Innovating Through Data: The Best Way to Predict the Future is to Invent It
Historically, those who don’t prioritize innovation within their business tend to get left behind. In fact, a failure to innovate in the business world can leave you staggering behind competitors who are excelling because they decided to update their business model. But how do organizations determine when, or where, to innovate? The answer most often times lies within the data.
“Which type of data?” you may be wondering. There’s internal, external, operational, analytical, structured, unstructured – the list could go on and on. Aside from examining external data, such as your competition, customers, or the overall market, a part of knowing how to innovate can also come from within your own organization. This type of data, called internal data, is information generated from within the business covering areas such as operations, maintenance, personnel, and finance. In this blog, we’ll be exploring why getting to know your organization’s internal financial data more accurately and completely, across all spend channels, is important when determining the success of your business. Plus, we’ve seen how our 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 – innovating through financial data
The current economy has united organizations both large and small in their requirement to do more with less. Hence, 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’s 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 isn’t enough to just have access to this data. As Peter Drucker once said, “What gets measured gets managed.” It’s being able to better understand the benefits and results from business travel that can get your organization thinking in the right direction. Instead of just reviewing the data, ask yourself this:
- Was the West Coast trip for our sales team worth it?
- Did we send the right team?
- How did the trip impact our business?
While these questions seem straight forward, they require a deeper level of capabilities to sort through the information. Especially if your employees have to pull together spending data that is dispersed amongst multiple systems, is structured and unstructured, or maybe historical versus real-time. In other words, comparing data that isn’t standard or unified is extremely complex when the goal is to tie it back to higher-level objectives. Fortunately, we can accomplish this level of data comparison through tools like advanced analytics, ultimately identifying unique spending patterns and adjusting T&E policies accordingly. Pairing that data from other cross-functional departments can unlock even more valuable insights. To illustrate this point, we can refer back to our previous example on how to optimize business travel. By running a cross-section analysis on T&E costs against prospect scores, we can predict the most valuable travel locations for members on the sales team.
The value of collecting & 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 your financial data is spread across multiple systems. Just think back to a time when the lack of a single source of truth in reporting put you and other decision makers into panic when it came time to make strategic decisions for your business.
The problem here is that employee-initiated spend— the spend that is instigated and controlled by your 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 (GL) in an aggregated format before being posted as journal entries. This typically leaves the GL with a high-level view of a few large T&E categories—like airfare, hotels, meals and mileage—and the finance team lacks the rich transactional detail that’s 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 quite 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. Take this study from the Journal of Accounting and Economics into consideration: when faced with a scenario where their company would miss earnings, the study revealed that managers tend to manipulate results not by how they report performance, but by how they time their operating decisions. For example, executives would cut discretionary spending (R&D, headcount, training, maintenance) 80 percent of the time; 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. That’s why having the right tools in place to automatically collect and connect all employee-initiated spend in one place is important. It ensures each level within the organization has the right information, at the right time, and in the right place to drive better business decisions so you don’t have to sacrifice the bottom line later.
Why data & reporting is critical to business success
Our customers tell us 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 us how a business is performing now and gives us insight into future performance. Things like travel trends, payment to contract terms, 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 the performance of the past- what has been spent. It 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 your organization change its behaviors that could negatively affect corporate goals and initiatives. When you can’t control what you don’t know, you end up with “crisis decision making,” which only provides a temporary and sometimes misguided decision – similar to what happened in the study mentioned previously.
When it comes down to it, understanding where to innovate lies within the key performance indicators (KPIs) that are unique to your organization. For instance, if one of your key objectives is to reduce expenses, then you could compare your actual overhead with your forecasted budget. Understanding where you deviate can help you create more effective budgets in the future, as well as more strategic initiatives that allow the reduction and better management of your costs. KPIs that match your organization’s goals should then be used and reviewed regularly to ensure spend is under control and any potential savings are being realized. After you target your KPIs, then you can start building a reputable reporting strategy around that data so you can measure success and discover areas to innovate.
How SAP Concur Can Help
Organizations are at risk if they can’t see their spend in a way that allows them to make quick, effective decisions. It’s not simply enough to have access to your data, you must take it further to harness its true power. Once all employee-initiated spend is housed in one system, the next step is to define your goals and build your 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 your business.
Thankfully there’s 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. That’s where SAP Concur can help. We allow you to collaborate with experts and tailor actionable data so your stakeholders can gain visibility into their KPIs and drive business forward. This frees up your internal resources’ time – time that would otherwise be painstakingly spent on becoming a data model expert. Learn more about how to maximize your spend data with unique insights through expert help by visiting our Consultative Intelligence solutions website.