Special Report: Why CFOs At Midsized Companies Are Going All In On Finance Transformation

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After holding back for a few years, the rush is on to use data to make better decisions on everything from working capital efficiency to resource optimization to forecasting.

In January 2018, Eric Evans was hired to lead finance at Big Ass Fans. The two-decade-old manufacturer had been acquired the prior year by private equity firm Lindsay Goldberg, whose investors saw a compelling opportunity to transform the company into a more profitable and professional enterprise.

“Like many entrepreneurs, the previous owner focused on the top line and perceived the people in finance as back-office personnel that just closed the books,” said Evans, CFO at the Lexington, Kentucky-based maker of exceptionally large high-volume, low-speed fans for industrial and commercial uses and smaller residential fans. “The financial environment here was significantly underdeveloped.”

Evans was the first person hired by the private equity firm to help run what was essentially a new company. The CEO was hired a month later. He was entrusted to lay the foundation for data transformation. “I now had a set of constituents that really cared about the finance function,” he said. “I got the sense I wouldn’t keep my job if I didn’t modernize finance—fast.”

Over the next three years, he cleaned up the mess, making changes in people, processes and especially technology to transform finance. His focus was on the bottom line, given the “depth of the plumbing issues” plaguing the company at the time, he said. For example, aggregate and piecemeal sales data were difficult to track, verify and document, undermining the CFO’s decision-making.

Big Ass Fans CFO Eric Evans

“Our analytics team used Power BI (Microsoft’s business analytics service) to create reports and dashboards, but the information the tool drained from our ERP and CRM systems didn’t tell us anything meaningful,” he said. “It wasn’t the tool’s fault; you need analysts that know what to look for. So, we got rid of the analysts and bolstered our capabilities around better data quality and data warehouses. We went all in on a digital transformation.”

Many other CFOs at midsized companies are also investing in data-intensive technologies to transform the finance function, with the aim of generating insights that illuminate business conditions on an extremely granular basis. In turn, this information guides better decisions on working capital efficiency, resource optimization and more discerning forecasts.

While CFOs at large companies have been on this path since the financial crisis and Great Recession, their counterparts at midsized organizations have been slower to recognize the value or the need to modernize the finance function.

“Many finance chiefs historically have been disinclined to loosen the purse strings and invest capital in the department they lead, believing other functions like operations and sales and marketing are more deserving,” said Tadd Morganti, managing director and leader of the Business Finance & Analytics practice at Deloitte Consulting.

This benevolent approach made sense, as midsize companies’ chief objective is growth. Sales and marketing are profit centers, whereas finance is a cost center. As time wore on and new digital technologies blossomed, the finance function was stuck in the “Dark Ages,” Morganti said.

“The staff was overburdened with manual processes and yesteryear’s technology tools, making it extremely time-consuming to access data for decision purposes,” he explained. “The pandemic opened eyes to the need to modernize finance to respond more quickly and authoritatively to rapidly changing business and economic conditions—to look at investments in the function less as a cost-cutting initiative and more as a value creation.”

Seeing the Light

Many finance chiefs are committed to this course of action. According to a 2021 Gartner survey of CFOs, more than 9 in 10 (93 percent) have a vision for the function that is leaner, more digital and driven by data. “For CFOs, the mandate is both digital catch-up—doing what they should have done before—and building back differently,” said Alex Bant, Gartner’s Chief of Research and Practice Vice President.

Deloitte’s most recent quarterly CFO survey arrived at a similar conclusion about the resolve to transform finance. Nearly two-thirds (63 percent) of the CFO respondents plan to capitalize improvements in FP&A (financial planning and analysis), followed by management reporting (46 percent) and controllership/accounting (25 percent). “The findings suggest that digital transformation has become a very top priority for CFOs,” said Dean Hobbs, a principal in Deloitte’s Finance & Enterprise Performance practice.

This priority is in scope for Luke Fisher, Executive Vice President of Finance (and de facto CFO) at Talking Rain, a Preston, Washington-based privately held beverage company that manufactures sparkling and still waters.

Talking Rain EVP of Finance Luke Fisher

“When I joined the company in 2013, there was no central analysis group, with different departments doing their own analyses, little in the way of sharing data on an enterprise basis and problems with data accuracy,” Fisher said. “Without a single source of truth on the key performance metrics, our ability to make informed decisions was weakened.”

This deficiency no longer is the case. Fisher has made several process and technology investments automating the function to become more efficient and cost-effective. For example, he allocated capital to Talking Rain’s IT organization, which reports to him, to develop a unified data analytics platform. The platform ingests sales, marketing and supply chain data to egest accurate and near-real-time insights to the rest of the business.

Entrusted to manage the platform is Talking Rain’s business transformation team, which is composed of data engineers and scientists. “Their task is analytics; I look at them as our centralized intelligence hub,” he said. Fisher also established two additional teams—one focused on process optimization and continuous improvements and another concentrated on financial planning and forecasting, in partnership with the sales organization.

