CFO Stack technologies pt 2
This installment in CFO stack series elaborates on the currents guiding towards a more democratized financial analytics landscape for companies and finance teams. As migration to the cloud proliferates there exists ample opportunity to collaborate and share information with business partners in a seamless fashion.
Volume and variegation of data available
As many companies continue to pivot their operations to embrace a digital ecosystem and greater number of digitally-native businesses arise, the fecundity of consumer data online grows. Also, through partnerships with digital marketing agencies such as Google and Facebook, wherewithal exists to track consumers’ behavior at more touchpoints than just a visit to a company’s website or platform itself. In addition to online behavioral characteristics, the proliferation of alternative forms of data, such as education history, personal finance habits, and geo-location all paint a more kaleidoscopic portrait of each customer. By gaining access to this data, companies can draw “personas” around different customer types and use these brackets to identify patterns around spending activity and product preferences, both of which can be used to advertise more effectively. Needless to say, the net outcome also becomes a much richer revenue and marketing forecast.
For many eCommerce companies, the incisive data collected around cadenced purchases by consumers can also help generate predictable micro-revenue streams that can be analyzed and even potentially be factored out in the event of exigent financing. Also, due to the positive correlation of numerics such as time spent on page, CTR, and on-page touchpoints with the likelihood of a purchase, companies can construct probability-weighted averages of the success of one product launch over another based on what customers’ on-site behavior is presaging in terms of sales.
Hub-and-spoke nature of financial outlook
The digital renaissance has ushered in a new crop of wily startups whose primary lifeline to staying afloat is operating nimbly and oftentimes on razor-thin margins. That being the case, it is cardinal that all business stakeholders have limpidity into keynote financial forecasts, such as sales, COGS, and margin. For example, if a startup eCommerce entity is to optimize capacity in its limited warehouses then its supply chain team must ensure that it orders inventory from vendors prudently and in appropriate volume to support prognosticated sales. If a new enterprise’s HR team is going to scale up human capital efficiently then it must have clear line of sight into how quickly the company is expected to grow in the proceeding months and also what sort of SG&A budget it can draw down from to incentivize talent. The beauty of a federated forecasting solution is its cross-aisle approach and how confederates such as HR or supply chain can alert finance personnel when they believe their groups’ operations are misaligned with the current forecast, thereby leading to proactive collaboration. The bottom line is that it is easier to chart a course forward when everyone is pointed in the same direction.
Gestalt with partner IT stack
As various organizational departments proceed with retrofits of their legacy decision-making tools, there exists opportunity for a cloud-based solution that can amalgamate seamlessly with these new systems. For example, in the increasingly complex world of supply chain and order fulfillment companies are propelling their adoption of supply chain management (SCM) platforms. These tools enable logistics team to gain greater transparency and insight into the movement of goods from suppliers to warehouses and beyond while providing analytics to augment decision making. However, many of these solutions operate in a blackbox collocated to the tech stack of finance practitioners, ipso facto creating incongruity with regards to the interplay of say inventory with projected sales and vice versa. As many of these hubs are hosted on the cloud in RESTful environments, a democratized FP&A platform could handily integrate with an SCM via a bespoke API.
One of the quiddities of FaaS providers is their amenability to collaborate with clients on custom API development for circumstances that best suit the particular needs of the company. These APIs prove indispensable in affixing pass-throughs to data storage yards such as AWS, Azure, and GCP where many companies are opting to host their servers. As a corollary, maintaining an integrated FP&A matrix also creates simplicity in ensconcing multiple data repositories within one overarching Cybersecurity mainframe where companies could hold a unified rein on data governance. With a constantly evolving feedback loop between partner IT environments, the AI of a FaaS could only become more robust and predictive over time as greater volume of data was collected and forecasts furnished. This is the rub of creating a “push” rather than “pull” framework of financial decision making, and that is not only do employees’ lives become easier in the short run but synergies get created for the future.
Reintroduction, not reinvention
As one of my colleagues used to say, it’s a lot easier to crop an image than it is to get everyone to pose again. In that sense, Excel and its bounty of spreadsheets will most likely not be going the way of the abacus anytime soon and that is why many neoteric FP&A platforms have backwards-compatible solutions. These tools contain functionality to efficiently assimilate information from a flat spreadsheet and present it in a similar fashion within the schema’s UI. This type of familiarity eases the pains of de novo adoption and creates a baseline format that users feel comfortable starting off with. From there, users can still take snapshots of files and models and implement version control as they would within Excel. Also, one of the alphas of working in tandem with Excel is the ability for organizations to take their time and properly inculcate their workforce in how to collaborate effectively with the new tool before committing to it as the system of record. A gradated rollout such as this is one of the prime benefits of a subscription-based model where companies do not have to feel obligated to make a purchase before they are comfortable with the technology.
Relevance to external stakeholders
In attendance with the appreciable value available to internal finance teams and contiguous business partners a transparent financial analytics platform provides immense value to exogenous stakeholders interested in monitoring the health of company. One example is the benefit to financial sponsors in being able to rhythmically access the up-to-the-minute financials of their portfolio companies and understand movement in metrics via turnkey reporting, dashboards, and drilldowns into operational drivers. In this scenario, the portco would be the primary user of the SaaS solution and with seamlessly embedded permission control and web-based UI any outside entity could still patch in to their hub. The bespoke nature of these cloud-based tools also enables customized views for external parties so any outside firm eg auditors, suppliers, or potential customers can be furnished with intel most germane to them. Also, with the ever-expanding scope of backend integrations inherent with FaaS solutions companies such as financial sponsors could even become power users of FaaS themselves utilizing the apparatus to streamline potential investment diligence efforts. If a private equity or venture capital firm is interested in parsing through financials of prospect they could simply login to platform and leverage the sundry APIs that connect to many commonly held ERP/accounting systems and seamlessly ingest financials of target firm over to the platform and perform top-flight analysis and modeling from there.
For more information please reach out to rgupta@mba2022.hbs.edu
