July 24, 2014

Planning for Nightmare Scenarios – But Without the Nightmares

Caroline Japic

I recently came across a blog from CEB’s Peter Young, where he offers an excellent 10-step guide for scenario planning. Young’s idea is that, with the right methodology in place, it’s possible for companies to anticipate and blunt the damage caused by future calamities – and possibly even turn some disasters into revenue opportunities. To achieve this with some reliability, they need to combine some core best practices, a good dose of procedural structure, cross-disciplinary talent and data-driven models, and then apply all these to the process of predicting likely scenarios.

Scenario planning can be a nightmare

Young’s process is all about ensuring that your organization stays competitive in the face of potentially high-impact events. In FP&A, we talk about modeling what-if scenarios. In fact, it’s a fundamental capability of Tidemark’s software. But these are what-ifs on steroids – potential catastrophic events that could strangle your supply lines, scare off customers, or obliterate your competitive advantage.

Here’s my quick summary of Young’s list, though a more detailed version appears on his blog.Worth planning for, don’t you think?

  1. Formulate the most important problems you’re likely to face and the most crucial decisions you’ll need to make.
  2. Create a team representing the key disciplines across your company.
  3. Generate a list of major future drivers, or the events and influences likely to impact your business.
  4. Refine and rank these major driving forces.
  5. Establish the nature of the “alternate worlds” your company may face, including the logic and framework needed to test scenarios.
  6. Create a quantifiable model based on the scenario’s major forces.
  7. Gather data and quantify your assumptions, including historical data, internal structured data, and external unstructured data – everything you need to make assumptions that mean something.
  8. Run the model you built based on the what-if scenario framework you designed.
  9. Create data-driven narrative scenarios and outline your opportunities.
  10.  Present your results to senior management.

As Young points out, “Scenario planning can be complicated and resource intensive.” And If I were managing this process, I’d probably be losing some sleep over the steps involving wrangling and analyzing lots of data, then flowing that information into various useful scenarios, and finally finding a way to clearly communicate to decision-makers what these various “alternate worlds” might mean for your company.

And I’d get no sleep whatsoever if I was trying to get all this done by relying on spreadsheets or an old-school FP&A platform that affords little flexibility for on-the-fly scenario modeling. Just imagining it makes my head hurt.

The picture gets a lot brighter, however, once you factor in a modern business planning and analytics platform. Though it would streamline virtually every step in Young’s guide (not to mention FP&A overall), a solution like Tidemark would be a lifesaver in several key aspects of scenario planning, including:

  • Data gathering. Step 7 in Young’s scenario planning guide could trigger a nightmare for organizations whose internal data is stuck in silos, and whose legacy enterprise platforms impose rigid limits on how they import and use data – especially the unstructured stuff from external sources like social media networks, email and market trend info. Modern FP&A software is far more flexible. For instance, Tidemark’s architecture reorders the old “ETL” data integration process so incoming data is transformed only when business users need to access it. This makes it far easier to augment internal financial and operational data with the growing volumes of unstructured data that provides meaningful context to recognized performance metrics. The result is that your models for anticipating future events are based on more real-world data and fewer made-up assumptions that could ultimately be proven wrong in practice.
  • Analysis and modeling. A modern solution like Tidemark leverages the cloud as a computational platform. This means users access a computational grid that is free of cubes and that doesn’t limit data use by constraining volumes or dimensions. It also means data-driven decisions can be processed up to 10 times faster than typical cube-based approaches, which helps eliminate lag time and confusion over outdated information. So those complicated what-if scenarios don’t take forever to model.
  • Communicating scenarios and possible outcomes. An Excel spreadsheet or numbers-laden report might contain all the information senior executives need to anticipate how another Asian tsunami could constrict parts availability and threaten revenues, but getting to the point of insight requires a ton of heavy lifting for both presenter and audience. Tidemark innovations like Storylines and Playbooks use interactive infographics to represent complicated scenarios and potential opportunities in ways that anyone can understand – quickly and easily.

