Excellence in Financial Management

Excellence in Financial Management

Creating a Modern, Cohesive Finance Department with ERP

February 2014 Nick Castellina

Excellence in Financial Management: Creating a Modern, Cohesive Finance

Department with ERP

Effectively and efficiently managing finance across an enterprise requires many different disciplines. From strategic roles, such as financial planning and analysis, to fiduciary processes, such as invoicing, cash management, and accounting, finance professionals are in need of easy access to relevant data that will enable them to be analytical, accurate, and efficient. Without visibility into performance and processes, it is impossible to stay compliant, forecast effectively, manage transactions, and communicate goals throughout an organization. In order to achieve these objectives, today's finance departments take an integrated approach to managing financial data through flexible, comprehensive solutions that provide accurate and secure data, supplemented with analytical capabilities. As a complete system of record, Enterprise Resource Planning (ERP) can be a hub for creating a cohesive finance department. This report, based on three Aberdeen surveys, outlines the pressures facing finance departments today, as well as how Best-in-Class organizations improve financial management through ERP.

A Need for Transformation in Financial Management

Data collected in Aberdeen's Financial Transformation for Operational Excellence survey reflects the challenges facing finance departments today, which drive changes in financial management (Figure 1).

Figure 1: Pressures Impacting Financial Management

February 2014

Analyst Insight

Aberdeen's Insights provide the analyst's perspective on the research as drawn from an aggregated view of research surveys, interviews, and data analysis.

Aberdeen Methodology

The Aberdeen maturity class is comprised of three groups of survey respondents: Best-in-Class: Top 20% of

respondents based on performance Industry Average: Middle 50% of respondents based on performance Laggard: Bottom 30% of respondents based on performance

Sometimes we refer to a fourth category, All Others, which is Industry Average and Laggard combined.

Source: Aberdeen Group, August 2013

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Excellence in Financial Management: Creating a Modern, Cohesive Finance Department with ERP

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Two main themes emerge from this data. The first is a need for better visibility into data. Sixty-five percent (65%) indicated a demand for expedited financial information delivery and both internal and external stakeholders require faster and more robust insight into financial data. In the case of internal stakeholders, heightened economic uncertainty leads to employees craving as much financial performance data as possible in order to make their decisions as informed as they can be. With a growing volume of transactions, there is more data than ever before and this pressure calls for more efficient ways to process these transactions. External stakeholders also demand access to this data, which leads to the second key theme: compliance.

Greater regulatory oversight generates a need for accurate data that contains all required information and can be easily shared with regulatory bodies. Some regions, such as Europe, are seeing increased regulations that call for more frequent financial reports that include a greater variety of data in specific formats. Rather than put the burden on finance to complete more work, these organizations will need to rely on their technology to do much of the heavy lifting.

The Best-in-Class strategies that are driven by the above pressures suggest that top performing organizations rely on technology, such as ERP, to transform their finance department to perform in the modern environment (Figure 2).

Figure 2: Best-in-Class Strategies for Financial Transformation

Conduct internal assessment of financial processes and technological capabilities

Automate core business operations, functions, and controls

58% 52%

Provide real-time access to financial data

48%

Reduce the amount of customization to business processes

Incorporate best practices around risk and compliance across all business functions

33% 30%

0% 20% 40% Percentage of Respondents, n = 186

Best-in-Class 60% 80%

Source: Aberdeen Group, August 2013

The number one strategy of Best-in-Class organizations is to conduct assessments of financial processes and technology capabilities, which will often lead to changes in technology. In fact, the next three pressures suggest technical transformation. Automation is accomplished by linking business systems and processes to ensure that all of the steps of a process are followed. Also, real-time access to data is enabled through a single source of truth that is constantly updated. Lastly, reducing the amount of customization can be accomplished by utilizing best practices templates

? 2014 Aberdeen Group.

Best-in-Class Financial Transformation Respondents to the Financial Transformation for Operational Excellence survey were ranked on the following criteria: Percentage of cash

leakage over the past two years: Best-in-Class ? None, Industry Average ? 3%, Laggard ? 7% Percentage of accurate financial reports: Best-in-Class ? 97%, Industry Average ? 87%, Laggard ? 71% Percentage within forecast of actual revenue: Best-in-Class ? 4%, Industry Average ? 12%, Laggard ? 20%

Telephone: 617 854 5200 Fax: 617 723 7897

Excellence in Financial Management: Creating a Modern, Cohesive Finance Department with ERP

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which may be included within ERP. For example, these templates may include automation of best practices for regulatory compliance. In summary, best practices for financial transformation include creating a single source of visibility in finance, and bringing all functions within the department together to run more efficiently and effectively.

