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People who don’t spend much time analyzing the software market may have trouble understanding the differences between products in a given software category or the difference between two categories. This happens because vendors and commentators use the same words to describe different depths of functionality and degrees of comprehensiveness in one type of application. As well, there can be multiple categories of software that address the same general business issues but are designed for different specific uses. Not only is it worth the effort to sort through the labels and understand what does what best, but different categories of software that are sold and deployed separately can provide even greater value when used together.

For example, I recently had a conversation that touched on the relationship among three categories of business software: price and revenue optimization (PRO), sales and operations planning (S&OP) and performance management. The three share characteristics. All are analytical applications that have planning capabilities. Each category can – and sometimes does – stand on its own in an organization. Yet the three are complementary, and deploying them in a coordinated fashion can increase the value of each component. To envision this, imagine a pyramid-like relationship between the three: Performance management provides a foundation at the bottom, sales and operations planning fits in the middle, and price and revenue optimization is at the apex. I’ll explain this hierarchy in more detail.

01_PRO_Pyramid_The_Price_and_Revenue_Optimization_PyramidThe performance management software label covers a broad set of functions that provide corporate planning and budgeting, decision support and communications capabilities including reporting, dashboards and scorecards. It is a foundation element in corporate software that provides essential services to help executives and managers set goals and objectives, monitor business conditions and assess the performance of individuals or business units. Performance management software has been around for more than a decade and has been widely adopted. Our Financial Performance Management Value Index finds that most products available in this mature category are robust and offer the same core capabilities. They also have planning and budgeting functionality to set financial targets and assess progress toward them.

Sales and operations planning is a management discipline originally developed in the 1980s to improve coordination between the parts of a business that focus on market demand (including sales and marketing) and those that create the supply that meets that demand (including manufacturing, supply chain, purchasing and operations). In theory, one could use performance management software to achieve this balance, but products in that category lack the kind of process and functional capabilities that are designed specifically for S&OP. One would have make substantial modifications to a performance management application and then continually maintain it to approximate the functionality of an S&OP application. Used together, though, the underlying capabilities of a performance management application can provide the corporate and financial planning context for the sales and operations planning function; it can be the central source of dashboards for monitoring all S&OP-related activities and the system that generates reports.

Price and revenue optimization is a business discipline used to create demand-based pricing; it applies market segmentation techniques to achieve strategic objectives such as increasing profitability or market share. PRO first came into wide use in the airline and hospitality industries in the 1980s as a way of maximizing returns from less flexible travelers (such as people on business trips) while minimizing the unsold inventory by selling incremental seats on flights or hotel room nights at discounted prices to more discretionary buyers (typically vacationers). Today, it is a well-developed part of any business strategy in the travel industry and increasingly used in others. Analytical software is available that enables companies to implement and manage a PRO strategy, which I covered in an earlier perspective.

For manufacturing and distribution companies, S&OP and PRO software combined can provide valuable capabilities. The latter can devise a mix of products at given prices that will optimize profitability given other constraints (such as market share or minimum volumes), while the former enables the company’s operations, supply chain, manufacturing, sales and marketing organizations to put the plan into practice and continually adjust the balance of supply and demand to reflect changing market conditions.

S&OP does not have universal relevance. It applies mainly to product and manufacturing businesses that move physical objects from sources through distribution to buyers. Its analogue in financial services would be a portfolio management and optimization application, which would be used to set the parameters for the composition of assets on the balance sheet – typically the types of financial instruments that the organization will hold, their riskiness and maturity.

Another type of complementary middle-layer analytical software is sales compensation management, which is an essential element in businesses that use a direct sales model. I’ve noted in the past that for these types of companies, sales compensation management software increases the effectiveness of profit optimization software because it makes it easier to adjust incentives quickly to reflect changes in market-driven requirements.

Software industry analysts often focus on the issue of choosing a suite or a group of best-in-class products. But there has been little coverage of the advantages of using complementary applications to improve performance. As I mentioned, performance management, S&OP and PRO software each can stand alone and deliver value to companies. They naturally have loosely coupled relationships with each other, which reflect the organizational reality that each is managed by different parts of the business for their own purposes. Together, though, these three types of applications, as well as sales compensation management, can enable the companies that use them to do even more in achieving their strategic goals.


