Performance Management Software Implementation

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  • 1. Performance Management Software Implementation Leadership Driven by Knowledge of the Business A report prepared by CFO Research Services in collaboration with Clarity Systems
  • 2. Performance Management Software Implementation Leadership Driven by Knowledge of the Business A report prepared by CFO Research Services in collaboration with Clarity Systems
  • 3. CFO Research Services is the sponsored research group within CFO Publishing Corp., which produces CFO magazine in the United States, Europe, Asia, and China. CFO Publishing is part of The Economist Group. Performance Management Software Implementation: Leadership Driven by Knowledge of the Business is published by CFO Publishing Corp., 253 Summer Street, Boston, MA 02210. Please direct inquiries to Lisa Nelson at (617)345-9700, ext. 249 or lisanelson@cfo.com. January 2006 Copyright © 2006 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.
  • 4. Performance Management Software Implementation 1 Leadership Driven by Knowledge of the Business CONTENTS About this report 3 Performance management—forecasting, 3 measuring, and reacting to changing business conditions Choosing the right implementation team 4 Enlisting the support of internal stakeholders 6 Building business strategy into the 9 performance management system Conclusion: Don’t let perfection 13 be the enemy of progress Sponsor’s perspective 14 January 2006 © 2005 CFO Publishing Corp.
  • 5. Performance Management Software Implementation 3 Leadership Driven by Knowledge of the Business About this report Performance management—forecasting, In February 2005, CFO Research Services (a unit of CFO measuring, and reacting to changing Publishing Corp.) published Best Practices in Selecting business conditions Performance Management Software: Finance Searches for Performance management is, without question, one of the Increased Flexibility and Control. In that report, we explored hottest topics among senior finance executives and the the process of choosing performance software systems in analysts and vendors that serve them. Ask ten people to detail, gathering suggestions and recommendations from define “performance management,” however, and you’re senior finance executives who had successfully implemented likely to get ten different answers. So what is performance performance management systems at their companies. management? Simply put, it’s a set of processes, metrics, methodologies, and software tools that allow an organization We launched a research program in September 2005 to to forecast, measure, and react to various business drivers investigate the next piece of the story: How can companies and performance indicators—all in the service of its overall that are implementing performance management systems business strategy. make them work to best advantage? Through a series of interviews with senior finance executives, we gathered Performance management software systems—like individual advice on how to successfully manage implementation scorecards, reports, forecasts, or key performance indicators projects, focusing in particular on staffing the implementation —are only one component of a performance management team, designing performance management systems to initiative. But successful implementation of a performance reflect company strategy, and managing change within the management software system is critical to the success of organization. the initiative as a whole. These sophisticated tools, when designed and implemented correctly, are the glue that This report represents the findings of our in-depth interviews holds a performance management initiative together— with senior finance executives at the following companies: providing the tight integration between performance ■ Agilent Technologies management components that many senior executives we ■ Eastern Mountain Sports interviewed say is necessary for success. ■ Erickson Retirement Communities ■ Heineken U.S.A. How do performance management software tools work? ■ Jane Goodall Institute Performance management software systems are sophisticated ■ Jim Beam Brands database applications that are capable of automating and ■ Neal & Massy Holdings Ltd. supporting many finance activities—including budgeting, ■ Russell Corp. forecasting, business modeling, decision support, strategic ■ Sodexho U.S.A. planning, consolidation, and reporting—in a single, integrated ■ VeriSign platform. These applications draw on multiple sources of ■ WellCare Health Plans, Inc. financial data, including the general ledger and ERP and CRM systems, and they often rely on some combination CFO Research Services and Clarity Systems developed the of traditional relational databases that retain detailed hypotheses for this research jointly. Clarity Systems funded transactional data in a series of related tables, and OLAP the research and publication of our findings, and we would database cubes that allow for quick slicing-and-dicing like to acknowledge Dwayne McMulkin and Stephen of data along predefined dimensions.* Many of these Nelson for their contributions and support. applications are browser-based and allow end users throughout the company to enter and extract reports from At CFO Research Services, Celina Rogers managed the the same set of data in real time. research program and wrote the report. Performance Management Software Implementation: Leadership Driven by Knowledge of the Business is published by CFO *For a more detailed discussion of the technical aspects of performance management Publishing Corp., 253 Summer Street, Boston, MA 02210. software systems, please see Best Practices in Selecting and Implementing Performance Please direct inquiries to Lisa Nelson at (617) 345-9700, ext. 249 Management Software: Finance Searches for Increrased Flexibility and Control (2005), a report from CFO Research Services, available for download in PDF format at www.cfo-research.com. or lisanelson@cfo.com. January 2006 © 2006 CFO Publishing Corp.
