My last conversation with Planful's CEO was cut short when he had to go off to catch the Eurostar to Paris. We'd discussed the likely impact of AI on the role of finance professionals, but I had some further questions about other changes in their role, brought on by superior automation and connectivity, even before AI comes in to layer more change on top. We reconnected a few weeks later to pick up the threads.
Planful has been evolving its Financial Performance Management (FPM) software over recent years in line with two trends. Firstly, we've seen enormous change in how people connect and communicate at work. Digital connection has made it much easier to collaborate across the departmental and functional boundaries of the traditional enterprise. Instead of emailing endless revisions of static spreadsheets maintained within the finance department, the technology enables dynamic conversations with business colleagues around shared views of the numbers. Secondly, automation within the finance realm has made it possible to move away from numbers finalized at a monthly or quarterly close and instead deal with up-to-date, dynamic metrics produced within the cadence of a continuous close.
Both these trends have big impacts on the culture and work of finance teams. The collaborative aspect means that FPM becomes "a team sport" says Halloran, with tools like Planful broadening their reach beyond power users in financial planning roles to become accessible to budget holders and business colleagues across the enterprise. He comments:
This is what has led us to pretty dramatically evolve our platform to have purpose-built experiences that are very different from perhaps these finance and accounting professionals that have got the four-year degrees and they've got very high financial IQ.
Re-imagining the role of finance
With the FPM tool increasingly automating the basics, the role of the finance team in the planning process becomes more of a facilitator and an advisor. He explains:
What we do at Planful is, we challenge finance folks to re-imagine what their role is. So many of them think that they are the doer, historically.
We do the process of financial performance management, the planning, the forecasting, the budgeting, the reporting, management insights, all that end-to-end process, we do that process. We invite them to reimagine themselves as stewards of the process across the whole company ...
You're not doers anymore. You've got to get beyond this idea. You've got to widen your lens and think about this whole mega process of driving financial performance in your company, as a cross-company capability.
The finance role at the center of the process moves to a focus on tuning the data and the FPM tool to meet the operational needs of business users. Those users in turn have a different view of the tool that is more relevant to their context. He elaborates:
As you're moving out from the center of the diagram into departments, those people have lower financial IQ as a starting assumption. But secondly, they have different functional requirements. They don't need to do all the bells and whistles things. However, they need to do things at the dimensionality of data that's relevant to them.
He gives the example of workforce planning, where department heads may need to make changes to the plan mid-stream, because business conditions have changed. He goes on:
We may plan that we're going to hire certain roles at this rate in the market. And then all of a sudden, after six months, we're realizing, well, one, we're behind hiring, or two, we're having wage inflation in those roles.
Let's get that information in the hands of the department heads quickly, so they can make adjustments to their plan. They may need to pay more to people, because that's what the market's demanding. But if they want to be in budget, they need to know that so they can adjust how many folks they might hire. They might hire one or two less people for that team than they were anticipating.
We're all about trying to get that information in the right form and the right hands at the right time to help them drive those sorts of decisions, and stay within their budgets.
There are different parameters in play when it comes to marketing budgets. Here, the emphasis is on measuring campaign spend against outcomes — completely different from how finance looks at that spend in accounting terms. Planful aims to accommodate both views, as he explains:
Marketing is thinking about outcomes, and the way in which they're going to invest their money across entirely different dimensions [than finance]. So that level of granularity is important — and it's really hard to do, but we've cracked it, where we can enable marketers to plan that way and get daily results, getting the actual performance analysis in there. But then pivot that data automatically back into general ledger form that the finance folks need.
Other operational use cases for FPM include customer profitability models in industries such as retail, consumer goods or hospitality. In one case, a ski resort operator analyzes multiple factors to make resourcing decisions on a weekly basis. He explains:
They've got nearly 100 models [and] well over 1,000 users that are in these models every week, making decisions around resourcing for ski lift operators, ski school folks, sanitation services at the village of the resort. All these sorts of decisions, you may not think of them as financial because they're way more granular than the general ledger type level, P&L and whatnot. But they are fundamentally how you're going to drive performance in the company.
So the lens has expanded to bring financial and operational use cases together. That's where we're seeing the most advanced companies doing very well there.
While some enterprises may use business intelligence dashboards for these more operational use cases, Halloran argues that there are limitations when it comes to complex financial data, or making forward projections. He comments:
Many of our customers will have a BI dashboard, whether it's a Tableau or Qlik or Power BI. But equally, those people, especially if they're budget controllers, or executives, they're looking at performance management and looking at projections and forecasts and everything else. They're doing that from Planful.
