams to make substantial improvements
improved business analytics. Analytics focused on to existing capabilities in the near future (see Figure 1).
operating cost reductions can optimize synchronization

A gap exists between CEO expectations and finance’s delivery.

Source: What CFOs Want from Performance Management CFO Research Services

CEO wants this

We have today
100% 92%
90% 89%
80% 77% 77%
70% 62%
60% 54% 57%
50%
40%
30% 20%
20%
10%
0%

Finance involved Finance provides Finance provides IT systems allow

in corporate strategy customized unit performance business managers
advice to analyses on demand to analyze own unit
business units performance
CFO Strategies
Finance organizations have not been idle in the face of management information framework to enable more
these challenges. As they continue to try to lower costs robust understanding of available business options
and raise service levels they are looking once again to across the enterprise. Finance organizations have
technology, utilizing the Web to connect more directly helped in driving the value agenda across the business
with vendors, customers, and employees. Many are by explaining value concepts and consistently deliver-
turning to outsourcing as a strategy to achieve ing analysis of management information that is finan-
increased efficiencies more quickly and to obtain cially fact-based and oriented toward shareholder
more control over back-office costs. value creation opportunities. The focus on value
targeting discussions and fact-based positions allows
Companies are responding with substantial improve- the finance organization to apply its unique competen-
ments to planning, budgeting, and forecasting capabili- cies and focus the business discussions on moving the
ties at the enterprise level and across specific opera- levers that create value.
tional business processes. One of the major changes
being introduced is the extension of the planning The consequence of this increased attention to share-
and forecasting process to a broader group of people holder value is the trend toward use of value-based
across the enterprise so that key drivers that determine measures such as economic profit, EVA, and ROI.
revenue and cost are updated more frequently and by Finance organizations are leading efforts to use these
the people on the line who actually live and breathe value-based measures as the basis not only for business
them. Coupled with enhanced investor relations capabil- decision-making, but also as the underpinning for
ities, the improved understanding of current and future approaches to executive compensation, strategic
results allows companies to set market expectations planning, forecasting, budgeting, and measuring
more accurately and to convey their growth strategies ongoing performance.
more credibly.
CFOs are connecting forward-looking planning activi-
Companies are recognizing that these trends have ties with day-to-day performance measurement.
created expectations of improved capabilities from Forward-looking planning enables the CFO to see
an expanded set of executives requiring more frequent around the next turn and speak with confidence about
and more detailed information on both financial and where the company is going. Connecting planning to
operational metrics related to enterprise performance. performance measurement increases certainty that
execution will align with business direction. Taken
To assist in delivering improved overall business together, CFOs are building important capabilities
performance, CFOs have reasserted their role as owners for restoring the fragile confidence of today’s investor
of management information and performance manage- (see Figure 2).
ment processes. Concepts such as the virtual close and
straight-through processing are catching on as compa-
nies continue to optimize their ability to get the most
Creating the Path Forward
critical information to the right people in a timeframe
that allows responsive action to be taken. Three factors are coming together to create optimal
conditions for an increased focus on improvements
The finance organization, because of its traditional to business analytics and performance management
ownership of the financials, is frequently seen as the capabilities.
primary source of reliable data in the company.
Finance leaders are using this position of credibility First, many organizations have been successful in
as a foundation for building richer sources for establishing solid transaction processing and control
management information and as a launching point platforms which provide a foundation for capturing,
for introducing new financial performance measures. organizing, and moving information across the enter-
Finance organizations are bringing together industry, prise. The next logical step of leveraging that informa-
customer, channel, competitor, product, macro- tion is to drive insight and improve decision-making
economic, and financial data into a comprehensive across the business.
Second, the traditionally fragmented software markets the recovery to create a gap between them and their
for business analytic and performance management competitors. Research highlighted in When Good
tools are consolidating and introducing a new genera- Management Shows demonstrates companies that
tion of tools. The major ERP vendors have released new really understand value targeting, integrate value
applications that leverage the transaction processing management into the company culture, and execute
platforms. Meanwhile, best-of-breed boutique firms solid performance management techniques consistently
have banded together to provide broad suites of inte- gained on the competition during the last global reces-
grated applications. At the same time, the technology sion in the early 1990s.
to store, organize, and navigate vast amounts of data
has continued to increase in capability at an exponen- Organizations focusing attention on business analytics
tial rate. It is now possible to construct a set of useful and performance management capabilities are faced
tools that leverage ERP platforms without replicating with decisions on how and where to start. Should
prior investments. initiatives focus on technology solutions? Are major
changes in the culture required to become effective?
Finally, a combination of internal and external factors Which new capabilities will outlast the predicted and
