Historically, those who do not prioritize innovation within their businesses tend to get left behind. In fact, a failure to innovate in the business world can leave you staggering behind competitors that are excelling because they decided to update their business models.
But how do organizations determine when, or where, to innovate? The answer most often lies within the data.
Which type of data? There’s internal, external, operational, analytical, structured, unstructured – the list could go on. Aside from examining external data, such as competition, customers, or the overall market, a part of knowing how to innovate can also come from within one’s own organization. This type of data, internal data, is information generated from within the business covering areas such as operations, maintenance, personnel, and finance.
Getting to know your organization’s internal financial data more accurately and completely, across all spend channels, is critical when determining the success of your business. SAP customers use it to reveal areas to simplify processes, reduce waste, and ultimately increase savings – a good place to start when determining where to innovate.
Doing More with Less – Innovate Through Financial Data
The current economy has united organizations both large and small in their requirement to do more with less. Getting more information out of financial data is a common coping strategy. Understanding where to cut costs and redirect spending can be quite valuable for organizations trying to stay agile and fuel innovation. But businesses are receiving more and more financial data from a growing number of spending sources, and it is becoming harder to decipher — let alone determine — where exactly financial innovation should start.
For example, a growing area of focus in recent years has been to optimize business travel. Most organizations think innovating through financial data is simply monitoring business trip costs and reconciling expenses. But it is not enough to just have access to this data. As Peter Drucker once said, “What gets measured gets managed.” Being able to better understand the benefits and results from business travel can get an organization thinking in the right direction. Instead of just reviewing the data, ask:
- Was the West Coast trip for the sales team worth it?busine
- Did we send the right team?
- How did the trip impact business?
While these questions seem straightforward, they require a deeper level of capabilities to sort through the information. Especially if employees have to pull together spending data that is dispersed among multiple systems, is structured and unstructured, or maybe historical versus real time. Comparing data that is not standard or unified is extremely complex when the goal is to tie it back to higher-level objectives.
Fortunately, this level of data comparison can be accomplished through tools like advanced analytics, ultimately identifying unique spending patterns and adjusting travel and expense (T&E) policies accordingly. Pairing that data from other cross-functional departments can unlock even more valuable insights. To illustrate this point, refer back to the previous example on optimizing business travel. Running a cross-section analysis on T&E costs against prospect scores allows for predicting the most valuable travel locations for members on the sales team.
Value of Collecting and Connecting Employee Spend Data
While spotting spending patterns and controlling costs is already complex and time-consuming, it becomes even harder to efficiently recognize trends if financial data is spread across multiple systems. Consider a time when the lack of a single source of truth in reporting put decision makers into panic when it came time to make strategic decisions for the business.
The problem here is that employee-initiated spend —spend that is instigated and controlled by employees in support of their role or job function — often holds an entire spectrum of siloed spend data. When the transactional details of employee-initiated spend come from decentralized systems, they often roll up to the general ledger in an aggregated format before being posted as journal entries. This typically leaves the general ledger with a high-level view of a few large T&E categories, such as airfare, hotels, meals, or mileage, and the finance team lacks the rich transactional detail necessary for identifying the cause of a budget overage or other worrisome trends like expense fraud.
Even in situations where all the functionality is delivered by a single vendor, the level of data integration can vary. Reconciling the data coming from those systems with the general ledger is often a manual process involving extensive exports and imports and possibly many hours of IT resources.
The inability to report accurately on employee-initiated spend can also result in a spending cut that affects the bottom line. A study from the Journal of Accounting and Economics revealed that when faced with a scenario where their company would miss earnings, managers tend to manipulate results not by how they report performance, but by how they time their operating decisions. For example, 80 percent of the time executives would cut discretionary spending, such as research and development, headcount, training, or maintenance. They would delay the start of a new project 55 percent of the time, even if it involved a sacrifice in value. And they would offer incentives to their customers to increase buying in that quarter nearly 40 percent of the time.
Having the right tools in place to automatically collect and connect all employee-initiated spend in one place is important. It helps ensure each level within the organization has the right information, at the right time, and in the right place to drive better business decisions so no one must sacrifice the bottom line later.
Why Data and Reporting Is Critical to Business Success
Customers report that data is the blood of their organizations. It helps them analyze, control, and make decisions critical to the success of their organization. Without it, organizations are unable to see where they have been, where they are, and where they are going. For example, financial measurements, such as spend by category, are necessary to contribute to profit and loss statements or balance sheets. Non-financial or quantitative measurements are necessary to keep the business running efficiently and measure attributes such as cycle times — the time to approve and time to pay — or carbon footprints.
This type of reporting can be broken down even further within these categories:
- Leading indicators: Typically non-financial, these indicators tell how a business is performing now and give insight into future performance. Things like travel trends, payment to contract terms, and pre-approved purchases can tell a story to both the outside world and the managers inside an organization.
- Lagging indicators: Typically financial, these indicators look at performance of the past — what has been spent. They can be used to identify trending, as well as including year-over-year measurements of spending or revenues to identify organizational trends.
An organization’s ability to maintain financial control and grow clearly depends on the strength of their reporting program. Consistently being able to provide key performance measurements helps managers and C-suite executives make educated, informed business decisions. A strong reporting program not only includes analyzing the data to base decisions on prior and current performance, but also marrying employee-initiated spend data with corporate goals as it pertains directly to finances. The challenge here is being able to provide clear data to help an organization change its behaviors that could negatively affect corporate goals and initiatives. Being unable to control the unknown results in “crisis decision making,” which only provides a temporary and sometimes misguided decision.
When it comes down to it, understanding where to innovate lies within the key performance indicators (KPIs) that are unique to an organization. For instance, if one key objectives is to reduce expenses, actual overhead can be compared with forecasted budget. Understanding deviations can help create more effective budgets in the future, as well as more strategic initiatives that allow the reduction and better management of costs. KPIs that match an organization’s goals should be used and reviewed regularly to ensure spend is under control and any potential savings are being realized. After KPIs are targeted, a reputable reporting strategy can be built around that data in order to measure success and discover areas to innovate.
How SAP Concur Can Help Users Utilize Financial Data
Organizations are at risk if they cannot see spend in a way that allows for making quick, effective decisions. It is not simply enough to have access to data, it must be taken further to harness its true power. Once all employee-initiated spend is housed in one system, the next step is to define goals and build a reporting strategy. Unfortunately, the process of gathering and maintaining data is often manual, outdated, and fraught with potential inconsistencies and possible errors – not to mention the lengthy amount of time spent that could be used for other tasks to grow a business.
There is a better way to provide all levels of data to each stakeholder when they need it, without creating extra work for anyone to manage this process. SAP Concur software allows users to collaborate with experts and tailor actionable data so stakeholders can gain visibility into their KPIs and drive business forward. This frees up time for internal resources– time that would otherwise be painstakingly spent on becoming a data model expert.
Learn more about how to maximize spend data with unique insights through expert help by visiting the Consultative Intelligence area of Concur.com.
Kyla Kent is an associate content marketing manager for the Enterprise Americas team at SAP Concur.
This story originally appeared on the SAP Concur Newsroom.