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For four years Adaptive Planning has been building out its cloud-based financial software. Starting with budgeting, planning and forecasting, it added analytics, data visualization, dashboards and alerting as well as flexible reporting and collaboration tools. It recently announced the general availability of consolidation functionality in its cloud-based suite. This addition eliminates a notable gap in the company’s functionality, giving it a more complete financial performance management suite. The addition of the consolidation capability should increase its appeal to larger companies and broaden usage within its existing customer base. According to Adaptive Planning, already about one-fourth of its customers are organizations or parts of organizations that have annual revenue in excess of US$500 million.
Tools that automate statutory consolidation have been around for three decades. They are most useful for corporations that have ERP systems from multiple vendors and/or multiple instances of a single vendor’s financial software with different charts of accounts. Yet use of consolidation software is not ubiquitous. Our benchmark research Trends in Developing the Fast, Clean Close found that among companies with at least 100 employees, 26 percent use a dedicated consolidation system, 38 percent mainly use their ERP system and 30 percent use spreadsheets. The research also shows that 45 percent of midsize companies (those with 100 to 1,000 employees) and 62 percent of large and very large companies (those with 1,000 or more employees) have multiple ERP system vendors. (Most businesses with fewer than 100 employees have a single ERP vendor.) More companies with multiple ERP vendors use dedicated consolidation software than those with a single vendor (36% vs. 10%); the software speeds up the process of combining data from disparate systems. These organizations often get better results as well, the research reveals. Corporations that use dedicated consolidation software are more satisfied with their ability to manage the close process than those that use their ERP system and considerably more satisfied than those that use spreadsheets. Dedicated consolidation systems typically are more adept at managing the accounting close for companies that have complex ownership structures, which need to report results in multiple jurisdictions that have different accounting standards and different currencies.
At this point, our research finds minor differentiation in basic features and functions among products for consolidation software. Buyers’ preferences most often are shaped by their assessment of how easy it is to use a given vendor’s product, how well the software aligns with their existing business practices, the total cost of ownership, how closely the software fits with their company’s internal IT requirements and the degree to which a company prefers vendor standardization.
Yet even corporations with a single ERP vendor can shorten the time it takes them to close because process automation features can speed handoffs and quickly identify delays and bottlenecks. As well, using dedicated consolidation software often enables a company to reduce the use of desktop spreadsheets in the closing process because, for example, it can have calculations for common cost allocations built into the system (as Adaptive Planning’s does). Our research has consistently found that heavy use of desktop spreadsheets results in more errors and that resolving these errors consumes time and resources. On average, companies that are substantial users of spreadsheets in their close said they could save 1.7 days if all errors in the close were eliminated, compared to just 1.1 day for those that use spreadsheets infrequently in closing.
Adaptive Planning’s software has a prebuilt connection with NetSuite and can incorporate financial and accounting data from cloud vendors such as FinancialForce, Intacct and Workday, or from on-premises vendors such as Infor, Microsoft Dynamics, Oracle, QuickBooks, Sage and SAP through direct or flat file connectors. As the number of systems deployed increases, especially in larger organizations, Adaptive Planning will be able to demonstrate the ability of its existing users to handle the data loads required by prospective customers.
One significant challenge Adaptive Planning will face in gaining customers is the reluctance of finance department buyers to choose cloud-based systems over on-premises ones. Our research shows that 43 percent of those in the finance function prefer on-premises software compared to 22 percent who prefer cloud-based deployments. One of the top reasons companies still give for avoiding the cloud is security, a concern cited by 59 percent of organizations in our recent research Business Technology Innovation. I think such concerns are short-sighted and expect objections to cloud deployments to subside rapidly over the next several years since, especially for midsize and smaller enterprise buyers, cloud-based systems can be more cost-effective and more secure than on-premises alternatives. One of the bigger opportunities for Adaptive Planning is to increase adoption of consolidation software by midsize companies, which are more likely to be using capabilities in their ERP systems and/or desktop spreadsheets to manage and support the process. These companies may have found on-premises consolidation systems too expensive. In regard to cost, their finance departments may find that automation and reporting capabilities of the software can reduce the resources they are now devoting to purely mechanical functions that have little business value, while they also speed their close and gain more time and resources to provide a strategic perspective on the company’s performance and prospects.
