CPM in the Financial Services Industry

Last week I attended the Deloitte FSI Practitioners Day, a meeting of Deloitte professionals working in the Financial Services Industry. I was invited to make a presentation on the relevance of CPM for companies in the financial services industry (banking, insurance, hedge funds, pension funds etc.). I posed the statement that CPM in today’s business environment is mission-critical for the financial services industry. A number of observations led me to this conclusion.

First of all, despite the number of challenges facing the industry, opportunities for growth are plentiful – particularly through expansion in new markets, technology and personalization to enhance customer relationships and new products and advisory services to meet the needs of retiring baby-boomers.

To grow, the financial services industry needs to address a number of issues. First, spurred by falling cross-border investment barriers, financial services companies will expand abroad by acquiring or merging with companies in other countries. Banks are moving away from traditional outsourcing toward captive operations or a mix of captive and outsourced functions. China will be a critical market, but presents geopolitical risks and structural market challenges. Second, slow growth in existing markets will push financial services companies to reconnect with customers through a combination of state-of-the-art technology and personal service. Third, in an increasingly strict regulatory environment, financial services companies must adopt a principles-driven approach to policies, standards and systems to ensure compliance. Fourth, financial services companies now view operational and reputational risk to be greater concerns than market, credit and liquidity risk. Data privacy and security have become hot issues and will remain so for the foreseeable future. Fifth, an aging population will continue to drive the development of financial products and services targeted to older customers.

To survive in this dynamic, turbulent and competitive environment, companies in the financial services industry need to create a sustainable competitive advantage. This requires the right size. Size offers a way to capture economies of scale and deliver products more efficiently. US banking consolidation may have largely run its course, but Europe’s has barely begun, and the potential for cross-border consolidation has risen dramatically. Second, service matters – and technology offers a cost-efficient way to offer customers more convenience, value and the “mass personalization” necessary to build loyalty. Third, to improve compliance quality while holding down costs, financial services companies must be able to combine a top-down principles-based approach with enough flexibility to adapt to local regulations. Related to the compliance issue is the need to guard against operational glitches that could damage the bank’s reputation. Finally, financial services companies are facing an imperative to develop specialized products and advisory services aimed at an older population.

In short, to be succesful, financial services companies need to have a clear strategic focus based on challenging growth objectives, cost reduction initiatives, operational excellence, and customer centricity.

The CFO will play an important role in developing and executing this strategy. The traditional roles of the CFO are to balance capabilities, costs and service levels to fulfill the finance organisation’s responsibilities, and to protect and preserve the assets of the organisation. CFO’s today however, feel more pressure than ever to provide financial leadership in determining strategic business direction and align financial strategies, and to stimulate behaviors across the organisation to achieve strategic and financial objectives.

One of the key ways for the CFO to play his role as a strategist and catalyst is corporate performance management. By improving the connection between strategic initiatives and business plans, and by enhancing the planning process to increase collaboration in budgeting and forecasting, CFO’s provide strategic leadership. They act as catalysts of organizational change by promoting predictive analysis instead of backward looking, and by creating an integrated performance scorecarding and reporting process. It’s because of this contribution to the CFO’s role as strategist and catalyst, that CPM is becoming mission-critical for the financial services industry.

The Future Of Company Reporting Looks Bright!

Last week at the Global Public Policy Symposium in Paris, the CEOs from the largest professional services firms presented a united vision proposal for the profession and the future of financial reporting.

The paper was developed in an effort to focus discussion on issues that directly affect the services provided by professional services firms. The symposium participants included the senior leadership from BDO International, Deloitte, Ernst & Young, Grant Thornton, KPMG, and PricewaterhouseCoopers, as well as an array of regulatory officials and investors from around the world.


As you might imagine, the vision paper and symposium attracted heavy media coverage. The CEOs signed an op-ed piece about their shared vision that appeared in the Wall Street Journal. All CEOs participated in media interviews for CNN International business, the Wall Street Journal, and the Financial Times. By working together, the CEOs are helping to shape public opinion about issues that will map the future of company reporting.

I think this is good news if you take Corporate Performance Management seriously. Why? Well first of all, because this will help to improve the quality and usefulness of company reporting. Thanks to Internet and digitization, information will become more of a commodity product, that stakeholders can customize and consume the way they want it. For example, some investors may want to know about the earnings, cash flows, and perhaps other variables for a company currently and over some past period. Others may want each of these variables compared to other companies in the same industry or a similar “peer group”, or compared to averages for the market as a whole (or some portion thereof).

Second, it is directed at improving the frequency of company reporting. Why, in a world where most public companies’ financial records are, or soon will be, in digitized form, should investors and other parties have to wait a full quarter to receive pertinent financial information? Technology allows far more frequent reporting, even daily, although with different levels of assurance about its accuracy than for financial statements that are subject to regular audits.

Last but not least, this vision is aimed at providing more qualitative and non-financial information that helps stakeholders to understand how businesses perform in the future. Yet financial statements are backward looking documents. They tell how a company has performed in some recent period. Perhaps some of the information contained in the financials is indicative of future performance, but much of it is not.

Instead, non-financial measures like innovative success, customer satisfaction, product or service defects or awards, and employee satisfaction would provide powerful incentives to corporate executives to manage their companies in ways that benefit not only their shareholders, but their employees, customers and the wider economies in which they conduct business. In particular, companies that look likely to prosper but in fact may be in trouble would have stronger incentives to take corrective action sooner than otherwise. Conversely, companies whose prospects are really brighter than current financial data may indicate may not be penalized by investors, and thus find it easier to borrow funds for expansion, to retain or expand their customer base, and to retain or recruit new employees.

