Performance management software has improved the data companies rely on in making management decisions. Now BPM is combining with Web 2.0 technologies to provide better decision support companywide.

It's hardly newsworthy to say that companies doing their financial planning and reporting with Excel find it hard to, well, excel. The problems are well-documented, both in this magazine and elsewhere. Finance departments that are overrun with spreadsheets face glacial budgeting processes; late monthly and quarterly closes; and widespread — but hard to identify — inaccuracies in their data. Worse yet, these finance teams reforecast infrequently, and when they reforecast they do so without the participation of key managers because there just isn't time to collaborate with everyone who should be involved.

Although these problems have been evident for decades, they remain prevalent. In a recent survey of finance managers conducted by Adaptive Planning and the BPM Forum, half of respondents admitted that the budgeting process places a heavy burden on their department, prohibiting them from adopting agile practices such as rolling forecasts. And because existing models can't easily handle new and evolving business scenarios, what-if analyses are done “on the backs of envelopes” with simplified assumptions. Sixty-eight percent of those in the same survey feel their organization has little or no agility or adaptability in its financial reporting. These companies do not have the tools to make rapid, well-informed business decisions.

Fortunately, there's hope. While the number of companies that have moved away from spreadsheets toward more efficient software applications remains low, more than 73 percent of companies surveyed plan on changing their financial planning and reporting processes in 2008. In other words, a majority of finance professionals seem to be saying, “We feel the pain, and we're ready for a cure.” One reason may be that after working for decades without practical alternatives to spreadsheets, respondents are now aware of a number of new, affordable, easy-to-use enterprise software options. The last several years, in particular, have seen the emergence of new Web-enabled business performance managment (BPM) technologies that leverage lessons learned from successful consumer Web applications and other fast-growing Web software pioneers such as Salesforce.com. By combining powerful analytics with an intuitive, easy-to-use browser-based interface, this new type of BPM software takes a great leap beyond spreadsheets.

The Meteoric Rise of Web 2.0

At the same time that Web-based performance management applications were evolving to automate planning and reporting, a meteoric rise was taking place outside of corporate finance in the development of Web 2.0 technologies. These technologies allow people to connect and interact online in ways that were never before possible.

The first version of the Internet — Web 1.0 — was one-directional. Its primary goal was to enable companies and organizations to publish, and users to read, online content. Its business model revolved around companies putting goods up for sale and customers browsing for, and buying, goods online. But Web 2.0 is bidirectional. The technologies under this banner stress interactivity; they enable millions of individuals to collaborate with one another, develop shared content, participate in forums, upload and share files, and ultimately create “the wisdom of crowds” by working together. Examples of well-known Web 2.0 sites include Wikipedia (dozens of countries and billions of page views, all managed by three people and a community of volunteers) and social networking phenomena like MySpace, LinkedIn, and Facebook.

Why have these Web 2.0 technologies become incredibly popular? By making it so easy to participate online, they allow people to express their opinions and contribute their viewpoints on the topics that they care about. People can find and interact with others of like — or opposing — minds who share a common interest, even if they're thousands of miles away, in utterly new ways. This results in the creation of more complete content about topics, whether it's user-generated reviews of books, restaurants, or consumer electronics, or even full-scale encyclopedia articles. Similarly, by commenting on blog postings, readers can enter into real-time discussions with authors in ways previously unimaginable, challenging facts, offering different perspectives, or advancing lines of thinking. The net result of all of this is rich networks of highly engaged community members, as well as better and more complete information on a truly astounding number of topics.

Initially the purview of younger generations and used for social purposes, these Web 2.0 technologies are now being harnessed in new tools, dubbed “enterprise 2.0” solutions, that will similarly revolutionize financial management.

Web 2.0 for Finance

At first glance, corporate financial planning and reporting processes may seem millions of miles distant from bloggers, Amazon.com book reviews, and Wikipedia. However, fundamentally, Web 2.0 is all about enabling people who share common interests to work together to create and access information that would otherwise be unavailable, and to quickly reach better decisions as a result. Clearly technologies that can achieve those same goals could benefit financial management.

Key planning and reporting processes need to be collaborative. To be effective, performance management requires people sharing a common cause (the financial interests of their organization) to come together, plan for the future, review and interpret current performance data, evaluate alternative management strategies and tactics, and then take quick and decisive action. But many companies' processes fall short, in part because the software supporting them falls short. Excel makes collaboration extremely cumbersome, and even many enterprise performance management software suites fail to facilitate true collaboration. They may provide companies with reliable numbers on which to base discussions, but the rest of the analysis and planning process — executive communications, questions and answers between departments and the finance team, interdepartmental discussions, sharing of documents supporting assumptions, commentary explaining variance analyses, and much more — all takes place via e-mail, Word documents, and PowerPoint presentations. Information that is critical to the overall picture is not captured in traditional budgeting, forecasting, and reporting solutions. So it's no surprise that in the aforementioned survey, respondents from midsize and large companies — those with over 100 employees — cited “difficulty with collaboration” as the top obstacle that derails their budgeting and forecasting processes.