Technology's Role in Financial Management

The first step towards enabling visibility and cohesion throughout finance is creating a central hub, or "one stop shop," for data. By integrating all data sources into one central source of record, employees can find everything they need to make decisions or complete tasks. Data collected in Aberdeen's 2013 ERP Benchmark survey indicates that Best-in-Class organizations are more likely to make it as easy as possible for employees to find and use essential data (Figure 3). There may be times when employees need to perform tasks across multiple applications, utilizing ERP as a hub. In these cases, Best-in-Class organizations enable employees to move between applications seamlessly.

Figure 3: An Integrated Approach to Financial Management

Percentage of Respondents, n = 239

80% 60% 40% 20%

Best-in-Class 69%

58%

37%

Industry Average

Laggard

34% 22%19%

45% 38%

29%

0%

Integrated business

Process flows that may Data appears to be shared

applications serve as a span different applications across applications

complete and auditable can be completed without

seamlessly and

system of record

consciously switching

transparently

between multiple

enterprise applications

Source: Aberdeen Group, August 2013

Key Capabilities

Finance departments contain multiple disciplines. Bringing it all together and creating a cohesive department starts at the top and begins with setting standards. Aberdeen's Financial Transformation for Operational Excellence survey finds that Best-in-Class organizations standardize processes to enforce financial transformation (Figure 4).

ERP 2013 Best-in-Class

Respondents to Aberdeen's 2013 ERP Benchmark survey ranked organizations on the following criteria:

Time to close a month: Best-in-Class ? 2.2 days, Industry Average ? 4.7 days, Laggards ? 7.8 days

Days sales outstanding: Best-in-Class ? 32.2, Industry Average ? 42, Laggards ? 51.4

Complete and on-time delivery: Best-in-Class ? 97%, Industry Average ? 92%, Laggards ? 84%

Increase in profit margins over past 2 years: Best-in-Class ? 19%, Industry Average ? 11%, Laggards ? 1%

? 2014 Aberdeen Group.

Telephone: 617 854 5200 Fax: 617 723 7897

Excellence in Financial Management: Creating a Modern, Cohesive Finance Department with ERP

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Figure 4: Promoting Standards, Facilitating Processes

Percentage of Respondents, n = 186

100% 80% 60% 40%

Best-in-Class

Industry Average

Laggard

59% 57% 52%

81% 64% 64%

52% 37% 34%

79% 73% 51%

20%

0%

Standardized financial Executive support for Major process steps Invoices archived in a

management implementing effective are automated and central, searchable

processes across

financial

only require minimal

location

locations / units

transformation manual intervention in

case of exceptions

Source: Aberdeen Group, August 2013

Over half of all organizations standardize their financial management processes across the organization, but, without executive support, change would not be possible. In fact, 81% of the Best-in-Class have executive support for implementing effective financial transformation, in comparison to 64% of All Others. Those at the top understand a need for compliance, efficiency, and visibility, and commit to utilizing technology in order to implement those changes. For example, the Best-in-Class are 44% more likely than All Others to automate major process steps. The processes could be anything from regulatory reporting to invoice processing. Employees will then complete tasks more quickly, with fewer mistakes. ERP may also then be used for providing greater visibility, such as through centralized archives for things like invoices.

Data from Aberdeen's Financial Planning, Budgeting, and Forecasting: Removing the Hurdles shows how ERP can be used as a hub for collaboration within finance (Figure 5).

Figure 5: The Collaborative Finance Department

Percentage of Respondents, n = 214

Best-in-Class

Industry Average

Laggard

80% 70% 60% 50% 40% 30% 20% 10%

0%

71% 46% 28%

70% 50% 30%

65% 59% 39%

Established enterprise-wide Established enterprise-wide Centralized repository of

collaboration from the top collaboration across archived reports and filings

down and bottom up

departments / divisions

Source: Aberdeen Group, January 2013

? 2014 Aberdeen Group.

How Do You Rate?

In the report, Financial Planning, Budgeting, and Forecasting: Removing the Hurdles, respondents were ranked on the following criteria:

Percentage of financial reports delivered in the time needed for decision-making: Best-in-Class ? 94%, Industry Average ? 76%, Laggard ? 58%

Percentage actual costs are within budgeted costs (above or below): Best-in-Class ? 3%, Industry Average ? 9%, Laggard ? 20%

Percentage that actual costs are within budgeted costs (above or below): Best-in-Class ? 2%, Industry Average ? 10%, Laggard ? 22%

Telephone: 617 854 5200 Fax: 617 723 7897

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