In short, the new reporting model should be more useful to stakeholders, more frequent, and help in predicting future company performance. It will impact the way executives manage their businesses, lead to a convergence of internal management information and external reporting, and will leverage existing CPM systems and developing technologies like XBRL.

If the leaders of the big international audit networks succeed in bringing their vision to life, this might very well be the next wave after compliance and IFRS. And this time, it appears to be one that will really benefit both internal and external information producers and consumers. And I think that’s really good news!

CPM: mission critical for your organization?

From 1 until 3 November Cannes (France) was the venue of the Outlooksoft European User Forum 2006. Within the sunny and beautiful surroundings of the Cote d' Azur there were numerous opportunities to meet Outlooksoft customers, Outlooksoft partners and Outlooksoft employees. Central theme during the conference was the presentation of Outlooksoft’s latest product: Outlooksoft 5 .

Outlooksoft 5 promises to offer ever increasing powerful CPM solutions based on continuous technological innovations and active incorporation of customer feedback. Unique focus is given on the planning and the predictive analytics that Outlooksoft 5 offers to its clients. Or as Outlooksoft CEO Phil Wilmington formulates it: “The ability to be a predictable enterprise in today’s market is mission critical.”

But what does this mean mission critical? A company’s mission states why the company exists (raison d’être) and what it wants to achieve on the short to mid term. Hence, a mission has something to do with a company’s strategy and its performance. So CPM is critical for the performance of organizations? Let’s find out!

In today’s global, turbulent and dynamic marketplace more and more flexibility and transparency is asked of organizations. Shareholders want to receive maximal value for their investments. Governments and legal bodies ask for increasing accountability of past and present results. Market barriers decline resulting in increasing competition. Customers expect ever more value for their money.
To cope with the increasing complexity of the marketplace managers feel the need for timely and relevant information which enables them to make the right decision on the right time. Achieving a sustainable competitive advantage demands insight and forward visibility to the business.

With the integration of financial and operational information, compliance orientated features, workflow controls, predictive analysis capabilities and the integration of Business Process Flow (BPF) technology CPM solutions are more and more meeting the demands of the competitive marketplace. CPM should not only address retrospective financial accountability and compliance. The capability to transform financial, operational and strategic information into reliable and timely predictive analysis will revolutionize the way organizations compete.

Successful CPM implementations align and streamline processes and systems starting with the company’s strategy. Goal of the implementation should be to offer a tailored and unique solution meeting the demands of the local marketplace and the company’s ambitions. Investing in the necessary systems and CPM tools is therefore just one part of the implementation. More important is how you organize and translate your information needs across the processes and systems. Hence, a successful CPM implementation does not just mean joining the bandwagon.
Unique solutions will offer organizations the opportunities for achieving sustainable competitive advantage. When implemented successfully CPM can help companies achieve goals, quantify success, effectively allocate resources, chart the continuing course and give accurate predictions for future investments. CPM can offer the critical information to outperform your competitors.

Is CPM mission critical for your organization? I reckon it is!

Corporate Performance Management Conference: TakeAways

Last thursday we attended the Annual Corporate Performance Management Conference which was held last in Noordwijkerhout last thursday. After arriving fashionably late and a rebuke of the organisation (thanks Danja!) the congres turned out to be a great succes. Our Deloitte stand had a big part in this succes.

A few takeaways sticked in our memory which we would gladly share with you.

• At Trespa they keep their managers eager by displaying, every day, a KPI dashboard which directly relates to their bonus. And if the dashboard is offline for a second the managers start complaining (even in the weekends)!
• Why do you need 98 KPI's to manage a company while you can fly a Boeing by just ten indicators? However you will need correct data to support your KPI's! Did you ever fly with a Boeing with an altimeter (altitude indicator) saying 3000 feet while you were flying 30 feets above the grounds? Arnold Pureveen (De Alliantie) likes to call it the Duck Theory (whatever that may mean). We like to say: "Just KISS" (KISS: Keep It Simple and Sound).
• 'Just do it' is not only known as Nike's motto it is also the corporate CPM phylosophy of Arcelor Mittal. When they take-over new companies they just say: ''deliver the necessary information; incompleteness and incorrectness is of later concern''. This makes it possible for Mittal to fully integrate new companies in their Planning & Control cycle within a month. This effective strategy only works for large companies where small companies have no material impact.
• Child Care is a hot issue in the dutch society. A few years ago it was more or less like a 'soft' sector in Holland. Nowadays big controllers and financial directors are switching to this sector to give it the necessary professionalism. A great example is Wim Westerink from SKON. First the financial man at Mexx Europe, now one of the leading persons behind one of the biggest (within a few months the biggest if we may believe Wim Westerink) child care organisation in the Netherlands.
• The winner of the CPM Award 2006 is Tjero Zomer (CFO at Transavia.com). Performance Management is one of the main foundations of the operational management at Transavia. This year Transavia closed their books (including IFRS adjustments) within five days. This is a textbook example of what we call at Deloitte 'A Fast Close' and a perfect benchmark for other companies in the sector.
• Due to a fever Dennis van der Geest was unable to attend. Cor, his father replaced him. Cor has been very succesful as a coach for different judokas. He gave the audience his point of view on 'how to manage performance'. He illustrated this by lively examples and made clear that to be successful you need a leader that can inspire.