EPM  In Complex Organizations
Upcoming SlideShare
Loading in...5
×
 

EPM In Complex Organizations

on

  • 591 views

Reserach study that gauges the level of integration and maturity of management processes used in large and complex organizations

Reserach study that gauges the level of integration and maturity of management processes used in large and complex organizations

Statistics

Views

Total Views
591
Views on SlideShare
572
Embed Views
19

Actions

Likes
0
Downloads
15
Comments
0

2 Embeds 19

http://www.linkedin.com 15
http://www.lmodules.com 4

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    EPM  In Complex Organizations EPM In Complex Organizations Document Transcript

    • Enterprise Performance Management ReseaRch RepoRt EntErprisE pErformancE managE- mEnt in complEx organizations
    • Research Report – Enterprise performance management
    • coNteNt 4 About This Report 11 Detailed Survey Results 11 more than 50% of respondents 5 Executive Summary Had significant capability gaps 5 Why this study focused on 18 Key capabilities for full management processes management process integration 5 the nature and importance Hadn’t fully matured of management processes 24 improving flexibility, agility, and 5 changing Definition of leading profit and cash-flow forecast management process practices accuracy are Key issues. 6 Key capability gaps in participant 27 large and complex organiza- management processes tions Value management process 6 starting to address capability maturity more gaps in less than one Week 30 management process strate- 7 How recommended actions gies are important to large and Benefit organizations complex organizations 32 more mature management 8 Perspectives About Greater processes are integral to Management Process Maturity achieving finance objectives 8 gauging management process maturity with four Questions 34 Summary: Applying Research 8 a source of competitive Insights Differentiation 9 tangible Value sources 9 fundamental cost reduction 9 multiple applications required 10 Effective finance transformation Research Report – Enterprise performance management
    • about this RepoRt all told, 166 responses to the survey were gathered across multiple indus- tries. the following is a summary of those participating: • 51% of respondents were from com- panies with over Us$5 billion in annu- al sales, with 49% coming from com- panies with between $1 billion and $5 billion in annual sales. • 57% of respondents held the position of cfo or executive vice president or vice president of finance, with the remainder holding positions such as controller, director, or treasurer. the premise for this research study is based on a white paper called the ten Day plan. this paper argues that emerging planning and budgeting practices comprise continuous and fully integrated strategic, financial, and in november 2008 sap and column 5 the hypotheses for this research operational management processes consulting llc commissioned cfo were developed by Dean sorensen that can be executed on a monthly research services (a unit of cfo of column 5 consulting, who jointly basis. it is available for download at publishing corp.) to conduct research developed the questions and survey www.column5.com. on the views of finance executives of structure with peter lull and sam larger and more complex organizations Knox of cfo research services. if you have any questions or comments on emerging planning and budgeting scott leatherman and patricia faissol about this research study, please practices. the study sought to deter- of sap provided editorial and analytical contact Dean sorensen at mine how executives are using or con- contributions. dsorensen@column5.com or directly at sidering using more mature planning, +1 425-260-6817. budgeting, forecasting, reporting, and measurement tools as a strategy for improved organizational performance. 4 Research Report – Enterprise performance management
    • executive summaRy this section provides a high-level over- view of the logic behind the research, Business Intelligence along with the resulting conclusions tr a and recommendations. io n ns e ct la process Balanced te ir Why This Study Focused on tD and quality scorecard Di Management Processes manage- se re c ment tio n Budgeting one of the most important leading planning portfolio indicators of the effectiveness and or- consolidation Business management ganizational performance of the finance activity based outcomes governance, team is planning and budgeting cycle costing and risk, and planning compliance time. Why? Because long and highly pr io ce political planning and budgeting pro- an riti sales and asset and cesses are symptomatic of manage- operations investment rm ze planning management fo re ment process capability gaps that po er p s impede organizations from achieving ns ge e a aspirations of being more flexible, re- m an sponsive, cost-effective, and customer focused. large and complex organiza- tions are especially susceptible to im- Figure 1: Processes and Tools That Comprise Enterprise Management Processes paired performance caused by these gaps. these organizations and capability the term “management process” is Changing Definition of Leading gaps are the focus of this research not a universally defined and acknowl- Management Process Practices study. edged one, like budgeting, reporting, or performance measurement. conse- the following describes insights that The Nature and Importance of quently, organizations don’t always provide a context for the conclusions Management Processes think about management process included this report: development at such a broad level. • recent developments in manage- this report collectively refers to plan- as a result, strategic, financial, and ment process applications are rede- ning, budgeting, forecasting, reporting, operational management processes fining leading management process and measurement capabilities as “man- are often fragmented, resulting in key practices. agement processes”: the means by capability gaps. • these developments are taking which organizations define, adapt, de- place outside traditional financial ploy, resource, and execute strategy to such capability gaps are less likely to applications. create business outcomes. they com- interfere in smaller, less complex orga- • the management process maturity prise a number of component process- nizations, since their ability to work models used in this study reflect es and tools (such as those illustrated around them manually is often a viable these developments. in figure 1) that together provide the option. However, larger and more com- • larger and more complex organiza- means to optimize performance and plex organizations often outgrow the tions stand to benefit most from more stakeholder value. ability to effectively execute this manual mature management processes. work-around strategy. this results in a • further details of the perspectives number of common challenges, which that underlie them are presented in the are the focus of this research. “perspectives about greater manage- ment process maturity” section. Research Report – Enterprise performance management 5