 

The best thing about modern, cloud-based FP&A solutions like Tidemark?  Scenario planning is just one use for them. They’re also instrumental in enabling a continuous planning environment that pushes budget and forecasts ownership (and participation) to every manager in your company. And the data that informs plans, budgets and forecasts is always current, so you’re never working off of outdated information.

And yes, they’ll also help remove the nightmares from your scenario planning. Because there are few things more valuable than a good night’s sleep.

July 15, 2014

Memo to Finance: Take a Run-Time, Real-Time Approach to Big Data

Christian Gheorghe

Stories about big data appear in The Wall Street Journal with some regularity. But it’s rare to see an article like “Big Data Chips Away at Costs,” which ran recently within WSJ’s CFO Journal, because it does such a great job describing how the proper use of big data can help CFOs improve financial performance by gaining a better understanding of business drivers and hidden costs.

The article is viewable only to subscribers so here’s a recap: CFOs are analyzing big data to determine what parts of the business aren’t working (GM crunched parts costs, labor trends and market predictions to figure out it had to pull out of the European auto market); trim capital spending (Planet Fitness uses data on guest traffic patterns to lengthen the life of treadmills and other capital equipment); meet peak demand without increasing labor costs (Lowes uses security cameras to track customers in stores so it can better understand when stores need more employees on the floor and when they need fewer), and free up cash (AT&T boosted free cash flow by a third, in part by using big data to pinpoint use cases where videoconferencing could replace costly in-person travel).

But as the article points out, some CFOs have concerns. There’s such a thing as too much information, they say. And because big data now comes from so many different sources, those who have been on the fence about it may stay there a while longer. In fact, 40 percent of CFOs surveyed late last year by American Express Global Corporate Payments said they had no plans to invest in big data initiatives over the next year.

To these CFOs, big data probably seems to be little more than a distraction – one they don’t have time for. And I’d argue they’re right, if their view of using big data is to gulp down great masses of information in the hopes of accidentally discovering a tasty morsel of insight.

Bring it Into Context

But if you bring big data into the context and financial and operational processes – to begin with an understanding of what you want from the data, and why it’s important – then you don’t have to swallow an ocean.

What the companies profiled in CFO Journal already know – and what reluctant CFOs might suspect – is  that big data alone has very little value without context. Context is the meaning that surrounds the data. It’s the “secret sauce” that helps separate the useless information, of which there is plenty, from the really useful stuff. It helps you separate the tiny needle from the big data haystack. Take the Lowes example. If you just looked at raw numbers of how many visitors a store gets in a day, well, that’s helpful. But if you take the Lowes approach and track how many shoppers physically visit which departments and when, then you have the context needed to understand why the paint department should have an extra staffer on hand between 10 am and 2 pm – when DIY moms like to shop for paint while their kids are in daycare.

Like big data, contextual information comes from a lot of places, including from people (such as staffing data and performance evaluations) and from collaboration (like social network activity and emails).

As reader comments to the CFO Journal article point out, making use of this data has in the past proven costly and time-consuming. Well, no kidding. As more and more data is brought into the business by applications, sensors, people and machines, understanding the financial and operational context of data becomes even more crucial. This is especially true because working with larger volumes makes us more susceptible to becoming fooled by randomness, such as false correlations that merely affirm our preconceived notions of what the data will tell us.

From Business Needs Come Meaningful Data

So how to find context in a big data world?  Start by looking at what the business actually needs.  What do business users want to learn from the source data? What are the business use cases that could benefit from the torrent of data in today’s digital economy?  What correlating activities and content will help answer these questions?

This has a natural “funneling” effect that speeds the analysis process and fits the way companies operate today. And when you consider that the typical enterprise application draws data from as many as 70 to 90 sources, it’s immediately clear that traditional ways of integrating data won’t work. Mapping all that data, from all those sources, will require a small army or a large fortune. In most organizations, you’ll get neither. So what do you do?

