S2E - From Strategy to Execution

We've moved

noreply@blogger.com (Richard Barrett) — Tue, 12 Oct 2010 10:35:00 +0000

We've moved! We've grouped up with some of our other colleagues and now blog at CFO Knowledge.

Besides blogs on Enterprise Performance Managment, you'll find lots of other stuff on accounting and finance.

Zions Bancorporation enjoy the benefits of 'closing the loop'

noreply@blogger.com (Richard Barrett) — Mon, 20 Sep 2010 10:13:00 +0000

As yet few companies are using performance management solutions in tandem to deliver closed loop performance managment and those that do, such as Zions Bancorporation, are well ahead of the curve and gaining benefits that their peers have yet to enjoy. Zions Bancorporation uses the SAP® BusinessObjects™ Planning and Consolidation application for planning and budgeting and the SAP BusinessObjects Profitability and Cost Management application for modeling costs. It feeds the costs, together with interest spreads calculated in the bank’s funds transfer pricing solution, into the “profitability mart,” and calculates net profits at the individual account level. Knowing how different products and different types of customers create value for the bank is critically important to many commercial decisions that executives and managers have to make. It helps them determine, for example, where best to spend marketing dollars and how to price individual loans.

But the bank gets much more from its implementation of SAP BusinessObjects Planning and Consolidation and SAP BusinessObjects Profitability and Cost Management than simple best-of-breed deployments. It can take trended volumes and activity unit rates from the latter application and combine them with data on interest spreads and fee income from its shareholder value model, which summarizes the data in the profitability mart. It can then auto-populate many of the important line items in its budget. This means that business managers no longer have to forecast expenses themselves and can simply review and amend the figures generated for them.

This has resulted in budgets that are both quicker to produce and more accurate. But a specific transformational benefit is enabling the bank to keep resources and capacity tightly aligned with demand during the current period of uncertainty. That benefit is the ability to manage the business with quarterly rolling reforecasts rather than the traditional annual budget and half-yearly review.

Below are the video testamonial of Walter Young discussing their implementation and the Business Transformation Study.

Walter Young of Zions Bancorporation talks about SAP EPM from Richard Barrett on Vimeo.
Zions is a $51 billion US based financial services company. This interview was conducted with Walter Young, SVP of Zions Bancorporation. The group is unique in that it comprises 8 individually named and autonomous banks. In Walter’s words, they have moved from a 1,000+ spreadsheet “excel mess” to an efficient and streamlined budgeting cycle. Zions are using SAP BusinessObjects Profitability and Cost Management in addition to other SAP BusinessObjects solutions such as Xcelsius.

Zions mfp

View more documents from SAP.

Is Driver Based Budgeting Picking Up Speed?

noreply@blogger.com (Richard Barrett) — Fri, 27 Aug 2010 13:45:00 +0000

In a recent survey of planning and budgeting practices, analysts Aberdeen Group, found that the ‘Best in Class’ - the 20% of respondents who had shorter budget cycles, more accurate budgets and who had actually improved their year-on-year profitability by 20% or more, were roughly twice as likely to use methodologies such as zero-based budgeting and driver-based budgeting – the majority sticking to tweaking the previous year’s actuals.

Driver-based budgeting is something close to my heart in that I wrote a book on it back in 2007 – Planning and Budgeting for the Agile Enterprise. Other than receiving a few metaphorical pats on the back from the folk who make their living by writing or lecturing about performance management, the book languished on the Amazon listings where it has stubbornly remained for the last few years, while I moved on to travel writing which is both more enjoyable and more lucrative. But clearly driver-based budgeting hasn’t gone away. In fact, Aberdeen found that the ‘Best in Class’ enjoyed some considerable benefits in that they were more able to perform ‘what-if?’ analysis and re-forecast as market conditions change. Given that many people talk about rolling re-forecasts, but few can actually achieve the frequency they desire it looks as though driver-based budgeting is on the ascendant; an idea whose time has finally come.

Now the interesting thing is that the Aberdeen research didn’t find much difference in the type of software used for budgeting between the ‘Best in Class’ companies and the industry average. So although enterprise applications may help improve productivity in finance and make the data easier to manage, it’s not the technology that is making the difference here. It’s the simple step of moving away from traditional budgeting, (little more than the collection and collation of line item expenses to my mind), and adopting a driver-based methodology that makes the difference.

Being a numbers business, telecoms is an ideal industry in which to implement a driver-based approach to planning and budgeting and I’ve written before about how I sat through a breakfast meeting at SAP Sapphire in Orlando earlier this year and was gladdened to hear to Sandy Rogers, Director of Financial Systems at Qwest Communications talk on their adoption of driver-based planning and budgeting that consulting organization Column 5 Consulting helped them implement in SAP BusinessObjects Planning and Consolidation. Sandy shared some of the benefits of the approach as well of some of the change management issues in helping financial analysts and business folk move away from the ultimately false security that comes from a traditional approach to budgeting with its endless line item detail. It was compelling stuff. Who knows; if this momentum continues then that book might just begin to pay back on the time and effort invested in writing it!

Reinventing the Ritual – Get beyond budgeting

noreply@blogger.com (Muthu Ranganathan) — Tue, 10 Aug 2010 11:30:00 +0000

Jack Welch, who ran General Electric, one of the world’s ‘Best Run Businesses’ for many years, wrote an inspiring book that is a must read for every manager- ‘Winning’. One of the chapters, called ‘Reinventing the Ritual’, is a critical discussion of how budgeting is often done in a company. He says ‘It (budgeting) sucks the time, energy, fun and big dreams out of an organization’. Jack mentions ‘Budgeting’ as the backbone of the management system - and getting it right in a non tradition way can get better results.

Jack’s two concepts that describes the traditional budgeting are:

Negotiated Settlement
What is this? This is the long drawn exercise of ‘bottom-up’ planning that takes several months to prepare before it gets reviewed by headquarters. But what do the numbers that make up the budget actually mean? In preparing the budget, every manager will be aware of setting goals and targets that jeopardize the prospect of earning any performance related bonus. As Jack put its ‘their underlying galvanizing mission is to come up with the targets that they absolutely, positively, think they can hit.
So what is the negotiated settlement? On the one hand, every business manager builds in sufficient buffers and cushions to produce a budget they are confident of delivering. On the other hand, headquarters are looking for growth in revenue and profits that will drive the stock price. The marathon budgeting meetings begin, finally resulting in a negotiated settlement that is acceptable to both parties. But typically the discussion never captures the potential opportunities the company may have; nor is there any explicit link between the strategy and the budget, (execution).

Phony smile
As part of the budgeting process, business managers may have identified some new opportunities and ideas that they have spent a significant amount of time to develop and are eager to discuss with head office. All too often, such new ventures are often greeted with the response ‘very interesting’ as head office staff have already decided where to allocate investment capital and have their own idea of what each business unit can deliver. So all the ‘very interesting’ comments are nothing but a ‘phony smile’.

The outcome of this is that the business manager becomes de-motivated and allocates the money assigned without any firm goals in mind or indeed any feeling of ownership, most likely felling little more than post room clerk passing budgets backwards and forwards. The biggest issue here is not about the allocation decided by the head quarters team, but the lack of transparency to explain why it was done in a certain way and not giving time to the review the proposals and ideas put forward by the business managers.