    • Key Capability Gaps in Participant business process orientation also val- Management Processes ued greater management process ma- turity more than others, thereby provid- the overarching conclusion from this ing evidence of the value stemming research is that the majority of larger from greater cross-functional and more complex organizations have coordination. management process capability gaps, relative to the practices described Complex organizations are taking above. Below are the supporting steps to address these gaps and real- conclusions. ize this value. larger and more com- plex organizations are almost twice as Most respondents had management likely to spend significant time develop- process maturity levels indicating ing a strategy for management pro- potential capability gaps. the majority cesses as well as the finance function, of respondents were large and complex compared to others. organizations having low to moderate levels of management process maturi- Greater management process maturity ty. such situations are characteristic will enable finance organizations to of management process capability play more strategic roles. to enable gaps that don’t fully support the ability Identified management process organizations to more effectively exe- to execute strategies and optimize per- priorities and benefits provide further cute strategy, finance organizations formance across functions, business evidence of these gaps. the majority require more mature management pro- units, and legal entities. of larger and more complex organiza- cesses that readily adapt to change tions seek to establish greater flexibility while also providing consistent informa- Key capabilities hadn’t matured, indi- and agility while improving the accuracy tion across organizations. such man- cating that management processes of profit and cash-flow forecasts. fully agement processes also equip finance weren’t fully integrated. complex or- achieving these objectives can be diffi- to fulfill one of its most important self- ganizations hadn’t fully developed four cult for such organizations because it described roles – to help organizations key capabilities that are fundamental to requires a level of sophistication that reduce costs. more mature and fully integrated man- comes from very mature and highly agement processes. moreover, there integrated management processes. Starting to Address Capability were inconsistencies between the re- Gaps in Less than One Week ported maturity of these capabilities The value of addressing these gaps and participant evaluations of manage- is well recognized in more complex actions taking just one week can start ment process integration and effective- organizations. larger and more com- to address management process capa- ness. a potential cause for this is that plex organizations place a higher value bility gaps. adopting more mature man- organizations are using outdated defini- on more mature management process- agement processes is an opportunity tions of what constitutes “full integra- es than smaller or less complex organi- for organizations to more effectively tion” and leading practices. zations do. organizations having higher manage complexity. However, many 6 Research Report – Enterprise performance management
    • often lack meaningful focus on man- Define the Value to address these gaps. in so doing, it agement processes to capitalize on this getting traction on any initiative is con- will drive the type of cross-functional opportunity. this is because they focus tingent upon the value it creates. in the changes that are required to achieve on point solutions that meet the needs early stages, the process of quantifying other objectives, such as greater accu- of individual functions, rather than management process value should be racy of cash-flow and profit forecasts. those of the organization as a whole. focused on key areas, most of which were identified in this research study. provide clear Direction this approach can result in automated the purpose of this “rough cut” analy- “integration” is a term often used but disjointed processes that lack the sis is twofold: when describing management process sophistication to be relevant, while con- • to determine if the value is significant applications. However, the term is often tinuing to drive excessive cycle times. enough to reprioritize the organiza- defined from technical perspectives, the result: management processes tion’s investment portfolio not from a business standpoint. to ad- that leave organizations unable to react • to identify the specific management dress this, executives should define the to changing market conditions soon process capabilities that are driving requirements for key integration points, enough to avoid dangerous perfor- this value some of which are addressed in this mance issues. study. this will provide the direction Establish a champion required to focus management process Business leaders can address this by to establish greater management pro- evaluations and design decisions on taking the following steps. cess maturity, organizations should those things that are critical to capitaliz- identify a management process cham- ing on identified value opportunities. identify the gap pion. the champion’s role is to solve to the extent that this research study business problems by leveraging lead- How Recommended Actions reveals potential management process ing practices and applications that are Benefit Organizations capability gaps, organizations should relevant to the organization. this entails confirm them with further analysis. ensuring that process design and appli- By undertaking these steps, organiza- this should involve a more detailed cation decisions benefit the organiza- tions will be in a better position to es- gap analysis that is based on a shared tion as a whole, not just individual func- tablish more effective and integrated understanding of two things: tions. Examples of these management management processes, while also • How management process capability process applications can be found at capitalizing on the value opportunities gaps are contributing to recognized the beginning of this report. they present. from a more pragmatic business issues that are important to perspective, a holistic approach pro- key stakeholders create focus vides the means to make process and • How leading applications – those the most obvious symptoms of man- technology design decisions that: underlying the management process agement process capability gaps are • result in greater user acceptance maturity model – provide the means long and highly political planning and • avoid performance issues and rework to address these gaps budgeting processes. setting aggres- • minimize software integration sive cycle-time reduction targets (for • minimize implementation time example, less than 30 days) will prompt • reduce overall implementation costs the “out of the box” thinking required • achieve benefits and value faster Research Report – Enterprise performance management 7
    • peRspectives about GReateR maNaGemeNt pRocess matuRity EstaBlisHing prioritiEs, Balancing conflicting oBjEctiVEs this section provides a context for the Typical Issues Arising When Information Is Lacking research by identifying the underlying perspectives and related hypotheses Issue Potential Implication that shaped it. for further information it takes too long to obtain and analyze opportunities are missed or diminished. about these perspectives, please refer information to answer the questions. to the white paper titled the ten Day plan, available at www.column5.com. the information used to answer questions Decisions are delayed and disagreements isn’t always complete and accurate. lead to a lack of commitment once they Gauging Management Process are made. Maturity with Four Questions overly simplistic models are used to the wrong conclusions are reached, conduct analysis needed to answer causing organizations to select the wrong as organizations grow larger and more questions. projects or set inappropriate targets. complex, it often becomes increasingly the analysis is narrowly focused on parts the performance of functions, business difficult to establish targets and allocate of the organization and doesn’t consider units, and legal entities is improved at the resources while balancing conflicting the impact on the whole. expense of organizational performance. objectives across multiple functions, business units, and legal entities. such organizations often lack readily avail- for larger and more complex organiza- A Source of Competitive able information to answer four key tions, these manual work-arounds tend Differentiation questions: to be less effective. in fact, the inability • are revenue targets supported by to make significant improvements to