Improving the accuracy of forecasts remains a persistent problem among finance teams. Indeed, more than 40 percent of survey respondents say their top priorities as they seek to improve their planning process are to become more agile in adapting to change and to provide better forecasts — twice the number who say they need to create better visibility into current results. In CFO Research Services’ 2002 survey among finance executives, respondents rated better forecasting and better visibility into current results as equal challenges. Now, two years later, it seems that companies have made progress on the latter front but little headway in their attempts to better frame the future.
More comfortable, perhaps, with what they know best, respondents to this year’s survey say most of their companies’ strategic initiatives over the next two years will center on two activities where insight into current results is at least as important as the outlook for the future: cost control and organic growth. Finance would appear to be reasonably well prepared to support such efforts: 94 percent of survey respondents say they are already “very involved” or “somewhat involved” in strategic planning, and a healthy majority rate their ability to identify and act on opportunities in those two areas as middling to excellent.
The finance group at Unified Western Grocers, a grocery cooperative headquartered in Commerce, California, is typical. Unified’s finance team is helping the cooperative pursue a major initiative to promote organic growth with existing customers, says vice president and controller Bill Cote, and it is also working extensively on cost control and efficiency initiatives. The finance team analyzes potential cost-saving opportunities in advance of implementing changes, then monitors, reanalyzes, and reports on those initiatives on an ongoing basis. The process works. Unified has reduced its operating costs by about five percent a year in each of the past three years.
While effective cost-cutting is as much a mindset as it is smart management, finance executives insist that it can be executed more effectively when management has good visibility into the organization’s expense structure. On that score, technology can be a major facilitator. “There are two ways to cut costs,” observes A&P’s Goldstein. “One is rationally and based on fact. The other is to squeeze people and say, ‘You can’t do that,’ or ‘Spend less’ — in which case, necessary activities sometimes get stopped.”
Mergers, acquisitions, and alliances are another story. Contrasted with cost cutting, planning for and assuring the success of an alliance or acquisition can be much trickier, and the right performance management technology can be even more important in helping companies analyze opportunities and craft implementation strategies. Indeed, fewer survey respondents say they are prepared to identify and take advantage of these opportunities than cost-cutting and organic growth initiatives.
“Today, when we try to model what’s going to happen when we make an acquisition, it’s a complex manual effort,” says Brian Frantz, senior vice president and chief financial officer at RE/MAX International, a fast-growing real estate sales franchisor that is searching for an integrated solution to its performance management requirements. “It needs to have a lot more sophistication and a higher degree of accuracy.”