A smarter approach is to reorder the process for making data usable by your application. Today, most organizations extract huge volumes of data, then transform it into a format their application will recognize, and finally load it into their data warehouse. The modern, cloud-aware alternative is to defer the need to transform data until the moment business users need it. It’s the approach taken by customers of Tidemark’s cloud-first business planning and enterprise analytics solutions. They aren’t pursuing the old familiar ETL (extract, transform, load) approach because it’s inherently limited, takes months to complete, and is effectively frozen once you’re done.

A Run-Time, Real-Time World

Instead, our customers use big data in a way that’s more flexible and agile: Extract your files and data, and then load them into a secure, cloud-based storage and computation platform. Then when the application has to respond to a particular business user need and hence execute on the data, you transform it on demand. This approach – call it ELT – lets you load as much data as you want and then transform it as business users are asking the questions all that unstructured data will help them solve.

Our customers – innovators like Netflix and Brown University – have to succeed in a run-time, real-time world. They can’t predict where the next bit of contextual information will come from.  And they certainly can’t anticipate every possible way their application will use source data ahead of time. But by turning the transform step into an on-demand task, the traditional enterprise data integration stack becomes utterly transparent to end users.   An ugly and expensive manual process becomes a seamless, automated one.

In an increasingly cloud-to-cloud world, this is how enterprises will make use of big data. ELT will help business users not only cope with their growing big data haystack, but it will also help them probe for the right needles to find the right answers that will help propel their business.

July 3, 2014

A New Financial Planning Application Built for Higher Education

Tony Rizzo

When it comes to financial planning, colleges and universities are unlike any other organization.  Take income: Higher education revenues come from vastly diverse sources, from grants, gifts and tuition, to fees, merchandising, athletics, concessions and more.  And much of that income can only be applied to specific uses – a certain research project, for instance, or a new building or stadium.  Attaching restrictions to income is virtually unheard of in the corporate world, where after you’ve earned a buck, you’re pretty much free to spend it as you wish.

Now, add to this the inherent challenges of developing budgets and plans across departments and schools, many of which operate as independent entities managing discreet budgets and plans of their own, and it’s clear to see that higher education faces a unique financial planning environment.

That’s why Tidemark worked with some of our most innovative higher education customers – including Brown University and the University of Miami – to develop our new Financial Planning for Higher Education Application.  This powerful and flexible Tidemark Application is designed specifically for how institutions should be managing their planning processes, enabling administrators and budget owners to make more strategic use of resources, engage every stakeholder in the planning process, and establish a single platform for planning, budgeting and reporting.

With Tidemark Financial Planning for Higher Education, the Budget Office can align source and use by monitoring strategic planning, departmental budget development, position budgets, and reporting and analysis, no matter how many faculty and staff participate. Tidemark’s collaborative, mobile-first architecture – which enables the App to be accessed from any device – ensures every stakeholder can instantly see (by position or funding source) where they stand against the budget at any time. This makes it easier for faculty and staff to ensure spending and activities are in line with the strategic plan.

We’ve also included a series of best practices that help higher education customers get up and running immediately, without time-consuming or costly coding and customization. Our work with Brown University, detailed in this success story, shows what’s possible when higher education innovators apply modern solutions to meet their specific needs.

Strategic planning, tuition planning, position budgeting, departmental budgeting, capital planning, and grant planning – higher education institutions can now do it all with Tidemark.  Read the press release to learn more, or better yet, register today for a free webinar and demonstration of the new Financial Planning for Higher Education Application. It’s happening at 11 a.m. PDT / 2 p.m. EDT Thursday, July 10.

June 26, 2014

Why CFOs Should Care About The Customer Experience

Colby Moosman

It’s another day in the life. As CFO, you’re anguishing over cost control, growing the top line, reducing attrition, adding necessary resources without diluting margins, and identifying investments that promise the greatest potential return.

You should add something else to that list of top concerns: your organization’s ability to deliver a superior customer experience (CX). If you haven’t heard much about CX, you will. CX is the complete journey customers take with your company, from their first exposure to your brand through the sales process and on to service and support.

CX matters because customers have more power than ever before. They have access to more information (about you and your competitors); they have countless outlets through which to express their opinion about the CX you deliver; and in seconds they can rapidly chase down a better deal than what you’re offering.