Jack recommends replacing all this with a planning and budgeting process that works towards common objectives, identifies opportunities for growth and thrashes out inherent obstacles (read risks) in pursuing them to come up with a plan that has stretch targets - but doing it all in a transparent way. For Jack, the planning and budgeting process should be structured to answer two fundamental questions – How are we going to beat last year numbers? How are we doing vis-a-vis competition and how are we going to outperform them? – The very things that drive total shareholder returns.
But successfully delivering on stretch targets requires a robust Enterprise Performance Management framework to be in place, particular in the area of strategy management so that objectives can be clearly set out and cascaded down the organization with well thought out initiatives identified at every level. Ideally these business critical initiatives need to be linked to detailed budgets that can be reviewed and amended whenever results start to drift off plan. So going ‘beyond budgeting’ doesn’t mean throwing away performance management solutions. In fact it’s the exact opposite. If you want to set the bar high and manage performance with stretch targets and dynamic resource allocation, having a robust performance management framework such as SAP Business Objects Enterprise Performance Management solutions that covers Strategy Management and Budgeting/Planning is imperative. These solutions help Best Run Businesses to reinvent the ritual by getting beyond budgeting.

How to win?

noreply@blogger.com (Richard Barrett) — Tue, 06 Jul 2010 14:51:00 +0000

Sky British Cycling, the first UK team to compete in the Tour de France for nearly a quarter of a century, is managed by David Brailsford, who carried away a hoard of eight gold track medals from the Beijing Olympics in 2008. Brailsford intends to put a British rider on the podium by following his already proven philosophy of the aggregation of marginal gains. Put simply that means being as good as you possibly can in as many areas as you can so that cumulatively 1-2% improvements in areas that matter add up to a considerable gain in performance.

In practice this means digging into the detail to identify all the elements that drive performance then experimenting to deliver improvements. For Sky, this resulted in using fabrics in the team’s cycling jerseys that minimize the weight of perspiration absorbed in the fibres and developing cycling helmets with less air vents giving less drag and an advantage of about one second per kilometre. I guess when you know exactly what you want to achieve, there is less ambiguity about what needs to be done to get there. Brailsford also knows about risk management too bringing along a team chef and their own food to minimize the chance of riders picking up a debilitating stomach bug from eating hotel food – and carrying every rider’s favourite duvet and pillows so they get a good night’s sleep.

No doubt Brailsford would get on well with Drs. Kaplan and Norton, who developed the concept of the balance scorecard to help companies become more effective in communicating and executing their strategy. But having spent last week listening to how some of Europe’s largest companies are rolling out performance management, it’s clear that all too often strategy management is the one piece of performance management that companies choose to ignore leaving the organization without a map of the margin improvements that would accumulate into a superior performance.

Having a good strategy management process and a solution such as SAP BusinessObjects Strategy Management in place to deliver it will not automatically guarantee success as team Sky discovered on the opening prologue when they misread the weather and sent out their star rider Bradley Wiggins during what turned out to be the worst rain of the entire afternoon. Now four minutes adrift, he is facing an uphill task to get back among the leaders. But knowing Brailsford, they’ll know how and when they're going to close the gap.

Prioritizing and Investing in Performance Management

noreply@blogger.com (James Fisher) — Wed, 19 May 2010 16:04:00 +0000

At SAPPHIRENOW today SAP customers including Steelcase, Forest City Enterprises, Dow Corning, Under Armour and USDA came together with leading industry analysts from IDC and Aberdeen for a lively and interactive debate about the performance management market looking at why EPM is important to them, how it helps drive value and what the future holds for this exciting growth market.

One element of the debate focused on the economic climate with customers focusing on why they invested in EPM during a period of economic uncertainty. Steelcase, a manufacturer of office products open the debate explaining how their business is one of the first to be impacted and last to recover from an economic downturn. They explained how their investment in SAP BusinessObjects Spend Performance Management was the only software investment allowed during the recession as part of a wider project to increase visibility and lower costs. Dow Corning, a joint venture between Dow Chemical and Corning, implemented SAP BusinessObjects Planning and Consolidation to insure greater visibility which was critical for them during this period. Under Armor who was seeing huge growth chose to implement SAP BusinessObjects Planning and Consolidation version for SAP NetWeaver to drive greater visibility and model new business opportunities. The US Department of Agriculture (USDA) added that for all federal government organizations the key words are “accountability” and “transparency”. This has become even more important where funding is at a premium in a tight economy but also where government mandates increase the focus on these areas. They explained how SAP BusinessObjects Profitability and Cost Management is used to help them comply with the mandates and demonstrate value to key stakeholders.

Aberdeen’s Cindy Jutras commented on the importance of investments suggesting that organizations are showing greater optimism and that is now feeding back into their planning processes. She cautioned that the recovery may take longer than people think which may require them to be ready adjust plans and have the mechanisms to cope with this if and when required.

IDC’s Brian McDonough took the debate one step further to look at how companies are looking to expand beyond a point EPM investment into a broader portfolio of solutions. Forest City Enterprises suggested that this is about doing things in the right way for the business. Moving beyond SAP BusinessObjects Planning and Consolidation they see their EPM expansion moving toward SAP BusinessObjects Spend Performance Management and SAP BusinessObjects Strategy Management. Dow Corning added that today it’s even more important to bring together investments as part of a broad EPM and BI strategy and see how these assets can be leveraged together. This prompted a quick survey of where investment priorities lie and the results speak for themselves – expanding beyond planning to support Strategy Management and Profitability and Cost Management, the continued inclusion of BI and a new focus on sustainability. All good news for SAP then.

Is Now the Time for Driver Based Budgeting?

noreply@blogger.com (Richard Barrett) — Tue, 18 May 2010 17:07:00 +0000

Although the publication of ‘Budgeting for the Agile Enterprise – a driver-based budgeting toolkit’ a couple for years ago was met with enthusiasm from the advocates of new ways of budgeting, it gently sank without trace. However the uncertainty of the last couple of years, during which many companies have been frustrated at their inability to re-forecast with the speed or frequency they would like, seems to have given new impetus to the search for a better way of budgeting.

So during this morning’s EPM breakfast meeting at SAP Sapphire here in Orlando, it was a plesaure delight to listen to Sandy Rogers, Director of Financial Systems at Qwest Communications talk on their adoption of driver-based planning and budgeting that consulting organization Column 5 Consulting helped them implement in SAP BusinessObjects Planning and Consolidations. Being a numbers business, telecoms is an ideal industry in which to implement a driver-based approach to planning and budgeting and Sandy shared some of the benefits of the approach as well of some of the change management issues in helping financial analysts and business folk move away from the ultimately false security that comes from a traditional approach to budgeting with its endless line item detail.

With Sandy and other like minded folk sharing their success, who knows, this common sense idea may finally gain the wider adoption it deserves.

Real Value Lies Beyond Numbers

noreply@blogger.com (James Fisher) — Mon, 17 May 2010 13:51:00 +0000

One of SAP’s best kept secrets is its Value Engineering team, a group of specialists who work with customers to build business cases for investments in technology and software. Ultimately this hidden jewel seeks to demonstrate the value of an investment through the use of an extensive library of benchmark data and their experience of working with other SAP customers in similar verticals.

The fact that a group like this exists underlines the importance that prospective customers place on the business case for their project and ultimately their ability to demonstrate long term value and return on investment (ROI). In highly competitive and rapidly maturing solution areas, like the Enterprise Performance Management (EPM) market, this becomes even more important as customers seek not only to build a business case but lower perceived risk by understanding the value of a given solution by learning from peers who have already deployed the same solution.

Gartner highlighted this when in May of 2009 it published a report titled “Finding the Fast Path to Corporate Performance Management Value” which examined the sort of ROI and payback customers could expect from an investment in EPM solutions. While the report provides some very valuable data it struggles to provide real specific examples citing for example ROI in a range of 50-200% for one particular EPM domain. This highlights that there is no better alternative than talking to one’s peers and hearing about their experiences.

If there was ever an event which provided a forum for this then it’s SAPPHIRENOW which takes place this week in Orlando and Frankfurt. This event is the perfect venue for customers and prospective customers to come together and learn about SAP solutions, the value they create and how best to leverage them. By way of a few examples then SAP EPM team will be hosting approximately 100 customers for a special interest group breakfast on Enterprise Performance Management and organizations like the Campbell’s Soup Company will present on how they achieved better planning and budgeting processes using SAP BusinessObjects Planning and Consolidation version for SAP NetWeaver.

This is great if you’re one of the lucky people that were able to be in Orlando and Frankfurt but what if you’re not? Well to start with, SAP is making the event accessible online but it’s also committed to sharing customer experiences through as many channels as possible and making this accessible all year round with case studies, webcasts and customer videos. For example you can learn about customers like DWP, Tesoro, Swiss Post and Desjardin’s and how they use SAP’s EPM solutions directly on the SAP website.

It’s through customers stories like this and a forum like SAPPHIRENOW that real leadership is demonstrated. It’s not about broad sweeping statements about vague numbers of customers which are almost impossible to prove or and even harder to disprove but about providing real tangible stories of how customer use a given solution, their experiences and the value they were able to realize.

Lessons from 'Church Tower' Management

noreply@blogger.com (Richard Barrett) — Mon, 26 Apr 2010 16:05:00 +0000

Last week over dinner with a group CFO’s from some of Sweden’s leading companies after SAP’s Butterfly Event, we got to discussing banking and the fact that Handelsbanken is rumoured to be increasing their presence in the UK by acquiring some of the branches that the UK government has asked the Royal Bank of Scotland to sell off as a condition of their refinancing.

Handelsbanken are frequently cited as best practice by the Beyond Budgeting Round Table for their practices of only rewarding staff for outperforming peers, driving continuous improvement rather than simply delivering against a pre-negotiated annual budget and for devolving responsibility and decision making to the front line. One executive at the dinner table related that all performance related pay is paid into the Handelsbanken pension scheme and that the bank’s time-served employees retire with an enviable pension – and we all sighed enviously.

But another executive quipped that “they manage with the church tower philosophy”. Probing for more insight, he explained that the bank preferred to do business only with those clients that branch managers can personally keep an eye on – meeting them face to face at local events; able to see comings and goings and presumably quickly picking up on any local rumours. This approach has certainly stood them in good stead for the past couple of decades; outperforming their peers on virtually any metric you care to choose. See the BBRT Newsletter for November 2009, which shows them top of the table yet again!

For me, their success clearly shows that no matter how pervasive your business intelligence platform or how integrated you performance management suite, you are less likely to deliver top quartile results unless you align your remuneration policies to produce the desired behaviour and devolve decision making to front line managers. Clearly the CFO and CHRO in other banks - and indeed most companies in other sectors - should be talking more.

Driving Value Through Industry and Line of Business Solutions

noreply@blogger.com (James Fisher) — Wed, 17 Mar 2010 20:13:00 +0000

When SAP’s acquisition of BusinessObjects was first announced in October 2007, one of the things that I heard people saying most often was that SAP was going to spend the next 5 years integrating a bunch of acquired technologies and would do so at the expense of innovation. Having been party to at least 5 previous acquisitions in the preceding 8 years it won’t be a surprise to many that it was not exactly the first time I’d heard that. It’s fair comment after all…when you acquire a technology you need to integrate it in order to extract value but when SAP designed its current enterprise performance management (EPM) roadmap innovation was at the heart of it.

By designing a roadmap which delivered integration it also factored in a healthy dose of innovation not least of which is the ability to enable a complete closed-loop performance management process which it announced in January of this year and which attracted significant attention with a subsequent certification by Kaplan and Norton. This built upon its visionary and unique integration between its EPM and governance, risk and compliance solutions which it has continued to progress still further with exciting announcements expected later in the year. However one area of innovation which is often over-looked is the value that it’s creating through new line of business and industry solutions. BusinessObjects had a long history of delivering such solutions on its core EPM applications. Solutions to support planning processes in healthcare, banking and retail proved extremely popular with customers, as did its IFRS and US-GAAP starter kits designed to speed time to value for consolidation implementations.

Since the acquisition this has not gone away and SAP has been heavily investing to deliver additional solutions in this area including new solutions for planning in the public sector and Consumer Products built on SAP BusinessObjects Planning and Consolidation, Retail Store Profitability based on SAP BusinessObjects Profitability and Cost Management and new solutions for Banking and Retail based on SAP BusinessObjects Strategy Management.

Its latest showpiece was unveiled this week at the SAP Insider Financials event in Orlando and in an effort to further help organizations streamline the entire capital-expenditure planning process SAP announced a starter kit for capital planning also built on the planning and consolidation application. The new starter kit provides an automated way to request, plan, model and evaluate large, complex projects as well as smaller, simpler ones. Developed in collaboration with SAP partner Aster Group, the starter kit is especially helpful for organizations in capital-intensive industries like automotive, chemicals and oil and gas. Pre-built templates and content Its also features embedded analyses of investment returns using industry-standard methodologies such as internal rate of return and payback period.

By all accounts this is not the last we will hear from SAP in this domain and the latest version of its EPM roadmap highlights this as an area of continued focus. In the keynote at SAP Insider Financials this week it gave us a glimpse of this as it demoed a forthcoming solution for Customer Value Analysis built on its Profitability and Cost Management solution. This focus is it seems at the heart of its EPM vision and rightly so. By taking its core applications and delivering these solutions it’s leveraging its assets in the form of the technology but also the domain expertise it has acquired. Good for SAP but also good for the customer who is able to take this content, speed time to value and ultimately deliver a higher return on investment than it would have done if it had started with a blank canvass. ROI being a topic to which I intent to return to in this blog very shortly.

U.S. SEC clarifies its position around IFRS adoption

noreply@blogger.com (Philip Mugglestone) — Thu, 25 Feb 2010 18:19:00 +0000

Yesterday, the Securities and Exchange Commission (SEC) provided their much anticipated announcement on the adoption of International Financial Reporting Standards (IFRS) in the US.

You may remember that back in 2008, the then SEC chairman Christopher Cox published an outline roadmap for US transition to IFRS with likely adoption in 2014. However since then much water has passed under the bridge – much of feedback on the roadmap both good and bad, leadership changes at the SEC with Mary Schapiro taking over from Christopher Cox and, of course, a global economic crisis! So it’s perhaps understandable that it’s taken the SEC some time to follow up on their plans for IFRS... well until yesterday that is when they announced the work plan with 2015 as the earliest likely date for public companies to report in IFRS with a final decision to be taken in 2011. The workplan also introduces a checklist which includes steps to ensure that the global standards themselves will be suitable for U.S. use. – effectively “convergence” between IFRS and US GAAP. You can read the full press release here.

So what should we take away from this announcement?

For me it can be interpreted as SEC Chairman Mary Schapiro clearly setting a stake in the ground to confirm that adoption of a single set of independent global accounting standards remains firmly on the SEC’s agenda. Clearly there is pressure on the respective standards setters (IASB for IFRS and FASB for US GAAP) to ensure that IFRS is fit and ready for adoption in the U.S before the transition finally takes place. However the move to a single set of global standards unequivocal. The train is at the station, so to speak, it’s simply a question of ensuring it’s properly provisioned and scheduling an appropriate departure time.

