As 2023 progresses, market change and the uncertainty that comes with it doesn’t seem to be going away.
In fact, between supply chain issues, rising interest rates and international events like the war in Ukraine and the pandemic, it sometimes seems like uncertainty is the only certainty businesses can count on these days.
It’s no wonder, then, that uncertainty has been a driving force behind the decision making of FP&A teams, as they aim to create more agile and dynamic operations in the face of constant change.
So what are some of the tools teams are drawing on and investments they’re making to meet those goals? Industry analyst and Chief Research Officer at Dresner Advisory Services Howard Dresner examined just that when he looked at the top FP&A trends for 2023 at Vena’s Excelerate Summit 2023.
Howard presented the livestream session Latest Trends in FP&A, AI, Extended Planning and Performance Management, where he dove into his team’s findings on the current state of FP&A and how teams are staying agile given current market trends.
“All industries are telling us they’re being negatively impacted by economic factors—that’s not a surprise,” Howard said. “But some actually will find that there’s a benefit from the challenging economic environment.”
In this blog, we’ll unpack the findings from Dresner Advisory Services’ research and how your business can make the most out of a volatile economic environment.
“The best way to thrive in an economic downturn is to grow your way out of it,” Howard said. And it turns out the organizations Dresner surveyed agree. Even as uncertainty continues to reign, they’ve doubled down on their growth goals, making those objectives just as critical as ever.
McKinsey, too, shows this strategy is a good one—they found that 34% of companies that prioritized business building during the pandemic were either able to stay level or continue to grow. Only 26% of organizations that took on other strategies could say the same.
The question is, how do you achieve those growth goals in the face of economic uncertainty? How should organizations allocate their resources to push for growth while hedging against a potential downturn?
Not surprisingly, if you want to get ahead on your growth goals, focusing on data is a good place to start.
Dresner found that the top three investments companies are making this year are data and analytics, digital transformation and performance management. Organizations prioritized those investments over business expansion (although it was still in the top five), recruitment and new product development.
“For organizations that really want to become a digital enterprise, and I think all of us do, data, analytics and performance management are the lifeblood,” Howard advised. “These three things are really related to each other in a significant way, and that’s where organizations are investing.”
As the economy remains unpredictable, every business needs to stay prepared. For successful organizations today, that means building the defenses to keep yourself ready for whatever comes next.
And in 2023, more organizations are realizing that a strong mission is the first line of defense. While that mission should be backed by strategy and data, being able to clearly define it is equally critical—something that many FP&A teams tend to overlook.
“Mission is really important. What’s the purpose of the organization? Why are you here on earth? What are you striving to achieve?” he said.
Once that mission is in place, your enterprise performance management (EPM) program can help you build the right strategy to back it up. EPM helps businesses track and improve performance organization-wide, and Dresner found that the EPM programs most aligned with an organizational mission were also the most successful.
“It's a virtuous cycle of sorts,” he said. “So the more successful we are with EPM, the greater the alignment and … arguably, the more successful EPM can become within the organization.”
Dresner’s research identified performance management (specifically modeling, budgeting and planning) among the top three areas businesses are investing in this year, signaling a broader adoption of EPM tools—even beyond the finance department.
Over 60% of the organizations Dresner surveyed saw EPM as critical or very important—compared to just over 50% who said the same in 2020. And not only are more businesses seeing the importance of EPM, but more are expanding it wider too. Almost 50% of organizations expect their number of EPM users to increase in 2023.
“It’s encouraging to see the EPM deployments growing year over year. This means that, generally speaking, organizations should be better equipped to manage through the current slew of external forces successfully,” Howard said. “The idea is you get more people engaged in the discussion, in sharing insights, in planning together. That helps align people with the mission and the strategy of the organization.”
But getting the most out of your EPM program means you can’t silo it into just one part of the organization. In 2023, Dresner found, about 35% of organizations are using EPM as their primary solution throughout a single country, while more than 30% are using it as a global solution across multiple countries. This points to “more strategic and global implementations,” Howard added, meaning EPM is no longer just a tactical solution for a single segment of the business.
During his talk at Excelerate Summit 2023, Chief Research Officer Howard Dresner discussed why it's important to use a well-rounded set of KPIs—originating not just in Finance—to measure the health of your organization. Watch the full session here.
Also just as important in a complex business environment? Getting laser-focused on Key Performance Indicators (KPIs).
The question is, what kinds of Key Performance Indicators (KPIs) should you focus on to ensure you keep up with your growth goals, even within this uncertain market?
As to be expected for finance teams, financial KPIs are still considered the most valuable, with almost 100% of the organizations Dresner surveyed rating them somewhere between “somewhat important” and “critical.” And the importance of financial KPIs only grew from 2022 to 2023.
Following behind financial KPIs, customer experience KPIs were rated by over 90% of organizations as somewhere between “somewhat important” and “critical.” Operational KPIs, HR KPIs and digital transformation KPIs all made the list as well.
What’s interesting is that all of those KPIs grew in importance between 2022 to 2023, showing that organizations are prioritizing a combination of metrics originating from across the business (not just finance) to determine their ongoing performance. “The health of the organization has to take into account all these KPIs, since they’re all related to each other,” Howard said.
While the use of EPM software, KPIs and data analytics has only grown, the same can’t be said for rolling forecasts. Rather, their usage has remained relatively stagnant—with only very slow growth over the last couple of years.