The price of getting CX wrong can be staggering. According to Harris Interactive, 89 percent of customers who have an unsatisfactory experience will take their business elsewhere. And winning them back, notes a Parature study, costs seven times more than it does to keep them in the first place.

Get it right, however, and you unlock a major key to revenue growth. According to Forrester, improving CX can add more than $1 billion in revenues for large businesses because happy customers make follow-on purchases, recommend you to others, and limit your exposure to margin-killing churn.  Those results are similar to estimates I’ve seen in practice as well.

It’s no wonder companies are making investments aimed at creating more customer-centric organizations. Check out these highlights from a 2014 Strativity Group survey:

Improving the customer experience, however, requires more than just deciding to do better. CX involves the entire team – everybody. Virtually everyone in the company must be a stakeholder in the customer experience.

What CFOs Can Do

Organizations need a way to measure CX performance and then manage to those metrics, and CFOs are in the perfect position to do this while applying the necessary controls to make sure CX improvements meet the standard of driving profit growth. Three metrics specifically measure opinions of the customer experience:

  • Customer Satisfaction (CSAT) scores measure a company’s success at meeting or exceeding satisfaction goals the company has set for itself.
  • Net Promoter Score (NPS) measures loyalty – specifically, how likely a customer will recommend a product or service.
  • Customer Effort Score (CES) is based on research suggesting that you don’t have to dazzle customers; you simply have to make your customer experience as effortless as possible.

Any of these metrics can be useful in benchmarking the quality of a company’s CX performance. But for CFOs, the larger task is to use the finance function’s performance management expertise and tools to help tweak activities, investments and resources to optimize their CX. Here’s a logical approach:

  1. Identify the business processes that drive CX metrics. Virtually everything a company does influences CX performance, but some functions shape it more than others. Product design and documentation, sales, service and support are all likely contenders, so start there.
  2. Correlate CX metrics to financial and operational KPIs. Once you have established a CX benchmark by scoring your CSAT, NPS or CES, consult with functional managers to create a list of key performance indicators within the customer experience-shaping functions you identified earlier.  For instance, customer care or tech support managers may focus on first-call resolution times or average response times. All of these metrics are easily tracked using technology like modern enterprise performance management (EPM) systems. These solutions can be configured not only to show how improvements lead to better CX, but they also lead to reduced operating costs.
  3. Move from measuring to managing. Over time, you can use the analytics capabilities of your EPM platform to ascertain which of your company’s defined CX influencers appear to be “moving the needle” on customer satisfaction and loyalty. These insights can help you strike the right balance between investment in growth and controlling costs by customer, product, region and manager.
  4. Promote and reward a customer-centric organization. Create visibility so employees at all levels see how their actions contribute to CX, and design performance ratings and rewards based on how they meet CX-related goals.

Collaborative Solutions is a real-world example of how CX success drives financial success.  Collaborative’s CFO used the company’s EPM system to unroll line items in ways that reveal not only which aspects of its business generate the highest returns, but also which earn higher CSAT scores. By studying the context surrounding top-line metrics like cost of sales or quote-to-close ratio, Collaborative can identify the defining characteristics of sales situations that lead to the best customer experience. It then aligns them with the sales representatives who deliver the best results in those situations. Everybody wins: Customers are happy, sales results are improving, and personnel are assigned to accounts where they have the best shot at success.

By making strategic use of modern analytics, CFOs can be heroes in the effort to improve the customer experience – all while adding to the bottom line. Practically speaking, sometimes it requires patience and a bit of faith on your part until the correlations develop.  But, it’s completely logical – happy customers mean business, and the alternative is not much fun for anybody.

Tidemark recently partnered with Proformative and leading industry analyst, Paul Hamerman of Forrester Research Inc., for a webinar video titled Why Finance Must Focus on Customer Experience To Drive Revenue. Be sure to watch a free replay of this webinar that discusses the importance of the customer experience and how it impacts the ability of finance departments to grow revenue and drive cost out of the business.