It’s tempting to focus on the fact the SEC have effectively introduced a delay. We won’t now know whether IFRS will finally be adopted until at least 2011 and even then adoption won’t be before 2015. This seems far into the future – so why not relax and take our foot off the pedal? This would be a mistake, 2011 is less than 12 months away and any adoption of the new standards is likely to involve dual reporting for a couple of years during a transition period as was outlined in the original roadmap. So actually there isn’t that much time at all!

So what single piece of advice or guidance can I offer to folks impacted by the transition to IFRS? Quite simply, get your house in order! IFRS is coming – this has now been confirmed. Ensure that the systems and processes you have in place will be ready to easily adapt when the time to transition comes. Your first steps should be to carefully assess your situation, do some advanced planning, and assemble cross-functional teams from accounting, IT, and your auditing partner. You will need to understand the impact that IFRS reporting will likely have on your organization, your financial reporting procedures, and your staff. With the right planning and the right people, you will be able to choose a path that fits your needs — and the process will be straightforward.

If you’re interesting in discovering more about IFRS and in particular the associated technology challenges please do take a moment to read my White Paper. I’d also love to hear your feedback on the SEC announcement… feel free to add your comments to this blog entry or drop me an email.

Quick wins with intercompany reconciliations

noreply@blogger.com (Philip Mugglestone) — Wed, 10 Feb 2010 10:13:00 +0000

In difficult economic times it’s always easy to focus on the bottom line and simply slash costs. However it’s also possible to achieve quick wins that require little investment whilst laying the groundwork to support future growth for when things do pick up again. A good example of a quick win and one which a number of customers have been investigating in recent months, is that of intercompany reconciliation.

Dealing with intercompany transactions is an essential aspect of the group financial close process and can be split between two key tasks – reconciliation, (sometimes known as matching), and elimination. The two are often confused so let’s first be clear about what these terms represent.

Reconciliation is the process whereby reporting units agree their respective intercompany amounts. For example, if reporting unit A provided $1000 of services to Reporting Unit B, they both need to agree on this in their respective books – intercompany accounts receivable of $1000 for unit A and intercompany accounts payable of $1000 for unit B. The counterparty reporting unit should also be recorded. It sounds simple. However in many organizations there can be hundreds of reporting units with literally thousands of invoices between them. To further complicate things amounts don’t always match exactly as, for example, there may be differences in VAT rates for reporting units in different countries. Often the “matching” is agreed to be within reasonable monetary threshold with narrative provided to explain the why the amounts do not match exactly.

Elimination is the process of ensuring that the reconciled intercompany balances are treated appropriately when consolidating the local accounts of each reporting unit into the group as a whole. Accounts such as revenue are aggregated across reporting units. However intercompany amounts should not as this would result in double accounting – they need to be eliminated. The elimination process can only start once all intercompany amounts have been reconciled and agreed.

In the traditional intercompany matching and reconciliation process employed by most companies, the responsibility for resolving discrepancies in the intercompany balances declared by reporting units often falls on corporate headquarters. Generally this means that staff members in the central finance function are involved in checking balances, correcting errors, and contacting reporting units to resolve issues and intervene in disputes. This process results in an inefficient vertical flow of information between headquarters and reporting units and back again, as shown in the diagram below. The process is also hindered by the means of communication employed which typically involve telephone calls, e-mails and faxes, all of which are is time-consuming and delay the corporate close.

A more direct approach, one based on best practice, is where reporting units adopt a peer-to-peer reconciliation process to communicate and resolve differences directly with each another. This transfers responsibility for getting things right from the central finance function to the reporting units themselves. At the same time, the units could use any improvements in process automation as a catalyst to eliminate errors from the process, thus improving the accuracy of reported figures as well.

The bottleneck slowing down the reporting process is the time taken at headquarters to participate in the reconciliation process. If reporting units could deal directly with one another in a peer-to-peer fashion, this obstacle would be eliminated, and the intercompany process would fall away from the group financial close’s critical path. Such an achievement would free central finance staff from time spent on non-value-added tasks, enabling far more time to analyze data rather than just gathering and reconciling it, as shown below.

While many financial consolidation and reporting systems available today do provide functionality that supports the intercompany reconciliation and elimination processes, they are strongly oriented towards elimination and serve to maintain the status quo where corporate headquarters is the bottleneck. However, dedicated peer-to-peer intercompany reconciliation systems also exist and can be deployed alongside any consolidation application to gain that much needed quick win.

If you’re interested in learning more about peer-to-peer intercompany reconciliation, download our white paper Improving Intercompany Reconciliation for a Faster Close which also includes cost/benefit examples that allow you to estimate the type of ROI you can expect.

SAP Performance Management Event - Tuesday 23rd February, London

noreply@blogger.com (Richard Barrett) — Mon, 25 Jan 2010 13:13:00 +0000

The CFO's influence within a business has increased amid economic uncertainty as demands for closer attention to be paid to expenditure have taken precedence. CFOs are now being asked to provide more detailed intelligence and performance insight across their businesses, a role commonly referred to as the "Chief Performance Officer."

But are some CFOs already performing this vital dual role without realising it? You can be amongst the first to hear the results of a recent study undertaken by Financial Director Magazine entitled "Super CFO - are you also a Chief Performance Officer?", revealed by its Editor, Melanie Stern.

Click here for details

Accelerated insights into profitablity reports

noreply@blogger.com (Richard Barrett) — Mon, 11 Jan 2010 15:24:00 +0000

Having spent the last few months working with a team to develop an accelerator that customers can use to expedite the analysis and reporting of data generated in SAP BusinessObjects Profitability and Cost Management, I’ve come to realize that the hours I waste bird-watching are actually well-spent. I’m not a ‘twitcher’ travelling all over the country at the drop of a hat on the off chance of bagging some rarity that I haven’t seen before. I just leave the house and wander down the marsh with a pair of binoculars and a spotting scope, happy to see what’s around. Part of the enjoyment is the process of identifying exactly what it is you’re looking at. The shape, size, markings and movements of a bird all help towards a positive identification - along with other other information about whether the specie is likely to be found in such habitat at this time of year. But unless you get a clear view of the particular features that leads to a positive identification, you typically end up undecided between a couple of possible species and quite often you just have to tag it as a ‘LBJ’ – little brown job – and move on. Seasonal and age-related changes in plumage don’t make it any easier and some genera such as warblers can be very confusing – for me at least.

Business managers are presented with many of the same challenges when it comes to actively managing customers in order to optimize profitability. If they used an accurate and reliable costing methodology then they can be pretty sure whether an individual customer is profitable or not, but that’s only half the battle. Often the biggest challenge is to identify the underlying factors that make a particular customer unprofitable in order to take actions that moves them into profit. It could be that they are enjoying more favourable discounts than other customers or they are only buying low margin products, but even this might escape your notice unless you had adopted best practice and analysed profitability across multiple dimensions. A more likely scenario is that the way certain customers are doing business with you is resulting in an abnormally high cost to serve; things such as placing a high number of small value orders, generating a high level of returns or needing special processing that results in additional costs. But until you have identified exactly what it is that makes certain customers unprofitable, you cannot possibly take corrective action.

The Customer Value Accelerator that our team has developed does all the hard work for you and contains pre-formatted profitability reports and analysis of the factors that are the typical discriminators between profitable and unprofitable customers and products in a specific industry. Needless to say, it’s not exhaustive, but others can be easily added in. The net result is that you get rapid insight into where the issues really lay and what actions need to be taken to improve the bottom line. That way there’s no indecision, - just crystal clear focus that tells you everything you need to know. Surely birdwatching would lose most of its appeal if it was that easy!

