a complete view of the enterprise: linking operational and financial planning

A report prepared by CFO Research Services in collaboration with Business Objects, an SAP company

A complete view of the enterprise:Linking operational and financial planning in global organizations

MAY 2008 © 2008 CFO PUBLISHING CORP.

A complete view of the enterprise: Linking operational and financial planning in global organizations is published by CFOResearch Services, 26 Red Lion Square, London WC1R 4HQ.

CFO Research Services is part of CFO Publishing Corporation, which produces CFO magazine, and CFO titles in the Unit-ed States, Asia, China, India and Russia. CFO Publishing is part of The Economist Group.

May 2008

Copyright © 2008 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this reportmay be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.

A complete view of the enterprise:Linking operational and financial planning in global organizations 1

© 2008 CFO PUBLISHING CORP. MAY 2008

Contents

About this report 2

Executive summary and key findings 2

Section 1 — The integration imperative 4

Case study: 8Biogen Idec - Probability planning

Section 2 — The current state of 9affairs - spreadsheets reign

Case study: 13NMHG - The fruits of integration

Section 3 — A desire to improve 14

Case study: 16Sykes - Home improvement

Conclusion 17

Study methodology 17

Sponsor's perspective 18

2 A complete view of the enterprise:Linking operational and financial planning in global organizations


Executive summary and key findings

CFOs, as the gatekeepers of forecasting and planning,are under pressure as never before.

Traditionally finance leaders have typically provided oneview of the enterprise to their executive team andinvestors – the financial view – through familiar key per-formance indicators such as revenues, costs, cash orworking capital. Financial indicators, while crucial ofcourse, often describe reality as it was, a historic snap-shot.

Precise forecasting – explaining what is likely to happenand why – requires many different views from variousdepartments or “lenses” within the business. Trackingnon-financial operational indicators, from marketing,sales, HR or R&D, tells you what’s coming around thecorner. Increasingly it falls to the finance department tomake the links between forward-looking data from coreoperations, and explain to stakeholders how this willimpact the P&L, balance sheet and cash flow statement.

But why now? What is driving the finance department tobecome, in essence, a hub for the integration of financialand non-financial data in forecasting and planning?There are four main factors.

First, technology has made it possible. New andimproved applications offer “one version of the truth” forthe CFO, a combined vision of performance managementthat includes linkages between financial performanceand their underlying operational drivers. The functional-ity of these applications makes standalone spreadsheetsseem obsolete by comparison.

The second reason is related to the first. As it becomespossible to see a “complete view of the enterprise”and the value of this holistic view becomes evident,many executive teams and directors have come toexpect and demand it.

Third, investors and regulators are becoming more

informed and sophisticated, with governments aroundthe world adding more requirements for forward-lookinganalysis, and investors soliciting more detailed informa-tion on operational and reputation risks that will ulti-mately affect the bottom line and the value of theirinvestment. In the European Union, for example, therecently implemented Accounts Modernization Directiverequires companies in the region to produce a “director’sreport” covering both the future risks a company facesand analysis of key non-financial and financial perform-ance indicators. Linking operational with financial plan-ning is therefore essential if companies are to meet newreporting requirements efficiently and effectively.

Finally, in times of economic uncertainty, companies areinsisting that CFOs lead the effort to make their opera-tional and financial planning more agile, detailed, reli-able and efficient.

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In February 2008, CFO Research Services, a unit of CFOPublishing and part of The Economist Group, began aresearch project with Business Objects, an SAP company,asking senior finance executives to give views on their pri-orities and challenges around integrating operational andfinancial planning processes.

The report is based on the results of an online survey ofmore than 400 senior finance executives in the US, UK,Germany and France, and in-depth interviews conductedwith CFOs of the following companies:

• Biogen Idec• Designed Alloy Products Inc.• Gemalto• Goodrich Primary Flight Control • Hager• Mustang Engineering• NMHG• Sykes• Timken• United Biscuits

Two confidential interviews were also conducted with a Frenchmultinational and a German consumer goods company.

CFO Research Services and Business Objects developedthe scope of the research jointly. Business Objects fundedthe research and publication of our findings, and CFOResearch Services would like to acknowledge the BusinessObjects team for its input and support.

CFO Research Services and Business Objects would alsolike to thank all the finance executives who took the time toshare their valuable views with us.

This research was commissioned to understand howCFOs are responding to these pressures. How integrat-ed are operational and financial planning systems andprocesses today? Are CFOs satisfied with their planningprocesses? What planning tools are proving most effec-tive – and what tools are falling short of expectations?What steps have CFOs taken and what are the benefitsof integration for those who’ve already achieved it?

Overall, integration of financial and non-financial plan-ning remains elusive for most CFOs in the survey, asmany rely on spreadsheets, rather than applications thatoffer a complete view of the business. The research, how-ever, provides evidence that more CFOs should considermaking the investment. In the survey, for example, thereare clear differences in satisfaction between those whointegrate operational and financial planning and thosewho don’t. Moreover, the CFOs who were interviewed indepth are clear about the tangible benefits that integra-tion brings.

