CFOs must make better decisions, regardless of market conditions - a view from Host Analytics' CEO Grant Halloran

Profile picture for user jreed By Jon Reed October 18, 2019
Summary:
Since I last talked with Host Analytics' new CEO, markets have gotten frothier. But how can CFOs keep ahead of the uncertainty? Is better decision-making even a realistic planning goal?

team puzzle

In July, I talked with newly-minted Host Analytics CEO Grant Halloran about Host Analytics' midmarket ambitions. We also tried to push beyond the transformation hype - into the realities of how midmarket companies cope with geopolitical change.

Fast forward four months, and Halloran's had a chance to gut check with Host Analytics' customers.

Meanwhile, we published some provocative content from Host Analytics authors, most notably As recession talk heats up, finance has an opportunity to lead, by Host Analytics' Bill Peterson.

It's not about doom-and-gloom, it's about economic cycles

I was glad Host Analytics took a risk on a recession-themed article. Most software vendors want to ride the endless growth wave, whereas I believe CFOs want straight talk for uncertain times. Given the macro-issues finance teams are planning around, from trade wars to Brexit, why not start with uncertainty as the premise, and go from there? When we got on the phone for a progress report, Halloran put it a bit differently:

It's a fine line. As you can imagine, from my perspective, it's like recession is a four-letter word, right? It's just laden with so much stigma now - and yet we know there is always going to be another recession at some point. It's just the way that economic cycles work. So In the end, look, who knows? If you and I could predict the timing of the next recession, we wouldn't be on this call, we'd be on our yachts in Monte Carlo.

For Halloran, it's not about doom-and-gloom, it's about cycles:

The point is that you've got to face the reality that we're at the top of a cycle, and we know, as educated people - we know that that cycle is going to change. If it becomes a recession or not, it doesn't really matter. It's the message that you have to work through the cycles.

I understand why Halloran isn't in a grim economic mood. So far, the numbers look good:

Just in that hundred days [since I started], we've grown the client base by ten percent. We're well over that 800 customer mark now. So, it's good market traction for us. We're on track to grow our workforce by twenty percent this year.

Taking the economic pulse of CFOs - cautiously upbeat

The CFOs he meets with are reflecting the same:

I have to tell you that by and large, the conversations I've been having with CFOs, and CEOs as well, it's been pretty optimistic overall.

Example?

I was at a CFO dinner a few weeks back in New York City, and we went around the table. There were about a dozen of us - a good mix of different industries and company sizes. Most of them said they were performing the best they've ever performed as a company. And they were kind of off the charts in terms of their results.

That doesn't mean you can avoid market fallouts. Brexit is frequently discussed, sometimes in a light-hearted way, given the absurdity of it all. But the reality is there too:

The way most of them see it, they think it's going to be resolved, so they're not that worried about it from an economics perspective. But generally I would say the optimism in Europe is a little bit less than here in the States.

Global trade volatility is a winners-and-losers dynamic; you can be on the winning side too:

We have some customers that are doing really well from the trade situation, because they're U.S.-centered manufacturing... The manufacturing sector is our largest customer base, and overall, they're doing well.

Some distributors, however, are taking it on the chin:

That's another market that's doing well for us. We do have some customers, though, that import what I would describe as lower value products from China. If they're not able to absorb because of the nature of the supply chain that they have; if they're unable to pass the cost increases along, that is hurting them a bit for sure.

I had a conversation with a flooring adhesives company out of Florida recently. This is their situation, where they have some add-on products that are imported from China... And so they're hopeful that we can get a trade deal with China done, sooner than later.

Halloran points to another market driver: accelerated merger and acquisitions activity:

It's just incredible the number of companies I talk to that have acquired companies, and are acquiring more companies. M&A seems to be very heightened at the moment. That's causing them to want to look at an FP&A platform to be able to kind aggregate that, do things faster, get an aggregate view of the company, and plan at that level.

Continuous planning - a big step towards better decisions?

That all makes sense, but what interests me most is a tougher question. Can we establish that no matter what the economic conditions, CFOs can make better decisions  - if they have better planning tools, and a so-called "single source of the truth?" Those are the proof points I'm always looking for. Otherwise claiming we are "data-driven" is borderline meaningless, right?

Halloran says we have to factor in the push for what Host Analytics calls "continuous planning." After all, if we're planning with historical data in lagging cycles, we'll never be able to put my decision-making question to the test. So how does Halloran define continuous planning?

Continuous planning is the idea that we need to be able to see this data, and we need to continuously flow. A lot of people still think of planning as an old-school, waterfall or circular kind of process.

I don't think of it that way. I think of planning as a kind of amalgam of a whole ton of decisions. And so you need to move that data into the organization effectively as fast and as often as you can, so you can actually respond to what you're seeing.

Halloran says a big step towards making better decisions with data is simply making more of them:

If I have to wait till the end of the quarter to understand how I'm performing, versus being able to see it weekly or daily, then I'm able to make more course corrections. Ask any executive: Would you rather make 52 decisions a year on a particular topic, or 12 or 4?

As I see it, continuous planning is still aspirational for most companies. But it's good to hear progress. Halloran shared the story of a products distributor customer, coping with pricing issues and global shifts.

I was talking to the CFO just two weeks ago. He gave us an example of how he used Host. They had a situation where there was a supply-chain issue coming out of Mexico, and the CEO said, "I want to know how that's going to affect us. We're coming up on the next quarter. How is that going to affect us, and what are our options? What can we do?"

Not a simple ask. But that's where modern planning comes in:

The starting point is we need to understand what the financial implications are. So they were basically able to come back that afternoon by running new scenarios in Host. Prior to that, if that was all done in Excel, they would have fired up a model... It would have been like this hand-to-hand combat that they have to do, and it probably would've been a week.

But if you have all this data in the planning cloud, everyone can collaborate on it. You're able to actually answer those business questions really quickly. A CEO is going to be ecstatic with that kind of responsiveness from their team.

My take - bring on AI, if it can help with decision support

I don't think Halloran's example necessarily means we're making better decisions. But I'm not going to knock more responsive, collaborative decisions either. We talked about how, for many CFOs, they would just settle for closing their books faster, or monthly instead of quarterly. But as Halloran said to me, we can overdo it with the "get your head out of the spreedsheets" pitch.

If it's just like the story about replacing spreadsheets and giving your time back, those are important things. They're achievable things. But, to me, that's such a narrow lens in terms of why you would want to do this.

Whereas "continuous planning," and its transactional equivalent, the continuous close, are more visionary. But that energizes finance teams. Halloran:

A long-term vision is something where it is aspirational. You may actually never get there.
But by going on the journey and incrementally increasing the capabilities, you've got a much greater chance of creating some competitive advantage versus your peers in the market.

As much as I mock "AI," I do see a role for AI/ML here, providing prescriptive options based on what machines do best: compile stats, flag anomalies, and crunch scenarios. What say you, Halloran? 

Last time we talked, I mentioned that we're doing quite a bit of R&D on this. We will be making more formal release announcements on this in 2020. We're using the expression "decision support." We think this is the type of language that resonates with customers Because it's like, "Hey, we need to get insights. We need to make decisions. How can your technology, in a more automated fashion, support that and help that?"

That should keep Halloran - and Host - busy for 2020. As for the macro-economy, no predictions from me there. But in the meantime, growth is a good storyline..

Image credit - Close up view of hands connecting pieces - by @fizkes, from Shutterstock.com

Disclosure - Host Analytics is a diginomica premier partner.