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Source : SAP
Enterprise Performance Management -
Financial Excellence and Beyond
Enterprise Performance Management is also known as :
financial performance business,
management financial excellence ,
financial excellence ,
Business intelligence financial performance,
financial management cycle,
Enterprise Capital Program Management CPM,
Performance Reporting Tool,
Business Performance Management,
Management Solutions Enterprise,
Managing Operational Performance Financial,
Financial Business Performance Management ,
financial excellence management,
enterprise performance management,
enterprise performance financial excellence.
CONTENT
- Executive Summary
- The Changing Face of Business
- The CFO's Role in Transition
- Making the Transition
- Financial Performance
Management
- Shortcomings of the Typical
Approach
- Making It All Work
- SAP Solutions for Enterprise
Performance Management
Focus on Financial Performance
Management
EXECUTIVE SUMMARY
Given the complexity and global nature
of today's business world, organizations are looking for ways to deal with
intricate new realities and turn them to
their advantage. CEO's and other members of the executive team must
respond to immense pressure coming
from a variety of sources, ranging from
the board of directors and activist
stockholders to regulatory authorities
and customers. They deal with any
number of global financial conditions,
including fluctuating exchange rates,
rapidly changing economies and interest rates, and compliance with a variety
of regulations such as Basel II in banking and government mandates such as
the Sarbanes-Oxley Act of 2002.
As a result, they are looking to their
CFO's to provide the solutions they
need to cope with these many challenges. In the process, your job as CFO is
shifting from the traditional financial
role dealing with standardized business
processes and systems to that of
change agent and strategic advisor to
the CEO, who bears the responsibility
for ensuring the integrity of the company's overall financial performance.
In this new role, you can take advantage of the latest advances in financial
performance management solutions to
help your organization capitalize on the
value of corporate data, become more
agile, and achieve the organizational
alignment and visibility needed to drive
performance excellence. In addition,
these solutions can give you and other
senior executives confidence in the
accuracy of your corporate performance data and the reports that you
provide to regulatory bodies as part of
your compliance requirements.
This paper explores how financial performance management software very
often categorized as one aspect of
enterprise performance management
can help you maximize profitability,
immunize your company against non-
compliance, and optimize operational
efficiency by ensuring delivery of information when it's needed, in context.
The premise is that the best solutions
are integrated and adaptable to rapid
business change, are easy to use for
optimal productivity, and can predict
future financial performance.
THE CHANGING FACE OF BUSINESS
Today's business executives must cope
with extraordinary complexity. Rapid
technological change, complicated regulatory and compliance requirements,
and demand from customers contribute
further to this turbulent environment. In
fact, one of the more unexpected and
positive trends that is transforming
business is the shift of power to the
customer. Indeed, the customer's growing influence on the design and delivery
of products and services, thanks to the
Internet and e-commerce, allows businesses to more effectively meet the
needs of their market.
A worldwide marketplace means that
CEOs and CFOs are dealing with
growth that extends beyond their country's borders; in today's volatile stock
market, international growth is often
essential for profitability. Also, with
developing nations taking center stage
as the main drivers of global GNP
growth, multinational corporations are
localizing products and services to
build their market share.
Another trend is a record level of mergers and acquisitions (M&As). According
to CFO.com, ". . . globally, 2006's
worldwide M&A value worth $3.8 trillion beat 2000's numbers and was 38
percent higher than 2005's total. . . ."
In addition, the value of deals in Europe
is also showing strong growth. The
same report states that the value of
these deals is ". . . higher, in fact, than
in the U.S. Last year, European deals
increased 39 percent to $1.4 trillion,
compared to the 36 percent growth
that the U.S. experienced. . . ." Western Europe, China, and Canada were
predicted to see the majority of
activity.
All of these factors are putting increasing pressures on CEOs, and
indeed the
entire executive team, to boost performance and cut costs while dealing
with a myriad of governance, risk, and compliance (GRC) issues. They need
new
ways to maximize profitability which
requires greater visibility into and control over the drivers of their
organization's finances and operations. Naturally, the CEO looks to the
CFO to help
solve these problems.