BI and EPM come together in the 7.5 release of SAP BusinessObjects Planning and Consolidation

noreply@blogger.com (David Williams) — Wed, 16 Dec 2009 15:57:00 +0000

Hot off the heels of the announcement that Microsoft supports SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform as a preferred solution for its customers, comes the latest edition of SAP BusinessObjects Planning and Consolidation. As a reminder, the application is available in two “flavors” – a version for the Microsoft platform and a version for SAP NetWeaver. The 7.5 releases of both versions have officially entered Ramp-Up (restricted shipment phase) and are available for customers that have applied and been accepted into the Ramp-Up program.

While there are a number of new features and enhancements in both the 7.5 version for the Microsoft platform and the 7.5 version for SAP NetWeaver, I’d like to call out a specific topic that comes up in conversations frequently with both users and prospective users of the application. Ever since Business Objects was acquired by SAP (January 2008), people have been asking if, when and how the SAP BusinessObjects BI tools can be used to access data within the SAP EPM applications to extend the reporting capabilities within the applications or reach new types of users that need to interact with the data contained in these applications to support decision making. The wheels had already been set in motion for this direct integration (I mean application layer access not simply extracting data out of the application into another data repository for reporting purposes) between SAP BusinessObjects BI tools and some of the applications in the EPM portfolio but was not yet available for SAP BusinessObjects Planning and Consolidation (with the exception of a workaround to embed Xcelsius dashboards in the application).

The situation changes with the 7.5 release. Integration between the SAP BusinessObjects BI tools and SAP BusinessObjects Planning and Consolidation is delivered in the 7.5 release of both versions (Microsoft and NetWeaver). Customers that have licenses for the SAP BusinessObjects BI tools can now use Xcelsius, Web Intelligence, Explorer and other tools to access information in SAP BusinessObjects Planning and Consolidation). For example, Xcelsius dashboards that display plan versus actual variances on key performance indicators, completed steps in a business process (yes, Business Process Flows are now available in the 7.5 release of SAP BusinessObjects Planning and Consolidation, version for SAP NetWeaver) or whatever information needs to be consumed in a “dashboard” layout can be created and embedded directly within the SAP BusinessObjects Planning and Consolidation application. This allows managers and executives to see and interact with high-level views of key information pertaining to planning, budgeting forecasting and financial consolidation processes. Budget contributors also benefit from the ability to input data in a simple, aesthetically pleasing, web-based schedule (via Xcelsius).

Integration between the BI tools and SAP BusinessObjects Planning and Consolidation doesn’t begin and end with Xcelsius. For example, using Web Intelligence, a business user can create a plan versus actual report on the fly (over the web) that pulls in plan data from SAP BusinessObjects Planning and Consolidation and actual data from a data warehouse and they could have this report saved and managed within their SAP BusinessObjects Enterprise environment (like all their other BI reports).

The question that typically follows, “Can I use the SAP BusinessObjects BI tools with SAP BusinessObjects Planning and Consolidation”, is, “When should I use the SAP BusinessObjects BI tools versus the reporting capabilities that come within SAP BusinessObjects Planning and Consolidation itself”? One reason to consider using the BI tools is for accessing and analyzing information from multiple sources of data including SAP BusinessObjects Planning and Consolidation. For example, as outlined above where a business user views a report/dashboard with plan data from SAP BusinessObjects Planning and Consolidation and actual data from an EDW. Secondly, organizations that already have the BI tools (there is a very large installed base of BusinessObjects users) may want to further leverage these investments or BusinessObjects is the standard for information access and they want to create, store and manage reports containing SAP BusinessObjects Planning and Consolidation data in SAP BusinessObjects Enterprise. A third reason to leverage the BI tools with SAP BusinessObjects Planning and Consolidation is to extend the reach of SAP BusinessObjects Planning and Consolidation information beyond the realm of Finance. While Finance loves Excel and Excel may be the most ubiquitous “reporting” tool on the planet, outside Finance there isn’t such an affinity. Not everyone is comfortable working in Excel and “casual” business users may prefer a cleaner, less complex interface to view and interact with information. SAP BusinessObjects Explorer has been designed for just this purpose.

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Measuring success - picking what's important

noreply@blogger.com (Malcolm Faulkner) — Mon, 14 Dec 2009 22:49:00 +0000

When it comes to strategic planning and execution it is the execution part that is the hardest and therefore should deserve the most attention. This is obvious as it is much harder to do something than merely say you’re going to do it. What is even harder is staying disciplined and making an activity a regular practice. Therefore, when selecting software applications to support and enable strategic planning and performance management activities it is important to consider how the solutions in question address the execution end of things and not just planning and reporting.

Solutions that fit this bill will include functionality for defining objectives (or goals), key performance indicators (KPIs) - we’ll use this term over metrics as we want to include the notion of a target as well as an actual value) and initiatives (high level activities). Key Performance Indicators in detail will be the subject of another blog.

The inclusion of initiatives is the aspect most likely overlooked. Without initiatives linked to objectives it is all too easy to lose track of what action is being performed to ensure action is being taken to achieve an objective and the resources, both in terms of money and people that are being assigned to the task. Furthermore, when teams are being utilized from across an organization the individuals assigned to an initiative may not report to the objective owner. By assigning owners to the initiatives visibility and accountability is achieved. Without this it is harder for an objective owner to manage work being performed on the initiatives in place.

Deciding what you are going to do (objectives) and how (initiatives) is fairly easy compared to defining suitable KPIs. However, it is the KPIs that are key to success (no pun intended). Selecting one or more metrics that truly measure performance on an objective determines whether you are really successful or just think you are. Let’s take an example from the game of soccer. It order to play soccer you need to be fit – pretty obvious. But what you really need is to be able to alternate between walking, jogging and then sprinting at high speed for short durations over a 90 minute period. So your objective is to be fit enough to be able to last 90 minutes and contribute throughout the game especially in the parts that involve sprinting and chasing after the ball. So you (or your coach) might decide that in order to meet this objective your training schedule (initiatives) should include lots of running. One way to do this might be to incorporate running fixed distances, with the goal of reducing the time it takes, into your training schedule. For example, reducing the time taken to run four miles from 36 mins to 28 mins. The problem here though is that even though you might meet your “goal” in running faster does it help you play soccer better and ultimately help your team win. It probably helps somewhat but you would be better served including drills that improve your sprinting ability along with the ability to keep playing at a competitive level for 45 minutes at a time.

We can (and should when thinking about KPIs) take this to another level. The fitness objective and associated KPIs are obviously important in a sport such as soccer. This would fall into the category of an output matric. Output metrics measure activity or results but not specifically the desired or eventual outcome from such activity. Examples from the business world would include number of widgets shipped or for the public sector the number of people vaccinated, and from our soccer example the number of goals scored or allowed. So fitness is a step towards winning soccer games but being fit, while likely helping, does not ensure or measure the ultimate goal of winning games or a championship. It may be (although not likely) that a much less fit team ends up being the winners.

In our training schedule for our soccer team we will likely have a number of input metrics (e.g. how many times we practice, how many times we run certain drills) which measure the effort and activity we are putting into our training as well as some output measures. When it comes to the actual matches our team plays we’ll also track some output measures, e.g. goals for and against. But what we really care about is the outcome measures. To this end winning is more important than scoring lots of goals. In this sense it is better to be the team that wins the most be it with low scoring games then one that scores lots of goals but doesn’t end up winning as many games (even though scoring goals is fun).

Understanding the distinction between input, output and outcome KPIs is an important step towards helping pick the right measures for your objectives. Deciding on and creating good KPIs are one of the hardest parts of strategy definition and something many organizations struggle with.