Six key findings:

Increased planning accuracy

is the number one goal

Planning accuracy is the top priority on CFOs’ perform-ance management agenda. This could be a reflection ofthe times in which global economic uncertainty, creditrisk, and rising commodity and raw materials prices allcombine to make planning more difficult and moreimportant. CFOs know that in a volatile business envi-ronment, investors and executive teams will rely on themeven more than usual to provide accurate, evidence-based forecasts on a more frequent basis.

When it comes to planning tools, the number

one priority for respondents is “planning,

reporting and analysis in one system”

Having planning, reporting and analysis in a single sys-tem ranked the highest, although ease of use for non-financial users and driver-based modeling functionalitywere also important, according to respondents.

Planning remains fragmented,

and this is causing dissatisfaction

Just one in five CFOs surveyed said that their planningprocesses were “highly integrated”. A similar numbersaid operational and financial planning is conducted onthe same system at their company. Most organizationsemploy a patchwork of planning tools, from CRM sys-tems to Excel spreadsheets. It’s no wonder then, thatjust one in 10 are “highly satisfied” with their operationalplanning tools.

Spreadsheets reign, yet satisfaction is low

Spreadsheets are the most widespread tool used for alltypes of operational and financial planning activity, yetsatisfaction with tools is highest among those usingpackaged applications, not spreadsheets. Also, telling-ly, the use of spreadsheets is highest in the US, wheresatisfaction levels are lowest; spreadsheet use is lowestin Germany, where satisfaction levels are highest.

Forecasting processes are

time-consuming and cumbersome

A quarter of CFOs described their company’s planningprocesses as “streamlined”, and almost 40% called theirprocesses “time-consuming”. Just 2% of CFOs stronglyagreed that “performing an enterprise-wide, bottom-upreforecast is a quick and easy process.”

CFOs see process change and the level of

monetary investment required as the

barriers to integrated planning.

But tangible benefits await for

companies that take advantage

The process changes and costs involved in improvinglinks between operational and financial planning, plusthe distraction of other business projects, are the biggesthurdles facing firms striving for greater integrationbetween operational and financial planning.

Yet the survey and in-depth interviews show that compa-nies who overcome the challenges, see tangible and last-ing returns.

3




SECTION 1 —The integration imperative

Overview: • Increased planning accuracy is the numberone goal for performance management over the nexttwo years. • CFOs say that the biggest benefits of inte-gration are reducing planning and reforecasting times,and raising the accountability of divisional managers. • Just one in five CFOs says that planning processes attheir company are currently “highly integrated”. • Integration is highest among German companies,which use spreadsheets the least, and lowest among USfirms, which use spreadsheets the most.

Fully integrating operational and financial planningprocesses has long been a Holy Grail for CFOs. Now,however, attaining this Holy Grail is more important thanever before, as CFOs struggle to stay ahead of rapidlychanging market conditions. “There’s a lot of uncertain-ty there,” says Kevin Maher, controller at US-based steelcompany Designed Alloys, of the current global econom-ic environment. “You can struggle for months, and thenfind that once the project is issued, it’s useless becausethe macroeconomic situation has changed.”

Indeed, 24% of our survey respondents said that“increased accuracy of planning” was the performancemanagement goal with the most significant potentialbenefit for their organization over the next two years.(See Chart 1.)

A commercial advantage

CFOs in the survey believe there are hard commercialbenefits to integrating operational and financial plan-ning systems. An overwhelming majority said that

greater integration would lead to improvements in a hostof areas including improved accuracy of financial plans;

increased collaboration across the enterprise; greaterresponsiveness to change; better alignment of planningwith strategic objectives; and a reduction in the practiceof “gaming”. What’s more, CFOs believe that the biggestimprovements of all would be in reducing planning andreforecasting cycles, and in raising the accountability ofdivisional managers. (See Chart 2.)

A managing director at a consumer goods companybased in Germany, believes that migrating to a com-bined operational and financial planning applicationwould not only speed up the forecasting process, butalso open up a new range of forecasting opportuni-

> Chart 1 – Accurate planning is top priority.

Thinking about your goals for performance management

over the next two years, if you could make any of the fol-

lowing improvements, which ones would have the most

benefit for your organization?

Increased accuracy of planning

Better riskmanagement

Better alignment of targets with the

corporate strategy

Better alignment of targets with underlying

business drivers

Increased attention toregulatory compliance

More attention to cost control

0

24%

20%

23%

15%

2%

2010 155

16%

5


> Chart 2 – Major improvements for the business.

If your organization could achieve more integration between financial and operational planning, what impact would it

have on the following?

No improvementSome improvementMajor improvement

0 4020 6010 5030 80 90

Time to complete plan/reforecast cycles

Accountability of divisional managers

Workforce efficiency

Collaboration across the enterprise

Responsiveness to change

Accuracy of financial plans

Alignment with strategic objectives

Employee satisfaction

Risk management

Profitability

Reducing “gaming” (eg. lowering revenue targets to make them easier to achieve)

Revenues

15% 45% 40%

12% 49% 39%

13% 53% 34%

12% 55% 33%

15% 53% 32%

9% 61% 30%

18% 54% 28%

20% 53% 27%

20% 55% 25%

21% 60% 19%

36% 45% 19%

31% 52% 17%

70



ties. “It’s more a question of having more possibili-ties to make reports, to make checks, to analyze thefigures compared to a spreadsheet,” says the man-aging director. “It’s not so much a timing issue. Youhave simply more possibilities.”

CFOs interviewed for this study say that the impera-tive to link operational and financial planning will onlyget stronger in the future. “The pressure of getting[the forecasting process] better, faster and more accu-rate will just grow and grow,” says Jeff Van Der Eems,CFO and COO of UK-based food producer United Biscuits.

Unfinished business

While CFOs clearly believe that the integration ofoperational and financial planning would bring a mul-titude of benefits, across all countries surveyed, justone in five CFOs said that their planning processeswere “highly integrated.”

German companies appear to enjoy the most tightlyintegrated financial and operational planning: 26% ofGerman CFOs said their firms’ planning processes were“highly” integrated, with just 7% saying that they were“not at all” integrated.

Meanwhile, US CFOs were most likely to view their firms’integration levels as low. One in four said that their com-panies’ planning processes were not at all integrated,with just 12% saying they were highly integrated. (SeeChart 3.)

Moreover, fewer than one in five CFOs surveyed – 18% –said that operational planning in their organization isconducted in the same application as financial planningand budgeting.

> Chart 3 – Still work to do

How would you rate your organization’s level of integration

of financial planning with operational planning?

Not at all integratedSomewhat integratedHighly integrated

16%

65%

19%

While CFOs clearly believe that the integration of operational and financial planningwould bring a multitude of benefits, most companies have yet to achieve this goal.Across all countries, just one in five CFOs said that their planning processes are “highlyintegrated.”

7


A third of respondents said that the financial details ofoperational plans are re-keyed into financial and budget-ing applications, with a further 35% using spreadsheetsfor both operational and financial planning.(See Chart 4.)

Many of the CFOs interviewed for this report explainedthat linking financial and operational planning at their

companies was very much a “work in progress”, andoften a patchwork, with some areas of the businesslinked up more than others. For example, Ian Marsden,European financial controller at industrial componentsmanufacturer Timken, says that supply chain manage-ment is indeed handled by an integrated system. “Weenter forecast orders, for example, and that drives ademand by product, which is then fed back to the differ-ent manufacturing plants that would supply supplierswith individual products,” he says.

But when it comes to overall operational and financialplanning, Timken’s systems vary by region and businessactivity. “We’re in the process of a global ERP installa-tion, which is partly [focused on] standardizing businessprocesses and transactions, and also improving supplychain management,” he adds.

Fulfilling the vision?

We have seen evidence that improved planning accura-cy is high on the CFO agenda, and that finance leadersrecognize the significant improvements that integrationof financial and operational planning can bring to theorganization. Yet, many are falling short of their goals.In the next section, we examine exactly what’s wrongwith current processes, before turning to how the situa-tion can be improved.

> Chart 4 – Outside the system

Which statement best describes the linkage between

operational planning and financial planning systems at

your organization?

33%

34%

15%

18%

Operational planning is done in separate tools or applications and resulting financial detail is re-entered into our main financial planning and budgeting applicationWe do both operational and financial planning and budgeting in spreadsheetsOperational planning is done in the same system that is used for financial planning and budgetingOperational planning remains outside of our financial planning and budgeting process

“Finance leaders recognize the significantimprovements that integration of finan-cial and operational planning can bring tothe organization.”



“We want to make sure that we partner with operations, that we provide them withsupport and also get quality information in numbers so that we are propagating trulywhat we believe is reality. The days of us versus them, of finance and the business existing at loggerheads, those are in the past.”

How do you plan and forecast when your company's mainbusiness is essentially a black box? Very carefully. “Obviously,the complexities on the forecasting are multi-fold on the R&Dside,” says Steven Rosen, director of finance and control atBiogen Idec in the United States. The biotechnology companydevelops new drugs, a process that can take years to progressfrom the laboratory to testing to clinical trials to governmentapproval. “It's a very binary situation for us, unlike a lot of[non-biotech] companies where you can be somewhat or par-tially successful. Ours is typically pass or fail.”

The company must also keep an eye on the political winds inits various markets because healthcare is a heavily-regulat-ed industry, particularly in the United States. “Pricing, that'sprobably the greatest area of risk and complexity in terms offorecasting,” says Rosen. “For example, if the US presidencymoves from the Republican to the Democratic Party nextyear and some of the nationalized health care policies thathave been proposed happen, that will have a profound effecton our revenue.”

Biogen's approach is to take what Rosen calls a “probabilisticview” in planning and forecasting by mining past experienceto estimate the chances of success of all the drugs it has in thepipeline. “We take something from pre-clinical to phase one tophase two to phase three of clinical trials, and so on throughthe testing process,” he explains. The units doing clinical trialsplug the probabilities into the rolling reforecasts that theymake almost on a weekly basis. “If the clinical trial goesamiss,” says Rosen, “that has a profound effect on this year'sexpense and obviously on our long-range plans as well.”

Biogen currently makes full forecasts every quarter, but thereare plans to do the exercise monthly. “It has become apparent

that, from a senior management perspective, there's a need tohave greater and more frequent visibility,” says Rosen. “Andwe've gotten better at [integrating] finance and operations,although I wouldn't say it's a 100% perfected structure.”

Using its ERP system, the company has developed an integrat-ed operational and financial planning process that has mar-keting working with manufacturing on matching supply withforecast demand, with finance joining the conversation.

However, the clinical trial unit uses a separate specialist plan-ning application because it has concluded that the blueprint inthe ERP system designed to assist in clinical trial planning isnot robust enough at this time. Customer relationship man-agement is also on a separate application. As a result, data onclinical trials and CRM is generated outside of the ERP system,and then manually loaded into the planning application.

“There are risks associated with data integrity,” Rosen con-cedes. “Having one version of the truth, having everything onthe same common system, common assumptions and so forthis directionally where we want to go. We have actually madesome good progress in certain areas. All of the standard oper-ating expenditures are now planned directly into the system,for example. But it's a battle.”

His focus is on moving the planning and forecasting processonto a monthly cycle, and also to further integrate financeinto the system. “We want to make sure that we partner withoperations, that we provide them with support and also getquality information in numbers so that we are propagatingtruly what we believe is reality. The days of us versus them,of finance and the business existing at loggerheads, thoseare in the past.”

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9


SECTION 2 —The current state of affairs -

spreadsheets reignOverview: • Spreadsheets are the most widely usedplanning tool for all types of operational and financialplanning activity. • CFOs using packaged applicationsfor operational planning are more satisfied than thoseusing spreadsheets. • The time-consuming and meet-ings-intensive nature of linking operational and finan-cial planning are key sources of dissatisfaction.

Spreadsheets are by far the most ubiquitous planningtool for most types of financial planning, as well as oper-ational activity, from strategic planning, to forecasting,to supply chain management, according to our survey.(See charts 5 and 6.)

Yet a number of CFOs we interviewed are keen to cutback on the use of spreadsheets at their company. “It’sone of the things that you try to stamp out,” says

United Biscuits CFO and COO Jeff Van Der Eems.“Inevitably there are a lot of spreadsheets but we try tominimize that. And it really varies, function by function,as to who is more adept at using central planning tools.That’s human nature.”

In some areas, companies have apparently been suc-cessful at reducing spreadsheets. They were least likelyto be used for production, supply chain and customerservice planning.

US firms are most likely to use spreadsheets for all typesof financial planning and most forms of operational plan-ning. Spreadsheet usage is lowest across all planningactivities in Germany. But even here, spreadsheets aremore widely used than any other tool, with two excep-tions: packaged applications are the most prevalent toolfor production planning among German organizations,and packaged applications outstrip spreadsheets forsupply chain planning.

Meanwhile, the particularly high use of spreadsheets in

> Chart 5 – Financial planning - spreadsheets versus packaged applications

What is the main tool your organization uses for the following financial planning activities?

SpreadsheetsERP systemPackaged planning and budgeting applicationCustom/bespoke (in-house)

0 4020 6010 5030 80 90

Strategic plan (which includes high level financial targets)

Financial plan/budget

Forecast/reforecast

63% 10% 15%

46% 17% 24%

54% 14% 20%

12%

13%

12%

70



the US could help to explain relatively high levels of dis-satisfaction with the speed of the reforecasting process

among American CFOs. Conversely, relatively high useof packaged planning systems for IT, customer serviceand supply chain planning in Germany and France cor-relates with higher satisfaction levels for operationaltools in these countries.

In short: fragmented spreadsheets appear to lead to dis-satisfaction, while packaged planning systems of allkinds win CFOs’ approval. Indeed, CFOs using packagedsystems for financial planning are also more likely to besatisfied with their operational tools.

> Chart 6 – Operational planning - spreadsheets versus packaged applications

What is the main tool that managers in your organization use to create operational plans in the following areas of the business?

SpreadsheetsERP applicationSpecialized operational planning applicationPackaged budgeting and planning applicationCustom/bespoke (in-house) application

0 4020 6010 5030 80 90

Marketing

63% 9% 8% 6%

70

14%

Sales

52% 15% 10% 8% 15%

Supply chain

44% 24% 12% 8% 12%

Production

41% 26% 10% 7% 16%

Customer service

50% 17% 10% 7% 16%

IT

53% 16% 10% 7% 14%

HR

54% 16% 8% 8% 14%

Other operations

61% 14% 5% 9% 11%

“What integration [of financial and operational planning] has helped us do is to be quicker and more effective with our launches and toscreen ideas much more closely, quickly dropping ideas that aren't likely to work, and making sure we accelerate the ideas thatmake the most sense.”

11


Moreover, as Jeff Van Der Eems of United Biscuits hasdiscovered, improved integration not only enhances theforecasting process, but the innovation and productdevelopment process, too. “What integration [of finan-cial and operational planning] has helped us do is to bequicker and more effective with our launches and to screenideas much more closely, quickly dropping ideas thataren’t likely to work, and making sure we accelerate theideas that make the most sense,” he says. “As you’redeveloping from concept to product launch, there are a lotof decisions to make. Making sure you’ve got the rightinvestment principles and the right financial standards inplace makes it go quicker.”

Satisfaction linked to packaged

planning systems

It’s clear from the survey that companies using packagedplanning systems as their main operational planning tool

are far more likely to be satisfied. Nearly three in fourrespondents are satisfied or very satisfied with packagedplanning and budgeting applications. In contrast, just7% of firms that use spreadsheets as their primarystrategic planning tool are highly satisfied with theiroperational planning tools – with only 46% satisfied tosome degree. (See Chart 7.)

