World class planning & performance management

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ABSTRACT To succeed, companies must have a vital and coherent process for planning and performance management. This presentation offers a how-to guide for designing and implementing a program based on key performance indicators (KPIs). Details include defining KPIs and cascading them through the organization, as well as best practices for opportunity-based target setting, performance measurement, and deviation management. The document recommends a model for separate financial and performance accounting and reporting. The authors also provide detailed job descriptions for key roles in the performance management initiative. Examples are drawn from leading industrial companies. Commentary is provided by Laurent Rosfelder and Jürg Wicki, EMs in the Zurich office.

This presentation is divided into four sections. The first introduces planning and performance management. The second outlines the importance of strong controlling functions. The third offers examples from world-class companies, and the fourth shows how to present a program of change to clients.

Here we introduce the main components of planning and performance management and explain why they are important. Often companies try to implement very sophisticated controlling systems, such as EVA (economic value-added) calculations, at the very lowest level of the organization. Clearly, this is the wrong place for those systems. These units do not control the bulk of costs, nor does the tool help with operating the units. A more effective approach is to put a basic controlling function in place and at least get the simplest part of the job up to the state of the art.

Much of this document came out of work done for European clients. In general, U.S. companies are far ahead of Continental businesses in developing the controlling function. The process begins with top-level managers defining key performance indicators (KPIs) to consistently govern performance and planning throughout the organization, from the top down. This is the primary task of the process. It’s easy for a KPI-based initiative to fail when, as is often the case, it is made overly complicated. More important than precisely defining the value being measured by the proposed KPI is for management to reach a consensus on the right KPIs for the company to use. Admittedly, this is a huge job. This definition stage is not a one-time effort, but ongoing, and starts with the difficult step of deciding which KPIs to prioritize. These value-focused KPIs should then cascade through the organization. The focus then shifts to opportunity-based targets. These targets should be ambitious enough to push the company. They should also be influenced by the competition. Finally, management sets in place a recurring system for planning and performance management. The system includes setting targets, measuring performance, and reacting to deviations.

It’s not helpful to tell a manager that he or she needs to improve ROIC (return on invested capital). Such a broad demand is difficult to understand and difficult to meet. Managers need tools to map and shape KPIs. These tools can include measurements like cost per unit or indicators of which products are failing to sell. Strong and transparent links from operating metrics to intrinsic value are critical to the overall process. Ultimately, these links to value are reflected in stock price.

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World class planning & performance management - Presentation Transcript

Setting Up a Controlling Function to Enable World-Class Planning and Performance Management This presentation contains detailed notes to the slides. If you are viewing the downloaded version, please click on “Notes Page” in the View menu to see both slides and commentary Download the full document at: www.gazhoo.com
OBJECTIVE OF THIS DOCUMENT: TO PRESENT THE KEY BUILDING BLOCKS OF PLANNING AND PERFORMANCE MANAGEMENT To introduce planning and performance management, its key elements, and its importance for the organization To understand the importance of a strong controlling function for effective planning and performance management To lay out the key building blocks of a world-class controlling function and best-practice examples To present an approach to strengthen your client’s controlling function Download the full document at: www.gazhoo.com + +
OBJECTIVE OF THIS DOCUMENT: TO PRESENT THE KEY BUILDING BLOCKS OF PLANNING AND PERFORMANCE MANAGEMENT To introduce planning and performance management, its key elements, and its importance for the organization To understand the importance of a strong controlling function for effective planning and performance management To lay out the key building blocks of a world-class controlling function and describe best-practice examples To present an approach to strengthen your client’s controlling function Download the full document at: www.gazhoo.com + +
KEY ELEMENTS OF PLANNING AND PERFORMANCE MANAGEMENT 1. Value-focused KPIs cascaded throughout the organization 2. Opportunity-based targets 3. Planning and performance management system ? + + Download the full document at: www.gazhoo.com
DEFINING VALUE-DRIVEN KPIs Stock price performance Intrinsic value Financial indicators Operating metrics DCF For example, ROIC, sales growth, economic profit For example, market share, cost per unit, on-time deliveries Exhibit ? Download the full document at: www.gazhoo.com