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How to Improve Financial Performance with Real-Time Insights and Predictive Capabilities

by Bryan Plug | insiderPROFILES, Volume 7, Issue 1

January 6, 2016

Improve Financial Performance with Real-Time Insights

With an economy on the upswing and companies in growth mode, finance is becoming an engine to drive that growth by unlocking capital to fund key business initiatives. To reflect the changing role of the Office of the CFO, finance teams are recalibrating their processes and setting new goals to accelerate the cash-to-cash cycle and optimize business performance. Examine best practices and case studies in leveraging business technology for growth.

 

This article is the author’s commentary on a one-hour webinar that is available on SAPinsider Online. This webinar features the author and guest speaker Paul Hamerman, Vice President and Principal Analyst serving Applications Development and Delivery professionals at Forrester. You can view the webinar, which includes discussions, walk-through demonstrations, and polling questions, at http://bit.ly/TrufaRealTimeInsights.

Technology is pervasive in our everyday lives and changing how businesses engage their customers, generate revenue, manage people, and deliver software solutions. In our experience, we find that by freeing themselves from the limitations of older analog technology, and turning to new applications that leverage cloud, big data, advanced analytics, mobile, collaboration, and modern integration technologies, organizations uncover the potential to drive rapid growth in revenue and market share — two key business goals in today’s competitive environment.

According to a 2014 Forrester survey,1 the majority of companies (60% of the respondents) cited growing revenue and improving the customer experience as the most important corporate initiatives over the next 12 months.

From our experience with forward-thinking organizations, finance is in a position to become a more strategic player by using technology to help improve profitability and enhance the customer experience. This means streamlining processes so the company can deliver value more quickly and elevating the customer experience. It also means integrating revenue plans and performance measures with sales, operational, and accounting systems, and helping to accelerate cash collection and revenue recognition by using a more integrated set of business applications.

Meeting all these needs in SAP environments requires real-time insights and predictive analytics enabled by a new type of customer-centric technology.

An Evolution from IT to BT

A recent Forrester survey2 of more than 1,000 enterprise decision makers identified an emerging trend toward customer-centric and performance-oriented systems that are driven and managed by business stakeholders. This trend, which Forrester labels BT (for business technology), contrasts with traditional transactional systems that have a larger IT (information technology) footprint. Forrester predicts that BT spending will account for more than half of new technology project spending in 2015 and will include finance and analytics solutions for managing the revenue stream, customer experience, and operational performance.3

This evolution has arrived because businesses need better systems for forecasting how they can grow in the face of changing market conditions, world events, and factors such as weather, and they need to connect sales, operational, and financial systems in real time, so they can gain insight into revenue and operations to make better business decisions. Key to this growth is increased customer engagement and loyalty. Another Forrester report4 found that if businesses invest in customer experience as a growth strategy, they will enjoy the benefits of more loyal customers — better retention, greater wallet share, lower acquisition costs, and more cost-effective service — while laggards will continue to struggle with high customer turnover, escalating acquisition costs, and a less-competitive cost structure.

Finance can play a critical role in supporting business growth and enhanced customer engagement by effectively filling orders, producing timely bills, settling customer accounts quickly, recognizing revenue to meet increasing compliance requirements, analyzing results, forecasting future outcomes, and continually monitoring enterprise performance. BT investments in advanced analytics, forecasting tools, and predictive algorithms can help financial leaders manage all of these moving parts, enabling them to continually monitor business performance, anticipate outcomes, and take the right corrective actions.

Technology Innovations for Delivering Financial Excellence

Companies need financial systems that provide business process flexibility and enable rapid implementation and continuous updating. Organizations are adopting new product offerings, new pricing models, and new revenue patterns, and their finance systems need the flexibility to react to disruptions in the business.

Innovations such as cloud computing, in-memory computing, and predictive analytics are enabling finance organizations to drive  financial excellence. Cloud-based finance applications such as SAP’s solutions for finance offer agility, scalability, and rapid adoption at a low cost. Forrester’s survey data5 shows that tens of thousands of small and midsized businesses (SMBs) have already moved to the cloud for their financial and ERP systems, and that adoption trend is starting to move up into larger enterprises. The survey data also shows that software-as-a-service (SaaS) adoption levels are approaching 50% for applications in customer-facing areas like sales, marketing, and e-commerce.6

In-memory computing is another innovation that supports modern finance needs. In-memory technology allows companies to run large transactional systems with very large data sets very quickly. In-memory computing has the added advantage that it gives business and finance organizations the ability to interrogate and analyze entire (and massive) data sets instead of a representative sample, enabling better and more rapid decision making.