organizational complexity makes it realistic volume, mix, and pricing the following three metrics are leading increasingly difficult to coordinate busi- assumptions? indicators of management processes in ness outcomes horizontally across • are organizational objectives and key need of more advanced and effective functions, business units, and legal performance indicator (Kpi) targets capabilities: entities. alleviating this complexity is realistic and adequately funded? • cash-flow forecast accuracy crucial. the value associated with many • Does sufficient capacity exist to exe- • planning and budgeting cycle time of the strategies organizations pursue – cute projects and achieve revenue • actual to planned investment roi operational excellence, competitive and Kpi targets? cost structures, customer focus and in- • Do revenue and Kpi targets optimize the ability to produce planning-risk timacy, and employee empowerment, organizational performance? information on demand related to these for example – are all founded upon metrics is a leading indicator of the such coordination. leading organizations incorporate presence of such advanced capabilities. integrated business models (strategic, producing information on demand is the problem is that organizations don’t financial, and operational) into their also a leading indicator of “full manage- always plan, manage, and govern this management processes to answer ment process integration” – from both way. rewards and decision rights often these questions. (Examples of the out- a business and a technical perspective. follow functionally based planning, bud- puts are contained in the ten Day plan for these reasons, this survey incorpo- geting, and reporting processes. the white paper noted above.) While manu- rated these questions to gauge the result: these process-based strategies al work-arounds can be useful, they presence of advanced capabilities and don’t realize their full potential. this is typically give rise to four fundamental integration levels. the “alignment paradox” facing today’s issues and related implications. organizations and represents the key challenge facing cfos who seek to 8 Research Report – Enterprise performance management
    • transform the finance team into more- as enterprise resource management, Fundamental Cost Reduction effective business partners. supply chain management, six sigma, total quality management, and continu- Volatility in today’s economic climate addressing this alignment paradox ous improvement. it is this logic that has heightened the need for more requires the ability to more effectively contributes to the following sources effective management processes to plan and manage business process of value addressed in the survey: reduce costs and preserve cash. one performance, while maintaining tradi- • Process cost reduction – coordinat- of the most significant benefits of tional views of spending and perfor- ing resource allocation and perfor- greater management process maturity mance. such management process mance management across functions is the ability to maintain competitive maturity is a source of competitive and business units to optimize overall cost structures that can naturally self- differentiation because it supports organization performance correct to changing market conditions. superior strategy execution. • Purchase cost reduction – coordi- rather than across-the-board cuts, nating decisions about product de- more mature management processes the maturity models discussed in the sign and component sourcing, based enable organizations to more effective- first part of the survey results section on the impact on overall organization ly align service levels (a key driver of incorporate this perspective. these performance costs) with revenue streams while also five-stage maturity models converge • Margin improvement – coordinating establishing more effective accountabil- at stage 4, where business processes the development of quality and ity for gross and net profits. “funda- become a focal point of planning and service-level targets (across func- mental cost reduction” is a term that performance management. these ma- tions and business units) so that they describes this approach. turity models provide insight into those are consistent with margin objectives organizations that have reached stage and cost expectations of internal and as organizations pursue cost reduction 4 across both dimensions. external customers opportunities, they would be well • Investment optimization – priori- served to understand how the tools this section summarizes findings and tizing, selecting, and sequencing enabling greater management process conclusions relating to levels of organi- investments on the basis of specific maturity also support a more effective zational complexity, management pro- evidence about how potential invest- and informed approach to cost cess maturity, and business process ments affect performance in the reduction. orientation. “Business process orienta- short, medium, and long term across tion” expresses the degree to which functions, business units, and legal Multiple Applications Required organizations plan, measure, manage, entities and govern the performance of busi- traditional financial planning, budgeting, ness processes. the survey asks participants to quanti- and reporting applications will always fy the likelihood of value, and not the lie at the core of any management pro- Tangible Value Sources degree of value itself. our perspective, cess design. of equal importance are however, is that complex organizations process-driven business intelligence in more complex organizations, invest- with larger management process capa- tools that provide the means to inte- ments supporting management pro- bility gaps have significant value oppor- grate other leading applications into a cesses pay off when greater cross- tunities. in fact, we believe that more cohesive management process. the functional coordination is institutionalized. effective management processes are a following are examples of such tools, such maturity levels enable organiza- competitive differentiator, in that they along with the potential roles they play tions to optimize the value from invest- enable superior strategy development in an integrated management process: ments in process-based initiatives such and execution. Research Report – Enterprise performance management 9
    • • Activity-based costing – the impor- these specialized tools play an essen- tance of activity-based costing tools tial role in an integrated management is reemerging as organizations under- process. However, decisions about stand the need for accurate process which ones to use should not be under- costs, in total and expressed as a taken individually. rather, the decision cost per unit of output. this is espe- needs to be made in view of key capa- cially true of organizations seeking to bilities that are created through integra- manage customer value propositions tion and that aren’t available from these across legal entities. applications individually. • Sales and operations planning – sales and operations planning has Effective Finance Transformation evolved from simply a tool that sup- ports supply chain management to finance transformation is the process one that can be extended across the equipping finance functions with the entire enterprise. this continuous processes, tools, and skills to more process, which has been used so effectively protect and enhance share- successfully in manufacturing for the holder value. at the heart of this trans- past 20 years, can now be leveraged formation lies the development of an in other functions and industries to organization’s most important source fundamentally reshape the budgeting of competitive advantage: its ability to process. quickly, cost-effectively, and profitably • Integrated business planning – inte- adapt to change. grated business planning provides the means to dramatically improve greater management process maturity prioritization, target-setting, and capi- is central to fully developing this capa- tal allocation processes. advanced bility. therefore, it is also a central modeling and logic helps identify Kpi component of strategies aimed at targets and select investments that establishing finance functions that optimize profitability and roi respec- can play a more strategic role in tively, while also minimizing the risk organizations. of unforeseen capacity constraints or funding shortfalls. the implication is that “real” finance • Business intelligence (BI) platform – transformation cannot be fully achieved Bi platforms provide interoperability by finance organizations alone. it re- and support collaboration required quires coordination with functions to to achieve rapid planning cycles. develop management processes that leading tools provide both data and brings together strategy, finance, sales, process management capabilities and operations to meet the needs of that are fundamental to integrated the entire organization. this more holis- management processes. tic approach to management process design is fundamental to more strategic approaches to finance transformation. 