Shorter windows of opportunity and the emergence of speed and time as a competitive dimension have led to a situation where managers are expected to make and implement decisions faster and faster. At the same time, managers are faced with a deluge of information from both inside and outside the organisation. While the systems which organisations have implemented in the past have been effective in providing the hard quantitative information needed for operational control, they have been of limited value in supporting the activities of senior managers.
In particular, senior executives have realised the need to put in place appropriate processes and systems to support performance monitoring, business problem solving, business intelligence and business direction setting.
Under the existing approach to strategic management processes, firms have failed to redesign the reporting and performance management systems to take account of the primacy of shareholder value.
As a result, many of the systems currently in place reflect a bottom-line profitability perspective rather than a value perspective. Therefore the rhetoric of shareholder value management is not matched by the reality of performance management and business execution.
In order to support effectively the value creation process, executives need information which allows them to:
– quickly identify changes in the market environment and react to such with new, adapted strategies
– evaluate and compute these strategies using scenario planning
– put into operation new strategies using concrete goals and corresponding measurements and initiatives
– carry out complete, integrated enterprise planning built on top of the target values
– acquire data from different sources and consolidate financial data flexibly
– monitor goal achievement and benchmark the performance internally and externally
– communicate efficiently with external stakeholders.
The last 12 months have seen the emergence of strategic enterprise management (SEM) software offerings from ERP vendors. As currently conceived by the major vendors, SEM is designed to improve the effectiveness of strategic management processes by providing managers with business performance monitoring, consolidation, and data warehousing/business intelligence capability.
Essentially, SEM is an attempt to improve the strategic management of an organisation by giving finance professionals better tools and approaches to meet the continuous stream of requests for analysis and information from senior executives. In recent years, the demands on the time and resources of the finance professional have grown exponentially. SEM tools are designed, help, and allow finance staff to leverage the data in an organisation’s ERP system to provide better decision support. Therefore, it uses a range of analytical applications such as shareholder value management, activity-based costing or activity-based management, and the balanced scorecard to help executives manage the enterprise better. In this respect, SEM may finally fulfil our expectations for ERP and provide useful information for senior managers.
It is important to appreciate that SEM is not some new magic technology.
In fact, I would argue that SEM as a management activity, has been around for decades, ever since companies began to recognise the need for better strategy formulation and execution. Finance professionals such as management accountants and others, have been providing SEM-type support for decades using spreadsheets, extract programmes and a lot of elbow grease.
The real killer application in SEM is that it frees finance professionals and others from the drudgery of monthly corporate monitoring and allows them to concentrate on more valuable analysis such as solving specific business problems (excess inventory is a favourite at the moment) and longer-term direction and agenda setting.
In the past, finance professionals spent a large amount of time extracting information from different legacy systems and using spreadsheets to summarise and present the information to senior executives. As figure 2 illustrates, these difficulties arise primarily because of the diverse systems that were supporting the firms’ operational activities. As a result, a large amount of effort and resources is spent trying to extract and reconcile information from the diverse systems. The problem is exacerbated when the executive committee requests one-off or ad hoc analysis of a particular issue such as the declining sales in a particular market. This inevitably leads to additional extract programmes and spreadsheet analysis.
For many years finance professionals have concentrated on supporting just one aspect of the strategic management activities of executives.
Strategic management involves not just business performance management, but also the more proactive areas of business problem solving, business learning and business direction setting. For a finance function to be effective, it must support all four types of activities.
The evidence to date suggests that successful corporations have superior strategic management processes. Successful organisations are those capable of charting a course that maximises stakeholder value in the face of a hostile environment.
Finance can bridge the gap between strategy and operations by making shareholder value the key criteria in decision making and by providing the tools and information to support SVM. As such, finance professionals have a key role to play in SEM operationalising SVM, by helping executives understand where value is created and destroyed, whether its business model is operating effectively and how this can be improved.
This is done by defining and evaluating the strategy, setting targets, measuring performance, forecasting and then re-evaluating the strategy.
All of this requires a vital ingredient – information.
Most of the major ERP vendors have taken a modular approach to creating innovative analytic solutions, which lie at the heart of SEM software.
As figure 1 illustrates, analytical components draw on a common data pool from a business/data warehouse and provide function-specific capabilities.
This enables organisations to create their own system, specifically tailored to their unique industry and company-driven needs. Most of these applications and templates are currently available or are under development by the different SEM vendors.
The data warehouse will normally be the single point of reference for the entire SEM solution. It functions as the central data repository, collecting data from the organisations ERP and non-ERP systems, storing data, and feeding the analytical applications and reporting templates.
SEM is not a technological issue but is, instead, about integrating best practices in the key management process of planning, decision making, implementation and measurement to maximise stakeholder value. While technology and systems are a vital enabler, the successful implementation of SEM requires a much wider perspective than many practitioners have suggested to date.
The objective of SEM is to help finance professionals become business partners, providing executives with the information and analysis they need to formulate and execute successful business strategies.
Martin Fahy is a senior lecturer in accounting and information systems at the National University of Ireland, Galway. He is a chartered accountant and holds a PhD in Informatics from UCC.
For more details from CIMA on SEM go to: www.cimaglobal.com
For more on SEM go to: wwwext03.sap.com/usa/solutions/sem/
WHAT IS SEM?
SEM is an attempt to help finance professionals improve strategic management by giving them better tools and approaches to meet the continuous stream of requests for analysis and information from senior executives.
It’s important to appreciate that SEM is not some new silver bullet technology.
SEM has been around as a management activity ever since companies began to recognise the need for better strategy formulation and execution. Management accountants and others have been providing SEM-type support through spreadsheets, extract programmes and so on.
In fact, for years we have seen a continuous stream of decision or executive support-type software – executive information systems, data mining, dashboards and so on. Many of these were sold as a panacea for all reporting and analysis shortcomings.
SEM technologies draw valuable lessons from our less than successful experiences with these earlier technologies. They recognise the primacy of the executive and relegate the technology to a supporting role.
The SEM technology now emerging from the ERP and other software vendors is light years ahead of older modelling and analysis tools. However, it’s still just software. This approach frees finance professionals from the drudgery of monthly corporate monitoring.
The reality is that the biggest constraint on most corporate business analysis and planning groups is a poverty of time to think about the challenges facing the firm, not technology.
Successful firms have long recognised that excelling at strategic management tasks such as business intelligence and decision making is a competitive advantage in itself.
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