Underpinnings of Integrated Performance Management - Part II

Alignment: “All pulling in the same direction”

Performance management is all about the successful execution of strategy. We identify four guiding principles to translate strategic directives into an effective performance management cycle. In part I we discussed focus. In this post we want to discuss the second principle which is alignment: all pulling in the same direction.

Alignment is about three main ideas:

1. Cascading targets throughout the organization
2. Clear management control and accountability
3. Project portfolio and initiatives linked to value drivers

To communicate targets, processes must be established for aligning and cascading performance measures. This is typically a combination of both a top-down as well as a bottom-up approach.

A consistent breakdown must be defined and communicated of corporate targets, initiatives and performance measures to subunits- and individual targets, initiatives and performance measures. Targets should be aligned across business dimensions (e.g. function, geography, customer) to facilitate joint value creation and co-operation.

To establish clear management control and accountability, the first step is to define organisational accountability.

Responsibility must then be assigned to business units, functions etc. for each target, initiative and performance measure. Based on this a clear management control and reporting framework can be established. Finally, employee performance targets and objectives are defined and aligned with strategic objectives and value drivers.

Linking projects and initiatives to value drivers is an essential step in achieving alignment.

All projects and initiatives are categorised and prioritised by contribution to strategic objectives. This requires establishing a clear linkage to overall value drivers. Based on the contribution to strategic objectives of current projects, new initiatives might need to be developed.

In future posts we will elaborate on the remaining guiding principles for successful strategy execution: integration and behaviour.

Underpinnings of Integrated Performance Management - Part I

Focus: "Only Doing What Matters"

Performance management is all about the successful execution of strategy. We identify four guiding principles to translate strategic directives into an effective performance management cycle. The first is focus: only doing what matters.

Focus is about three main ideas:

1. Shared understanding of value creation across the organization
2. Identified key value drivers linked to strategic directive
3. Planning, execution and measurement of what matters

To come to a shared understanding of value you will first need a high-level model of how value is being created in your company. This model needs to breakdown into value drivers and improvement levers. Each value driver will need to be verified with the strategic direction of your company. For each value driver define improvement actions by asking yourself "how can we change what we do?" and "how can we do what we do better?". Finally, establish a common definition of value: Value of what?, Value to whom?, Value when?, What basis?

To drive value, you will first need to measure and report value. Based on the high-level value model the first step is to identify key value drivers (eg. Marketing Spend).

Then illustrate relationships between identified value drivers (eg. Marketing Spend and Sales Volume). Link value drivers to strategic directives, by mapping strategic goals to value drivers, and challenging where necessary. To highlight improvement levers, try to quantify the sensitivity of ‘Value’ to changes in the value drivers.

The final step in focusing is planning to execute what matters. This starts with identifying the materiality and sustainability of each value driver.

Based on this exercise you can assess how much impact your company can have on each value driver; consider (negative) interdependencies among value drivers as well. Then set focus on those drivers with strategic priority, and ensure balance between short-term and long-term focus (e.g. growth).

In future posts we will elaborate on the other three guiding principles for successful strategy execution: alignment, integration and behaviour.

How to Drive More Value Through Financial Close and Reporting Improvement

Reporting financial results faster and more accurately

We’ve helped some of the world’s leading companies with their efforts to improve their financial close, consolidation, and reporting processes. Here are some of the key lessons we’ve learned along the way:

1. Break down the process.
It is easy to become overwhelmed with the notion of making improvements to such a complex and dependency-oriented business process when you have to deal with the issues associated with activities such as multiple-tiered consolidations, intercompany eliminations, and allocations. But, start with the current close and reporting calendar and identify the major components and the dependencies. Then, challenge everything and look for hours, not just days.

2. Focus outside the Finance group.
Engage external stakeholders (e.g., business units, IT, and operations departments,) from the beginning to secure their input and support, because many of the gains achieved during a financial reporting improvement project can be yielded by changes upstream in the business processes.

3. Encourage fundamental change.
Recognizing and rewarding those who display the ability to think differently, challenge longstanding premises, and engage in initiatives that accomplish stepped improvements in performance can support achieving improvement targets.

4. Get support from leadership.
Visible support for global process standardization and accounting simplification from senior-level executives within the Finance group, as well as business unit finance departments, can provide the necessary emphasis to make the changes take hold within the company’s finance function.

5. Think holistically about reporting.
Reporting should help enable efficient measurement of financial and non-financial metrics against strategic initiatives that support corporate imperatives and drive shareholder value. This undertaking should align with or, at a minimum, take into consideration other reporting initiatives, such as the development of an Integrated Performance Management framework.

6. Need drives technology – not the other way.
Leverage technology to help enable process efficiencies, eliminate spreadsheets and replace disparate systems vs. designing new processes within the limitations of existing technology solutions or by selecting a technology before understanding your requirements.

7. Don’t forget controls.
Establish a governance structure to align process improvement opportunities with necessary core controls to help address close process risks and control deficiencies to better enable sustained long-term compliance.