However, Steven Rosen, director of finance, operationsand control at US biotechnology firm Biogen Idec,points out that satisfaction levels of 100% will inevitablyremain elusive for companies whatever tools they use:“It would probably not be a fair statement to say [oursystem] always works perfectly, and frankly if anyonetold you it works perfectly at their company, you can letme know the name of the company; I’d love to go workthere. But we’re aware of the need to get better.” (Seecase study, page 8).

> Chart 7 – The key to satisfaction?

In general, how satisfied are you with the tools your organization uses to create operational plans?

Highly satisfiedSatisfiedNeither satisfied nor dissatisfiedDissatisfiedHighly dissatisfied

0 4020 6010 5030 80 90

Spreadsheets

7% 39% 29% 22%

70

3%

ERP system

32% 55% 11% 2%

Packaged planning and budgeting application

11% 62% 16% 11%

Custom/bespoke (in-house)

15% 44% 31% 8% 2%



What’s causing the dissatisfaction? A significant pro-portion of our survey respondents said that theprocess their company currently uses to link opera-tional planning with overall financial planning andforecasting is time-consuming and requires large num-bers of meetings, emails and exchanges of files. Justone in four described the process at their firm as“streamlined.” (See Chart 8.)

The picture is not all doom and gloom, however: 53%of respondents said that it was a “collaborative”process, with a quarter claiming that it requires rela-tively few meetings. Once again, CFOs in the US showthe starkest signs of dissatisfaction: 55% believe that theprocess of linking operational with overall financial plan-ning is time-consuming, compared to just 26% of theirFrench peers.

However, some CFOs argue that an integrated opera-tional and financial planning process should by defini-tion be time-consuming, because it needs the hands-oninvolvement of managers from across the business inorder to be effective. “The forecasting process as we seeit is necessarily time-consuming,” says Ulrich Pelz, CFO

of Hager, a voltage distribution and electric equipmentmanufacturer. “It would not be sufficient to involve onlyfinance and controlling staff; we need to consider thetechnical expertise and market knowledge of our opera-tional people in order to produce some meaningful out-come beyond figures.”

Wolfgang Messner, finance director for Central and East-ern Europe at Sykes, a Nasdaq-listed technology firm,agrees. “It is time-consuming, but it is one of the mostimportant aspects of the business. If you have controlover your figures, then you have control over your busi-ness, you enjoy trust and a certain degree of entrepre-neurial freedom. If you do not have control over your fig-ures, management will narrow down this leeway andincreasingly take over for you, until you are out.” (Seecase study, page 16).

Another bone of contention among CFOs is the lackof agility in the reforecasting process at their com-panies. The majority of respondents disagreed withthe statement: “Performing an enterprise-wide, bot-tom-up reforecast is a quick and easy process.” (SeeChart 9.)

> Chart 8 – Collaborative, yes, but time-consuming

Which of the following descriptions apply to the process your organization follows to link operational plans with overall

financial plans and forecasts? (% of respondents applying the description)

Streamlined

Time-consuming

Collaborative

Non-collaborative

Requires many meetings

Requires relativelyfew meetings

Requires large volume ofemails and file sharing

Requires relatively fewemails and files

10%

42%

53%

10%

32%

32%

15%

26%

0 20 30 40 5010

13


One CFO in France blamed fragmented systems for thetime-intensive nature of reforecasting at his firm and islooking forward to the arrival of an ERP application inOctober. “Every time we try to do something special, weare wasting time,” he says. “For example, this morningI had a meeting [about the cost of buildings and land]. Ihad to check inside all my paper invoices to get the infor-mation. I cannot get it [using Excel from the mainframe].With ERP, it will be much easier to get this information.”

The research confirms that spreadsheets have a hold incompanies, even when their many deficiencies are takeninto account by CFOs. In the next section, we’ll examineexactly what CFOs want in a business planning tool, lookat the main barriers to integrating financial and opera-tional planning, and examine the main barriers to integration.

> Chart 9 – Not so quick and easy

Is performing an enterprise-wide, bottom-up forecast a

quick and easy process?

16%

41%

22%

2%

19%

Strongly disagreeDisagreeNeither disagree nor agreeAgreeStrongly agree

To understand how financial planning that’s reasonably inte-grated with operational planning benefits a company, listen toSteve West, vice president of finance for EMEA at US$2.3-bil-lion-a-year NACCO Materials Handling Group (NMHG), one ofthe world’s leading makers of fork-lift trucks. “The biggestimpact is on our ability to increase or change outputs in the fac-tories in response to changes in the sales marketing forecast,”he says. “I think that’s a key area that everyone strives for; theability to quickly change production volumes efficiently andeffectively as a result of changes in sales and marketing.”

If end-user demand were to rise overnight by 20%, for exam-ple, dealers would be placing higher orders at short notice. Acascade of planning and forecasting changes must occur at alllevels of the company if NMHG is to retain and even increaseits market share. “We have detailed planning meetings wherethese sorts of things are discussed, so the information will bedisseminated,” says West. Factories would take the input, re-plan and respond. Human resources would look into addition-al staffing. Finance would allocate additional working capitaland possibly more spending on equipment, and come up witha new P&L and balance sheet off the back of the changes.