Another important innovation is predictive analytics, which includes algorithms, simulations, and a new technology called “machine learning” that enables the system to understand behavioral patterns and provide guidance based on those patterns. Businesses need to look to advanced metrics and visual analytics solutions — tools that show data visualized and in the context of the business function — to gain insights into what drives revenue and how to manage that cash-flow stream.

Get Out of Columns and Rows — and Into Visualization and Simulation

To truly achieve financial excellence, you need to understand how business behavior is affecting your customer interactions, which directly affects your financial performance. Relying on measuring key performance indicators (KPIs) is an ineffective method, as traditional KPIs are based on static aggregates, which can contain assumptions and misleading information.

With the visualization and simulation technology provided by solutions such as Trufa, businesses with SAP landscapes have the capability, without aggregates or assumptions, to look at and interrogate data from billions of transactional records across the organization, gain business insights, and identify opportunities. Companies can simulate predicted outcomes based on the data they interrogate and then make predictions based on the simulated analysis to drive operational and financial performance. Businesses can see the impact of faster or slower delivery time, for instance, and how this could affect the profitability they can get from customers.

Let’s look at an example. Suppose the general manager of an SMB is using Trufa to interrogate hundreds of millions of transactional records and perform a simulation based on the customer’s experiential history. The general manager analyzes the order-to-cash process to identify poor performers (those with on-time delivery less than 40% of the time) and determine why they are missing their delivery dates. After drilling down through the millions of transactional records and selecting the records to analyze — 10,000 records in 5-10 seconds — the general manager finds that 97% of the poor performers are taking more than 15 days to fulfill the order, and a more detailed analysis shows that a certain group of these are dealing with some export restrictions. With this new insight, the manager can make changes to streamline these export processes and shorten the order lag time. This manager went from interrogating the entire system to identifying a significant savings opportunity of $30 million by increasing on-time delivery from 40% to 50%.

Statistical analysis (as well as theory) shows that customers will pay a premium for products if they have a shorter lead time. The more businesses can increase the percentage of on-time deliveries, the happier their customers will be, and the faster they will pay for their orders. Increasing on-time deliveries and delivering quicker can drive profits, reduce inventory, and improve working capital — both for yourself and your customers.

Benefits to the Business (and Its Customers)

By simulating business performance and predicting the outcome, businesses can drive operational performance and deliver financial excellence. Big data technology, coupled with advanced statistical analytics, enables finance to be completely engaged in the operational aspects and analysis of the business. No longer does finance need to shout for customers to pay faster, for inventory managers to reduce inventory, or for salespeople to get better prices. With visualization and simulation analysis, businesses can see that delivering quicker and delivering on time will reduce investment inventory because the stock is out of the warehouse faster. Customers will pay sooner, delivering increased profits to the business as customers reap the benefits from their purchases more quickly — laying the groundwork for long-term loyalty.

1 “Top Technologies For Your BT Agenda” (Forrester, July 2014). [back]

2 “Business Technographics Global Software Survey, 2014” (Forrester, November 2014). [back]

3 “Grow Your Revenue Stream With Customer-Centric Finance” (Forrester, January 2015). [back]

4 “The US Customer Experience Index, Q1 2015” (Forrester, April 2015). [back]

5 “Business Technographics Global Software Survey, 2014” (Forrester, November 2014). [back]

6 “Application Adoption Trends 2015: The SaaS Boom Continues As Businesses Demand Agility” (Forrester, April 2015). [back]

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Bryan Plug
Bryan Plug

Bryan Plug is the Chief Executive Officer of Trufa Inc., the company that empowers you to optimize, innovate, and grow in a data-driven world. As President of SAP Canada and Executive Vice President of SAP Americas, Bryan was instrumental in SAP becoming the leading enterprise software company. As CEO, Bryan has also led other successful companies in delivering transformational solutions to the enterprise marketplace, including Kintana and SMART Technologies.



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