  • 6. 05 4 Performance Management Software Implementation Leadership Driven by Knowledge of the Business ❚ How can companies that aspire to Implementing performance management systems is a this kind of integration between complex, iterative, enterprise-wide project—one that forecasting, metrics, reporting, and execution ensure that their performance requires time, planning, and a thorough understanding management software makes it of the company’s business and its objectives. possible? The answer, say senior finance executives, lies with choosing Performance management software applications offer an an implementation team with deep knowledge of the alternative to the matrix of manual processes, spreadsheets, business and its strategy, and building business and relational database systems that many companies find strategy into the performance management system itself. unwieldy and prone to error. When performance management software is implemented well, the benefits to both end Choosing the right implementation team users and to the company are clear: they’re faster and easier to use than traditional spreadsheets, offer improved Staffing the implementation with the right people, say information integrity and flow, and, ultimately, allow users finance executives, is essential for success. Most companies to develop analyses tailored to their needs. understand that both the finance and IT departments play key roles selecting and implementing performance Indeed, these systems are so promising that it’s easy to management software. Implementing performance see how companies—anxious for a reliable, comprehensive management software is an enterprise-wide project, view into business performance and eager to provide powerful however, and most of the executives we interviewed analytic tools to finance personnel—might dive into the emphasized that the finance department—with its deep implementation process without adequate preparation. understanding of the business, broad organizational But getting these systems up and running is a complex, reach, and experience with gathering and analyzing iterative, enterprise-wide project—one that requires time, information—should take the lead on the project. But planning, and a thorough understanding of the company’s what role should business unit finance and operations play business and its objectives. on the implementation team? And what sort of individual should lead the team? Executives we interviewed for this “If you had a perfect performance management system,” report agree that knowledge of the business and an ability says Bob Trinh, director of financial planning and analysis to work with many functional areas to build consensus at Medicare/Medicaid HMO WellCare Health Plans, Inc., make the difference. “planning and forecasting would be linked with a balanced scorecard or some other metrics manager. This would Qualities of successful team leaders. One of the first steps allow you to see how the company is doing financially and toward assembling an effective implementation team operationally, and to understand what’s happening in the is choosing the right person to lead the effort. Large marketplace. Then you could get feedback—to see if you organizations in particular have a variety of talented went off-target—and use that information to make candidates who could step up to the task. So what changes in your operations and get back on-plan.” qualities characterize a successful leader of a performance management software implementation effort? In a perfect world, performance management software helps companies tie their business strategy to execution. Charisma is one such quality, say finance executives. “The “I think most companies would agree that they have person who led the initiative here is very good,” said a good strategy, but it’s execution that’s often the WellCare’s Trinh. “He’s got a compelling vision, and he’s challenge,” says James Robertson, director of planning and good with people—good at demonstrating his vision and performance management at Internet security company getting their support.” Knowing the business is another. VeriSign. “The whole concept of executing strategy as a “You want someone who can sit down with the third-party core competency is a relatively new idea. It ties into consultant and identify all the people throughout the performance management software systems because these company who you need to be on the project,” says Trinh, are the systems you use to set targets, and to compare “and you want someone who can persuade a department actual performance to targets—this links to your company’s head to let you have them.” Identifying the right people is strategy by telling you how you’re doing.” just the first step; it takes a charismatic team leader to © 2006 CFO Publishing Corp. January 2006
  • 7. 5 attract and rally them. “You want the A-team,” Trinh says. Staffing the team. The need for business—and not just “If you get the wrong people for the project, it’s a problem.” financial—acumen extends not just to the team leader, but to all project team members. Many companies seek a mix of Another characteristic of a successful team leader is an the following qualities in their performance management understanding of the business’s strategy—which, according to implementation team members: operations as well as executives, grows best from years of operating experience finance expertise, a flexible approach to business problems within the company. This means that the best-qualified that isn’t too heavily enmeshed with a particular discipline, candidates for team leadership often emerge from within and experience with systems integration and implementation. the organization. James Robertson, leader of the performance Says Eastern Mountain Sports’s financial planning manager management initiative at VeriSign, recently hired a new Rita Siegel, “The right person to lead the team is the person director of finance to work full-time on the performance who has the most knowledge of where data resides in the management project: “I was looking for someone who had a company’s systems, and how the data flows through them, strong understanding of the company and its culture, who so that the performance management system will produce understood strategy and planning. I also needed someone the reports your company needs.” In addition to knowledge who understood systems—this kind of effort is very systems- of financial systems and financial data, Siegel notes, team intensive. And I was looking for someone who understood members should have an understanding of the business so what it takes to implement a new business process that they’ll be familiar with the kinds of operating data company-wide—someone with change management skills, decision makers will need. Paula Rajkumasringh, group who would be able to communicate the purpose and benefits controller at Neal & Massy Holdings Ltd., makes a similar of the performance management initiative, and be an point: “We wanted the team to include a person on the advocate for it within the company.” Robertson—whose own ground—someone who’s actually doing the work, who is background is in strategy consulting—chose a long-time responsible for the report.” Curiosity and a willingness to corporate finance employee with systems knowledge and question long-standing processes are also highly valued business