Technology helps knit the various processes together.“Essentially for the short-term [annual] plan, it’s more orless spreadsheet-based,” says West. “For operational plan-ning, we have a system for scheduling the factories. Ourledgers are ERP, so it’s a slightly different platform there,

but there are planning elements in ERP that we use as a toolfor day-to-day planning.”

Fast-moving companies like retailers or manufacturers of per-ishable goods might find the timing unacceptable, but NMHGis in a relatively slow-moving space – the technology for fork-lift trucks is more or less mature, and materials and parts aredurable and can last for decades. “In the main, our system isfairly responsive to what we need,” says West. “There are vari-ous interfaces that link [the various platforms] all through. It’sfairly easy, actually. For example, for planning purposes, we’regetting numbers out of the books within three or four days afterthe month’s end. That’s not late for planning.”

“But there’s always ground for improvement,” he concedes.For West, the ideal solution is what he calls “a cradle-to-gravesystem that links all the financials with the operational side,with short and long term planning. How quickly could that beachieved? We’re probably talking about a number of years.”

Another consideration is the continuous improvement beingdone by vendors of its existing systems. The company is alsofinding new ways of using existing tools that it did not exploitearlier as a result of hiring consultants and sending its ownpeople on training courses. As a result, says West, the currentplanning and forecasting system has in the past 18 months“become better understood and more slick in terms of gettinga finished product out in the end.”

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SECTION 3 —A desire to improve

Overview: • CFOs’ number one priority for a businessplanning tool is linking planning, reporting and analysisin one system. • Many CFOs interviewed are takingactive steps to improve the integration of operationaland financial planning at their company. • The mainbarriers to integration are process upheaval, perceptionsof high costs and the fact that other business projectsare taking precedence.

Many of the CFOs interviewed for this report expresseda strong desire to improve the integration of operationaland financial planning processes at their organization.Here is Steve Rosen’s vision of Biogen Idec’s forecastingprocess in the near future: “I see us having a very tight-ly integrated operational as well as financial exercise,where the data integration between IMS, CRM or clini-cal trials is seamless, either directly integrated into oneenvironment, or seamlessly integrated through an enter-prise application strategy so that it’s all in a commondata warehouse and very easy to source, depending onwhich user is using it.”

Ian Marsden, European financial controller at Timken,has his sights on a similar goal: “I think the expectationsare that we’ll have better visibility of demand changes inthe future, and the ability to match them with produc-tion schedules, so that we can be more responsive tochanges and demand and also better able to serve twodifferent types of customers.”

The survey certainly revealed a desire among CFOs to take the steps necessary to achieve greater integration:linking planning, reporting and analysis in one system istheir top priority. (See Chart 10.)

“Ease of use for non-financial users” was also widelycited as an important capability for a business planningtool: 57% of CFOs put this in their top three planning toolcapabilities out of a list of seven choices. This reflects thewidespread desire among CFOs to make staff across thecompany more “financially knowledgeable.” User-friendly planning tools can help them to achieve this,while at the same time integrating operational planningdata with financial information. The benefits are many,including faster decisions, reduced reliance on the ITdepartment and broader acceptance for new toolsthroughout the organization.

> Chart 10 – The number one priority for a business plan-

ning tool (% ranking the item number one)

Driver-based modelingfunctionality

Planning, reporting, andanalysis in one system

Ease of use for non-financial users

Flexibility to accommodatedifferences in operational

departments

Ability for large numberof users (i.e. thousands)

to access the system

Workflow tomanage process

Offline capabilities toallow planning while not

connected to network

18%

38%

19%

15%

3%

2%

5%

0 20 3010

“‘Ease of use for non-financial users’ was alsowidely cited as an important capability for abusiness planning tool.”

15


According to Wolfgang Farkas, finance director atGoodrich Primary Flight Control, it is particularly impor-tant to give HR departments the tools – and know-how– they need to access and update integrated planningsystems. “Finance and HR are working closer together,and finance uses its experience to assist HR a little bit tofind its way through the software. As a team, finance hasto help HR sometimes with the technical side of it,” hesays.

Barriers to integration

So what obstacles do CFOs face on the way to their goalof complete operational and financial planning integra-tion? One third of respondents felt that it would require“too much process change” to their current approach tothe planning process. Another third said that the needto buy and install a brand new system is the biggest hur-dle. The remaining third said the investment needed tomodify their firm’s existing system is the biggest barrierto fully integrating operational and financial planning.(See Chart 11.)

Kevin Maher, controller at Designed Alloys in the US,encapsulates the thought-process of many CFOs: “Weeither need to make enhancements to the configurationof our existing system, which can be painful and costly,or we need to consider the necessity of a new system.”

When it comes to improving processes to allow for bet-ter integration of operational and financial planning,46% of CFOs said that other, more pressing, projects arethe main obstacle.

Wolfgang Messner, finance director for Central and East-ern Europe at technology firm Sykes, adds that in somecountries, it may not be possible to integrate HR func-tions into an over-arching ERP application, because suchapplications cannot always handle local regulatoryrequirements. “For example, for Germany, you cannotdo German payroll accounting in the system we usebecause there are legislation-specific requirements inGermany that the system cannot cover,” he says. “Thisis true for three or four other countries. So at this point oftime, at least, HR is not integrated.”