Robert Kugel – SVP Research

Along with other aspects of the finance organization, there’s increasing emphasis on having the treasury function play more of a strategic role in the organization. Typically, Treasury is charged with keeping track of and managing cash. Especially in larger organizations, this can be complicated because of multiple bank accounts, complex financing requirements and many methods of receiving and making payments; the complexity deepens when more than one currency is used across multiple jurisdictions, which also can pose regulatory issues. Treasury’s primary directive is to ensure that all funds are accounted for and that there is sufficient cash on hand each day to meet operating requirements. To accomplish this, finance professionals must perform key analytic tasks accurately to produce a clear picture of cash inflows and cash requirements. Analysis often is challenging because these numbers are constantly changing and because the process of collecting, analyzing and reporting all the data can be excessively time-consuming if done manually. This is a situation perfectly suited for dedicated applications that automatically manage the data needed to orchestrate treasury processes and provide analysis to inform decisions. Yet our benchmark research finds that more than half (56%) of companies with more than 1,000 employees either use spreadsheets exclusively or employ them heavily in conjunction with a treasury application.

Put simply, treasury management is a challenge because it’s highly detailed and demands complete accuracy. Those of us who struggle to balance a checkbook can appreciate that the requirements at the corporate level are several orders of magnitude more demanding. Beyond enforcing the straightforward requirement that numbers be accurate and available in a timely fashion, controllers and CFOs must have forward visibility into future cash positions at an elemental – not aggregated – level because payments must be made by the right legal entity, not at a corporate level. Thus, future cash positions must be forecast at a proper level of granularity to ensure future liquidity requirements can be met. Where a corporation has excess funds at an entity level, it needs to plan for the best way to dispose of it, taking into account all legal requirements (including covenants by lenders, lessors or others that might constrain the disposition of cash by some part of the company). Where it has obligations to pay off debt, it must track and prepare for these events. For cash balances and debt, companies must take into account interest rate risks. Often there are intercompany transfers of cash that must be accounted for in cash-flow planning. As well, companies operating in multiple currencies must have forward visibility to project cash balances and flows by currency to determine the best levels of currencies to be held by each corporate entity, taking into account exchange rate risks. Further complicating matters, in the wake of the recent financial crises, treasuries must be able to manage counterparty risk to avoid losses on liquid or semiliquid balances, or having their funds stranded by regulations that impair their ability to freely transfer money.

Processes this complicated typically consume a considerable amount of Treasury’s time if they have limited or no automation and rely heavily or entirely on desktop spreadsheets. Two basic tasks in particular can eat up lots of time: entering data from multiple systems and reporting accurate and relevant information promptly to executives and managers. In the first instance time is lost in rekeying data from multiple systems into spreadsheets for analysis and in the second as individuals repeatedly create periodic spreadsheet reports that are distributed (usually by email) to interested parties. As is the case elsewhere in an organization, time spent handling basic tasks in spreadsheets prevents people – often very skilled people – from performing more valuable work that requires insight and judgment.

One area that would benefit from professionals having more available time is cash and credit optimization. Making good decisions consistently requires better intelligence to weigh options in how to deploy cash balances and manage debt levels (by currency and location) as well as tactical decisions on whether to accelerate payment of invoices to take advantage of discounts. Today, because short-term rates are so low in many parts of the world, companies can, in effect, earn a higher return on cash by having less of it. Having accurate, detailed and up-to-the-minute forward visibility enables finance executives to manage cash and debt more actively to achieve better returns on financial assets and to lower costs on debt.

As well, reducing the use of desktop spreadsheets in treasuryvr_ss21_errors_in_spreadsheets management diminishes the risks associated with their use. Our research shows that data and formula errors are relatively common. More than one-third (35%) of participants said that errors are common in the most important spreadsheets that they use in their job, and about one-fourth (26%) said that they find errors in formulas. Given the importance of these files it is reasonable to assume that users tend to be cautious in checking for mistakes, which requires more time. Even so there’s always a data integrity issue when desktop spreadsheets are involved, mainly because errors in spreadsheets are common and, in complex ones, difficult to detect until a major problem erupts. When desktop spreadsheets are used in a collaborative process there are also issues of security, auditability and fraud control. Processes can become bogged down because the system has no effective workflow oversight and management. As well as consuming time in checking for errors and resolving the ones that are found, people spend more time in updating, revising, modifying and correcting their spreadsheets. Based on our research we estimate that people spend on average 12 hours per month (equivalent to one-and-a-half eight-hour days or 30 percent of a 40-hour workweek) on these activities.

Software to manage the treasury function is more capable and affordable than ever. Corporations that rely entirely or heavily on spreadsheets should investigate how greater automation will enable it to make treasury management more efficient and more reliable and, in the process, enable it to become more effective by providing greater analytical support and forward visibility into the company’s cash sources and requirements.


Robert Kugel – SVP Research

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