unit experience to fill the position. qualities. “The people involved in the team were strategic thinkers who always question how we do things,” said Craig Effective team leaders often—but not always—work in the Erickson, former director of planning and analysis (now VP of corporate finance function. At food and facilities management marketing) at Erickson Retirement Communities. “Those company Sodexho U.S.A., the performance management were the people we wanted to be involved.” software implementation was a joint undertaking between finance and IT. “We have co-project leaders,” says SVP The executives we interviewed agree that a good working of finance David Scanlan, “one finance person and one IT relationship with the vendor is essential, as is a close rapport person.” At many companies, however, the corporate with the IT department. “It’s key to have a strong finance group takes the reins alone. Whatever the leadership relationship with IT and with any outside vendors who arrangement, the executives we interviewed agreed that support [the software systems you're using]. The core team corporate finance should work closely with IT and key should include representatives from each of them,” says personnel from business unit finance and operations. “It’s VeriSign’s Robertson. Eastern Mountain Sports’s Siegel critical to form a core team with key people,” says notes that, particularly in smaller companies, IT is the main VeriSign’s Robertson. “The corporate finance group leads source of the in-depth technical knowledge of source systems the project, working closely with the IT group, the external and databases that any successful implementation requires: vendor, and the targeted constituencies.” “There are several people in our department who understand the inner workings of our general ledger system. We maintain our own reports in finance; we know where the data resides and how to manipulate it to produce a ❚ report. But for help with in-depth One characteristic of a successful implementation team technical matters—the actual data leader is a deep understanding of the business’s strategy— tables, for example—we would which, say executives, grows best from years of operating rely on IT. Someone from the IT experience within the company. department should certainly be part of the implementation.” January 2006 © 2006 CFO Publishing Corp.
  • 8. 05 6 Performance Management Software Implementation Leadership Driven by Knowledge of the Business External consultants contribute most effectively, say Enlisting the support of internal stakeholders executives, when their responsibilities are in line with their skill at addressing complex, specialized, discrete business Without the support of internal stakeholders—executive problems. Third-party consultants can certainly be helpful, sponsors, key personnel in the business units, and end they say—but they can’t deliver a turnkey performance users throughout the company—implementation has little management system on their own. “I think there are valid chance of success. Several of the executives we interviewed situations when you’d want to engage an external reported abandoned implementation initiatives and consultant,” says Andy Housch, manager of business and software systems that were only partially embraced—and systems integration at athletic gear manufacturer Russell when a performance management system is adopted by Corp., where an initiative is currently under way to implement only some of its intended end users, it can be rendered the budgeting, planning, and forecasting module of a almost useless. In some cases, the implementation projects performance management software suite. “We didn’t have fell by the wayside when they lost their executive champions in-house expertise with this module, so having an external and leaders. Securing both broad and deep support among consultant was definitely a step in the right direction to be all potential stakeholders can be the best protection able to move this project along. We needed some assistance against costly failure. This means enlisting the support and with this particular project, but whether you use an outside engagement of high-level executive sponsors, corporate consultant to help with project management is something finance and IT groups, leaders in business unit finance and you have to assess every time a project like this comes up. It in operations, and the employees who will eventually depends on whether you have the talent internally.” become the system’s end users. And how do leaders of these initiatives gain this level of support? By communicating the A common problem in many implementation teams, business benefits of the software systems in language that according to executives interviewed in this study, is a lack each of these constituencies is able to understand. of continuity—many implementation efforts faltered when those who originally led the initiative left the Securing executive sponsorship. Strong executive involvement company or were forced to shift their attention to other, is critical, say executives, and not just because executive seemingly higher-priority projects. Clear documentation of sponsors provide access to capital. Executive sponsors also the project and its progress would no doubt help to ease provide credibility and a sense of unity and purpose. the problem, but most executives cited redundancy of “You’ve got to have an executive sponsor, and that sponsor personnel as the best assurance of continuity. “Make the has to be from the business side, not from IT,” Russell use of the system routine,” advises Robert Menzi, CFO Corp.’s Housch explains. “Our executive sponsor has definitely of the Jane Goodall Institute, who was forced to get helped us communicate throughout the organization that a performance management software initiative back this is a company-wide, strategic initiative.” on-track after key personnel left the company before use of the system became widespread. “If there are a half dozen Executive sponsorship at WellCare helped the company people who use the system every day, then you have take advantage of performance management tools they built-in redundancy. You’ll have enough people on staff already owned. WellCare owned licenses for a complete who understand the system—not all of them are going to suite of performance management software that included get up and leave on the same day. In the first year the planning, reporting, and business intelligence modules, company used the system, access to it was tightly Trinh says. The company implemented the planning module first, in anticipation of becoming publicly traded. But a new controlled. Only a few people were trained on it fully and vice president saw the potential to use the software to perform understood its benefits, and they all left. I intend to get the entire finance staff trained to use it.” sophisticated reporting and analysis on medical expenses— a critical area of the Medicare/ Medicaid HMO’s business. Trinh ❚ explains: “A new VP of economics Without the support of internal stakeholders—executive came from a company that had used sponsors, key personnel in the business units, and end a performance management tool to users throughout the company—implementation has little analyze medical expenses. When he chance of success. got here, he saw that we had licenses for the same software, but no one © 2006 CFO Publishing Corp. January 2006