Robert Kugel – SVP Research
Ventana Research recently completed an in-depth benchmark research project on long-range planning. As I define it, long-range planning is the formal quantification of the more conceptual strategic plan. It makes specific assumptions and expresses in numbers how a company expects its strategy will play out over time. Almost all (95%) of those participating in the research see a need to make improvements to their long-range planning process. The research shows that one useful improvement is integrating long-range planning with the budgeting process. Today, many corporations confine their long-range planning to a high-level, less detailed extension of their current budget. Our research shows that companies that incorporate individual capital projects and major business initiatives as discrete elements of the long-range plan get better results. Marrying the high-level business outlook with the more significant bottom-up investment details produces better results.
Incorporating specific projects and initiatives into the long-range planning process has been common in companies in project-centric industries, including engineering and construction, aerospace and shipbuilding. Pharmaceutical and other long-cycle businesses that need to plan their major investments also have made specific projects and initiatives explicit parts of their forward-looking projections. Doing so allows drug companies, for example, to map out the transition from late-stage trials to post-approval so they can lay out the details needed for sales, production and distribution, and understand the financial consequences of these actions. The success of early-stage drugs is hit-and-miss, and because the actual timing of approval in various jurisdictions is difficult to forecast, pharmaceutical companies need to be able to revise near-term and long-range plans on an ongoing basis. Yet many other types of businesses can benefit from a more detailed approach to long-range planning that incorporates major initiatives and capital spending projects. Doing so offers a competitive advantage for shorter-cycle businesses that need to manage rapidly evolving products in dynamic markets. Asset-intensive businesses that must plan and execute capacity growth and heavy maintenance programs will also gain from greater integration of capital project details in their long-range plans.
Our research found that there are differences among companies in the degree to which they explicitly integrate planning for capital projects and major corporate initiatives into their long-range financial plans. Only one-fourth of organizations participating in the benchmark research report that their strategic plans are highly integrated with the management of individual projects. A majority – 61 percent – has some degree of integration of the two, and 10 percent say they’re not integrated at all. We cross-tabulated companies’ assessments of the quality of their long-term planning processes with the degree of integration of capital projects and major initiatives and found a positive correlation. That integration results in a better process: Nearly all (85%) of those with a highly integrated process say theirs works well or very well, compared to 63 percent that have a somewhat integrated process and just 22 percent that have not integrated these at all. The research demonstrates that there is a positive correlation between the degree of integration and the quality of alignment of long-range planning with a company’s strategy. The results were similar to the previous point: Nine out of 10 that have a highly integrated process also create long-range plans that are well-aligned with strategy, compared to seven out of 10 that have a somewhat integrated approach, and just one-third where there is no integration.
The research also found a correlation between the maturity of a company’s long-range planning process and its ability to manage the execution of projects and initiatives. Our analysis of long-range planning practices finds the majority (62%) of organizations participating in our research concentrated at the second and third levels of our four-part hierarchy. One-fourth are at the lowest Tactical level while only one in nine have reached the highest Innovative level. More mature companies are those that have a well-designed process, one that explicitly includes initiatives and projects. In addition, they also manage data more effectively, limit their use of spreadsheets and have clear strategic direction from senior executives, among other traits. The cumulative impact of all of these positive qualities is evident in better management of these strategically important and resource-intensive activities. All of the Innovative companies are able to manage the execution of their projects and initiatives well or very well, while nine out of 10 of Strategic companies are able to do so. By contrast, only 57 percent of the Advanced companies and only one-fourth of the Tactical companies are able to handle their execution well. Achieving better outcomes from strategic and long-range planning starts with including key details about projects in the process, yet companies can achieve even better results with a concerted effort to address shortcomings in the people, information and technology elements of strategic and long-range planning.
Organizations – even those that think they’re doing an adequate job – should reexamine their long-range planning to identify where they need improvements. Companies, especially those with more than 100 employees, that don’t do formal long-range planning need to begin the process. Going through the motions of planning is better than nothing, but our research indicates a connection between more mature long-range planning practices and achieving superior results.
Robert Kugel – SVP Research