10 Research Report – Enterprise performance management
    • DetaiLeD suRvey ResuLts insigHts anD conclUsions this section comprises the details process maturity. such situations are of the survey results. reading the characteristic of management process “perspectives about greater manage- capability gaps that don’t fully support ment process maturity” section is a the ability to execute strategies and way to better understand the conclu- optimize performance across functions, sions reached herein. business units, and legal entities. Detailed findings supporting this More than 50% of Respondents include the following: Had Significant Capability Gaps • more than 50% of respondents were complex organizations having low lev- this section summarizes findings and els of management process maturity. conclusions relating to levels of organi- • these capability gaps varied by zational complexity, management pro- industry, with some being much cess maturity, and business process larger than others. orientation. “Business process orienta- • more than 50% of respondents tion” expresses the degree to which also exhibited low cross-functional organizations plan, measure, manage, coordination capabilities. and govern the performance of busi- ness processes. Key insights the data supporting the detailed find- conclusions ings was further combined and ana- the majority of respondents were large lyzed to produce the graphs noted on and complex organizations having low the pages that follow. to moderate levels of management Research Report – Enterprise performance management 11
    • More than 50% of respondents Data from questions 10 and 11 was combined to produce the graph in figure 2. were complex organizations What it shows is that the majority of respondents are represented in the top left having low levels of management corner of the graph. given the level of complexity, these organizations appear to process maturity. have management process capability gaps. Circle = Average Organizational complexity High >50% medium <10% low low medium High Management process maturity Figure 2: Management Process Maturity These capability gaps varied by industry, with some being much larger than others. Data from questions 10 and 11 was combined by industry to produce the graph in figure 3. it shows that these capability gaps vary significantly by industry, with the highest ones being reported by wholesale and retail, pharmaceuticals, and media and entertainment. 5.0 financial services, 4.5 other real estate, and insurance 4.0 3.5 telecommunications Healthcare 3.0 chemicals, 2.5 media and energy, and utilities 2.0 entertainment 1.5 transportation 1.0 aerospace and warehousing 0.5 and defense 0.0 public sector and Hardware, software, nonprofit and networking auto, industrial, food, beverages, and manufacturing and consumer goods Business and construction professional services pharmaceuticals, Wholesale and biotechnology, and retail trade life sciences Complexity and capability gap Reported capabilities Figure 3: Capability Gaps by Industry 12 Research Report – Enterprise performance management
    • More than 50% of respondents Data from questions 11 and 14 were combined to produce the graph in figure 4. also exhibited low cross-functional What it shows is that the more than 50% of participants had achieved only moder- coordination capabilities. ate levels of both management process and business process management matu- rity. organizations exhibiting these characteristics typically have planning and performance management approaches that continue to be functionally or vertically dominated. as a result, they don’t fully support the type of superior strategy exe- cution that comes from more horizontally based approaches. a minority of partici- pants, on the other hand, exhibited such characteristics, as illustrated by the 8% in the top right-hand corner of the graph. Circle = Average Business process orientation High 8% medium >50% low low medium High Management process maturity Figure 4: Business Process Orientation Detailed findings the following are the responses from the survey questions, together with the key findings, that support the conclusions reached above. Research Report – Enterprise performance management 13
    • Q10: Complexity – participants participants were asked if the following complexity characteristics strongly applied exhibited characteristics of highly to their organization: complex organizations. • large scale: many products, services, customers, employees, and vendors • significant variability in pricing, volume, product and service mix, customer support, and input costs • change: frequent change to products, services, processes, projects, and organizational structures • organizational structure: large number of business units, legal entities, and many geographic regions • interconnectivity: business units share customers, production, services, outsourcing vendors the following insights were revealed from the survey and are illustrated in figures 5 and 6: • 39% of respondents said all five complexity characteristics apply to them. • the majority of participants (107 out of 166, or 65%) were categorized as being highly complex organizations that exhibited four or five of the complexity characteristics. • Each respondent was assigned a complexity score on a scale of 1 to 5, based on the number of characteristics applying to their organization. the average score for all respondents was 3.8. 14 Research Report – Enterprise performance management
    • large scale: many products, services, customers, employees, and vendors Yes = 86% 14% significant variability in pricing, demand volume, product and Yes = 82% 18% service mix, customer support, and input costs interconnectivity: business units share customers, Yes = 80% 20% vendors, production, services, or outsourcing vendors complex organizational structure: large number of business Yes = 71% No = 29% units, legal entities, and many geographic regions change: frequent change to products, services, processes, Yes = 61% No = 39% projects, and organizational structures 0% 20% 40% 60% 80% 100% Figure 5: Organizational Complexity – Characteristics Number of Complexity Characteristics Five = 64 organizations representing 39% of respondents 17 36 11 Four = 43 organizations representing 26% of respondents 22 10 11 Three = 33 organizations representing 20% of respondents 21 11 1 Two = 18 organizations representing 11% of respondents 14 2 2 One = 8 organizations representing 5% of respondents 8 0% 10% 20% 30% 40% Sales Dollars < US$5 billion $5 to $10 billion > $10 billion Figure 6: Number of Complexity Characteristics Research Report – Enterprise performance management 15