  • 9. 7 ❚ Gaining the support of business units Strong executive involvement is critical, and not just and end users. While winning executive because executive sponsors provide access to capital. support can be challenging, winning support from the business units Executive sponsors provide credibility and a sense of and from end users presents its unity and purpose. own difficulties. Selecting the right software suite—one with a familiar here knew really how to use it to make the group interface that integrates closely more efficient, more analytical. He drew on his experience with existing systems—is an essential step toward from his previous job and said, ‘We need to build cubes end-user adoption, executives say. Says Jim Beam Brands’ like this, these interfaces need to look like this,’ and corporate controller Don Rodgers, “We haven’t had buy-in now, because of that, we have an amazing new tool. or user problems, because the front end of our system has Before, the reports that were produced came out of a an Excel look and feel, and everyone in the company uses relational database, and they’d be 50 pages long. No one is Excel. We could say, ‘Hey, these Excel spreadsheets that going to go through a 50-page document to try to get you’re using? We’re going to take them and put them in the drill-down.” performance management system.’ Then we send them back to end users—sales staff, for example—with color- While some implementation projects are spearheaded by coded fields for them to fill in with their numbers. And active executive sponsors, other implementation teams they say, ‘Fantastic!’ Most of them were probably doing must secure executive sponsorship themselves. One way this at home on weekends and at night, because if they’re to build and sustain executive support is to solicit in sales, they’re making sales calls during the day—not feedback. Paula Rajkumasringh of Neal & Massy Holdings sitting in the office pulling together data.” Choosing a explains how the implementation initiative gained software suite that isn’t user-friendly, however, can support at her company: “There was a bit of a road show at doom an implementation project before it starts. After a the senior level to get feedback, and to make sure the bad experience several years ago with a stand-alone system would be responsive to their challenges.” Designing performance management tool that didn’t integrate performance management tools so that they are in line closely with source systems—and thus required labor- with business strategy and able to yield demonstrable intensive, error-prone rekeying—Neal & Massy Holdings business benefits is also an important way of has recently started fresh with a whole new system that gaining executive support. At Neal & Massy Holdings, integrates more smoothly. implementation team leaders made sure the new software system’s design would advance a company-wide initiative This time around, says Rajkumasringh, tying compensation to measure performance through newly adopted metrics: to the key performance indicators that are tracked through “We made sure the system was in tune with the things the performance management system will help the senior executives have to look at and measure—shareholder company to win end-user acceptance. “In the last year, value-added metrics.” we’ve actually tried tying compensation, stock options, and so on to these key performance indicators. People are Putting performance management initiatives into action on a now being compensated on these common metrics. Not limited scale can help win support from cautious senior everybody bought into the old performance management executives. “We’re planning to implement the process in one system, and I think the problem was a combination of division as a test case,” said one senior finance executive systems and people. People had no reason to buy into it. To seeking high-level support for a performance management be clear, some people did see the value in it, but some software initiative. “We hope the pilot will demonstrate the people didn’t, because the system couldn’t measure the value of the overall approach to C-level executives—that it key performance indicators that we used to determine will show that this information can be gathered, and that it compensation at the time. With the new system, we’re will lead to better decision making. We also think it’ll be able to measure these key performance indicators and tie helpful in ironing out the implementation process, which will them to compensation, which makes the process of getting help us get approval for a company-wide rollout.” buy-in easier.” January 2006 © 2006 CFO Publishing Corp.
  • 10. 05 8 Performance Management Software Implementation Leadership Driven by Knowledge of the Business ❚ Training eases the transition Clear communication with end users and key business unit personnel is critical for implementation success. The Again and again, the executives we interviewed for this report declared that training end users appropriately encourages adoption and ensures executives we interviewed strongly agree that communicating that performance management systems are providing consistent, the benefits of the new software system is one of the best high-quality data and analysis. No company, however, can afford ways to get users on board. It’s important, they said, to lengthy training sessions that fail to produce results. We asked several executives who had enjoyed success in this area how they structured explain not just the ways that adopting the system will their training programs for maximum effectiveness—while keeping the make reporting and analysis tasks easier, but also how cost in time and resources to a minimum. making the change will contribute to the company’s Time and resources naturally place constraints on the type and amount overall success. Says Sodexho U.S.A.’s Scanlan, “It’s very of training that can be offered, say executives. At issue isn’t just the cost important to have buy-in across business lines from our of individual, in-person training sessions with vendor experts—these line operations’ staff. The effort to get buy-in will be driven and other consulting services are, in effect, often included in the price of the software packages—but also time spent away from the office and by the CFOs of each business line—people like me. Once travel expenses. One way to manage training costs is to take advantage we formulate what we want to do and what we’d like of online training opportunities. “Cost management factors into training,” to accomplish, then we will talk to our operations says Matt Oyloe, enterprise reporting program manager at Agilent people within each division and explain how making Technologies. “People had to travel to do some training in the initial roll-out, but subsequent training has all been online, virtual training.” a change like this will benefit them. Making this change Another common cost-management device? A “train-the-trainer” has to bring some benefit of economic value in order for us approach, in which a limited number of users receive extensive, to do it. And we think it will lead to improved productivity, in-person training and are then expected to impart their new skills to other users, Oyloe explains. as well as improved, more timely decision making.” How well do