Monday, November 29, 2010


Situation (continued from prior post): Ok, you finally closed that institutional round of funding, have begun the process of productizing the core functionality that will become the new software business, you have a strong Board of Directors in place, and you are building out the development, sales and marketing teams. One of the first big hires you make is Jim West, a top software sales guy who got tired of the selling large ERP systems and wanted get back to the high energy, high impact, high reward environment of a nimble emerging software company.

During his first week on the job, Jim comes into your office and says “Given the potential customers you have circled, my existing relationships, and the company contacts my new sales team will have, I think we could have a pipeline of over 100 potential clients for the new platform. I am sure we can nail a high percentage of these prospects but we have to be really careful that we don’t over promise and under deliver with respect to certain key things: (1) delivering on the functionality that we sell and the capabilities of the software, (2) the time to implement and expected “go-live” with the full functionality, (3) the stability and up-time of the new system particularly given that we are delivering it on a SaaS basis, and (4) the cost with respect to the core system, implementation, on-going maintenance, and any upgrades. If we don’t stay “on-it” with respect to these things from the start, we will have some very disappointed customers – a bad thing for a new software business.” You respond, “Jim, thanks for the heads up. I definitely agree we have to track and hold the team accountable in those areas. In addition, we have other critical things to measure: (1) Pricing and profitability of the new system and the additional modules we are building, (2) Utilization and efficiency of our services and implementation teams particularly given that every implementation will be different, (3) Detailed sales pipeline tracking, (4) The true cost of development and the product roadmap as well as the cost of maintenance, and (5) Making sure everything syncs up with the annual budget and multi-year plan. All that and we have to track some of those things on a weekly even daily basis.”

As Jim walks out of your office, seemingly satisfied that you understand the importance of his concerns, you contemplate how your CFO is going to handle the new demands. Historically, your management reporting consisted of reviewing the existing key customer projects, progress with the handful of new client prospects, and the P&L and Balance Sheet from the accounting system. The CFO’s world is about to change dramatically.

Business Intelligence level management reporting systems drive forward looking vision, educated decisioning, and accountability. Business Intelligence looks forward through the learnings of the past.

Too many companies view management reporting as printed financial statements and spreadsheets with sleep provoking commentary about how one line item went up or down compared to prior history or budget. In those unfortunate scenarios, 80% of content describes the past leaving the executive team and Board to navigate the ocean ahead through a hazy fog (whether they know it or not). Big opportunities and challenges appear quickly in the company’s field of vision and the organization has to react before the full impact on the business is completely understood. A company that strives for business intelligence level reporting will maximize the clarity of how future events – new strategies, big customers, new products, acquisitions, etc. impact the company, its business model and its prospects.

OK, what does Business Intelligence (“BI”) level reporting mean? We could debate the specifics, but at a high level BI reporting takes the myriad of data about an organization and its sector (financial, operational, industry, etc.) and distills that information into communications that clearly present the most critical components of business performance and makes recommendations for actions in a way that drives effective management decisioning. I know, that sounds like a bunch of management speak – Here is one simple visual example:

With BI level reporting, the 2010 financial forecast evolves from a sea of numbers that only finance types can wade through into a usable document that raises fundamental questions about the business and drives management decisions. The above should also include commentary that provides insight on the implications of the data and makes recommendations for action. This example was pulled from an actual 2010 budget for a mid-sized company.

How do you build BI level reporting?
  • Work with each business unit (sales, marketing, development, production, CEO, Board etc.) and agree on the key business information and frequency necessary to track day-to-day, quarter-to-quarter performance and progress on key business unit milestones.
  • Determine how best to produce this information given the existing IT and accounting / finance infrastructure – strive for maximum automation. Scope out any necessary changes to current IT systems required.
  • Work back from the key milestones and prepare reports, dashboards and KPIs that will measure performance and allow you the lead time to make corrections if things aren’t going as planned. Strive for conciseness, clarity of message, and a dashboard mentality.
  • Build the company’s budget based upon running out the key milestones, metrics and dashboards (new vs. existing customers, price / volume, development roadmap, utilization, staff efficiency, etc.) so that the business units understand the budget in terms of their day to day performance and tracking.
  • Determine other critical information that the team needs to understand the levers of the business – profitability by product, customer, business unit, geography; key trend lines; major potential initiatives that might not be budgeted, etc.
  • Leave capacity for the ad-hoc analysis and reporting that will certainly come up – “Customer X wants this additional unplanned functionality”, “There is this huge deal in Germany - how should we price it and how long will it take to implement?”, “If we moved 20% of our development to India, what would be the impact?”, “If we raised an additional $10mm, how much faster could we grow and what would the business look like in 5 yrs?”.
  • Take the time to get behind the numbers and communicate clearly – do not just prepare spreadsheets and dashboards and distribute them. It is the role of finance to understand what the numbers tell the organization about the business and communicate that clearly to the team – many of whom look at a spreadsheet and get lost in the detail. Insightful commentary that accompanies the dashboards and reports will keep the team engaged and focused.
As you can imagine, the above bullet points, which are not all-inclusive by any means, represent a ton of effort. Effort required not only of the F&A staff, but of the business units and the executive team. That said, if automated properly, once built any changes should update the entire management reporting package and dashboards with minimal effort. When combined with insightful analysis and recommendations by the finance organization, the entire management team becomes “students of the business” and has clear visibility how best to achieve its goals and how to react when unanticipated opportunities and challenges present themselves. Additionally, the F&A function becomes a critical strategic function, not just where they “count the beans”.

BI should be transformational. Properly executed, the entire management team should have the tools to understand the most important levers to pull to maximize business impact, have information when it is actionable, be able to communicate complicated information clearly to non-finance types, and be able to openly debate the best course of action. Without that, not only will the company’s view of the future be foggy, it could be blind to the implications of very important opportunities or obstacles. (The link below shows that nicely.)


Click here to see a video of what can happen if your visibility isn’t quite clear;