    • Q11: Management process maturity participants were asked to identify one of the following statements that best – Despite relatively high automation describes their organization’s current practice for planning, budgeting, forecasting, levels, management processes and broader enterprise management: exhibited only moderate maturity. • Basic: spreadsheets are our primary tool for planning, budgeting, and forecast- ing and for measuring results. maturity score = 1. • Formalized: planning, budgeting, and forecasting process is automated and some other elements of enterprise management (for example, pricing, grc, business intelligence) are automated as well. maturity score = 2. • Coordinated: planning, budgeting, and forecasting process is automated and most elements of enterprise management (for example, pricing, governance, risk and compliance, business intelligence) are automated as well. maturity score = 3. • Integrated: one single system and process is used for planning, budgeting, forecasting, and measuring sales, operations, finance, projects, and business processes. plans are based on one set of explicit and shared assumptions and data that are available upon demand. maturity score = 4. • Dynamic: planning, budgeting, forecasting, and measurement mature into one continuous, monthly process. annual budgeting is abandoned. maturity score = 5 . the following insights were revealed from the survey and are illustrated in figure 7: • two-thirds of respondents had automated aspects of their planning, budgeting, and forecasting processes, while only a third was still using spreadsheets to support these processes. • fewer than one in seven say their company runs integrated systems for these activities, and very few (3%) have a dynamic, continuous monthly process where annual budgeting is not necessary. • of the 13% of respondents indicating that their management processes were integrated, more than half didn’t have key information available upon demand – a key feature of integration that is addressed in the next section. the implication is that the reported 13% should actually be 5% and the coordinated score should be 27%, not 19%. • respondents were assigned a maturity score on a scale of 1 to 5, based on their selection. the average score for all respondents was 2.2. 1. Basic 31% 2. formalized 34% 3. coordinated 19% 4. integrated 13% 5. Dynamic 3% 0% 10% 20% 30% 40% Figure 7: Stages of Management Process Maturity 16 Research Report – Enterprise performance management
    • Q14: Business process orientation participants were asked to identify one of the following statements that best de- – on average, process management scribes their organization’s current capability for driving performance improvement capabilities were moderately across functions, business units, and legal entities: developed. • Informal: our business processes are not formally defined, and formal process and quality management approaches (for example, total quality management and six sigma) are not used. • Some: formal process and quality management approaches are used to im- prove cross-functional performance, but efforts are often undermined by a lack of accessible and accurate cost and performance data. • Considerable: We have deep process and quality management expertise and readily available process cost and performance data to drive strategically signifi- cant process improvements. • Significant: our process-based approach to planning, budgeting, and measuring and rewarding performance has institutionalized “process thinking” throughout the organization. • Complete: Business processes are the basis for governance and decision rights. the following insights were revealed from the survey and are illustrated in figure 8: • 88% of respondents report basic processes and quality management capabilities are in place to drive performance improvement across functions and business units, but it is very rare to see complete process capability. • only 1 in 25 (4%) says the company has a complete process as the basis for governance and decision rights. • respondents were each assigned a maturity score on a scale of 1 to 5, based on their selection. the average score for all respondents was 2.7. 1. informal 12% 2. some 33% 3. considerable 32% 4. integrated 18% 5. complete 4% 0% 10% 20% 30% 40% Figure 8: Stages of Business Process Orientation Research Report – Enterprise performance management 17
    • Key Capabilities for Full Manage- Key insights What this means is that the capabilities ment Process Integration Hadn’t answers to the survey questions con- represented by questions 3 to 6 were Fully Matured tained in this section revealed three not weighted heavily in the answers to things: questions 1 and 2. the implication is this section summarizes the conclu- • complex organizations lacked readily that (for more complex organizations) sions drawn from the information pro- available information about four the level of effectiveness and integration vided by survey respondents about measures that gauge the level of is probably lower than that reported by management process integration and “planning risk” in their business plans. participants. effectiveness. • Despite a lack of on-demand access (to this “planning risk” information), Detailed findings conclusions management processes were rated organizations reported that manage- complex organizations hadn’t fully de- as effective. ment processes were effective and veloped four key capabilities that are • Despite a lack of on-demand access integrated, with key information readily fundamental to more mature and “fully (to this “planning risk” information), accessible. provided below are the re- integrated” management processes. management processes were rated sponses to the survey questions that moreover, there were inconsistencies as integrated. support this finding. between the reported maturity of these capabilities and participant evaluations What these findings also reveal is an of management process integration inconsistency between how organiza- and effectiveness. a potential cause tions answered questions relating to for this is that organizations are using the first point and how they provided outdated definitions of what constitutes answers to the last two. this inconsis- full integration and leading practices. tency is represented in figure 9. 1 average level of reported management process effectiveness and integration High Gap 1 Level of integration 2 Weighted average of responses related to the medium 2 availability of key information about revenue, key performance indicator target, capacity, and project portfolio risk low Gap Difference between 1 and 2: low medium High inconsistency between measures Management process effectiveness Figure 9: Management Process Integration and Effectiveness 18 Research Report – Enterprise performance management
    • Q3 to 6: Data availability – participants were asked about how available accurate “planning risk” information complex organizations lacked is to determine whether: on-demand access to key • revenue targets are consistent with demand forecasts information. • Kpi targets are adequately funded by the budget process • functions and business units have sufficient capacity to achieve Kpi targets • revenue and Kpi targets optimize organizational performance participants were asked to categorize their answers as follows, with values assigned for indexing purposes as indicated: • information available with substantial manual effort (index value = 1) • information available with some manual effort (index value = 2) • information available upon demand – no manual effort (index value = 3) the following insights were revealed from the survey and are illustrated in the graph in figures 10 and 11: • responses to these questions are consistent with one another across most dimensions. • the major differentiator was level of complexity, with the median response for high-, medium-, and low-complexity organizations being 2, 1.7, and 1.0 respectively. the key conclusion is that the level of information availability is likely not sufficient to meet the needs of complex organizations. refer to the “perspectives about greater management process maturity” section for the rationale behind this conclusion. Average Organizational complexity High revenue targets are consistent with 2.0 51% 51% 33% 15% 1.7 demand forecasts. medium 1.7 Key performance indicator (Kpi) targets are 49% 35% 16% 1.7 adequately funded by the budget process. 1.0 functions and business units have capacity low to achieve Kpi targets. 46% 34% 19% 1.8 1=low 2=medium 3=High revenue and Kpi targets optimize organizational Median information availability 50% 29% 20% 1.9 performance. Figure 10: Information Availability Compared 0% 20% 40% 60% 80% 100% to Organizational Complexity 3 = no effort – on 1 = substantial effort 2 = some effort n/a or don’t know demand Figure 11: “Planning Risk” Information Availability – Effort Required Research Report – Enterprise performance management 19