these training methods work? “Train-the-trainer methodology Getting the message across to business unit leaders first can certainly doesn’t replace the experience of sitting with true experts, create a network of advocates, several executives noted. face-to-face,” Oyloe says, “but it’s better than an entirely online experience.” In the end, a mix of training methodologies may be the best way to “People are very used to Excel, and the new, browser-based balance the need for training with the need for cost control: face-to-face performance management tool wasn’t Excel. Any time you training for a core group of users, a system for sharing that group’s newly have change, people aren’t too happy about it at first, but we acquired skills with other users, and a self-contained, repeatable online communicated the benefits of the tool—for example, the fact training module for practice. that it’s web-based, so they could go online anytime. And we Regardless of the training method, say executives, it’s important to started with area leaders. Once you convince senior people and practice with real numbers. As part of the roll-out of performance managers of these extra benefits, you’re more likely to get management systems at Eastern Mountain Sports, a financial analyst buy-in,” says WellCare’s Trinh. who’s been closely involved with the implementation effort and has received in-person training on the system has been working one-on-one with cost center managers as they prepare their first budgets in the new But communication isn’t just a one-way street; many system, using real numbers. This way, says financial planning manager executives say their implementation teams sought Rita Siegel, end users will have a good idea of what to expect when the system goes live. According to Siegel, “They will have had a sampling feedback from representative end users during the of what they’re going to be working with going forward,” giving them a selection and design phases of the implementation. view into the future that she expects will help ease the transition to the Including users at this stage of the project, they explain, new system. promotes a sense of ownership and accountability, and can help a company avoid costly mistakes. “We had five or six Because many intended end users of performance management systems tend to be comfortable in Excel, choosing a system with a familiar, Excel- test users help us evaluate different vendors’ products like interface can greatly ease the transition and make extensive training during the selection phase,” Trinh notes. “By doing that, unnecessary, particularly when operations staff members are called upon you get a much clearer sense of what people like, and what to input data. At Jim Beam Brands, for example, training sales personnel to input data into the system was conducted online and went off will be easy for them to use.” without a hitch, in part because the front end of Jim Beam’s performance management system closely resembled the spreadsheets that these In the design phase, allowing opportunities for feedback users were accustomed to seeing. “For training, we basically did some screen shots showing how and where to input their numbers and helps ensure that the system will reflect users’ needs. made that into a PowerPoint presentation,” says corporate controller Because performance management initiatives seek to help Don Rodgers. “We sent the presentation to all the salespeople and said, the company track and respond to both financial and ‘This presentation will show you how to log on and what you have to do. operational performance indicators, implementation If you have any questions, call our help desk.’ We got very few calls— I mean, it’s just that simple.” teams should seek feedback from key operations personnel, © 2006 CFO Publishing Corp. January 2006
  • 11. 9 as well as from finance. “Operations people will be part of Building business strategy into the the design,” says Scanlan. “Any time we design a system of this magnitude, our blueprinting process incorporates performance management system feedback from all the constituents, whether they’re line The executives we interviewed for this study say the right staff or functional staff.” Says Neal & Massy’s Rajkumasringh, leadership helped their companies get buy-in and group “In the planning phase, you must get input from the front consensus on the performance management project. But line in finance and in operations—not just the accountants, equally important is deep business expertise and operations but also the IT people, the business unit leadership, [and experience among implementation team members. Such operating staff such as] the warehouse manager.” expertise and experience, say executives, help companies design systems that measure the right financial and And making the process of adopting performance operational activities. By doing so, companies equip their management systems transparent and open not only planning and operating staff to budget and forecast more improves the system’s design, executives note, it also helps effectively, and to execute activities in alignment with to diffuse the tension that sometimes develops between business strategy. the leaders of the initiative—who often come from the corporate finance department—and other constituencies, Performance management tools certainly can help companies craft their business strategies more easily and with greater such as business unit finance and operations. Providing an opportunity for these constituencies to contribute their confidence—freeing them from worrying about data knowledge and insights underscores the real purpose gathering and data integrity, and giving planners from of performance management—not surveillance and diverse areas of the business more room to apply their monitoring from above, but a process of improvement that analytic know-how. Jim Beam’s Rodgers says, “Preparing benefits the company as a whole. our strategic plan used to be a very long and cumbersome process. Now marketing is working on strategic plans for branding, our salespeople are working on their strategic plan, and also ❚ finance people are working on theirs. Because companies seek to track and respond to both We just pull the three together in the financial and operational performance indicators, system and then we can discuss the implementation teams should seek feedback from key differences. The beauty of our tool is operations personnel, as well as from finance. that it gives us data integrity—the numbers are current, and everyone is working from the same ones.” But performance management systems not only help companies develop strategies; they help companies translate them into action. So what goes into building a performance management system that fits the business, furthers a larger performance management initiative, and responds to real—and constantly evolving—business needs? The answer, of course, varies from company to company. The executives we interviewed converged, however, on several main areas of focus: determining the critical metrics and performance indicators that the system will measure; setting appropriate parameters for forward- looking, what-if scenario analyses; configuring system access to further the company’s objectives; and anticipating future business developments in system design. January 2006 © 2006 CFO Publishing Corp.
