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In these difficult economic times, companies are creating processes that are not consistent with the ways in which they have traditionally managed their business. Whether you are the CFO or an entry-level analyst, everyone must actively learn how to re-engineer and strategically manage in this new economic environment.
The expectation of companies’ Board of Directors is simply to increase top and bottom-line revenue (and by extension, profitability), with little concern for everything in the middle. Before you can even consider instituting measures to contribute to the Board’s expectations by implementing cost savings initiatives, it is necessary to develop a well thought out and orchestrated operating plan. There are many approaches to this. Some companies prefer the “top-down” method, where management dictates the spending of the operating units and it is then up to the operators to manage within their allocated budgets. On the other extreme, management may prefer to push down the responsibility of planning to the operators and ask for a “bottoms-up” approach. This approach requires the operational managers to develop assumptions and create a detailed operating plan with very little finance intervention. Typically, the results of the “bottoms-up” approach may not be what you expect, but merely a wish list that even Santa Claus cannot deliver! Sure, these may very well be extreme cases – most likely the process your organization uses falls somewhere in the middle. In any case, it is imperative that the process be organized and well executed.
PERFORMANCE MANAGEMENT:
Q: “Why would a company be willing to invest the capital in a tool that provides little or no tangible Return on Investment (ROI)?”
A: This question is certainly justified, and the answer is surprisingly very simple: This perception is incorrect. There is statistical proof which supports a direct correlation between implementing performance management tools and its downstream, positive impact to shareholder value. Among this positive impact is increased accuracy of strategic capability.
Taking the leap to performance management is a major commitment for any organization and should not be made hastily or taken lightly. Performance management initiatives do require careful planning, decisive action, and ongoing support from within the organization. When it comes to performance management implementations, there is a fine line between success and failure. A well planned-out and executed implementation will yield great success and gain acceptance. However, a sub-par, marginal implementation with little or no added user benefit, will lead to frustration for the legacy users, leading to further resistance to the new technology and potentially the perception of a failed implementation. The fine line between success and failure is extremely important to keep in mind. Moreover, there are several factors that also need to be considered before beginning the journey to performance management, so that the end product delivers results not only in a positive ROI, but also in true business “intelligence”, and not a lack thereof.
A few of these factors are:
- Before the decision is made to move forward, it is important that a thorough assessment is conducted of the current business planning and intelligence environment. One of the most common mistakes that many stakeholders encounter when implementing this type of a solution is poor design. Take this opportunity to think outside of the box. Challenge the operational business managers who are responsible for preparing the physical operating plans and forecasts to research what is needed to successfully manage their business. Take a look at your current reporting – does it provide value? You may be surprised to find out that the need of the finance team may differ greatly from the needs of the overall operation.
- When preparing a proof of concept and statement of work, a best practice would be to set milestones and plan in phases. Establish reasonable expectations. It is okay to under promise and over deliver. Keep in mind, less may be more. Over complication of models and tools may only cause frustration and not be helpful in gaining user acceptance.
- A successful implementation will require commitment by leadership within the organization. It is true that many of the leading enterprise planning and business intelligence solutions companies pride themselves in offering applications that are typically implemented and maintained by finance departments and require little or no IT support. This in many cases may be true, depending on the skill set of your administration team. However, for small to mid-size companies, these finance department resources may not be available as in larger organizations. Engaging network/server and database administrator resources up front will result in a far easier and more successful configuration of the environment. Before purchasing any hardware, it is advisable to discuss the requirements with your server team/consultants to ensure that your solution is being configured optimally, yet in the most economical fashion.
- Provide training to users with relevant materials and be sure to seek feedback. (Just because a solution is implemented, does not mean there is not room for continued development and improvement.)
Some of the points discussed in this article may sound quite elementary in concept, however it is important to step back and not lose focus of these basic principles – ultimately gaining a deep understanding of what it takes to successfully implement performance management initiatives.
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