Changing how people work
This more collaborative approach to financial performance management, with finance teams taking more of an advisory or facilitator role, requires a big change in how people work. Technology can be the enabler, but having put the systems and data in place, finance leaders need to become change agents to make a success of the transformation. Halloran comments:
Trying to teach new habits to people, trying to get them to work in a different environment, it's all change management, it's all about how you communicate what you're doing ...
Our role in that is to continuously eliminate the friction to enact the positive change you want in the company. The more complex the software, the steeper the learning curve, the more investment you've got to make in training people how to use a foreign technology to them.
Culture needs to change too, to accommodate the more flexible approach to planning that is enabled once a business moves towards continuous close and is able to work with much more up-to-date performance data. Halloran cites the example of zero-based budgeting, where instead of setting a fixed budget upfront across the whole year, budgets are agreed each quarter based on what each department plans to do in that quarter. This is best introduced in one area at a time, such as Travel and Expenses (T&E) rather than across the board, he suggests, because it asks people to approach budgeting with a completely different mindset. Rather than maintaining historical trends, it forces them to focus on projected business outcomes. He explains:
People should be rewarded for not spending the same amount on T&E, but getting the right business results for the company. People should be rewarded for times where, 'Okay, I don't need to spend twenty grand this quarter, but next quarter, I'm going to have to spend thirty, because I've shifted some things around.' If as long as you've got that hyper-dynamic approach, you can do pretty amazing things.
One of the biggest obstacles to introducing this type of outcomes-based approach to budgeting, he believes, is that organizations have often evolved a culture that discourages experimentation. For example, a compensation regime that only rewards consistent growth will inevitably put people off from trying anything new. Instead, managers will seek to protect the status quo. He explains:
Those forces, as companies scale, prevent experimentation ... Unless you're willing to be experimental, what happens is, companies end up doing nothing. They end up doing nothing new, they take no new bets. We're seeing this happen so much, it becomes self-fulfilling.
Even worse, if the company's growth plans are knocked off course by some external factor, there will be even less incentive to innovate. He continues:
Typically, in the fiscal year, you've got a budget, you've got your revenue plan, you've got those financial goals. And it becomes so problematic when the company gets knocked off course, because a lot of the compensation methods in these companies are inflexible. Conceptually, they do not reflect the reality of running a company today, because so much of the variance to performance is exogenously driven, not internally driven.
Companies need to really rethink, sit down with some really smart consultants and rethink how do we actually create a compensation method that rewards continuous improvement, rewards continuous planning and cost correction of the company?
It's also up to enterprise leaders to communicate the importance of experimentation and to celebrate it even if it doesn't always produce the desired results. He goes on:
If the culture of the company, especially from the leadership, isn't overt that that is part of the strategy of how we operate this company, then why on earth would people do it? Because they're afraid of failure.
For example, a great culture that has experimentation in its soul will celebrate effort, it will celebrate the attempt, will celebrate the learnings, and will not punish people for not getting a result from it. That's a great culture. So that has to be overt in the culture, you have to celebrate these things.
In the current climate of ongoing economic uncertainty, this is the best time, he argues, to put the technology and culture in place to take this more flexible, responsive approach to budgeting and planning. He sums up:
Start to think about how you're going to change the culture of your company into the future to be much more experimental — concepts like zero-based budgeting, concepts like continuous planning — start to really think hard about how you can actually get there ...
People ... have to use these these times to build a resiliency in the system. What better place to start than making sure that your Office of CFO technologies are extremely resilient and adaptive, and enable you to do the course corrections that you need, without having to worry about the accuracy of the data and everything else?
Several aspects of the approach to planning that Halloran advocates here are shared with diginomica's concept of Frictionless Enterprise, in particular working collaboratively with real-time data and a readiness for change. Therefore it's interesting to hear his take on some of the obstacles to making a success of such an approach. Embracing the technology is a pre-requisite, but it's not a sufficient condition for success without also adopting new ways of working and organizational structures. And yet the existing processes and structures are often so ingrained that it can be difficult to recognize their hidden influence. As Halloran points out, incremental budget planning and compensation schemes aren't compatible with a dynamically adaptable enterprise — but dismantling them in favor of a more flexible operating model requires courageous leadership.