Although CFOs in this study rightly point out that sys-tems can never be perfect, and that integration offinancial and operational planning can involve invest-ing time and money, especially when other projectscompete for those same resources, the evidence in thisreport suggests that the benefits of taking the plungewill return significant dividends. These include moreaccurate forecasting that is automatically tied to theunderlying drivers in the business, greater efficiency asemails and meetings take up less of finance’s valuabletime, and better relationships with colleagues in oper-ations by automatically linking operational planningwith the financials.

> Chart 11 – Which of the following best describes the

main barrier preventing your organization from

achieving more integration between financial and

operational planning?

33%

33%

34%

It would require too much process change to our current approachIt would require significant investment to modify our current systemIt would require a new system



Wolfgang Messner, finance director for Central and EasternEurope of Sykes, a Nasdaq-listed company that providesmanpower and technical support knowledge to the contactcenters of high-technology companies, is proud that thedeviation between monthly forecasts and actual results atthe firm is usually less than 5% even at profit center and costcenter level. “But there is still room to improve,” he says. “Iwould say that we are at maybe 85% of where we want tobe.” The two areas for improvement are in forecasting at theindividual account management level, and in planning andforecasting software.

Forecasting at Sykes is done from the bottom up, starting withthe person responsible for each client’s activities. “There’sroom to improve the knowledge and understanding of the peo-ple who forecast, their awareness of their decisions on theoverall company performance, and the impact they make onother operations and other sites,” says Messner. “There arereally great people who have entrepreneurial thinking andrealize connections between activities and departments, andoperating sites but others are not yet there.”

To help them, Sykes holds formal meetings called accountreviews, where the account managers in each site—four inGermany, one in Slovakia and another in Hungary—discusstheir forecasts, action plans and other activities so everyoneelse knows what is going on while learning about solutionsand procedures for similar issues that he or she may be facing.There’s also a Center of Training and Quality that documentsthe company’s best practices, including forecasting and plan-ning, and spreads them across the organization.

The second area of improvement is the technology for theplanning process. Sykes is in the early stage of implementingnew software to replace the current application, whichrequires the use of spreadsheets. “It’s now more important toget additional information into the [current] tool in order tomake the data available in a more standardized form and notvia an aggregating exercise,” Messner explains. “There arestill too many spreadsheets. Excel is good, it’s flexible and fastin a certain way, but it’s a lot of manual work.”

However, certain functions in the European operationsare not integrated into the ERP system, which has beeninstalled across Sykes’s offices worldwide. There are cer-tain legislation-specific payroll-accounting requirementsin Germany that the system cannot cover, for example. InEurope, HR holds this data in a separate system, butfinance generates its own numbers as well because HR’sprocessing methods and cut-off periods do not quitematch finance’s requirements. The two sets of HR num-bers sometimes do not match. “Basically HR data is inte-grated, but we do it twice,” says Messner. “There is roomfor improvement.”

Still, he believes that finance and operations are reasonablyintegrated. “There’s one simple principle which is very impor-tant in our company, and that is that actual figures are theresponsibility of finance, while forecast data is created byoperations,” says Messner. “Each side questions or challengesthe data, corrects it, explains it, defends it. This is done at themost basic level, with the account managers discussing withthe local finance manager, then the discussion goes all the wayup the hierarchy to the CEO. This is mainly why we have suchsmall deviations in our forecasts, because everybody is awarethat if deviations are larger, then they will run into big discus-sions.”

Can the accuracy of the forecasts still be improved? Only up toa point, says Messner, because an important piece is essen-tially outside the company’s control. This is the clients’ ownforecasts. When a customer launches a marketing campaignor advertisement on TV, for example, inquiries to the contactcenters typically surge. If these plans are not communicatedto Sykes, the contact centers would have to scramble to dealwith the unexpected increase in call volumes. The gapbetween the monthly forecast and the actual sometimes goesbeyond 5%. “If a client’s forecast was not good, that’s excus-able,” says Messner. “What we don’t like are surprises thatare caused internally, such as someone getting his costswrong.” That may indicate that the person does not havecomplete control over the business, or is perhaps manipulat-ing his or her results.

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ConclusionOur survey findings and in-depth interviews provide clearevidence that the appetite for improving the integrationof operational and financial planning is strong amongCFOs in large multinational companies. Finance leadersbelieve that integrated planning processes would bringa host of tangible business benefits including more accu-rate plans and reduced budget cycle times.

However, our findings also show that most firms remainsome distance away from achieving full integration.Spreadsheets continue to be the most widespread toolfor most types of operational and financial activity, eventhough in our survey the use of spreadsheets is linked todissatisfaction with planning and forecasting. Moreover,the survey shows satisfaction levels rise when compa-nies use packaged planning systems as their main oper-ational planning tool.

Although most companies’ planning processes remain apatchwork quilt rather than a seamless system, the evi-dence from our in-depth interviews shows that CFOs aretaking concrete steps to improve integration. Yet signifi-cant barriers stand in the way: not least perceived highcosts and the pressing nature of other business priorities.