SAP BusinessObjects Strategy Management provides organizations with many capabilities to enable their strategic planning process and manage the execution of strategy.

Delivering scenario analysis in closed-loop EPM

noreply@blogger.com (Richard Barrett) — Fri, 27 Nov 2009 10:09:00 +0000

There is broad agreement that the core methodologies that make up Enterprise Performance Management are budgeting, cost and profitability reporting, strategy management and financial reporting. There is also a lot of discussion of the importance of providing business managers with scenario modeling functionality so they can rapidly assess the impact that changes in internal or external factors have on future financial performance.

In fact as long ago as 2004, analysts Aberdeen found that providing such functionality was a key discriminator in the success of an EPM implementation with Best in Class companies delivering 5.4 percentage points more than their industry norm in return on assets and 4.8 percentage points more in gross margin. So if scenario modelling is so important, how exactly is it delivered?

Douglas T Hicks* and other writers have consistently pointed out that the application of the cause-and-effect principles that underpin activity-based costing continues to be the only method of creating a valid economic model of an organization. A well-designed model is based upon empirical relationships between key business volumes, (sales volumes, number of customers, invoices and returns), consumption and productivity data (held as resource and activity drivers and cycle times) and expenses, revenues and ultimately profits. But a cost and profitability model is not simply a turgid repository and classification of enterprise data. As Hicks indicates, it is a dynamic economic model of the enterprise inside which changes to any piece of data directly impacts other pieces of data and consequently financial outputs. In fact without an activity-based model, most organizations simply have a void.

Some organizations with cost and profitability models already extend their use beyond reporting on the historical cost and profitability of products and customers by using their “what-if?” functionality to test assumptions about the future. By modeling anticipated sales volumes and varying inputs such as the average salary cost in each department and the underlying business drivers to reflect changes to processes and productivity improvements, they can quickly generate a revised resource and capacity plan and a new high-level profit and loss account. The output of this type of activity-based or driver-based modeling does not typically go down to the detailed level of chart of accounts that is produced as part of the annual planning and budgeting process and excludes new business and other strategic initiatives that require zero-based or bottom-up budgeting. However it does provide significant benefits for generating the operating expenses for ongoing businesses that will expedite the more detailed budgeting process. I’ve recently been working with three organizations who have adopted such an approach – two from the public sector and a bank and the benefits they are reporting are

More accurate resource plans and budgets – which is a definite benefit for public sector organizations as it means they don’t have go back to central government with cap in hand for more funding during the year.
Shorter budgeting cycle in that business managers don’t have to build up their budget submissions themselves and can simply review many of their key line items – particular those for staff and other variable expenses.
Greater agility in that they can finally move to managing the business with rolling quarterly re-forecasts. Personally I have struggled to understand how rolling re-forecasts can ever be delivered unless some kind of modeling is involved.

So this is encouraging news for those folk who have been advocates of driver-based approaches to planning and budgeting and with the advent of finance-friendly tools such as SAP BusinessObjects Financial Information Management for moving data between previously silo-ed EPM applications, it’s now easier to deliver. Using such an approach also achieves a happy half-way house between those who criticize traditional budgeting as being unable to cope with today’s uncertainty and those who still regard it as the main performance management tool in their organization. Everybody wins.

* "I May Be Wrong, But I Doubt It: How Accounting Information Undermines Profitability", Douglas T Hicks, Lulu Publishing, 2008, ISBN 0557031591

SAP and Microsoft Join Forces in Enterprise Performance Management

noreply@blogger.com (David Williams) — Wed, 18 Nov 2009 20:16:00 +0000

You may recall that in January 2009, Microsoft announced it would be discontinuing PerformancePoint Server, its standalone BI/EPM offering. Many of the elements of PerformancePoint will be bundled with Microsoft SharePoint Server; however, the planning module/capabilities within PerformancePoint will no longer be developed. This announcement surprised many, and industry analysts like Forrester’s Paul Hamerman, who wrote about the news, suggested that companies evaluating Microsoft’s planning, budgeting and forecasting capabilities should now look elsewhere. But where exactly should they look? While there are a number of vendors that provide planning capabilities based on Microsoft technology, they are smaller, niche vendors. What’s been missing is a Microsoft strategic partner with global reach, delivering a suitable offering to support many of Microsoft’s enterprise customers.

Until now that is, as SAP today announced that is has joined forces with Microsoft on the EPM front; more specifically, Microsoft supports SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform (formerly known as OutlookSoft and Business Planning and Consolidation, and often referred to as simply, “BPC”) as a preferred planning, budgeting, and forecasting application for its customers. As part of a strategic partnership the two organizations plan to engage in joint go to market initiatives and collaboration on the product front – in fact some of the collaboration has already begun . This is a very exciting announcement at a time when according to research recently conducted by AMR Research and SAP, many organizations see investments in planning, budgeting, and forecasting solutions as their most strategic priorities in 2010. You can read the announcement here: http://www.sap.com/solutions/sapbusinessobjects/large/enterprise-performance-management/newsevents/index.epx

So what was the genesis of this partnership? This announcement is the culmination of discussions that began soon after Microsoft ‘s announcement. As already mentioned the move surprised many and left Microsoft customers wondering what they should do when it came to selecting a planning application or in the case of services partners/value added resellers, an application to align (re-align) their practice around. The only leading (as recognized by industry analysts such as Gartner and Forrester) unified planning and consolidation application built on a Microsoft platform is SAP’s BusinessObjects Planning and Consolidation, version for the Microsoft platform (built on Microsoft Office i.e. Excel, .Net and Sql Server). Over 1400 customers are already using the application (the installed base has more than doubled since SAP acquired OutlookSoft in 2007) or the recently launched SAP BusinessObjects Edge Planning and Consolidation, designed for small to midsized enterprises and also built on the Microsoft platform.

This announcement should also help answer a question that has been lingering in many people’s minds ever since OutlookSoft was acquired by SAP, and the application was ported to the SAP NetWeaver platform (in case you weren’t aware, there are now two versions of the product – the successor to the OutlookSoft product built on the Microsoft platform and a new version built on SAP’s NetWeaver technology platform): Is the Microsoft version of SAP BusinessObjects Planning and Consolidation going away and/or not being invested in? The answer is no. SAP’s roadmaps have clearly stated this - much of the confusion surrounding this has been fueled by competitors trying to spread fear, uncertainty and doubt in the minds of existing customers and prospects. So let’s set the record straight - the reality is that SAP is continuing to optimize its EPM solutions for SAP and non-SAP environments and SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform is a key part of the roadmap moving forward. The SAP and Microsoft partnership around SAP BusinessObjects Planning and Consolidation is testament to this.

Industry analyst and media comments on the announcement have been positive (http://blogs.wsj.com/digits/2009/11/17/microsoft-and-sap-again-team-up-against-oracle/ , http://seekingalpha.com/article/173987-microsoft-and-sap-vs-oracle-a-very-big-deal, http://www.amrresearch.com/content/view.aspx?compURI=tcm:7-49246&title=SAP+Partners+With+Microsoft+for+Planning+and+Consolidations) but what does this partnership mean to you if you are an organization looking to invest in a planning solution? To begin with you can rest assured that your investment is safe – as mentioned above, SAP is continuing to invest in the SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform. Secondly, SAP and Microsoft product teams plan to collaborate focusing on continuing to optimize the application for the Microsoft platform and leverage key Microsoft technology components. Thirdly, you have an option to consider that is backed by two of the leading global software organizations.