  • 12. 05 10 Performance Management Software Implementation Leadership Driven by Knowledge of the Business ❚ company has approved. But even Determining the metrics and key performance indicators though the days have been authorized, that are crucial to business decision making is a logical the patient may not yet be in the hospital—so tracking this metric first step in designing an effective performance gives us a leading indicator. If there management system. were a spike in authorizations, we would know that it could seriously affect our medical expenses.” Incorporating critical metrics and performance indicators. Performance management tools, Trinh notes, can give For many companies, determining the financial and operating companies a view into performance through these types of metrics and key performance indicators that are crucial to leading indicators before actual performance is reflected in business decision making is the logical first step in designing financial statements: “Without these tools, the company an effective performance management system. The system, might not know about the spike until months later, when in other words, has to measure the right things if decision it’s too late to react.” makers are to execute broad objectives and respond quickly to changing conditions. Many companies constitute This more timely view into performance, Trinh notes, working groups to identify metrics and indicators prior would give companies the opportunity to make adjustments to implementing—or even selecting—a performance to their operations. And because performance management management software suite. While companies employ tools report metrics and leading indicators in a format that a variety of methodologies to select metrics and key lends itself to sophisticated analytical techniques, they can performance indicators, their approaches have something help managers make better-informed decisions faster. in common: the metrics and indicators that emerge from Trinh notes that a performance management tool would this process, say executives, should be closely tailored to allow a health care company not only to identify sudden managers’ decision making needs. spikes or dips in its leading indicators, but also to investigate the source of the fluctuations. “It would allow At the Jane Goodall Institute, strategy execution is closely people to drill down and determine the cause of the linked to the company’s annual operating plan, says CFO abnormality,” he says. “Was [there a spike in inpatient Menzi. “Strategy is a long-term view of how the company authorization days] because this particular month is high will grow over time, and what we plan to do to accomplish flu season?” Performance management tools also allow our goals. The annual operating plan is the near-term comparisons to be made between months, years, or manifestation of that strategy. Performance management seasons, he explains, which would help the company software allows you to quantify how well your strategy is understand and analyze fluctuations in its leading doing by allowing you to track actual performance against indicators and make necessary adjustments. the plan; that’s what it’s all about.” And part of this process, he notes, is defining which metrics the company will measure. The metrics that performance management systems are designed to track should measure company strategy—but, Medicare/Medicaid HMO WellCare carefully selects and more importantly, they should also help companies to monitors leading indicators to allow the company to look execute strategy. VeriSign’s James Robertson is heading forward and then respond quickly to changing conditions. an initiative to implement performance management In the health care business, an important leading indicator tools that will allow the company to measure key financial is “inpatient authorization days,” says director of financial and operating measures and set performance targets. A planning and analysis Trinh. “Inpatient hospital stays are timely and comprehensive view into these measurements the most expensive setting of care in the health care of performance, Robertson explains, can help companies system,” he explains. “The usual procedure is that a advance broader strategic objectives by revealing areas of primary care physician will call the HMO to secure prior potential competitive weakness or advantage. Based on authorization for a member’s hospital stay. Once these this view, management can then set targets that are in line authorization days are approved, our health services with strategic priorities: “We won’t just be measuring department records them, so [we in the medical economics performance through the system; we’ll be setting targets. group] will know how many authorization days the For example, depending on the strategic direction a © 2006 CFO Publishing Corp. January 2006
  • 13. 11 company has taken, customer satisfaction may be a top For example, we deal with credit card fees, so as our sales priority. The system would allow you to link people’s grow, certain credit card expenses grow with them. You behavior to strategy by setting customer satisfaction have to understand the type of business that you’re in targets, identifying initiatives designed to accomplish when you design one of these what-if scenarios for your these targets, and tracking the impact of initiatives on company—you need to know how you’ll want to be able to customer satisfaction and strategic objectives.” pick and choose what will drive the scenario.” Setting appropriate parameters for forward-looking, what-if Configuring system access. When implementing performance scenario analysis. One of the main reasons outdoor management software, companies must decide who equipment retailer Eastern Mountain Sports implemented among many company stakeholders—corporate finance, a performance management software suite was to gain business unit leaders, business unit finance, business line access to powerful analytic tools that would allow finance heads, and rank-and-file employees—will have access to to conduct forward-looking, what-if analysis, says financial their software systems’ data inputs, analytic tools, and planning manager Rita Siegel. “As a retailer, we do frequent reporting. Companies also must determine the level of forecasting,” Siegel says. “Of course, we always have our access that business units will have to one another’s budget, but we also do three-year long-range plans. So reporting. These decisions, say executives, should be we’ve been designing a system that will allow us to start based on a solid understanding of company-specific with where we are today and create reports on multiple organizational dynamics and business requirements. scenarios. With this, we’ll be able to see, based on where But