Corporate finance has long had a diverse, if predominantly backward-looking, charter: track revenues and expenses against the budget, manage the balance sheet, build the income statement, and report results. Today, finance is being asked to play an increasingly important forward-looking role in formulating strategy and providing decision support to the business units.

Organizations slow to embrace this change can find themselves at a disadvantage. Investors burned by the accounting scandals of the past few years are demanding not only that public companies implement bulletproof financial controls and report unimpeachably accurate financial results, but also that they provide faster and more reliable forecasts about where the business is headed. Similarly, CEOs are requiring that CFOs offer not just better insight into how the business is performing, but deeper and more meaningful guidance on translating trends and key developments into strategies that will drive profitable growth.

Only finance has the broad organizational reach, the rich understanding of the numbers behind the business, and the analytical training necessary to provide this support. The missing ingredient, in many finance organizations, is the right enabling technology: the tools that can provide a complex, fast-moving, and often far-flung enterprise with ready access to reliable information, and a structure for translating that information into actionable strategies with measurable outcomes. “Without that in today’s environment, we wouldn’t be able to formulate any meaningful strategy based on any historical trends or extrapolation,” says Roland Meinzer, chief financial officer for Siemens Information & Communication Networks U.S.

In a recent survey by CFO Research Services (a sibling of CFO.com), respondents showed that they clearly appreciate the changing landscape; nearly two-thirds say they have been taking a more active role in strategic planning over the past three years. However, only about 30 percent of respondents see their primary role in that activity as advising the CEO on long-term strategic direction, versus setting and monitoring metrics or understanding and reducing costs. Yet two years from now, more than half anticipate that advising the CEO on long-term strategy will be their primary function. In many cases, their goal will be to inject a more fully informed, financially rigorous planning methodology into what has been, for many companies, little more than a seat-of-the-pants undertaking.

Improving the View into the Future

As they seek a more meaningful seat at the strategy table, finance executives understand that one of their greatest challenges is finding a way to improve their view into the future. “I worry about what comes next,” says Paul Harrison, vice president of financial planning and analysis for Krispy Kreme Doughnuts. Accurate forecasting, adds Mitchell Goldstein, SVP and CFO for grocery retailer The Great Atlantic & Pacific Tea Company (also known as A&P), is important not just to retain credibility with investors, but to ensure that the business allocates resources prudently. “To set ‘pie in the sky’ goals,” he explains, “could leave you with inappropriate financing to achieve those goals.”

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.”

The situation at RE/MAX illustrates the dilemma many companies face. Although the privately held firm has been undeniably successful in the course of its 32-year history — it has enjoyed more than 375 consecutive months in which it has increased the number of sales associates marketing homes under the RE/MAX banner — its finance team recognizes the need for better technology to support and continue that growth.

While its current approach to performance management is “not a hindrance,” says Frantz, neither is it “nearly as flexible and as efficient as it should be. We need something that’s more effective and efficient to bring in the results from the various business units than spreadsheets. We’re in the process right now of looking at some business performance management tools, specifically on the budgeting and forecasting side of things.”

Many survey respondents have already taken measures to improve their strategic support tool kit, as more than half have invested in performance management technology over the past three years. Unfortunately, these investments have been met with mixed results. Most companies say that either their investment fell short of expectations, their project was cancelled, or they can’t determine whether their expectations were met.

The results are most discouraging for those using spreadsheets and manual processes as their primary performance management technology; less than a quarter of those respondents report that their investment had met expectations, and none found that it had exceeded expectations. By contrast, 60 percent of companies investing in integrated solutions say their investment met or exceeded expectations.

While the search for the right performance management technology has clearly been challenging for many companies, there is also strong evidence that success does not have to be elusive.

This article is excerpted and adapted from Finance Seeks a Seat at the Strategy Table, a report that summarizes the findings of a mail survey of senior finance executives at 202 companies and further interviews with executives at 8 companies. CFO Research Services and Geac, a vendor of performance management software, developed the hypotheses for the research jointly. Geac funded the research and the publication of the findings; CFO Research Services produced the final report. You may download a copy of the full report by filling out a brief form.