The Hackett Group: Companies Must Transform EPM To Support Innovation-Based Growth
2014 EPM Key Issues Study Identifies Three Key Transformation Focuses For Financial Planning & Analysis
MIAMI & LONDON, May 5, 2014 – With companies now focusing on innovation as a core strategy to deliver revenue growth and margin improvements, Financial Planning & Analysis (FP&A) organizations need to rise to the challenge and pursue broad transformation in Enterprise Performance Management (EPM) and business intelligence, according to 2014 EPM Key Issues research from The Hackett Group, Inc. (NASDAQ: HCKT).
The Hackett Group's research recommends three main areas of transformation focus for FP&A: integration of EPM processes and development of better business partnerships; improvement of core processes to recalibrate FP&A's value proposition; and development of better business intelligence capabilities.
"EPM and BI are critical competencies as companies pursue innovation-based growth," said The Hackett Group’s North American EPM and BI Executive Advisory Practice Leader Sherri Liao. "These competencies extend well beyond the FP&A organization. But the implications for FP&A are significant. There's a real requirement for organizations to rethink their value proposition and reinvent their service offering and decision support capabilities."
According to The Hackett Group Vice President of Strategic Research Erik Dorr, "Many companies have let these analytics areas fall by the wayside in the past. Over time, the business has grown, mergers and acquisitions have taken place, and markets and customers have changed. But the way they report and plan has not. They're left with outdated systems that don't generate real insights, compromising competitiveness. In today's business environment, this simply isn't something companies can afford to do."
For 2014, business volatility remains high and companies face significant risk and instability in areas such as competition, regulation, and talent. But companies are reverting to a focus on revenue growth and margin improvements, The Hackett Group's research found. Many are choosing innovation-based strategies -- which historically have been tied to the strategy of growth acceleration -- in order to simply maintain growth rates.
The Hackett Group's 2014 Key Issues research also found that overall finance budgets are expected to see only a small rise of 0.7 percent in 2014, while staffing is expected to be reduced by 0.3 percent. Once expected revenue growth of 6.7 percent is factored in, the result is expected to be an efficiency gap of 6 percent and a productivity gap of 7 percent. Therefore, it is expected that most FP&A transformation efforts will need to be self-funded.
The Hackett Group's research found that to improve the organizational EPM competency level, a broad FP&A transformation agenda is required, centered around the following three themes.
Integrate EPM Processes and Develop Business Partnerships
Financial planning and analysis is at the core of the enterprise EPM capability, which extends beyond finance. The maturity of EPM as a core competency is a function of integration between planning domains (strategic, operational and financial) and the maturity of partnerships between FP&A and the business.
The Hackett Group's research has consistently shown that companies with top performing EPM functions have much higher levels of process and data integration. Effective collaboration with stakeholders is also key, and the most successful companies emphasize both the structured process and information aspects of integration and the unstructured partnership elements.
Improve Core Processes to Recalibrate FP&A’s Value Proposition
FP&A is the custodian and owner of the organization’s core financial management control cycle: financial planning and budgeting, forecasting, and performance reporting, supported by analytics. Continuous improvement in this cycle is needed to improve service levels, achieve cost reductions, and address widespread frustration over the ineffectiveness and inefficiency of the annual financial budgeting process.
In three key areas -- annual budgeting and forecasting, analysis, and accuracy and timeliness of financial information -- more than half of all companies in The Hackett Group's EPM Key Issues study said they were either planning major initiatives or making improvement a top priority for 2014. Most are focusing on a combination of process improvement, technology enablement, and complexity reduction.
The Hackett Group's research also recommended that efficiency gains are necessary to free up resources to move up the value chain with a flat or declining cost base. Further, providing better value to the enterprise will rely on FP&A groups’ ability to better integrate and garner business operational knowledge to take their insights to the next level.
Develop Business Intelligence Information Delivery Capability
As the preeminent value-added information provider to the organization, FP&A is at the center of the business intelligence revolution. Often a driver and major contributor to kick-starting initiatives in these areas, FP&A is well positioned to help bring a focus on what matters in analytics, as well as bridge the gap between financial analytics and those in other business domains (e.g., sales, marketing, operations). Transforming and innovating the way information is delivered will become a critical capability for FP&A.
For years, The Hackett Group's research has found that business intelligence and analytics rank among the most important technology investments. This year's findings once again confirmed that.
The Hackett Group's EPM Key Issues research is based on a study conducted in late 2013. Study participants included executives from over 150 large companies globally. The study covered their business strategies, revenue and budget expectations, as well as key initiatives for 2014. A complimentary copy of The Hackett Group's research insight, "Key Issues 2014: Reinventing Enterprise Performance Management to Support Sustainable Innovation-Based Growth," is available with registration at this link: http://www.thehackettgroup.com/research/2014/reinventing-epm/
About The Hackett Group
The Hackett Group (NASDAQ: HCKT), a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice.