Energizing corporate finance

How to use financial data to drive new profits in your business.

by Ronald S. Swift

Today's leading firms understand that detailed financial data contains powerful information that can drive business improvement across the entire enterprise. Unfortunately, many companies have not been able to take full advantage of their financial data. They think the only useful financial information they have is what is summarized in annual reports and SEC filings. However, this information is based on data that lags behind the actual financial events.

The data summaries contained in the standard reports can answer the top-line questions: What is the revenue? What is the profit margin? What is my accounts receivable position? And how is it impacting cash flow? But these questions only skim the surface of what happened in the business-hardly what decision makers need to effectively run the business.

How can you manage your company better by proactively using your financial data? The best businesses operate under a new paradigm where detailed financial data, analysis and the assurance of accuracy create a competitive advantage by enabling decision making in near real time. Served by the right technology, a company can see its financial data from summary to operational details throughout the accounting period.

This enables the organization to take actions that impact results before the financial period closes-potentially changing the way the business runs.

Building for financial advantage
Achieving this new paradigm is a three-step process.

1. Build a technology infrastructure to integrate financial data
The largest problem finance departments face today is that of data access. An average company disperses its financial data across eight ERP systems and has hundreds of legacy systems that have yet to be merged. Many financial analysts find accessing data too challenging, too time-consuming.

Organizations need to integrate financial data from all financial operational systems into one environment to enable transparency and perform simple management reporting. The reporting needs to be delivered in a self-service environment so managers can access the data they need, when they need it, without the intervention of financial analysts. Implementing an enterprise data warehouse and the associated financial management tools is a fundamental component of this process.

2. Leverage integrated financial data for forecasting and modeling
Financial analysts are free to do advanced analytics when integrated data is made available in a timely fashion through an accessible self-service management portal or dashboard. Businesses can then ask and answer a deeper level of questions, such as: Where did I sell them? Who were my top sellers? How is this trending versus last year?

Based on the answers to those questions, businesses can develop advanced models for accurate forecasting to the street and for "what-if" analysis in all areas of the business. If you know the quantifiable impact of your decision making, you can manage to exceed expectations.

One retailer, for example, stays current with every order's profit equation-price, shipping, handling, taxes and service charges, like gift wrapping or shipping upgrades-so it can measure profitability by order, customer, catalog and stock keeping unit (SKU). The granularity and integration of its data enables the company to measure gross demand, monitor fill rates, measure and forecast the timing of returns, and understand its back orders.

Once the data is integrated, financial associates can perform accurate bottom-up calculations, instead of assumption-based, top-down costing "dictations" (allocations). When the company's financial and other activities are captured at the lowest level of granularity, the finance department can easily roll up profitability detail across multiple dimensions and look at the business from every angle.

The process is continuous. If you want to enable users to take action and make the changes that generate positive, measurable financial results, then looking and observing are not enough. Businesses are not passive enterprises. Learning is only the beginning; acting is the goal.

3. Integrate financial data into enterprise data
The third step to fully leveraging financial information is to integrate the detailed financial data with other business data across the enterprise. Given the millions of transactions and interactions a company can have every day with customers, suppliers and partners, the challenge can be substantial. But once a company has an enterprise view of its data, the analytics and opportunities are limitless.

These companies experienced success stories after developing an enterprise view.

• A large delivery service's corporate treasury organization used detailed retail transaction data to save money during contract negotiations with its credit and debit card clearinghouse. Managers now access daily financial data and can analyze workload demand patterns, both of which enable more effective work force scheduling, improved customer satisfaction and cost savings across 33,000 locations.
• A Swiss telecommunications company integrated its financial and business data to create a single view of the value of its customers across mobile, landline and DSL. It now implements business strategies based on an understanding of the products and services a customer uses.
• A $20 billion global technology company reduced inventory lead time from four months to three months, improving cash flow by millions of dollars.
• One of the world's largest railroad companies saw benefits across the entire organization, from saving $7 million in payroll audits to being better able to plan routes for rail cars and dramatically increase crew efficiency.

These companies exemplify how financial data can be used with enterprise data to make positive changes to the way a company does business. Once management has the right financial numbers, it can see how to take action to save costs, grow revenue and enhance productivity. Analytics can be operationalized to drive daily business decisions and accelerate business processes. Throughout the enterprise-from supply chain to customer relations-employees can have access to the information they need to make better decisions.

As the picture of an entire business becomes clear, the role of the CFO expands. Today, being a good CFO requires competency across the business areas of the company. It also requires an ability to both initiate discussions of how the business model ought to evolve and find innovative ways to drive additional profits.

As companies reach greater levels of knowledge and control, they will create computer-driven decision making tools to make event-triggered tactical decisions. Management becomes free to focus on the strategic direction of the company, with the goal of standardizing the company's processes and infrastructure to identify profit opportunities. That knowledge, in turn, can change the business culture.

The compliance factor
Changing business models, gaining competitive advantage and creating new profit opportunities are only part of the story. CFOs are faced with substantial demands in the form of new, strict standards from regulatory agencies. In the United States, for instance, such regulations take the form of the Sarbanes-Oxley Act of 2002.

Compliance criteria add urgency to the existing need to simplify, centralize and standardize systems, processes and data. Non-compliance is a major business risk. Failure to comply can result in loss of market capitalization, financial penalties for the company and personal liability to the leadership team.

The good news is that technology can help companies meet these new demands. By proactively meeting compliance requirements, companies can address inherent financial efficiencies and ultimately improve the operations and profitability of the whole business. T

Teradata's Financial Management Solution

Teradata provides a highly scalable, ERP-neutral data warehousing platform with patented data models. The Teradata Financial Management Solution (FMS) is supported by Teradata Professional Services expertise and partners, such as Hyperion and DecisionPoint Software, that offer complementary tools, applications and services. Teradata FMS features a multi-layer architecture that extracts, transforms and loads your financial systems data to a Teradata Warehouse; integrates your data using a financial management data model; and drives business value through analytical applications. The goal of the Teradata FMS is to address your key financial business improvement opportunities whether it's improving products and services, anticipating a customer's needs, changing a business model or changing the culture of a company. The benefits of knowing the real, detailed financial position of the company transfers to every division. When the whole enterprise is enabled and synchronized through a Teradata Warehouse, it can maximize opportunities, enable more effective decision making and increase profitability.

NCR sees the global picture

Until 1997, NCR operated its global business on autonomous country- and product-centric structures. Divisions in each country made their own decisions about marketing, pricing and product and service offerings, and they developed their own local processes and reporting norms. At NCR Finance, which is responsible for the company's global financial reporting, inconsistent core financial information, such as accounts receivable, inventory and general ledger, was stored in 57 separate financial applications. Decentralized processing, local reporting peculiarities, local data standards and independent data marts delivering independent analysis were stumbling blocks on the road to gaining a complete understanding of worldwide finances. Concurrent with the implementation of the Teradata enterprise data warehouse (EDW) initiative, NCR built a solution-oriented business model, creating business units responsible for each of the specific solutions. A consistent, simplified global process, based on detailed information, replaced the complex monthly matrix of summary reporting by country, solution portfolio, product line and industry. Management gained access to this information, along with a new view of the customer dimension, showing customers' true risks and value. Accounts Receivable streamlined its aging process and Accounts Payable improved cash flow by shifting days outstanding by 18 days, while ensuring the integrity of the supply chain. Advanced near real-time supply chain planning enabled complex order prioritization, inventory allocations and excesses, generating cost savings and improving cash flow. Real benefits include: $50 million reduction in annual finance controllership costs $200 million sustainable reduction in accounts receivable $100 million sustainable reduction in inventory levels Reduction of financial close cycle from 14 days to six days Streamlined worldwide processes Heightened financial reporting integrity

Ronald S. Swift is vice president of cross-industry marketing solutions for Teradata. He is an internationally known consultant, author, developer and strategist who assists hundreds of clients on five continents to achieve their business goals.