As a CFO functioning in this new environment, your responsibilities include:
- Ensuring that the company is executing toward strategic goals
- Acting as strategic advisor to business management by providing analytical support and helping to optimize
overall business operations and meet
regulatory requirements
- Reporting on results of core finance
activities and investor and shareholder relations
- Personally attesting to the appropriateness, fairness, and accuracy of
company financial reports, and thus
minimizing risk of noncompliance
Your role in financial performance management typically includes working in
concert with other members of the
organization, such as the CIO and business users. CIOs are usually responsible for the integrity of the information
delivered to the CFO and for the viability and security of the IT infrastructure
that drives value to all aspects of the
business, including finance.
The CFO's Role in Transition
Over the past several years, the new
pressures and challenges faced by the
finance organization are causing executives to make significant shifts in their
focus and priorities. CFOs are transitioning rapidly from a somewhat limited
financial role that deals with standardized business processes and systems
and the people needed to support
those systems, to the role of strategic
advisor.
This new role includes ensuring the
company's financial integrity and making informed and calculated business
choices to meet the company's growth
strategy in accordance with overall
company objectives. These objectives
might include, for example, improving
financial and operational performance,
growing revenue and earnings, increasing return on investment, and building
shareholder value. But in any case, the
CFO must ensure lean, compliant financial operations; provide financial and
business leadership; and rapidly deliver
new financial services that keep pace
with and accelerate the growth of the
business.
As shown in Figure 1, the shift in a
CFO's responsibilities is an evolving
process. The first step is the transition
from focusing primarily on transaction
processing to include the management
of information flow as well. This lays
the groundwork for the CFO to begin
addressing global market concerns,
working with other C-level executives
and line-of-business managers to develop a vision for the company's financial
future, and ultimately playing a key role
as strategic advisor and "chief planning
officer." This evolution is not a series of
well-defined steps, but rather a continuous process that varies in time and
scope depending on the size and
requirements of each company. It is
cumulative in nature; each step builds
on the foundation of the previous
steps.
Several major tasks are associated
with this new role, including:
- Implementing enterprise-wide, effective change management to set the
foundation for performance
measurement
- Enabling strategic direction to be
defined and monitored on an ongoing
basis
- Optimizing strategic planning execution and profitability management
- Promoting collaboration across the
organization on initiatives, plans, budgets, and intelligently managing
resources while focusing on initiatives critical to corporate strategy
- Working with the CIO and business
managers to achieve operational
excellence
Making the Transition
The key to this transition is to focus on
the demands of the present while
simultaneously working to predict
future financial performance. For example, you may need to pay close attention to driving customer revenue
growth to increase total net revenues,
adjusting the product and service mix
to improve gross margins and gross
profits, or reducing operating costs to
increase net income. In some cases, a
specific asset category, such as inventory, property, or equipment, might be
reduced to improve cash flow and
increase total assets.
A myopic focus on the future alone
puts current financial performance at
risk; an exclusive concentration on the
present sacrifices incipient opportunities. Finding a balance between these
two potentially conflicting poles is one
of your major challenges.
As described above, your role as CFO
involves the day-to-day business of
managing risk; efficient, integrated
financial planning; and confident statutory reporting. But making the transition also means adapting to the future,
with the following:
- Strategic agility. Today's business
environment has become increasingly
unforgiving. A single misstep or delay
in executing a strategy or following
up on an opportunity can have severe
consequences. CEOs and CFOs
must be alert to emerging threats
and opportunities and be able to
adapt their strategies quickly to deal
with the new situation. For the CFO,
this also means being able to deliver
new financial services that keep pace
with the business as it changes in
response to marketplace and regulatory pressures.
- Business model innovation. Executive leadership is required not only to
develop and launch innovative products and services, but to implement
innovative processes and business
models as well. In addition, executives are required to enforce performance management throughout the
organization while acting as agents
for change.
This means close collaboration with the
CIO, key lines of business such as
sales and manufacturing, and IT functions that support and ensure the
integrity of the CFO-driven business processes that span the
organization. One
of the major enablers that the CFO and
IT organization can take advantage of is
the discipline commonly referred to as
financial performance management.
