- As business changes, finance teams need to act swiftly to solve problems.
- Companies that can combine operational and financial data can extend their analysis.
- Funding and managing growth is one of the next big challenges for businesses.
It’s been another seismic year for business change. Many workers now call the home office the permanent office, while others have taken part in “The Great Resignation” to seek more flexible employment. The need to act swiftly to solve problems continues, as does the ability to consolidate operational and financial data in one place.
Decision-making is better when a companywide approach is taken and people need access to accurate data from anywhere. At Phocas, we find tailored, industry-focused solutions that simplify data management through powerful analytics and visualisation tools.
We are delving deeper into analysis using all our data so we can measure new metrics about important matters like our people’s wellbeing. We are all more familiar with online tools for selling and shopping – so we need to structure the data generated from every channel to anticipate customer behaviour and provide exceptional experiences.
Here’s a list of seven data trends compiled by Phocas in-house experts, customers and partners.
1. Finance at the centre of new operating models
To build value and provide products and services at a competitive cost, business leaders need to commit to new operating models. These models are a new way of running a business that combine digital technologies and operations capabilities to sustain higher levels of speed, collaboration, efficiency, flexibility and cross-functional participation.
Designing these next-generation operating models has become largely the responsibility of the finance team as the need to include financial data is paramount to their success.
Companies need to shift from running uncoordinated data efforts within silos to launching an integrated data program that reflects the needs of all people across the business. This will allow specialists (from sales to finance) to access information from the cloud and from hybrid work environments and to budget and forecast collectively with secure workflows and have the ability to communicate remotely about customer or supply chain issues.
The new operating model is not piecemeal per department, rather it needs to be companywide. Businesses need full data sets that can be sliced and diced by any department to make decisions and see results faster and more accurately.
2. New metrics – going deeper with analysis
While some traditional business KPIs are necessary, companies that can combine operational and financial data can extend their analysis to be more in tune with current working environments. These extended data streams in sophisticated data analytics and planning tools enable people to better understand key drivers of their business. This assists in directing business strategy and making better decisions based on deeper insight.
An exceptional employee experience is inextricably linked with a great customer experience. In 2022 organisations need to emphasise not only employee acquisition and retention but also measure and track variable headcount compensation models, human capital value add and annual leave balances. Dashboards of these metrics will make it easy to monitor and see trends. These new metrics will help retain talent, understand people’s contributions, build happier workplaces while positively impacting the customer experience.
Picture: Jordena Tibble CA, Product Expert, Phocas.
“In 2022 organisations need to emphasise not only employee acquisition and retention but also measure and track variable headcount compensation models, human capital value add and annual leave balances.”
3. More extended planning and analysis please (more xPA)
The acronym xPA stands for extended planning and analysis and the trend for business people is to do more of both – the planning and the analysis.
Leading companies are bridging the gap between operational and financial planning so they can integrate budgets and forecasts across all parts of the business. Budgeting and forecasting needs to be more regular and more disciplined which is achievable with purpose-built software. New budgeting and forecasting tools built on a BI platform can collect and store data from all parts of the business allowing budgeting to be repeatable and built-in workflows foster secure collaboration.
It’s not enough just to forecast inventory. A business needs to look at all the data and how inventory levels interrelate to sales. If a sector is not performing, companies need to act immediately. This analysis works both ways and where you have high performing areas, consider what you can do to facilitate further success.
When a business can link financial forecasts and planning into operational planning cycles, business people can get faster insights that are more forward thinking.
4. Supply chain KPIs have never been more important
Do you have any resilience in your supply chain? Supply chain disruption is real and wholesalers and retailers have seen 350% rises in transportation costs, ongoing delays and lost sales in the last couple of years.
The need to be on top of your supply chain key performance indicators is critical to maintaining margins and understanding how different suppliers are performing. In highly unionised businesses companies are opting for a blend of internal and external supply contracts so that disputes don’t cripple the supply chain further and for others. They are actively seeking local suppliers.
Specialised BI tools can be used to make it easier to track the trends in supply chain KPIs such as “supplied in full” or “delivery in full and on time” making it easier to see and consume the real issues.
5. Post-COVID bounce back requires a good handle on working capital
Many businesses will be pivoting from cost-cutting and survival to managing growth as the world comes out of COVID-induced hibernation. Growth brings with it a set of working capital challenges which, combined with supply chain pressures, will mean monitoring working capital KPIs becomes even more important than usual.
Funding and managing growth is one of the next big challenges for businesses. Spotting emerging adverse trends in working capital ratios ‒ such as inventory turn, days inventory outstanding, debtors days and days payable outstanding ‒ can provide early warnings of cash flow squeezes ahead.
One of the key challenges is the time and effort required to calculate working capital ratios and the need to identify trends over time in divisions, branches or business units.
Everyone managing business operations needs good visibility of these metrics so they can take the appropriate action to capitalise on the growth opportunities ahead.
Financial analytics tools can be an effective mechanism for the delivery of working capital metrics to key stakeholders such as branch managers. Having access to this information allows them to act quickly and decisively and then monitor the impact of their decisions as they ride the post-Covid growth wave.
6. ESG (Environmental, Social and Governance) reporting is a must-have
As the 2022 reporting season comes around, we need to see a rise in the ESG reporting maturity if businesses are going to better address carbon emissions and global warming, work together and lead to measurable change.
Companies need to accurately measure operational carbon footprint year on year and have more meaningful conversations internally and externally about where the challenges lie. They need to consider what can be learned from missed targets and how to embed these figures into financial statements.
There is not yet a consensus on a global standard for sustainability reporting. However, there are several well-recognised frameworks that support strong reporting. Global Reporting Initiative (GRI) reporting is preferred by many organisations and the Value Reporting Foundation (an amalgamation of some reporting bodies) is also proving popular.
For ESG reporting to be an effective driver of change, it needs to be understood as a critical part of the business cycle from strategy to execution to reporting. Reporting is an important opportunity for companies to reflect on their progress and review and reset sustainability strategies.
7. Driver-based budgeting is the smarter way to forecast
Company-wide financial literacy is necessary. So budgetary focus on items that the operational team controls will help educate people and get more buy-in of the budget process.
Driver-based forecasting links real resources such as quantity, hours and activities helps people relate the budget to their specific job goals and objectives. This technique streamlines the budgeting process and keeps engagement strong throughout the financial year.
Driver-based forecasting is outcomes-focused and demonstrates the impact of changes in key assumptions. For example, the number of items produced and the impact on other operational requirements such as production operator hours and supply chain requirements will be visible in your analysis. This method also leads to extended analysis which will help identify constraints within the business. Further, this will enable operational teams to get ahead of pressing issues such as the recruitment and training of more people, increasing production capacity or securing additional supply chain contracts.
Budgets based on operational inputs provide the added benefit of a more in-depth and useful budget to actual analysis. This type of budgeting makes it easier for the team to explain the “Why?” By referencing the operational inputs ‒ such as the variation in units produced plus financial inputs such as the price paid ‒ these drivers help people understand what happened during the period and reforecast accordingly.
Using purpose-built software that consolidates your financial and operational data into one source for analysis and planning can even make the forecasting process enjoyable. Systems that encourage collaboration and allow the use of formulas to reference key assumptions create a better and more relevant forecast. That both the operations and finance teams use.
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For more information about purpose-built financial software, go to Phocas Software website.