kentoh - Fotolia
Digital Realty generates plenty of operational and financial data. True insight, on the other hand, requires knowing how to integrate and analyze such metrics.
The financial planning and analysis (FP&A) process is critical for Digital Realty, a San Francisco-based company that develops and manages data center infrastructure and real estate for more than 2,300 firms around the world. Five nines (99.999%) uptime is a mission-critical measure of reliability and customer service. In addition, the efficient use of physical space in widely varying real estate markets has a big impact on Digital Realty's bottom line.
When the company wanted to improve its FP&A, it turned to FP&A software.
FP&A software to fuel growth
In January 2016, Digital Realty began using Host Analytics SAAS FP&A software, sometimes referred to as enterprise performance management or corporate performance management (CPM), and Spotlight, the vendor's Microsoft Excel-like reporting tool. Together, these tools helped the company partly automate budgeting, forecasting and reporting. That freed up Digital Realty analysts to do the sophisticated financial modeling needed to understand cost effectiveness and future expenditures.
The Host Analytics Spotlight tool and FP&A software has allowed the company to spend less time on data consolidation and financial reporting and more time analyzing data and engaging with the business.
"Host Analytics has allowed us to be very flexible and make sure that we can continue to capture our data and analyze and report on the information very quickly," said Glenn Snyder, vice president of corporate FP&A at Digital Realty. "We also bring in other business metrics, including things like headcount, so we can then incorporate a more holistic view for our business leaders."
Snyder is part of a three-person corporate FP&A team in headquarters that works with a couple dozen others across several continents. At the end of 2018, Digital Realty had annual revenue of $3 billion, with 1,530 employees managing a portfolio of 214 data centers and 34.5 million square feet of real estate.
Excel vs. FP&A software
The custom financial modeling that is a major part of the Digital Realty FP&A process is hard to scale beyond a certain point in Excel, the mainstay tool of finance, said Dan Fletcher, CFO of Host Analytics. Digital Realty would probably say that providing a common playbook to different customers looking to add rack space for their cloud services is the company's "secret sauce," but each new property brings its own unique operating model, management and blueprint for success, he said.
"If you're managing that all in Excel, or even like an Access database, it gets broken pretty quickly," Fletcher said. "If you're just adding another tab to your Excel workbook, you've got all these formulas that you've got to maintain [and] that just doesn't scale."
Excel reaches a certain limitation of about 30 MB in the file, he said.
The complexity of the spreadsheets is the real issue, and Digital Realty needs to be able to incorporate new information on evolving business strategies and macroeconomic conditions without breaking its tools, Fletcher said. Excel can't accommodate that.
The faster, more flexible FP&A process has bolstered strategic planning and execution at Digital Realty.
"We've been able to come up with ideas, vet them with our business, design what needs to be changed and implement them relatively quickly," Snyder said.
The union of operational and financial metrics
Several factors play into Digital Realty's FP&A process.
Headcount is an important metric used in numerous ways throughout the process, especially in workforce planning. FP&A gets the headcount from the HR department and incorporates it in financial reports used internally, Snyder said. The reports can tell managers when headcount has gone over budget and its impact on total compensation.
As both a data center management company and a real estate company, data such as power capacity and property size are important.
When the company evaluates staffing at its properties, it can use factors such as the number of megawatts that the property has and the square footage of the property. Plus, it can compare one property to another to evaluate the average amount of compensation per megawatt or headcount per megawatt.
Operational data affects financials in other important ways and, in fact, drives most of the financial data, Snyder said. For example, the megawatts and square footage figure helps determine what each client pays for a lease, which in turn affects revenue. Combining operational metrics and financial data also lets executives compare ways to set up and manage new buildings and data centers.
It's the kind of undertaking FP&A software is best suited to do: sort and consolidate data from different departments' systems, apply a standard set of definitions and make sure the entire "pie" fits together, Snyder said. The process also applies the disciplines of finance to provide an unbiased view of the big picture, he said.
"You have your various data dimensions, and each of those dimensions needs to be mutually exclusive and collectively exhaustive, so that there are no overlaps, but you are picking up everything," he said.
FP&A process teamwork
Digital Realty's use of the Host Analytics CPM and FP&A software includes a heavy dose of collaboration.
Snyder regards Host Analytics as partners in Digital Realty's FP&A process.
Glenn SnyderVice president of corporate FP&A, Digital Realty
"We like to think about what else is out there, what else is possible," he said, and will often challenge the vendor to help figure out how to reach a goal.
The collaboration often involves financial models. After Digital Realty explains an idea for improving or expanding the business, they get creative.
"It's very much a spot-partnership brainstorming session," Snyder said. "They know the capabilities of their tool significantly better than we do; we know our business better than they do."
Some projects are "great successes and there are other times that we've presented ideas, and they've come back and told us, 'We're not there yet,' which is fine," he said.
Tips for a better FP&A process
For Digital Realty, the biggest challenge of running an effective FP&A process is striking a balance between speed and thoroughness.
"You've got to be very careful about moving too fast, because you could make errors, you can miss things, and then you have to go back and redo it," he said. "But you also have certain deadlines and goals."
The solution is managing FP&A in a holistic way, which means engaging regularly with business leaders and other stakeholders.
"If we're going to make a change to something, we don't want to do it in a vacuum," Snyder said.
The challenges of digital transformation in finance are real. It also means asking people in the business unit how a change might affect them and what risks it might bring. The challenge then becomes putting in the effort toward a solution that works for everyone.
"It's making sure everybody's on board, and they're comfortable, and they like where we're going," Snyder said.
For example, the FP&A team should ask business leaders if the reports it's been cranking out for years are helpful and how they could be improved, he said.
"The biggest thing is: Don't be so set in stone," he added. "At the end of the day, FP&A is not the driving force of the business" -- the sales, product and marketing organizations are. Understand that you're there to support the business."