executives should approach these matters with we are today and based on the parameters that we build caution, they warn; making the wrong choices can lead to into the system, what we might look like in two or three years. serious setbacks. ❚ Although many companies want The key to choosing the right parameters for what-if reports that include operational as well as financial information from scenario analysis is understanding the market forces, their performance management industry dynamics, and cost fluctuations that have the tools, companies should take care most impact on the business. to restrict access to personnel who are properly trained and familiar with financial nuances—especially To have done that prior to going to the performance when the performance management system is new. management system would’ve been very, very labor- For example, without a thorough understanding of finance intensive. But when our system is up and running, it should principles, a sound comparison of plans versus actual only take minutes.” performance is difficult—“hidden within those numbers are things like depreciation and amortization, corporate Identifying the right parameters, Siegel notes, leads to flow-downs, and overhead allocations,” Jane Goodall more accurate scenarios and better decision making. The Institute’s CFO Menzi explains. Finance staff members are key to choosing the right parameters is understanding the comfortable with such nuances, but they are sometimes market forces, industry dynamics, and cost fluctuations that less familiar to employees with primarily operational have the most impact on the business: “We’re in the retail expertise. To counter this problem, the finance department business, so one important parameter is the number of store should work with operational department heads to create locations,” she says. “Another is sales growth or decline— useful report templates in the performance management ‘What if our sales grew by a certain percentage?’ We can tool and to help department heads interpret those reports also pick and choose which expenses that we want to have meaningfully. Menzi says, “We want to create a tool that grow, stay flat, or decrease, so we have to understand our will deliver to managers the numbers they need to manage cost structure—which expenses are fixed and which are their division.” Siegel of Eastern Mountain Sports— tied to other expenses as we grow the top line. In the retail and one of the leaders of that company’s performance business, if your sales line grows, your costs will probably management software initiative—agrees: “Everybody has grow, too—maybe not at the same rate, but they will grow. their specialty. Not everybody is as financially savvy as you January 2006 © 2006 CFO Publishing Corp.
  • 14. 05 12 Performance Management Software Implementation Leadership Driven by Knowledge of the Business would normally find in the finance group. In some cases Now we’ve relaxed those restrictions and given directors you’ll find that end users are not even proficient in Excel. access to the other communities, so they can look and see The tools they’re going to use to provide you with which have the best programs, and use the information to information have to be very user-friendly.” improve their own communities’ performance,” says Erickson. Executives caution, however, that ❚ access to too much information can Companies should restrict access to the performance sometimes overwhelm key personnel. management systems as appropriate, taking into account At Eastern Mountain Sports, access employees’ expertise, training, and job functions, as well to data entry is organized by cost center, and access to reporting is as the need for comprehensive information. being configured so that cost center managers will only see complete information for their own cost centers. At the Jane Goodall Institute and at other companies, this “Cost center managers won’t have access to information means finance serves as a kind of organizational information that doesn’t pertain to their area,” says Siegel, “although all filter, customizing reports based on each department’s needs: cost center managers will have access to certain reports “The development staff needs to see much more detail on that will be made available to everybody. We don’t want to the revenue numbers than the program staff. On the other overwhelm managers with information and reports that hand, program staff members need to see costs and detailed aren’t relevant for them; we want them to be able to focus on cost-structure items; they don’t need to see the revenue the reports they’ll be required to update and monitor on a side,” says Menzi. “Every department has a different set of regular basis.” numbers and a different way they want to see the numbers presented,” he continues. “Our job in finance is to make Anticipating business growth. Implementing a performance sure these needs are reflected clearly in the system.” management system can, in itself, improve business performance, executives note, because flexibility and Although the Jane Goodall Institute’s approach may not fit automation in financial systems help the company every performance management initiative’s objectives, the accommodate rapid growth—whether growth is organic or important thing, say executives, is to restrict access as by acquisition. At Erickson Retirement Communities, the appropriate, taking into account expertise and primary job performance management system’s OLAP database cubes functions, as well as the need for comprehensive information. were designed to accomodate future changes: “When we For example, some companies may allow broad access to develop new retirement communities, we can just add reporting in the performance management system, while them in the system. It’s a one-step process,” says Erickson. narrowly restricting who is allowed to input data or make “We don’t need separate accounting systems for each changes to the report templates. Other companies may community. The performance management system is prefer to restrict access to reporting on a need-to-know very flexible.” basis, but allow fairly open access to data input in order to ensure that the system is processing broad and complete Performance management software has helped athletic data. These restrictions may also evolve over time, as more clothing and equipment manufacturer Russell Corp. incorpo- and more employees in operations, as well as finance, are rate acquisitions smoothly, says Housch. He cites Russell’s trained and become comfortable with the system. acquisition of a footwear manufacturer as a recent example: “When there are a lot of Excel spreadsheets and manual Indeed, some companies have learned that promoting entries, there isn’t a uniform, automated way to set up information-sharing can yield substantial benefits. At Erickson financial systems for any new market that we were Retirement Communities, for example, finance directors in each interested in moving into. The performance management community are given access to other communities’ financial system that we have in place now allows us to go in with a information. “One of the lessons we learned through our core product such as apparel and easily adapt it to the implementation experience is that it’s important to give each footwear market. This serves one of our core strategies: to community access to information from the others. At first, align all systems so that they are versatile enough to adapt to each finance director only saw data for his own community. any company that we might acquire.” © 2006 CFO Publishing Corp. January 2006