'You don't need a weatherman to know which way the wind blows’

noreply@blogger.com (Richard Barrett) — Tue, 03 Nov 2009 16:08:00 +0000

Most national metrological services have the most powerful computing power available in their country. The system installed in the UK Metrological Office takes up the area of two football pitches, is capable of 125 trillion calculations per second and is reported to take two months to boot up. This has enabled it to incorporate more data into its predictive models and to forecast down to 5km by 5km zones – four times more detailed than the current granularity of 10km by 10km zones. Such advances have definitely bought benefits and today the 72 hour forecast is more accurate than the 24 hour forecast was a quarter of a century ago – see inset photograph to be reminded of what a weather forecast looked like at the time!

The amount of information the Met Office can now produce has undoubted use in science and commerce, but the British public remain unconvinced. In fact they are starting to vocalize their frustration at the amount of detail being communicated in radio and television forecasts which is causing them to mentally switch off and not absorb any information at all.

In response to listener’s suggestions, BBC Radio 4 has been testing a new way of reading a weather forecast, clearly flagging the region being discussed before giving a concise summary of how the weather will change in the next 24 hours, much like a shipping forecast. That’s all most of us really want to know to help us make decisions about what to wear and whether we should plan a round of golf or go see a movie. Those involved in activities such as sailing and mountaineering who need more detail can get it from more specialist forecasts available online.

There is an obvious lesson for all of us involved in performance management here. Reporting tends to come as an afterthought and all too often we inundate business users with data that they don’t have the time to digest and most of the time don’t actually need. Worse still, we don’t invest the time in observing how business users consume information for decision support and how they prefer to have it presented, (in my experience that typically means as ratios and trends so that exceptions and changes can be quickly detected).

Self-service business intelligence tools such as SAP BusinessObjects Explorer now means that users can gain immediate insight into vast amounts of data on demand and visualize it in a way that makes sense to them personally improving their ability to make timely and informed decisions. So if you have budgeting data generated in SAP BusinessObjects Planning and Consolidation or cost and profitability data generated in SAP BusinessObjects Profitability and Costing Management then using tools like SAP BusinessObjects Explorer make a lot of sense especially when you don't quite know exactly what information you want to analyse. For me this is better than having to rely on someone else prepare reports or dashboards for my consumption as all too often they get carried away with the technology rather than focusing on the needs of the business user. Perhaps we should invest in some training in information design and simplification techniques for them – something that would have undoubtedly benefited those responsible for our broadcast weather forecasts.

IFRS adoption - lessons from the European experience

noreply@blogger.com (Philip Mugglestone) — Fri, 23 Oct 2009 22:20:00 +0000

I’ve been monitoring the adoption of International Financial Reporting Standards (IFRS) for several years now staring with Europe’s transition to IFRS in 2005. However, nowhere is IFRS hotter right now than in the United States. Last year Christopher Cox, the outgoing chairman of the US SEC, published a roadmap for IFRS adoption starting in 2014. Now, after some apparent silence from the SEC, Mary Schapiro has recently indicated that we’ll likely be getting a final decision on adoption in the near future.

The question I’ve been hearing a lot recently from customers (it’s generally assumed that IFRS will be required in the US at some point so it’s just a matter of when) is what do folks need to do to get ready? This is where things get a little tricky. Every organization is different – both from a structural, organizational, and a technology perspective. There’s no “silver bullet” that can turn on IFRS at the flick of a switch - the scope of IFRS is simply too broad.

Interestingly some recent AMR research indicates that organizations in the U.S. are not well prepared for IFRS adoption. Only 9% are implementing now with the vast majority of respondents (63%) yet to define an IFRS strategy or waiting until IFRS deadlines are well articulated.

From the technology perspective, I think we can learn a lot from what already happened in Europe – both good and perhaps less good practice. The timeframe for adoption was very short (far shorter than we might expect in the US) so the vast majority of organizations looked for a quick fix. Typically they decided to leave the transactional and ERP systems well alone and only perform adjustments in the consolidation and reporting layer to provide IFRS specifics as and where needed. This is the approach often referred to as “top-side adjustments”. This allowed companies to meet the initial deadline in the easiest way possible but increased the complexity and cost of reporting in the medium and long term.

In the USA, a lot of folk seem to be focusing their efforts around getting the ERP and General Ledger systems running in parallel to support the expected dual US GAAP / IFRS reporting phase. However I think this approach is incomplete. In order to transition to IFRS all aspects of the financial reporting supply chain need to be considered – from sub and general ledgers all the way through to the group consolidation and reporting systems. The more US GAAP and IFRS data you have at the transactional layer the easier it actually becomes to transition the consolidation and reporting layer and with this approach there should, in theory, be no need for top-side adjustments. However this represents the perfect idyllic world - which for most organizations is still a distant reality. The group reporting layer doesn’t simply exist to enable top-side adjustments - it also provides a comprehensive group reporting mechanism that addresses the IFRS specifics of consolidation methods, reconciliation reports, commentary, report layout, - right through to digital disclosure in the form of XBRL. All of this is remains an essential part of the process irrespective of whether all required US GAAP / IFRS information is readily available in the underlying transactional systems.

So my point here is – organizations should study and learn from the European experience, but resist the temptation to perceive the consolidation and reporting layer purely as the ugly stepsister that at best enables a short term solution via top-side adjustments. Instead, think about how to get the best from all worlds and how each area can make a relevant and lasting contribution to your IFRS strategy. Take a long term view and start focused – perhaps by considering a gradual, phased approach across the entire reporting supply chain.

One thing is clear though – starting the strategy and planning process now will leave time to take a balanced view and avoid the asphyxiating pressure associated with an imminent deadline that feeds short-sighted “tick in the box” solutions. It was the short deadline that resulted in the top-side approach in Europe – something that’s not expected in the U.S.

I recently published a White Paper that discusses some of the technology challenges associated with moving to IFRS, so if this is on your radar and you’d like to discover more, please do check it out.

Small steps to big improvements

noreply@blogger.com (Chris Grundy) — Mon, 19 Oct 2009 12:54:00 +0000

So just what is it that makes a successful user of performance management software? Financial performance, market share, efficiency improvements, share value, cost savings…are all viable measures of success. But as we know, a business comprises many parts and key performance measures are often combinations of small successes that build upon each other to deliver a corporate goal. Sometimes it’s also nice to hear about these small successes.

Last week I met with a customer that I haven’t seen for a while to talk about their business and how they were using their performance management system. As we spoke it became clear that they were very happy with the software system and were doing some interesting things that enable them to improve the way they run their business.

My attention peaked when the conversation turned to data integration, a subject close to my heart as it presently the focus of much of my work. I was interested to learn that they were not only integrating data from source systems to their performance management application, but also integrating individual performance management applications - in this instance planning and costing. This was great to hear, because it showed that they had innovated their system usage to draw business advantages from integrated systems, and while they were only exchanging simple data this was already providing tangible business benefits primarily in terms of timeliness and accuracy that would help them make quicker and better decsions. In addition they had saved some time and ultimately cost from what had previously been a manual process. Now of course this is just one small success, in one department of this large organization, but knowing this customer it’s not the only small success. It’s one of many.

As the software industry starts to create business systems that support closed loop performance management this kind of success story will become commonplace and SAP BusinessObjects Financial Information Management is going to be an important part of an EPM deployment for many SAP users. Big or small, we should reflect on our improvements and successes along the way, because it’s in these small steps that we will build a foundation for continuing success.

Deja vu? Almost certainly

noreply@blogger.com (James Fisher) — Tue, 13 Oct 2009 15:28:00 +0000

I’ve written on this topic many times in recent years and no matter how much progress I think is being made I still find myself with something new to say on the subject, as well as lots of old messages that I feel compelled to keep repeating. No matter what remedies we seem to devise the challenge remains and yet I’m not talking about some kind of embarrassing illness. The fact is the financial close is one of those topics that just won’t go away.

Why is that? Well for one the goal posts keep getting moved. The demands of the market put constant pressure on ever more timely and better quality reporting and regulators are working overtime to introduce new requirements designed to protect stakeholders of all persuasions. And that’s even before we consider the sheer complexity that today’s Financial Controller has to cope with when it comes to producing a set of audited financial statements. So what is the solution? Is there one?

Well there is certainly no silver bullet, no magic blue or red pill or even software solution that can solve all the issues that together form the barriers to a fast and efficient close process (despite what many would have us believe). That said I think we now have enough evidence and enough time has passed for us to come to realize that actually the solution lies in knowing that the challenge can never be solved. This enemy will never truly be beaten…or at least not while I’m still able to write about it.

As I said, the fact is the financial close is one of those topics that just won’t go away and it got me thinking about the last whitepaper I wrote on the subject where our closing argument is about continuous improvement. It’s become clear to me that this is actually the key. While all our thinking about how to approach a fast close project is as sound as ever, and its certainly something that an organization has to do in order to close its books and report in-line with its peers, it’s the steps an organization applies afterwards that will be the key to their continued success and improvement even in the face of an ever changing regulatory landscape.

Any company that has been through a fast close project that followed the methodology we prescribe will have defined a target. They will have looked at their peers in the market and for example have set themselves the goal of a 5 day close process. They will have then examined their close processes, identified the barriers to a fast close in the organization and will have defined an action plan comprising quick wins and big wins to get them to their goal. The key to their ability to maintain this target and perhaps improve further then lies in both continuous and opportunistic improvements and this is achieved by repeating the same approach every time something changes.

Let’s take a case in point, the transition to IFRS in North America or Japan, or perhaps even the adoption of XBRL on a global basis. Now I’m not going to get into the details of how we should tackle these issues here, I’ll leave my fellow blogger Philip Mugglestone to cover that but what’s interesting is that both these changes will impact reporting processes and as a result might have an impact on the speed and efficiency of the close process. So while the patient is on the table, take the time to consider that potential impact. Will it give rise to a new fast close barrier that may not have previously been encountered? What steps need to be taken to not just mitigate the risk but also determine if this wider change creates an opportunity to address something else in the close process that was not possible in the original project?

Of course, every time I’ve shared this opinion recently it then raises the next challenge which is one of cost. Too much regulation and a cost of compliance that is too high. The solution many think is to get compliant as quickly as possible and at the lowest cost possible. Not so in my opinion. If we are to learn from both SOX and the transition to IFRS in Europe an approach which just “ticks the box” will in fact cost more long term.

So what’s my point? Essentially I’m saying that our work is never done and to prove that we only have to look at the Global Close Cycle Rankings from BPM International. This annual research program has 4 years of data on 4^th quarter close process at over 1000 global companies. While there seems to be a trend for general improvement, every year the results show a mix of both improvements some countries and worsening performance in others as companies who had previously improved close times now see them increase. This underlines the need to develop an approach which strives for continuous and opportunistic improvement so not only will a company be able to maintain it close times in the face on an ever more complex environment, but they’ll also reap the benefits of creating a more sustainable close process which will in turn be more adaptable in a changing landscape.

Why peanut butter can be bad for you!

noreply@blogger.com (Karuna Mukherjea) — Fri, 09 Oct 2009 11:33:00 +0000

Are your customers profitable ? Whenever I ask this question to business executives the immediate response is always 'Yes'. The comment that typically tends to follow “How can a customer not be profitable? They are purchasing our products and services. They are contributing to our bottom line “

Simply put “Customer Profitability” (CP) is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period. According to the management guru, Philip Kotler, "a profitable customer is a person, household or a company that overtime, yields a revenue stream that exceeds by an acceptable amount the company's cost stream of attracting, selling and servicing the customer".

There is a natural variability of profitability across customers and it is often hard to distinguish the “Profit Creators” from the “Profit Destroyers”. In fact, most organizations are likely to have some customers who do not add to the bottom line, but who they are happy to deal with because they add critical mass to the business or because they are a source of knowledge about the needs of a particular customer segment.

The real challenge in measuring customer profitability is identifying the true costs associated with servicing customers and then accurately assigning those costs across customers. The ERP and Performance Management systems that are typically deployed in companies do an excellent job of identifying the revenue and direct costs associated with each customer. However they fall short of answering the fundamental question of “What is the cost of servicing this customer”. Most companies tend to apportion the overhead costs, almost like spreading peanut butter. They base it on simple metrics like number of transactions, percentage of total cost of sales etc.

Activity Based Costing can be used to answer these tough questions around costing. It can help identify the right amount of indirect expense to assign to a customer based on the amount of each activity they consume. Let us take a look at a simple example where we analyze customer profitability using the apportionment methodology and Activity Based Costing. We have two customers: A and B. If you review the Customer Profit & Loss based on the two methodologies the results are very different.

When using the apportionment method, the overhead costs are apportioned as a percentage of cost of sales. Based on this it looks like Customer B is the profitable customer. When we look at the same Profit & Loss Statement based on Activity Based Costing the case is totally different. Here we have broken down all the costs associated with servicing the customer. Eg: Sales Calls, Shipping, Packaging etc. In reality, Customer B has a very high “Cost to Serve” and is in fact making a loss. This is fairly typical outcome with apportionment tending to overcost simple customers and undercost those with complex requirements and demands.

So without ABC, many organizations are generating totally erroneous reports that can actually lead to managers taking decisions that destroy rather than create value. Not exactly smart - particularly in a downturn. The methodology has been around for 25 years now and it's something that organizations can no longer afford to side step if they want an accurate measurement system for reporting customer profitability.

From Cash to Carbon

noreply@blogger.com (Richard Barrett) — Tue, 06 Oct 2009 15:15:00 +0000

After spending many years using costing methodologies to calculate the profitability of products and customers in numerous industries, it's a welcome change to have the opportunity to work with organizations that are adopting the same activity-based methodologies to calculate the carbon emitted across the life cycle of products and services.

Although there is no legislation yet, there are a number of initiatives across the globe that are driving food and beverage manufacturers and some service providers to start 'eco-labeling' as it's called. This is throwing up some interesting results that will hopefully encourage us to change our behaviour and do our bit to save the planet.

For instance the Paris Metro now publishes the amount of carbon emitted by each journey on the ticket and compares it with the equivalent journey by car. As the attached image of a ticket shows, a 23 minute by Metro results in 15g of carbon compared with 815g for the same journey in a car. So unless you can get fifty or so people in the car, it's better to take to the tube - or perhaps cycle. (PS I accept no responsibility for any fatalities that may result from cycling in Paris).

Some of the initial calculations done by some food manufacturers are also throwing up some stunning results as well - with the production, supply and consumption of a drink or food often emitting many times its own weight in carbon.

But unlike cost and profitability reporting where the expenses fed into a model can always be reconciled with the assigned costs, carbon labeling is not yet a precise science. This will undoubtedly result in manufacturers of almost identical products coming with with varying results depending on how they have defined the boundaries of their life-cycle assessment and the carbon coefficients used in the calculation.

Some writers have suggested that this may discredit eco-labeling and confuse consumers. But for me the real issue is not whether comparable products from two different manufacturers show broadly similar amounts of carbon, but a benchmark figure for the amount of carbon emitted by a far more eco-friendly alternative is also shown just as in the Metro ticket above. Only then will consumers have the information they need to make truly informed decisions.