    • Q1: Management process effective- participants were asked how effectively the finance function executes the ness – despite a lack of on-demand following planning, budgeting, and forecasting activities: access, management processes • operational and capital budgeting were rated as effective. • planning and target setting • p and l (revenue and expense) forecasting • Balance sheet and cash-flow forecasting the following insights were revealed from the survey and are illustrated in figures 12 and 13: • on average, 90% of respondents say their company is either effective or very effective in executing the above activities. • these activities were more likely to be effective at organizations with higher revenues and greater complexity. • organizations that categorized their processes as being very effective only had “planning risk” information available on demand between 20% and 24% across all processes. the implication of these findings is that, while respondents rated the level of effectiveness high, compared to leading practices, the actual level of effective- ness is lower than that reported by complex organizations. 20 Research Report – Enterprise performance management
    • Average p and l (revenue and expense) forecasting 51% 42% 50% 8% 2.3 Balance sheet and cash-flow forecasting 40% 47% 13% 2.3 planning and target setting 36% 56% 9% 2.2 operational and capital budgeting 28% 61% 11% 2.1 0% 20% 40% 60% 80% 100% 1 = Not very effective 2 = Effective 3 = Very effective Figure 12: Process Effectiveness – Responses p and l (revenue and expense) forecasting 20% 80% Balance sheet and cash-flow forecasting 20% 80% planning and target setting 24% 76% operational and capital budgeting 24% 76% 0% 20% 40% 60% 80% 100% Degree of effectiveness Available on demand Manual intervention Figure 13: Process Effectiveness – “Very Effective” Responses Adjusted for Planning Risk Availability Research Report – Enterprise performance management 21
    • Q2: Management process integra- participants were asked the degree of integration of their financial planning, tion – despite a lack of on-demand budgeting, and forecasting processes with the following management processes access, management processes and methods: were rated as integrated. • Business intelligence • sales and operations planning • governance, risk, and compliance • project and portfolio management • Balanced scorecard and performance measurement • activity-based costing • operational planning optimization • portfolio and capital planning optimization the following insights were revealed from the survey and are illustrated in figures 14 and 15: • two in five say there is tight integration between financial planning, budgeting, and forecasting and the six management processes and methods. • greater integration was found in organizations with higher revenues and greater complexity. • organizations that categorized their processes as being tightly integrated only had “planning risk” information available on demand between 20% and 25% across all management processes and methods. the implication of these findings is that, while respondents rated the level of integration high, compared to leading practices, the actual level of integration is lower than that reported by complex organizations. 22 Research Report – Enterprise performance management
    • sales and operations planning 51% 52% 40% 7% 2.4 governance, risk, and compliance 45% 39% 14% 2% 2.3 activity-based costing 42% 35% 15% 8% 2.1 Business intelligence 40% 50% 10% 2.3 project and portfolio management 40% 46% 13% 2% 2.2 40% 47% 13% 2% 2.2 Balanced scorecard and performance management 0% 20% 40% 60% 80% 100% 2 = some 1= little integration 3 = tight integration 0 = Don’t know integration Figure 14: Process Integration – Responses sales and operations planning 23% 77% governance, risk, and compliance 22% 78% activity-based costing 21% 79% Business intelligence 20% 80% project and portfolio management 21% 79% Balanced scorecard and performance management 25% 75% 0% 20% 40% 60% 80% 100% Integration level On demand Effort needed Figure 15: Process Integration – “Tightly Integrated” Responses Adjusted for “Planning Risk” Availability Research Report – Enterprise performance management 23
    • Improving Flexibility, Agility, and conclusions cation that comes from very mature Profit and Cash-Flow Forecast the majority of larger and more com- and highly integrated management Accuracy Are Key Issues plexorganizations seek to establish processes. greater flexibility and agility while im- this section summarizes participant proving the accuracy of profit and Detailed findings management process improvement cash-flow forecasts. fully achieving provided below are the responses priorities and expected business bene- these, as well as related management from the survey questions, together fits associated with more effective process improvement objectives, can with the key findings, that support the planning, budgeting, forecasting, and be very difficult for such organizations conclusions reached above. performance measurement. because it requires a level of sophisti- Q7: Business benefits – 75% of participants were asked to identify three of the most important business benefits larger organizations sought great- that their companies could realize from more effective planning, budgeting, er flexibility and agility. forecasting, and performance measurement. the following graphs summarize responses: • figure 16: shows results from all respondents • figure 17: identifies differences in responses by company size • figure 18: identifies differences in responses by industry the following are the key insights taken from these responses: • nearly two in three respondents say greater flexibility and agility would be the leading benefit. • this flexibility, along with greater customer focus, is prized more by larger companies. • the primary focus of organizations with less than $5 billion is driving greater operational excellence. • in some industries, there was complete consensus about the relative impor- tance of these benefits. • there were significant differences in responses between sectors, further reinforcing the relevance of these benefits. greater flexibility and agility 63% greater customer focus 51% Drive operational excellence 51% more consistent strategy execution 50% promote a business owner mentality 31% none of these other 0% 20% 40% 60% 80% Figure 16: Business Benefits – Results from All Respondents 24 Research Report – Enterprise performance management
    • greater flexibility and agility 50% 75% greater customer focus 45% 57% Drive operational excellence 46% 56% more consistent strategy execution 50% promote a business owner mentality 31% none of these other 0% 20% 40% 60% 80% > US$5 billion < $5 billion Figure 17: Business Benefits – Responses by Company Size flexibility and agility greater customer focus operational excellence strategy execution F&PG 83% TEL 100% PUB 100% M&E 100% T&W 80% CON 73% M&E 100% T&W 80% H&S 75% PUB 67% A&D 75% PHM 75% A&D 75% W&R 71% W&R 71% F&PG 67% HTC 71% F&PG 67% AVG = 63% AVG = 51% AVG = 51% AVG = 50% t&W = transportation m&E = media and entertainment con = construction and warehousing W&r = Wholesale and retail tEl = telecom f&pg = food and packaged goods pHm = pharmaceuticals pUB = public a&D = aerospace and defense Htc = Healthcare aVg = average H&s = Hardware and software Figure 18: Business Benefits – Responses by Industry Research Report – Enterprise performance management 25
