Financial planning can be a divisive issue for even the most harmonious of management teams, as each executive jealously protects their own personal fiefdoms. Departmental in-fighting is often arbitrated by the finance chief, who is relied upon to bring a cool, economic rationale to settle disputes.
But frequently, the finance department lacks the insight into different units’ operational demands; decisions can be based on end-of-the-month financial reports; there is a risk that planning assumptions do not accurately account for today’s business imperatives.
The solution proposed by some in the business intelligence market, is corporate performance management (CPM) tools: a framework of processes that aims to embed performance measurements into the day-to-day running of the business.
The message – that reporting and analytics tools can give financial departments the insight into operations they need to properly report, forecast and budget – is beginning to gain deeper market penetration. But can dashboards and analytical tools really provide a panacea to the challenge of financial planning?
Research undertaken by Information Age suggests that many business leaders are yet to be convinced that CPM will help them run their business: more than 50% currently have no plans to implement CPM at this time.
However, there are also plenty of businesses taking the first tentative steps down the CPM path. “User organisations are beginning to understand the benefits of CPM,” says Graham Walter, vice president for UK, Middle East and Africa at BI and CPM vendor Cognos. “But at this stage, not all of them have got it.”
One such company is Dutch electrical goods manufacturer, Philips. It employed performance management as part of a business transformation project to make it a more attractive prospect to investors. Like many CPM projects, Philips’ was led by the financial department, under then-CFO Jan Hommen.
“The company had been spending too much time on non-value-add activities,” says Hommen. Meanwhile, the electrical goods market around it was leaving Philips behind.
The CPM makeover began with each department developing a one page strategy document. Each reporting unit was issued with business scorecard systems that displayed key performance indicators (KPIs) and market information relating to the fulfilment of their particular strategy. These strategy-linked indicators informed resource allocation, and were attached to the employee bonus scheme.
At Philips, tying key strategic metrics to the distribution of finances brought about a renewed spirit of innovation: in 2005, 60% of products it shipped were new to the market.
Connecting the dots
Many companies will already have the business intelligence tools to extract performance data from their operational systems. But converting those tools into a CPM framework takes co-ordination and process re-engineering, so that measurements are closely aligned to business goals.
The most successful CPM implementations will begin with outlining the strategic imperative, says Richard Barrett, vice president of CPM vendor ALG Software. “You have to ask why you are drawing all this information from siloed applications together, whether it is for forecasting further into the future or more up-to-the minute reporting”, he says.
Carlo Gambucci, general manager of information systems at European steelmaker Arcelor which launched its own CPM initiative in 2004, believes that such an implementation requires a level managerial maturity that not all companies have reached. “Our own CPM project would have failed had we launched it in 2002,” says Gambucci. “We would not have been ready.”
Part of this maturity, he says, is the confidence to manage relationships with technology partners so the original goals of the project are maintained. “You must check that the strategic vision of your partners is in line with yours.”
Introducing CPM involves changing the way people work, and so may elicit some resistance among staff. But if done properly, that change should empower employees.
“Many financial departments are still consumed by the transactional work that they should have automated along time ago,” says ALG’s Barrett. “But with the introduction of CPM, their lives should be a lot more interesting; they will be providing decision support for operations.”
Cognos’ Graham Walter points to its customer GNER, the UK inter-city train operator. GNER introduced Cognos Metrics Manager to close the information gap between operations units making the trains run, and the finance department. “What GNER is doing with score-carding,” he says, “has forced a cultural change in the company.”
CPM can be seen as a methodology to shackle operations to strategy, via performance monitoring. After all, only by keeping a close eye on performance can any business know the efficacy of a particular strategy, and how closely it is being followed in practice.
Or as Philip’s Hommen puts it: “Ultimately execution, not strategy, builds credibility.”
Almost one third of organisations have no plans to implement a CPM systems, whilst many admit to not knowing much about corporate performance management.