has increased the importance of having more sophisti- unimaginable changes in the organization and competi-
cated business analytic and performance management tive environment? How can existing capabilities be
capabilities. Individuals within the enterprise have leveraged instead of replaced?
grown comfortable with technology and started expect-
ing to make decisions with the help of analytic tools. Our recommended framework for thinking through the
Global operating models have broken many of the opportunities and priorities focuses on a few simple
historical cultural barriers regarding origination, trans- concepts: understanding the economic model, having
mission, and use of information from various geogra- access to appropriate information, and having appropri-
phies as part of an integrated business model. More ate incentives to act on opportunities.
advanced supply chain partners have started expecting
other members of the supply chain to be as sophisticat- Understanding the economic model requires that execu-
ed as they are at optimizing results. tives and employees across the enterprise understand
how the company makes money, how it is positioned
While conditions for progress are good, the level of within the industry, and how the industry value chain
activity and progress on building many of these capa- is changing over time. It requires that individuals
bilities is relatively modest to date. Organizations have understand which value levers are controllable and
been thinking through the issues while deferring invest- which are not at the local, business unit, corporate,
ments until the economic cycle recovers or existing or industry levels. It requires that organizations within
cost reduction and customer relationship initiatives are the enterprise understand how they contribute to deliv-
completed. Many of these organizations have also been ering strategies to improve performance within the
hoping for a clearer definition of the best practices constraints of the economic model. Without a clear
and winning approaches from early adopters. understanding of the economics of the business, invest-
ments in both business analytics and performance
management capabilities are likely to be suboptimized.
Innovation and Execution Accenture has worked with companies in multiple
industries to construct performance simulation capabili-
Innovation is important during uncertain economic ties that are used to teach subtleties of the economic
times. Execution is important all the time. Leading model to individuals across the enterprise. In many
companies in many industries are working to bring cases, this simple step has achieved outstanding results
new innovations in applying business analytics and in changing the decisions and behaviors across the
performance management while improving execution enterprise to be more closely aligned with the business
against business plans and new opportunities. These strategies.
companies are taking advantage of the downturn to
make investments that will help them accelerate into
Having access to appropriate information requires tage of opportunities when they arise, knowing how
companies to acquire, consolidate, and move economic, to quickly gain approval for decisions which change
operating, and financial information from external and prior plans, and working in a culture that values
internal sources to the individuals in the company who innovation and appropriate risk-taking. Many
can act on it. This can be accomplished for simple data enterprises have struggled with examples where
sets to support focused business analytics within a busi- information existed and insight was gained, but no
ness process or on an enterprise level to support perfor- action was taken. In the most frustrating cases, the
mance management functions. It requires companies to incentives in place actually forced employees to take
have well-defined and understood data models that the worst possible actions for the enterprise because
allow individuals to speak the same language in dis- those fit more closely with prior budgets, plans, and
cussing results. It does not require a single information forecasts.
technology platform, since integration architectures can
leverage existing platforms to create integrated data In this volume of The CFO Project, we will explore a
sets. From simple management reporting solutions to range of capabilities companies are building to achieve
more advanced scorecards and data-visualization competitive advantage. The solutions stretch from new
solutions, the impact on making decisions and influenc- angles on proven strategies to the latest ideas. We hope
ing performance can be dramatic. that you find the articles in this volume to be worthy
reading, and we hope that you will look for future vol-
Creating appropriate incentives to act on opportunities umes as we continue to share leading points of view on
is not about financial rewards. Instead, it about under- finance and performance management issues.
standing that the enterprise is flexible in taking advan-

Approximately what percentage of your finance function’s time is devoted to these activities?
Source: CFOs Driving Finance Transformation for the 21st Century CFO Research Services

Today
In three years
45%
40% 39%
35% 32%
30% 27% 27%
25% 21% 20% 20%
20%
15% 14%

10%
5%
0%
Corporate strategy Consultative Fiduciary Transaction
development decision support responsibilities Processing
Written by:
Michael R. Sutcliff
Global Managing Partner,
Finance & Performance Management service line

Mr. Sutcliff has extensive experience in strategy, business architecture,

systems integration, business transformation, and outsourcing engagements
across multiple industries and geographies. His responsibilities include
developing new service offerings and alliance relationships while managing
Accenture’s combination of consulting and outsourcing services of interest
to senior finance executives.

Copyright © 2003 Accenture

All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

About Accenture

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Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry
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technologies to help clients improve their performance. With more than 83,000 people in 47 countries, the company generated net
revenues of US$11.8 billion for the fiscal year ended August 31, 2003. Its home page is www.accenture.com.