Strategy for success
Strategy for success
July 01, 2005: In the first two parts of his three part series on corporate performance management, industry expert - and co-author of 'The Strategy Gap' - Michael Coveney looked at the gap that exists in organisations between strategy and execution, and ways in which this gap can be overcome. In this final article, Coveney takes a look at how an organisation should go about the transformation of their planning and reporting processes to one that supports true performance management
Corporate or Business Performance Management (CPM or BPM - they are both the same thing)is very different from the management systems traditionally used in organisations.
To start with, effective performance management systems focus on the development, communication and monitoring of strategy. This means that measures used in the budget are derived directly from the strategic plan and will typically consist of both financial and non-financial measures. In fact, the non-financial measures will typically outnumber the financial ones because financial goals are generally the result of activities, and it's these activities that need to be planned and monitored. The majority of these measures will not be in the general ledger.
Secondly, effective systems are continuous in operation, and each process-planning, budgeting, forecasting and reporting-is totally integrated with the other. This means that budgets can be derived from rolling forecasts and compared with actual results in the same system. This allows planning and budgeting to be a continuous process and one that can be triggered based on events rather than a date on the calendar.
For most organisations, this requires a system designed to handle corporate performance management. Unless you are a very small trader, spreadsheet based systems will not be able to handle these requirements.Because of these fundamental differences it is not practical or advisable to implement all the changes required in one go. The most successful route to effective performance management is to approach the implementation as a series of small or phased implementations that address key business "pain points."
However, these pain points must be addressed in the context of a long-term Performance Management roadmap that identifies how any short-term initiatives fit into the overall strategy. The following is a 'roadmap' that outlines key steps in moving towards effective performance management.
Step 1: Senior Management 'buy-in'
The implementation of a performance management initiative should not be seen as just a change in technology, but as an opportunity to transform key business processes and improve managerial decision-making in support of implementing strategy. For this reason the vision for Performance Management must ultimately be held and led by senior management. Given that good corporate governance requires directors to ensure that the assets of an organisation are used effectively in the interests of shareholders, they then need to ensure that this is what the performance management system does.
Step 2: Define the data required to manage performance
Rather than seeing what data is available (a trap which will quickly get you buried in obscure facts that will take your attention away from strategy), define the data that you need to manage performance. This should be based on measures defined within the strategic and supporting operational plans. In the last article we looked at a technique of how these measures can be determined. From this you'll probably find that most of them are not currently being budgeted or monitored.
Step 3: Define the processes required to manage performance
From the measures defined in step two, draw out the processes required to plan, budget, forecast and monitor them. Determine who needs to be involved in each of these tasks and what should be the trigger for each process. For example, if a measure is forecasted to be more than 20 percent outside the budget then the planning cycle needs to be triggered.
Now compare these 'ideal' management processes with your current processes. The chances are they will be very different, involving dissimilar people and, more importantly, are now 'triggered' by events rather than a date on the calendar.
Step 4: Assess current system capabilities
Now review the systems in use to support these processes. Will they support the different measures and treat the revised management processes as a single, continuous process? Do they hold the data required as a single version which is instantly available to each process? How much user intervention is required to run the processes and can users get easy access to the data in a form they require to make decisions?
If your systems are more than three years old they are unlikely to support effective performance management process. Over the past few years new breeds of system have been available that are specifically designed to meet these requirements. They interact with an organisation's existing transaction systems and utilise the web to provide users across the enterprise with a single point of contact on all aspects of performance.
Step 5: Highlight current pain points
In this step, note down the 'pain points' being experienced in the current systems and try to identify the causes. For example, if the budgeting process takes too long, what are the contributing factors? Does it take too long because budget holders are submitting their budgets late? Is it because the budget submissions are incomplete or not within the established guidelines? Perhaps it is because the managers do not understand this once-a-year process or the system being used is too complex for novices.
Step 6: Set priorities
From the information collected in steps 1 to 5, you are now in a position to make some recommendations on implementation phases. Areas that give the most pain will probably need to be addressed early on but make sure you 'fix' the root cause and not merely the symptom.
Try and deliver small incremental changes on a regular basis. For example, don't attempt to change all the budget measures to the new ones identified in step 2. Start off by including these measures as a supplementary report until you are able to embed them within the planning, budgeting, forecasting and reporting processes.
If your systems are not up to the task then you'll probably need to implement a new system first but keep the old reports and measures until users have got used to using the new system.
Quick Wins
Finally, here are some things you can do right away to get you on to the 'road to performance management' with very little effort.
• Publish the strategic plan. Web technology means it's easy to make available through the organisation's intranet and refer to it when users submit forecasts and budgets.
• Get operational managers to submit a tactical plan with both the budget and the forecast that show cause and effect on how they intend to deliver their own goals. Then get them to report on the success of their plans to deliver goals.
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