Better Tools Needed for Financial Decision Making
Insurance Experts' Forum, March 12, 2010
A new study conducted by IBM finds that chief financial officers have gained a lot more influence in organizations as a result of the recent financial crisis, but they often lack the tools and insights needed to make effective decisions.
The survey, based on the responses of 1,900 CFOs worldwide, found that the recent global economic downturn was “a pivotal event—but perhaps not in expected ways.” CFOs were under the gun to deliver urgent fixes during a tough economic slog. “Volatility and uncertainty also drew them into more frequent boardroom conversations about forecasts, profitability, risk management and strategic decisions related to supply chains, pricing and production.”
However, the study finds that finance’s effectiveness lags—particularly in these broader areas of responsibility and impact, where company success often hinges on the CFO’s advice. More than 45%
indicate that their finance organizations are not effective in the areas of strategy, information integration and risk and opportunity management—all recurring themes from IBM's 2005 and 2008 CFO studies.
The study also looked at one group that seems to be ahead of the curve—what IBM calls “Value Integrators.” They were found to consistently outperform their peers in all key financial metrics by
driving two key qualities across their organization—through standardized processes and data across their enterprises, and the maturity level of finance talent, technology and analytical capabilities dedicated to providing business optimization, planning and strategic insights.
Of course, this study was sponsored and conducted by a major technology vendor, but the results do point to an increased desire for better enterprise analytics capabilities. As organizations, especially insurance companies, increasingly rely on analytics to compete in today's complex and diverse markets, many information systems seem to lag. These systems may excel at historical analysis for the last year or last quarter, but are not capable of addressing real-time or predictive actionable analysis.
As the study puts it, “many CFOs feel their finance organizations are more comfortable providing 'tail lights' rather than 'headlights.' With the appropriate analytical capabilities spanning process, technology and talent, results of the study indicate financial planners can turn this wealth of financial and operational information into business insights,” including the ability to uncover correlations among seemingly unrelated pieces of information, and find patterns nearly impossible to detect manually.
Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.
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