    • Q12: Improvement priorities – participants were asked to identify the three most important business benefits 55% sought to improve the their company could realize from more effective planning, budgeting, forecasting, accuracy of profit and cash-flow and performance measurement. the responses are shown in figures 19 and 20. forecasts. the following is a summary of the key insights: • improving the accuracy of profit and cash-flow forecasts resonates with more than half of respondents as a company priority in the next two years. • responses were balanced across organization size, complexity, and manage- ment process maturity. • there were significant differences in responses between sectors, further reinforcing the relevance of improvement priorities. improving accuracy of profit and cash-flow forecasts 55% reducing planning and budgeting cycle time 36% linking financial and operational plans and forecasts 35% tying budgets to key performance indicator targets 35% greater forward visibility into market conditions 32% aligning financial and operational information 25% greater collaboration among functions and business units 23% ability to audit budget variances 22% none of these or other 2% 0% 20% 40% 60% Figure 19: Improvement Priorities – Results from All Respondents profit and cash- reduce budget link financial and tie budgets and link financial and flow accuracy cycle time operational plans Kpi targets operational info PHM 100% PUB 67% M&E 100% TEL 80% FPG 50% TEL 80% PRO 53% FPG 67% M&E 50% W&R 53% T&W 75% M&E 50% TEL 60% A&D 50% TEL 50% A&D 75% A&D 50% W&R 60% PHM 50% T&W 50% AVG 55% 36% 35% 35% 25% t&W = transportation m&E = media and entertainment con = construction and warehousing W&r = Wholesale and retail tEl = telecom fpg = food and packaged goods pHm = pharmaceuticals pUB = public a&D = aerospace and defense Htc = Healthcare aVg = average pro = professional services Figure 20: Improvement Priorities – Responses by Industry 26 Research Report – Enterprise performance management
    • Large and Complex Organizations practices in planning, budgeting, fore- greater return on investments and Value Management Process casting, and performance measurement projects or higher revenue or margins Maturity More would lead to the following outcomes as very likely; in addition, nearly half at their companies. three response of respondents see such results as this section summarizes the conclusions choices were given: not likely, likely, likely. drawn from the information provided by and very likely. the following graphs • the percentage of respondents indi- survey respondents about management summarize responses: cating that the value was very likely process value opportunities. • figure 21: shows results from all was higher in organizations with respondents by value source greater revenues, complexity, busi- conclusions • figure 22: identifies differences in ness process orientation, and infor- larger and more complex organizations responses by size and value source mation availability. value management processes maturity • figure 23: identifies differences in • the percentage of respondents more than others. the same is true of responses by industry and value indicating the value was very likely organizations having higher business source varied significantly from one sector process orientation, thereby providing • figure 24: identifies differences in to another. evidence of the value stemming from overall value responses by level of • there was a direct relationship greater cross-functional coordination. business process orientation between higher levels of business process orientation and responses Detailed findings the following are the key insights iden- indicating that value was very likely. in question 8, participants were asked tified from these responses: how likely it was that more advanced • more than two in five participants cite Research Report – Enterprise performance management 27
    • greater return on investments and projects 51% 44% 49% 7% Higher revenue and/or margins 43% 48% 9% lower costs for business processes 35% 56% 9% lower costs for purchased goods and services 33% 47% 20% 0% 20% 40% 60% 80% 100% likelihood of Very likely likely not likely significant value Figure 21: Value Creation greater return on investments and Higher revenue and/or lower costs for business lower costs for projects margins processes purchased goods 36% 50% 37% 54% 24% 47% 20% 45% 36% 47% 23% 51% 21% 42% 20% 39% 36% 51% 34% 51% 30% 39% 26% 39% 37% 58% 36% 57% 30% 49% 31% 45% 44% 43% 35% 33% High business Revenue > US$5 B Very complex Info not available process orientation Low business Revenue < $5 B Less complex Available info process orientation Figure 22: Likelihood of Value – Responses by Company Size and Complexity 28 Research Report – Enterprise performance management
    • greater return on investments and Higher revenue lower costs for lower costs for projects and/or margins business processes purchased goods W&R 86% W&R 100% OTH 67% OTH 67% A&D 76% OTH 67% T&W 57% W&R 57% CON 67% CON 67% M&E 50% M&E 50% OTH 67% TEL 60% AUT 46% AUT 46% 44% 43% 35% 33% aUt = automotive m&E = media and entertainment tEl = telecom t&W = transport and warehousing W&r = Wholesale and retail otH = other a&D = aerospace and defense con = construction Figure 23: Likelihood of Value – Responses by Industry 1 2.8 2 2.5 3 2.2 Business process 4 2.2 orientation levels 5 2.1 median likelihood of value on a 3-point scale Figure 24: Likelihood of Value – Median Responses by Level of Business Process Orientation Research Report – Enterprise performance management 29
    • Management Process Strategies and attention to the following items in the proportion of responses to these Are Important to Large and the next three years, concerning inte- questions was similar by industry and Complex Organizations grated planning, budgeting, forecasting, in total. the biggest variations came and broader enterprise management: by organization size, complexity, and this section summarizes the conclu- • Developing a company-wide strategy management process maturity. the sions drawn from the information pro- for improving these processes following are the key insights support- vided by survey respondents about • Developing a vision for the finance ing this: developing management process function that leverages these • organizations having high sales strategies. processes volume (over $5 billion), complexity, • coordinating the selection and imple- business process orientation, and conclusions mentation of component applications management process maturity were larger and more complex organizations to minimize time and costs most likely to spend a substantial are almost twice as likely to spend sig- amount of time on the above nificant time developing a strategy for the following graphs summarize activities. management processes as well as the responses: • conversely, organizations having lower finance function, compared to others. • figure 25: shows results from all sales volume (less than $5 billion), respondents by value source complexity, business process orien- Detailed findings • figure 26: identifies differences in tation, and management process ma- in question 13, participants were asked responses by size, complexity, and turity were more likely to spend some if their company will devote more time business process orientation or no time on the above activities. Developing a company-wide strategy for improving planning, budgeting, forecasting, and broader enterprise 51% 41% 52% 7% management Developing a vision for the finance function to leverage planning, budgeting, forecasting, and broader enterprise 38% 51% 11% management coordinating the selection and implementation of component applications to minimize time and costs 37% 55% 9% 0% 20% 40% 60% 80% 100% time and attention substantial some little or none to be devoted Figure 25: Strategy – Results from All Respondents by Value Source 30 Research Report – Enterprise performance management