Financial Performance
Management
Financial performance management is a
subset of enterprise performance management and is focused specifically on
the financial management processes of
a company. All areas of an organization
need to define strategies and plans, set
budgets, analyze performance, and
generate financial and performance related reports. These and other financially relevant activities must then be
rolled up into a larger corporate
overview.
At SAP, we view enterprise performance management as the entire
scope of performance management in
all areas, from HR and marketing to
manufacturing and distribution (see Figure 2). Enterprise performance management helps companies streamline
and optimize activities across all areas
for greater control over operational and
financial performance.
Shortcomings of the Typical Approach
Beleaguered CFOs need to manage
financial performance in a complex
corporate environment; but many of
today's software applications still have
a long way to go to support their
needs. Some of the issues with financial performance management applications include the following:
- Usability The applications can be
inflexible and hard to use, and maintaining them can require much IT
support.
- Data dispersal At many companies,
the required data is scattered across
multiple applications running on a mix
of legacy systems. To work effectively, the application must have access
to all pertinent data (including
Microsoft Word documents and
other unstructured data) to ensure
accuracy and timeliness. This data
access also compresses processing
time.
- Long budget cycles Because the
applications typically are not collaborative or streamlined, the budgeting
process breaks down. People on the
front lines have little or no input into
budget deliberations, then are handed a budget and told to live with it.
- Need for even more collaboration,
communication, and processes
Most financial performance management applications lack sufficient
support for standard business processes, teamwork, and fluid sharing
of information so that everyone can
be "on the same page" and do the
right thing.
- Accountability gaps Performance
management only works when initiatives are linked to tasks that are well
defined and people are held accountable. Most applications do not incorporate mechanisms that allow all
stakeholders to agree on ownership
of a performance management strategy, track its progress, and make
sure it aligns with overall corporate
strategy, initiatives, and plans.
- Disconnected spreadsheets
Spreadsheets are the most commonly used tool for planning and strategy,
and individually these are highly productive tools. But that's not the case
when information needs to be shared
and collectively updated. People are
not operating from a common data
store that delivers one version of the
truth. The inability to certify and trace
submission to the various spreadsheets breeds a lack of confidence in
the information being presented. As a
result, people spend more time
debating the information than decisively taking action on it.
- The performance gap Performance
management needs to be treated as
a baseline and iterative process that
helps define overall corporate strategy as well as the CFO's strategic initiatives, not something that is tacked
on as an afterthought. Performance
execution often breaks down
because of planning defects, corporate culture, or lack of management
commitment. In fact, the right technology solution can go a long way
toward fixing these problems.
Making It All Work
What is needed is a new set of financial performance management applications that meet your current and future
needs, helping you and other senior
executives meet the following key
goals:
- Maximize business profitability to
increase market and shareholder
value
- Optimize operational efficiency to
reduce operational costs and free up
resources for innovation
- Minimize risk to the business by ensuring that decisions are based on
accurate data, and that statutory reports provided to regulatory authorities are in compliance that is, that
they are appropriate, accurate, and
fair
SAP® SOLUTIONS FOR ENTERPRISE
PERFORMANCE MANAGEMENT FOCUS
ON FINANCIAL PERFORMANCE MANAGEMENT
SAP® solutions for enterprise performance management enable organizations to manage both financial and
operational performance and capitalize
on the value of their corporate data.
Businesses using financial performance
management software can become
more agile in driving transformation and
controlling performance. The applications can be deployed separately or
together to form a comprehensive solution. When deployed together, they
support the complete financial performance management life cycle,
empowering the CFO to:
- Measure assets, profitability, costs,
and capacity at a granular level
- Align strategies with goals, initiatives,
metrics, and people
- Enable efficient planning, budgeting
and forecasting, and management of
the "triple bottom line"
- Achieve greater confidence in management and compliance reporting
through fast, accurate close processes and self-service reporting
- Provide frontline business users with
trusted information delivered through
native integration with familiar
Microsoft Office productivity tools
in concert with an intuitive Web 2.0
interface
With the solutions, you are better able to meet the unique requirements of
today's global, fast-paced business environment and can assume the new and
demanding role of strategic advisor to the organization. To learn more about the
full breadth of SAP solutions for enterprise performance management, call your SAP representative
today or visit us on the Web at
www.sap.com/solutions/performancemanagement.