Many rely on the spreadsheet to help make important decisions, despite consultants consistently warning against the spreadsheet’s potential for chronic inaccuracy.
Few can accurately monitor, manage and report on performance in the context of strategic plans and objectives. But some are finding there is an alternative.
Nick Bray, finance director at optical fibre network specialist Fibernet, notes: ‘The company used spreadsheet systems for management reporting. I considered it a priority to replace this reporting environment with a single system to handle all aspects of the corporate performance management process.’
Fibernet implemented Comshare MPC which has allowed it to update annual plans monthly. Projections are continually compared to budget, and that feeds into the five-year plan. This has been achieved because Comshare, like Hyperion, CODA, BusinessObjects and Cognos, are touting an integrated approach to managing performance.
Research organisation Gartner calls this corporate performance management or CPM. Others refer to BPM, EPM and SPM, but they make the same point.
Analysts say executing against strategy only works when there is a set of closed loop information systems covering planning, forecasting, budgeting and reporting. This is logical but Mike Coveney, Comshare strategy director, explains where CPM fits: ‘It is about addressing the missing steps that lead from where a business is to where it wants to be – its objectives.’
But he points out software alone will not solve ‘the strategy gap’. ‘People need information on which they can act. That’s difficult to get at.’
Companies need more than finance-related numbers. ‘Managers need to contextualise figures in terms of problems they’re trying to solve,’ says CODA chief executive, Jeremy Roche. He says managers need an array of information that, while rooted in financials, is augmented by context-specific combinations of related data. For example, there’s little point in creating a sales forecast without understanding how market conditions change by geography, demographics and price sensitivity. Access to that information creates a need for data integration.
At present there is no clear IT industry roadmap for solving the data integration issue as vested interests, especially in the ERP world, shun the idea of developing industry standards. The likes of SAP and Oracle say a one-stop shop approach can solve all problems. But that misses the point. ERP, the core capabilities of customer relationship management, supply chain and human resources are about managing transactions and related processes. ‘While it is right to say financial transactions are important, ERP is not about managing events or decision-making because those activities are based on factors outside the transaction,’ says Roche.
Most CPM vendors are integrating planning, forecasting, budgeting and reporting as these are easier to overcome in the short term, provide the platform for integrating other data and offer a clear return on investment. Kingfisher, for example, found consolidating its statutory and monthly reporting on to a single platform reduced the time it needs to spend on reporting.
It chose a Hyperion solution that uses a web-based interface. Ian Edwards, Kingfisher’s FD, says: ‘We will have greater flexibility in providing access to key information to finance personnel and those in other parts of the business.’
Some have taken this further.
Brian Wilson, financial controller at Associated Co-operative Creameries, which uses CODA-Intelligence, says: ‘We wanted to integrate financial information with operational data, so the company’s ‘intelligence’ is in one central resource and in real-time.’
And here’s the rub: how can companies implement CPM and respond to events in ‘real-time?’ The best-laid plans are easily blown off course by unexpected events. The events of September 11 were an extreme example, but instability and unpredictability are the stuff of everyday management. Having the means to view what’s going on and do something about it becomes vital.
This has led to the development of Business Activity Monitoring or BAM, which seeks to tie key performance information to the means of adapting processes. Aditya Shivram, European marketing director at integration specialist TIBCO, says: ‘The diverse nature of the resources required to solve problems means companies must have an integration strategy so response to change is effective.’
For instance, one might need to assess and verify a fresh supplier’s capability in the face of disruption to existing lines of supply. If those processes don’t exist, they need to be created. This can provide a safeguard as responding to events quickly is known to limit impact or enhance opportunities.
‘If you can step in to fill the shoes of a failed supplier, you’ve achieved a competitive advantage,’ adds Shivram.
Some late 20th century management thinkers argued that as unpredictability is the norm, strategic planning is irrelevant.That may have been credible when financial analysts were interested in the number of eyeballs glued to websites rather than actual financial performance. But such thinking ignores the lessons of best-in-class performers. Examples like Ryanair, which has confounded the airline industry by growing and performing well in appalling trading conditions, demonstrate that acting upon strategy in a focused manner works. That would not be possible without the means to manage performance. That demands a CPM style approach.
CPM doesn’t transform business overnight and must be implemented incrementally.
Neither is it a replacement for sound decision-making. How CPM will be played out is difficult to assess as it is in the early stages of development, but it has the potential to act as the trigger to transform finance into a business service agency, capable of responding to the growing business need for analysis and feedback as problem solving tools.
CPM for managing performance in an unpredictable world
Carl Whorton, finance systems manager at insurance underwriter Amlin plc, is typical of those facing the strain of managing performance in an unpredictable world. ‘We’re in the risk management business so information is key,’ he says.
Amlin faces problems typical of markets with ingrained practices. ‘We work alongside Lloyds of London, so operate in conditions where many processes are paper-based.’ Whorton is implementing software to reduce the planning cycle by 25% and 50%. This will allow Amlin time to review data and planning assumptions it needs to forecast performance – a key requirement to predicting insurance premium rates.
Amlin is currently reviewing processes to ensure it operates best practices in the context of the Lloyds culture, but is faced with issues around the way it reports. It is finding ways to improve communications with stakeholders and investors.
‘We aim to resolve the contradictions that arise between the Lloyds accounting period and annual report. It isn’t easy but expressing these in the context of a developing CPM strategy helps,’ says Whorton.