CFOs realize, though, that the imperative for greater inte-gration will only get stronger in the future. They knowthat the journey to seamless processes won’t be easy. Butthat isn’t going to stop many CFOs from making it.

Study methodologyCFO Research Services surveyed more than 400 seniorfinance executives in the US, UK, Germany and Francethrough an online survey conducted in March 2008.Responses came from a cross-section of all major indus-tries. The following is further demographic informationabout the respondents.

> Chart 12 – Job title

5%

31%

2%

2%2%

14%

16%6%

22%

CEO, president or managing directorChief Financial OfficerEVP or SVP of financeFinancial controllerVP of financeDirector of financeTreasurerChief accountantOther

> Chart 13 – Annual revenue

23%16%

15%

13%

12%

21%

Under $100m$100m-$250m$250m-$500m$500m-$1b$1b-$5b$5b+

18


Sponsor’s Perspective

Business Objects, an SAP Company, is an independentbusiness unit within the SAP group of companies. Busi-ness Objects offers a broad, innovative portfolio of solu-tions that help organizations optimize their perform-ance, including enterprise performance management,governance risk and compliance and businessintelligence.

The preceding CFO Research Services survey identifieda number of common performance management goalsthat the office of the CFO in multinational organizationsis trying to achieve. The three most commonly selectedgoals were improving planning accuracy, better align-ment of targets with corporate goals and underlyingbusiness drivers, and containing costs. Key barriers toachieving these goals are rampant use of independentspreadsheets, fragmented and time intensive manualplanning processes, and existing tools being too difficultfor the average business user within the organization.When asked what capabilities are most important in aplanning tool, respondents chose ease of use, flexibilityand an integrated solution.

SAP Business Planning and Consolidation (BPC) stream-lines the planning process with a unified solution thatcombines planning, consolidation and reporting capabil-ities in one application. The application supports top-down and bottom-up planning leading to operationalplans that are more aligned with strategic goals. It facil-

itates collaboration across all functional departments formore timely, accurate budgets, and enables continuousplanning and rolling forecasts to meet rapidly changingbusiness conditions and reduce budget cycle time.Because budget cycle times are reduced and plans aremore accurate, considerable cost savings are achievedby avoiding re-work and forecast errors.

Unlike BPC, the majority of other planning products onthe market today are disjointed (modular-based), difficultto use for the average business user, fail to integrate stan-dard business processes, and lack embedded predictivecapabilities. Only Business Objects delivers a completeplanning application that is designed from the ground upfor the end user, is process-centric and provides automat-ed, forward-looking predictive capabilities.

Familiar and Easy To Use

BPC delivers an unparalleled user experience fosteringwider adoption and increased collaboration within the

Only Business Objects delivers a com-plete planning application that isdesigned from the ground up for the enduser, is process-centric and providesautomated, forward-looking predictivecapabilities.


19


organization. Users choose the interface that they aremost comfortable working with – Excel, PowerPoint,Word, or the Web. For “spreadheads” that prefer Excel,BPC supports native Excel so the user experience is iden-tical to standalone Excel without the downside of multi-ple spreadsheets or “spreadmarts” being scatteredthroughout the organization. This is achieved becauseBPC utilizes a central data repository - everyone is work-ing off a single version of the truth. Context-sensitive,Intelligent Action Panes are provided throughout theapplication, guiding users to available options and tasksdepending on where they are in the application so usersare never lost. This reduces training time and user frus-tration. From an administration perspective, the appli-cation is designed to be owned and maintained by busi-ness users. Finance owns the application with littledependence on IT, allowing the ability to rapidly adaptto changing business scenarios.

Process-Centric

Pre-defined workflow templates known as BusinessProcess Flows (BPFs), manage core financial and opera-tional planning processes. BPFs act as a step by stepguide for users so they don’t have to remember wherethey left off in the planning process and cannot misssteps along the way. This helps enforce standards byensuring consistent planning processes across theorganization. SAP Business Planning and Consolidationships with a number of pre-defined BPFs including,

strategic planning, sales and revenue planning, work-force planning, expense budgeting, forecasting, and bud-geted financial statement reports. They can also be cre-ated or modified to align with your existing businessprocesses.

Forward-Looking

BPC includes automated, predictive analytics that proac-tively warn users of negative variances and provides anearly-warning system for key performance indicators(KPIs) at risk of under-performing in future periods. Itthen recommends actions that can change predictedoutcomes for the better. In addition, you can quickly findexplanations for variances, and root causes, so you knowwhere to focus management attention.

SAP Business Planning and Consolidation is an open,adaptable application that integrates with anyenvironment – SAP or non- SAP. For more informationon how BPC can facilitate more accurate and efficientoperational and financial planning within your organization, please visit our website at:

www.sap.com/solutions/performancemanagement/index.epx

Sponsor’s Perspective

CFO Research ServicesCFO Research Services is a sponsored research group within CFO Publishing Corporation, which produces CFOtitles in Europe, the US, Asia, China and Russia. CFO Publishing is part of the Economist Group.

Business ObjectsBusiness Objects, an SAP company, is an independent business unit within the SAP group of companies. BusinessObjects offers a broad, innovative portfolio of solutions that helps organizations optimize their performance,including enterprise performance management, governance risk, and compliance and business intelligence.