  • 15. 13 To design a system that’s flexible and versatile, however, the Conclusion: Don’t let perfection organization must be able to look forward to future business needs and reason back to the present. Dan Peterson, COO of be the enemy of progress Russell’s international division, says, “You have to know what Several of the executives we interviewed for this study you want to get out of the system. Are you looking for a cost noted that the tools, measurements, and methodologies reduction? Are you trying to speed up your planning that performance management software brings together process?” And even the most talented strategists aren’t gifted play a role in a larger effort to bring discipline to the way with second sight: “You have to remember that business finance—and other stakeholders—understand the business, changes all the time,” Peterson says. “Take our example: measure performance, respond to change, and align action when the performance management project started, we didn’t with business strategy. have a footwear business. Now we do. So the performance management system has to be able to adapt. You can think Bringing about such a change in the company’s mindset is things through and try to predict the future, but you can’t be most effective when the team charged with leading a hundred percent sure of what’s going to happen.” the performance management initiative understands the business, has a firm grasp of financial systems and reporting, and is well-positioned to build support throughout the organization. Taking the time to design the system with care and incorporate insights from operational and business unit finance personnel is also an important part of success. But while careful advance planning is critical for success, executives urge their colleagues embarking on a performance management initiative to forge ahead as soon as they’re confident they’ve put together tools and processes that will work well—and not to expend time and resources in the planning phase searching for perfection. Every company will have to learn as it goes, and the best way to learn is often to work with real data and real business problems. As with everything else, absolute perfection in performance management is an unattainable standard. But with careful planning and hard work—driven by those with deep business and operating expertise—a performance management system can be a powerful tool in executing strategy. January 2006 © 2006 CFO Publishing Corp.
  • 16. 14 Sponsor’s Perspective Clarity Systems would like to thank CFO Research Services This list is not meant to be comprehensive. Rather, it is for their continuing effort to help companies realize the full intended to illustrate that software is just one component of potential of corporate performance management. Advice CPM. Software is essential, but the value of CPM is and education from sources independent of software definitely not attainable through software alone. That is vendors is necessary for the successful implementation of why Clarity puts as much effort in developing the business a CPM system. For the simple truth is that CPM is far more and application expertise of its Professional Services Team than just software. as it does in producing state-of-the-art CPM software. CPM implementations require multiple components. Our software gives customers their choice of OLAP These components include: technologies. We do not believe in forcing our customers onto a particular platform. Nor do we force CPM developers 1. Organizational commitment of the buyer into a proprietary schema; our customers are free to use— • Active involvement of executive and senior management, as is—cubes that they have already developed. In addition, especially during implementation transactional processes like project budgeting, employee • Willingness to examine current business practices and and asset planning, and line-item detail—by their methodologies and to discard them if found deficient nature—do not really belong in an OLAP data store. So • Ability to communicate and enforce organizational change Clarity allows the CPM developer to leverage a relational store for these detail-laden functions. This just makes 2. Well-defined metrics with clear links to profit sense: use the correct tool for the job. 3. Optimally designed analytical structure But even with superior software and expert consulting, as • Simple to understand this paper points out, CPM systems can still fail or go • Logical from a business viewpoint unused without proper training: • Streamlined, consistent chart of accounts • Consolidated business organization chart “Again and again, the executives we interviewed for this report declared that training end users appropriately encourages 4. Dimensions and dimensional data for profitability analysis adoption and ensures that performance management systems • New dimensions not currently used, such as “customer” are providing consistent, high-quality data and analysis. No • Old dimensions redesigned for business insight, not company, however, can afford lengthy training sessions that accounting techniques fail to produce results.” 5. Easy-to-understand reports that invite the user to So Clarity takes just as much care in the delivery of dig deeper clear, comprehensive, and custom-tailored training to its customers. It is this attention to customer satisfaction— 6. Internet capability extending well beyond the sale of the software—that has distinguished Clarity from the growing list of vendors 7. Data store claiming inclusion in what some analysts call the most • OLAP for analytical reporting and planning important management tool for the twenty-first century: • Relational for detailed reporting and planning corporate performance management. 8. Data sources and systems to map, transform, and move data 9. Hardware Visit www.claritysystems.com or call 1-877-410-5070 for more information on Clarity Performance Management. 10.CPM Software © 2006 CFO Publishing Corp. January 2006