    • Develop a company- Develop a finance vision to coordinate selection and wide strategy leverage strategy implementation 26% 46% 29% 50% 24% 50% 25% 43% 30% 46% 25% 48% 26% 46% 32% 50% 31% 44% 35% 39% 41% 42% 32% 48% AVG = 41% AVG = 38% AVG = 37% High business High management Revenue > US$5 B Very complex process orientation process maturity Revenue < $5 B Less complex Low business Low management process orientation process maturity Figure 26: Response Differences by Size, Complexity, and Business Process Orientation Research Report – Enterprise performance management 31
    • More Mature Management conclusions to fulfill one of its most important self- Processes Are Integral to to enable organizations to more effec- described roles: to help organizations Achieving Finance Objectives tively execute strategy, finance teams reduce costs. require more mature management pro- this section summarizes the conclu- cesses that readily adapt to change Detailed findings sions drawn from the information pro- while also providing consistent informa- provided below are the responses from vided by survey respondents about tion across organizations. such man- the survey questions, together with the impact on the finance organization. agement processes also equip finance the key findings, that support the con- clusions reached above. Q9: Finance impact – finance in question 9, participants were asked to describe (in a few sentences or phrases) finance groups can have the most the aspects of their company’s management processes where the finance function impact by helping organizations could have the most impact. the most common response to this question revolved reduce costs. around helping organizations to reduce costs. this included the following comments: • pursuing an aggressive approach to cutting production costs and getting more out of employees for less • Evaluate the precost and possibility of a new product • facilitate cooperation on spending strategies that cut wasteful spending • optimal resource utilization to reduce operating costs other comments worth noting included the following: • more effective target setting and capital allocation • Better communication between departments • Developing a team mentality as well as encouraging and rewarding employee input • Using insight about past performance to identify potential issues 32 Research Report – Enterprise performance management
    • Q15: Barriers – finance groups in question 15, participants were asked to describe the greatest barriers to using must work to improve information planning, budgeting, forecasting, and performance measurement data to deploy accuracy and change navigation. and execute strategy at their company. the two most common responses to this question revolved around managing variability and information consistency and accuracy. these included the following comments: • managing variability – staying on top of market demands – Daily fluctuations on today’s economy – frequent change and substantial variability – commodity price fluctuations – forecasting cash flow in times of uncertainty • information consistency and accuracy – getting valid information that is truthful for its time period – getting accurate forecast information on all levels – information not available – inaccurate data – too much data Research Report – Enterprise performance management 33
    • summaRy: appLyiNG ReseaRch iNsiGhts gEtting to tHE nExt lEVEl many organizations have invested in the answer to this question will vary business intelligence and business per- with the size and complexity of organi- formance management applications to zations. traditional business perfor- automate planning, budgeting, forecast- mance management applications are ing, measurement, and reporting pro- likely to meet the needs of smaller and cesses. While benefits arise from less complex organizations. However, these tools, they don’t always have the multiple applications may be required impact on performance that organiza- for large and complex organizations. tions expect. for example, sales and operations for example, those that have automat- planning applications are likely to be ed budget processes would say that a key component of solutions for orga- the process is faster and has fewer er- nizations in the manufacturing sector. rors but often agree that it isn’t a more integrated business planning applica- effective one because it isn’t well con- tions may play similar roles to coordi- nected to strategy or operations. oth- nate target setting and investment plan- ers using the balanced scorecard ac- ning across business units and legal knowledge that it creates greater focus entities. on strategy but doesn’t always improve the ability to execute it. moreover, they making decisions about such applica- find it increasingly difficult to squeeze tions can’t be done in isolation and further reductions to planning and bud- must consider multiple factors. one of geting cycle time from these tools. in the most important factors is choosing other words, they “hit a wall.” a vendor that provides the best founda- tion for building such integrated man- the question that such organizations agement processes. are asking is, how do we leverage what we’ve done and learned to get to the management process applications are next level? and what is that next level? at the same point enterprise resource those that are just beginning to assess planning (Erp) systems were two de- the applicability of these tools are ask- cades ago. Back then, forward-thinking ing the question, how can we leverage executives capitalized on the benefits the experiences of others to avoid of being early Erp adopters. the chal- these issues? lenge now is to recognize that similar opportunities exist, from a manage- such questions are symptomatic of or- ment process perspective. organiza- ganizations needing to more effectively tions that establish greater manage- manage complexity. they are often the ment process integration and maturity ones that understand the benefits of can separate themselves from competi- continuous planning processes, ones tors while fully realizing their aspirations that overcome the well-documented of being more flexible, responsive, limitation of traditional budgeting pro- cost-effective, and customer focused. cesses. their question is, how do we get there? 34 Research Report – Enterprise performance management
    • Research Report – Enterprise performance management
    • 50 xxx xxx (YY/MM) 094 466 (09/05) ©20YY by sap ag. ©2009 by sap ag. all rights reserved. sap, r/3, sap netWeaver, Duet, partnerEdge, ByDesign, sap Business ByDesign, and other sap products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of sap ag in germany and other countries. Business objects and the Business objects logo, Businessobjects, crystal reports, crystal Decisions, Web intelligence, xcelsius, and other Business objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business objects s.a. in the United states and in other countries. Business objects is an sap company. all other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. national product specifications may vary. these materials are subject to change without notice. these materials are provided by sap ag and its affiliated companies (“sap group”) for informational purposes only, without representation or warranty of any kind, and sap group shall not be liable for errors or omissions with respect to the materials. the only warranties for sap group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. nothing herein should be construed as constituting an additional warranty. www.sap.com /contactsap