In addition to these process-focused enhancements, Fisher also subscribed to a cloud-based software-as-a-service (SaaS) integrated planning solution, provided by Anaplan, in mid-2020. The timing was impeccable, helping Talking Rain address the current upheaval in supply chains worldwide. “What used to take a week to assess demand and plan out our production and procurement plans for the month now takes a day,” he said.

Leveraging APIs to Generate Efficiencies

Finance transformation also is underway at Federal Foam Technologies. Like Talking Rain and Big Ass Fans, the old ways of doing things no longer cut the mustard. “When the need to change becomes imperative, you’re sort of forced to find ways to achieve them,” said Cathy Longtin, CFO at the custom fabricator of flexible cellular and plastic materials, used in the manufacture of industrial equipment, safety padding, insulation and bedding.

Federal Foam Technologies CFO Cathy Longtin

For many years, the computing processes to operate Federal Foam’s four plants and the rest of the business were integrated in a DOS-based ERP system that had seen better times. “We kept running into troubles with system crashes and data losses, making analytics an impossible exercise,” Longtin said.

In 2017, she jettisoned the system for a new one provided by Epicor that seamlessly interfaced with new software solutions, via application programming interfaces (APIs). Data from one application could be imported into other applications for analysis and insightful decision-making. One API, for example, links to a data cube app that arranges financial data across multiple dimensions for deeper and timelier analysis.

“Our sales group, for instance, can run all sorts of reports and get information back in minutes as opposed to hours,” Longtin said, noting that the app has been customized to the specific market focus of each of Federal Foam’s four plants.

Over the past six months, she has allocated additional capital to transform the finance function. New software solutions include a cloud-based SaaS tool provided by People Group Services making payroll and compliance management more transparent, and Report Writer, an app that lets users generate reports from the general ledger.

“We can report on any combination of years, months, quarters—whatever someone wants,” Longtin said. “For instance, we can build a column of specific financial data over the past six months and then ask the tool to provide the same data over the past 24 months. Boom, it’s there.”

The app also makes forward-looking projections. “Our FP&A team is using the tool to develop a 12-month rolling forecast across products, customers and margins, helping us better predict demand, expenses and budgets,” she said. “It’s an incredibly powerful analytics tool.”

Getting Smarter Fast

Big data analytics also is in place at Big Ass Fans. Evans has “tripled down” on analytics, he said, investing in data warehouses to support the finance function’s business intelligence activities. “I wanted us to be able to perform interrogations of large amounts of historical data to get quick and correct answers,” he said.

This ability was wanting when he hired on as employee number one. “If someone asked, `Eric, how many fans do you sell?’ I’d say `Well, it depends, since we sell components like motors, as well.’ Something that simple—how many actual fan units we sold—was elusive,” he said. “There were so many caveats around providing a simple answer that we risked our credibility.”

Today, finance is smart as a whip and can be relied on for the truth. Under Evans’ guidance, the IT group has built interrogatable databases tied to the company’s general ledger. “We’ve got 18 rock stars sitting in IT downstairs doing amazing things [for the finance function], five of them developing databases and five in internal software development,” he said. “They’re our secret sauce.”

Another key element in the modernization of finance was Evans’ decision to automate manual, spreadsheet-intensive financial and accounting processes. “We’re a $250 million company with international operations, but our international operations aren’t like Johnson & Johnson’s,” he said. “We had little visibility into what was going on at these satellite operations on a real-time basis, due to our reliance on clunky spreadsheets and shared drives to upload account reconciliations and send files from one computer to another computer.”

The company has traded in its labor-intensive spreadsheet-driven processes for a suite of automated software solutions provided by BlackLine. “Last year, when many companies were having difficulties closing their books and making timely forecasts, we accomplished both in two days—accurately and right,” he said. “I also had more transparent insight into our operations to make the finance department leaner, resulting in a 25 percent cost reduction.”

Had he not allocated capital to modernize finance—well, Evans trembles at the thought. “When I look back at the time and effort put into cleansing our data in the past and what we’re able to do now in the data warehouses with accurate information in real time, it’s night and day,” he said. “Had we not done it, we’d be in deep water. We would have never been able to answer the questions we needed to answer in time to manage the business.”

Today, Big Ass Fans is on a solid growth trajectory, thanks in part to the pandemic, he said. “Companies initially questioned what impact fans might have in a Covid world, only to quickly realize that ventilation was crucial in mitigating transmission of the virus,” he explained. “An important part of our growth strategy is the development of clean air ventilation systems, embedding disinfectant technology and UV lights into our fans to kill the coronavirus and other viruses and bacteria.”

It’s a great idea, one almost as good as the naming of the company two decades ago (admit it—you were dying to know). “We were originally founded as The HVLS Fan Company, which stood for high-volume, low-speed fans,” Evans said, “but so many prospective customers called us and asked, `Are you the guys that make those big ass fans?’ that the founder decided to change the name.”

The new name got the ball rolling. The transformation of finance got it rolling in the right direction.

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