ABSTRACT

Aligning The Front and Back Office to Maximize Revenue And Growth

This analysis explores how the combination of forces that are driving the transformation of the commercial model are forcing the front office sales, account management, product and services teams to work more closely with the back office finance, controller and financial planning functions to work together to expand customer revenues. They key findings are summarized here and expanded upon in the body of the report.

CEOs are under pressure to deliver predictable and profitable growth in an increasingly uncertain market because more consistent revenue streams and can increase the value of the business relative to peers with traditional business models. 

• This pressure on CEOs to deliver consistent long term revenue streams has led the majority of business-to-business organizations to put in place increasingly sophisticated relationship structures with customers that involve multiple points of value delivered on a one-time or continual basis.

• As a result, CEOs, CFOs and operations leaders now face a range of challenges as they try have to manage a mix of new business revenue streams. – which can include a blend products, services and one time sales combined with consumption-based contracts, time-based projects and subscriptions

The dynamic nature and complexity of more sophisticated relationship structures and timing and variability of their associated revenues streams has made the ability to forecast effectively an even greater challenge.

• Finance and accounting teams struggling to close the growing gap between committed and realized revenues and accurately forecast future revenues accurately over time.

• 63% of finance executives believe the complexity of forecasting revenues and business performance has increased course over the past year. And most (54%) agree it will only become more complex in the future.

Traditional spreadsheet-based approaches to gathering, aggregating, sharing, and analyzing demand data are too slow, inefficient and error prone to support revenue forecasting in a modern commercial model

• The manual processes used to gather this data on spreadsheets are too slow to keep up with the rising volume and frequency of post-booking changes to contracted revenues which leads to outdated or unreliable forecasts.

• Most organizations lack established cross functional processes where front office sales, product and service teams can collaborate and share information with finance.

• Most finance teams lack the ability to manage and leverage the large amounts of new customer and transaction data produced by these complex, usage and subscription based contracts and relationships.

Nearly two-thirds (65%) of senior financial executives report they are having operational problems establishing processes to track and manage and maximize revenues over the long term.

• Two-thirds (67%) of the finance executives said finance leadership should better align with sales leadership to improve forecasting and maximize revenue growth.

• Nearly half (48%) of companies with a re-occurring revenue business model report they are struggling to comply with ASC 606 and IFRS 15 accounting standards that dictate revenues have to be recognized when realized and earned, not necessarily when received which can lead to audit and compliance issues.

Increased market uncertainty combined with the inability to quickly adjust manual revenue forecasting and reporting processes have compounded the problem to make it extremely difficult for finance teams to accurately plan and forecast future revenues in an increasingly uncertain market.

• A perfect storm caused by a pandemic, global supply disruptions, and geo-political shifts has organizations feeling a whiplash effect in trying to build, and deliver to increasingly variable demand patterns.

• Most CFOs (61%) are not optimistic about the US economy over the next six months, and even more (70%) are lack confidence in their organization’s ability to pivot and adapt to disruptive events.

The confluence of these trends  – and the financial, performance and timing constraints they impose on finance teams – has forced CEOs and growth leaders to rethink the way their teams manage and forecast revenues.  In response, financial leaders are being asked to lead the digital transformation of the entire revenue cycle – from the initial customer engagement to the receipt of cash – to maximize revenues, margins, and the lifetime value of the customer. Progressive finance teams are embracing the concept of Dynamic Forecasting as a better way  to align the organizations’ processes and data across the core business groups to make forecasting more agile, transparent and precise over time.  To make Dynamic Forecasting a reality, the most progressive business-to-business firms are taking  concrete steps to leverage their customer data to automate the forecasting process, create better alignment and collaboration, and feedback loops between the front and back office.

• The movement to Dynamic Forecasting is enabling dramatic shifts that are necessary for organizations to compete in this new era. Dynamic Forecasting utilizes existing data, systems and knowledge from the field and operations teams to both expand the inputs and improve the outcomes of existing forecasts. It goes beyond commitment size and bookings – to factor in the pre-and post-transaction variables that impact the ramp and finance-based recognition of total expected revenue over time. This provides finance with better visibility into changes to the committed business in-flight as well as the expansion or contraction of existing business on account.
• To move towards more dynamic revenue forecasting, the majority of finance leaders are automating the forecasting process.  The growing uncertainty of business, combined with complexity of new revenue streams is has made it more difficult for  finance teams to plan, recognize, and forecast future revenues over time.  The labor and complexity of actively managing the unique revenue attributes of hundreds or thousands of complex long term contracts is a growing source of risk and error that increasingly hampering the ability of finance teams to and comply with reporting and compliance standards. In response, nearly three quarters (73%) of finance leaders are exploring better systems to help sales and finance better supports dynamic and recurring contracts. Process automation can free up a third or more of analyst time which can be better applied on the analysis of revenue streams and making judgement that improve future customer lifetime value. By automating the process and capturing changes from customer facing teams in a timely manner the best organizations are able to reconcile and update their forecasts on a  near real-time basis, to reflect changes in the market instead of scrambling to sort through gaps and variances at the quarterly close. 

• Most of finance leaders are working to take greater ownership of end-to-end quote to cash processes to facilitate greater collaboration and data sharing between the front and back office. The best organizations are putting in place better processes and systems for aligning the front office product and revenue teams with back office finance and operations. he majority of finance leaders are working to take greater ownership of processes to eliminate functional and data silos along the enterprise quote-to-cash processes and standardize the information and outputs of the process. 60% of financial planning and analysis (FP&A) organizations are driving global process ownership of end-to-end processes for booking, reporting and forecasting revenues by reducing process fragmentation across silos and standardizing and harmonizing the way information moves across the process.

• CFOs are driving greater alignment and collaboration between the revenue team, finance, and operations. 81% of finance leaders believe they will benefit from improving the level of collaboration and communication between sales and finance about customers and contracts. Two-thirds believe that better alignment between finance and sales leadership will lead to improved revenue forecasting a 5% increase revenue growth while simultaneously lowering both finance and sales costs by 5% and giving them greater control and compliance

• The finance function is becoming more data and analytics driven. Today, finance teams spend less than a quarter (24%) of their time on insight-generating activities because they rely too heavily  on manual forecasting processes and lack access to the right data. To become more data driven, 63% of CFOs by making it a priority to leverage analytics and improve data management to improve visibility and drive insights. Almost 40% of organizations are moving beyond transactional process improvement to focus on transforming judgement-intensive processes by moving their analysts off spreadsheets and onto data platforms. This allows them to better manage the different run rate, expansion and new business time-based data streams from the field and allows finance teams to automate the forecasting process – saving time and making it more scalable and data driven.

• The best organizations are creating feedback loops between the back office and the front office. To bridge the sales and finance divide, best in class organizations are connecting the dots across the people, systems and processes involved in converting opportunities to cash into a closed loop – data-driven system. 31% of CFOs are making it a high priority to integrate their finance processes from back office to the front offices across organizational hierarchies. They are doing this by finding practical ways to aggregate customer interaction, transaction and engagement data from their customer facing systems to better inform their sales forecasts and ensure they reflect the work actually being delivered to clients over time. The smartest way to do this is to capture pre-booking, transaction and post booking data from customer facing systems and teams in the system most customer facing teams use – CRM. 

• The majority of organizations are accelerating the pace of forecasting to become more agile. Most (57%) senior financial executives are actively accelerating the pace of forecasting in their business in the face of market opportunity and economic headwinds. An automated and agile (real-time) forecast provides weeks, months of increased visibility to further optimized the newly reconfigured supply chain the ability to source, build and deliver in more profitable ways.

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