Faced with new challenges, empowered by new tools, and driven by a new mission, finance has gone from counting the company’s beans to helping craft its secret sauce.
In today’s market the recipe for success constantly needs updating. Companies must continually reformulate themselves because commoditization continues to accelerate and business complexity continues to grow. The question, “How should we spend money?” continues to get more difficult to answer and has never been more difficult than right now. Not only will the answer to that question likely change relatively soon, it will continue to change and will change more frequently going forward.
As steward of the company’s money, the implications for finance are many. Obviously, spending decisions have always been key to business success. But now spending decision-makers face five new challenges. Today these decisions:
- Are much more interdependent
- Involve a much wider range of company activities and stakeholders
- Call for a vastly wider range of information on which to base decisions
- Require much faster information gathering and decision-making
- Force stakeholders to use sophisticated analytics (including many non-experts)
Not only is finance the steward of the company’s money, it (along with IT) also administers the company’s EPM tools — i.e., the tools used to overcome the five challenges just listed. That unique position changes finance’s role. Back in the day, finance was where senior executives, board members, financial regulators, and investors went for reports on where the company has spent money. Today finance is where all stakeholders go (including department heads, business planners, internal consultants, and others) for help planning where to spend money moving forward.
EPM thus changes finance in two ways — first, by helping finance succeed in a world where planning timeframes are measured in days not months, and, second, by helping finance establish itself as a key resource for competitive differentiation with the customer.
From Reactive to Predictive
Historically, the way you budgeted was just that — historically. You used last year’s budget as a basis for this year’s. Then as new contingencies arise, as they inevitably will, you make ad-hoc spending decisions to deal with the new circumstances and new priorities. This reactive approach might have sufficed when conditions were relatively stable. You could make adjustments later after you saw how a spending decision actually affected your business. The costs of waiting for this historical feedback were considered acceptable — maybe just a few missed market opportunities and some lost customers or perhaps some operational inefficiency and a few limited production delays. Absorbing these costs might have even made sense in a slower, less complex time. Hindsight after all is 20/20. Your competitors likely operated the same way you did. And the tools for performing sophisticated economic analysis and predictive cost planning were beyond the reach of most organizations. They were expensive and you needed lots of highly skilled and highly paid experts trained on how to use them.
All that has changed, of course, with the introduction of cloud-based EPM systems that you do not even have to own in order to use. These systems let even non-analysts perform sophisticated ad-hoc what-if scenarios and model future outcomes with interactive visuals that previously would have taken teams of PhDs and computer programmers weeks to create. They also provide real-time sync-ups between operational and financial data. That means that as the future becomes the present, relevant stakeholders can see the impact of spending decisions as those impacts occur.
From Utility to Value-Add
Something else happens when stakeholders can predict how operational decisions will impact financial outcomes — and how financial decisions will impact operational outcomes. What is obviously good news for the company is also good news for the customer. The reason goes back to the different market environment in which companies engage customers today.
Unlike the old days, the company’s recipe for success now combines much more than just product (or service), features, benefits, and direct costs. Certainly, the customer still considers those factors when deciding what to buy and from whom to buy it. But now that most products and services are quickly commoditized, many other factors come into play, like how the company integrates online with brick & mortar, ancillary services offered, partnerships with other brands, and so on. In other words, virtually every aspect of a company’s activities becomes part of its value proposition, and all of these previously disparate aspects have costs, and also impact related costs.
Fortunately, EPM integrates these dependencies so stakeholders can model all relevant cost variables in order to optimize the company’s value proposition, virtually in real time. So now, not only is finance tasked with helping the company plan its future, finance is also tasked with helping reformulate the value on which that future is based. And, thanks to EPM, finance is up to the task.