June 19, 2014

How the World Cup and modern FP&A are more similar than you might think

Caroline Japic

Is it really a stretch to compare World Cup competition and outcomes to modern financial planning and analytics?

Maybe.  But I’m doing it anyway.

Hear me out because as someone working in the world of enterprise performance management (EPM) and as a soccer fan (and parent of young soccer stars in the making), my comparisons will make complete sense.

Like enterprises, soccer teams are made of a lot of moving parts (though a soccer team’s parts are actually moving). Like enterprises, they’re judged not by their intentions but by their results. And customers can be a lot like soccer fans – happy one day, not so happy the next.

So in rooting for Team USA in the Group Stage of the 2014 World Cup, I started thinking about the ways in which the World Cup experience mirrors how a company might approach visibility, planning, collaboration – all key parts, or players, of modern EPM.

Even Team USA’s first match, a nail-biting 2-1 victory over Ghana, served up some solid examples of where the World Cup and EPM sides match up. Let’s go to the highlights.

Visibility:

  • World Cup View

Watch Clint Dempsey’s epic goal in the first minute of play against Ghana. Barely a second after some masterful dribbling past a Ghana defender, Dempsey gets a clear – if threadneedle – line of sight at a chance on the far edge of the goal.

  • EPM View

It’s hard to imagine a better example of visibility. Like Dempsey, companies today have no choice but to take action at pivotal moments. Modern EPM gives them Dempsey-like real-time insights  so they can see how a price change or updated growth assumption could impact results.

Planning:

  • World Cup View

USA reserve defender John Brooks was a relative unknown to fans until the moment he delivered The Header Heard ‘Round the World against Ghana. Now he’s a legend. A well-placed corner kick from teammate Graham Zusi put Brooks in contention to get his head in the game (literally!) and Brooks executed to plan by achieving more altitude than the two Ghana players vying for control. Even better: Brooks dreamed of scoring that very goal two days earlier. So in a way, this was his plan all along.

  • EPM View

I love it when a plan comes together. And today, more and more businesses need to engage the entire team in a continuous planning process that doesn’t imprison them in a static plan based on data that’s at least three months old. Imagine if Brooks wasn’t able to react to what was happening on the field, but instead stuck to whatever game plan may have been sketched out before the coin toss. He’d still be an unproven sub, and Team USA wouldn’t be ranked No. 2 in Group G when it meets Portugal on Sunday.

Collaboration:

  • World Cup View

Soccer has its stars, but they don’t play alone. Witness Ghana’s Asamoah Gyan, who backheeled a pass to Andrew Ayew, who then waited for USA goalkeeper Tim Howard to hit the ground before putting one high into the net. It’s called collaboration, and it’s the stuff of magic.

  • EPM View

The power of collaboration isn’t lost on financial planners responsible for preparing consolidated statements. That’s always been an involved process – with long conversations needed to reconcile intercompany variances, explain differences and justify adjustments. While collaborative, this approach was slow and cumbersome – hardly a recipe for winning. Enter time-saving innovations like Tidemark’s Financial Consolidation App, and collaboration becomes efficient, automated, and even downright competitive.

Performance:

  • World Cup View

Team USA has a 69 percent chance of making it to the knockout stage (not bad!) but only a 4 percent chance of making it to the final (ouch). Before you mistake me for any kind of expert, you should know this comes from fivethirtyeight.com’s excellent interactive infographic, which predicts the most likely outcomes based on more than 10,000 simulations. The intuitive presentation of data allows every fan to immediately see what World Cup long shots the Americans really are.

  • EPM View

If only companies had the same kind of capability as World Cup fans – to be able to instantly grasp crucial performance indicators like profitability, headcount planning, risk, expense projects and more. Well, now they do. Next-generation EPM innovations like Tidemark Storylines tell the story of a company using interactive, actionable infographics so anyone can grasp key information about the company’s financial health, possible growth scenarios, the impact of potential decisions on business drivers, and more.

I’m sure I’ll spot even more examples when USA meets Portugal in America’s next Group Stage match. Team USA’s odds look pretty good for now. And one thing’s for sure: With all those moving parts, anything can happen.