Just under 70% of the businesses Dresner surveyed are using rolling forecasts in 2023—up just a few percentage points from 2021. And Howard saw that as a lost opportunity. If your team is trying to navigate an uncertain environment, rolling forecasts can help you in ways that traditional budgeting can’t. “[They] allow us to manage through a much more dynamic and unknown environment than more traditional approaches,” he said.
“We thought during the pandemic that it was going to change—that there was going to be much more [usage] because it was such a dynamic environment, that organizations were going to embrace rolling forecasts. And they didn’t,” Howard explained. “What they ended up doing over those few years is they doubled down on their existing approach to FP&A—so they just did more of it.”
But with market disruption requiring businesses to adapt and frequently review and adjust their plan, sticking to static forecasts may not be enough. The reluctance of some companies to use rolling forecasts may be down to company culture—for them to work, senior managers need to alter their habits to update their own forecasts on a rolling basis.
During his talk at Excelerate Summit 2023, Chief Research Officer Howard Dresner discussed why finance professionals seem hesitant to adopt AI to support their business. Watch the full session here.
One FP&A trend that’s already got everyone talking is the growing interest in artificial intelligence (AI) for corporate finance, which has become more prevalent everywhere in 2023.
If we look back to just last year, Vena’s 2022 benchmark survey of Excelerate Summit Attendees, The State of Strategic Finance, found that only 5% of finance teams were prioritizing the hiring of artificial intelligence (AI) and machine learning (ML) skills.
But when Howard polled the audience of his Excelerate Summit 2023 livestream, in comparison, 45% of audience members said that artificial intelligence (AI) was “somewhat important” to their organization. “I think there is certainly a lot of interest in AI for EPM, and it’s changing,” he said.
That held up in Dresner’s research too. More finance organizations this year—around 37% of those Dresner surveyed—think AI can have a significant positive impact, likely improving forecasting accuracy and further automating otherwise time-consuming processes.
And while 48% of the organizations surveyed still said it was hard for them to see how AI will improve their budgeting and planning processes, that number was down from 2022, when over 50% still doubted AI.
Even with this momentum, there is resistance, though. In fact, almost 15% of organizations believe their employees are likely to resist the automation of forecasting and planning processes through machine learning and AI. That reluctance isn’t surprising, Howard added. “Finance folks like to be in control. They like to understand what’s happening. And in a lot of cases AI is viewed as this black box, and people are certainly concerned,” he said. “I think organizations are gradually embracing this within EPM.”
To get the most out of this technology, then, you need to start seeding trust in AI within your team. That might mean experimenting more with AI tools, testing out the answers they offer and developing processes that ensure the right checks and balances are in place for its usage.
During his talk at Excelerate Summit 2023, Chief Research Officer Howard Dresner discussed why spreadsheets continue to have a valuable place in finance teams' processes—provided they are used in the right context. Watch the full session here.
Even with new technologies such as AI available to FP&A teams, well-established tools—like spreadsheets—still have a place in a finance organization. In fact, Dresner found that 56% of organizations are still using spreadsheets as a company-sanctioned strategic tool for analysis. Another 41% saw them more as a necessary evil—but still used them.
In fact, it looks like spreadsheets are here to stay—with some finance teams even expanding their usage. While 48% of the organizations Dresner surveyed expected their use of spreadsheets to stay the same, almost a quarter—24%—thought they’d use them even more in the future. “Spreadsheets get a bad rap,” Howard said. “[But] they’re really powerful, really useful, really flexible.”
FP&A teams, however, should focus on where they’re using spreadsheets to get the most out of them. Spreadsheets aren’t a tool where corporate-wide usage makes sense, due to issues with version control and scalability. According to Dresner’s findings:
A lot fewer respondents are using them as a shared database, model-building environment or as a front-end analytical/visualization tool integrated with corporate applications—and for good reason. “The issue is when [static spreadsheets] become a corporate standard,” Howard said.
EPM software that works natively with Excel can help FP&A teams scale their planning processes with a centralized database—without abandoning the interface they know and love.
Finally, the last key trend on Howard’s list shows that business intelligence (BI) still has a powerful role to play in FP&A operations in 2023.
And the insights that BI offers can help more than just finance too. They can empower the entire organization, which is why businesses are finding ways to democratize data by embedding BI tools into applications that the whole business can access.
“When we embed these insights in other applications, we get more eyes on the data,” Howard said. “When we get more eyes on the data, that means we get more alignment with the strategy and the mission of the organization, which is really important.”
If you want your whole business to benefit from your BI program then embedding it across your tech stack is a good place to start. Dresner found that over 60% of the organizations reporting the most success with BI are currently embedding BI across their other applications. Compare that to the businesses that have yet to find success with BI, where only just over 20% are doing the same.
With a future that’s hard to predict, finance teams need to double down on data availability and analysis to support agile decision making. And the newest FP&A trends for 2023 show that teams are pulling on both new and old solutions to help.
That may mean finding new ways to get the most out of the solutions you’ve drawn on for years—including EPM, KPIs, BI and even spreadsheets—but it may also mean embracing new technologies like AI.
Whatever the case, the right arsenal of processes and solutions can help your FP&A team better handle the uncertainty around you. And with solutions for forecasting, budgeting and AI-enabled analytics, Vena’s FP&A software can help.