detecon study management reporting: a study by detecon (switzerland) ag in cooperation with the...

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Management ReportingA study by Detecon (Switzerland) AG in cooperation with the Institute for Accounting, Controlling, and Auditing of the University of St. Gallen.

www.detecon.com/ch/

Management Reporting Study <

In cooperation with:

Management Reporting

A study by Detecon (Switzerland) AG in cooperation with the Institute for Accounting, Controlling, and Auditing

of the University of St. Gallen

December 2008

> Study Management Reporting

© Detecon (Switzerland) AG2

This publication may not be reproduced or duplicted, either in whole or in part, without the written consent of Detecon (Switzerland ) AG.

Published byDetecon (Switzerland) AGLöwenstrasse 18001 ZürichSwitzerland


3© Detecon (Switzerland) AG

Table of Contents1. Executive Summary 5

2. Background and Procedure 7 2.1 Management Reporting as a Success Factor of Effective Corporate Management 7 2.2 Methodology and Study Demographics 8

3. The Major Features of Excellent Management Reporting 10 3.1 Major Properties of Management Reporting in the Category Concept 10 3.1.1 The Excellence Criterion of “Relevance“ 11 3.1.2 The Excellence Criterion of “Stringency“ 15 3.1.3 The Excellence Criterion of “Consistency“ 16 3.1.4 Ranking and other Excellence Criteria 18

3.2 The Major Properties of Management Reporting 19 in the Category Processes/IT Support

3.2.1 The Excellence Criterion of “Data Quality“ 19 3.2.2 The Excellence Criterion of “Transparency and Reproducibility“ 20 3.2.3 The Excellence Criterion of “Efficiency“ 21 3.2.4 The Excellence Criterion of “Up-to-Dateness“ 22 3.2.5 Ranking and other Excellence Criteria 22

3.3 The Major Properties of Management Reporting 24 in the Category Personnel and Organization

3.3.1 The Excellence Criterion of “Personnel Efficiency“ 24 3.3.2 The Excellence Criterion of “Organizational Efficiency“ 25 3.3.3 The Excellence Criterion of “Stability“ 25 3.3.4 Ranking and other Excellence Criteria 26

4. Major Fields of Action and Design Recommendations for Excellent 28 Management-Reporting

4.1 Fields of Action and Design Recommendations with Respect to Concept 28 4.2 Fields of Action and Design Recommendations with Respect to 33 Processes and IT Support 4.3 Fields of Action and Design Recommendations with Respect to 40 Personnel and Organization

5. Final Thoughts and Outlook 41

6. The Authors 42

7. The Publishers 43

8. Participating Companies 43

9. Bibliography 44



Table of Figures

Figure 1: Number of participating companies according to origin 9Figure 2: Study participants according to position and area of responsibility 9Figure 3: Overview of Excellence Criteria 10Figure 4: Combined Ratios of Swiss Insurance Companies from 2000 to 2007 12Figure 5: Excellence Criterion Relevance: Importance and Satisfaction 13Figure 6: Effects of Performance Indicator Systems on Conduct 15Figure 7: Excellence Criterion Stringency: Importance and Satisfaction 16Figure 8: Excellence Criterion Consistency: Importance and Satisfaction 17Figure 9: Ranking According to Importance of each Excellence Criterion 18 of the Dimension ConceptFigure 10: Other and Specific Excellence Criteria in the Dimension Concept 18 Figure 11: Excellence Criterion Data Quality: Importance and Satisfaction 20Figure 12: Excellence Criterion Transparency and Reproducibility: 21 Importance and Satisfaction Figure 13: Excellence Criterion Efficiency: Importance and Satisfaction 21Figure 14: Excellence Criterion Efficiency: Up-to-dateness 22Figure 15: Ranking According to Importance of Each Excellence Criterion 23 of the Dimension Processes/IT Support Figure 16: Other and Specific Excellence Criteria in the Dimension Processes/IT 23Figure 17: Excellence Criterion Personnel Efficiency: Importance and Satisfaction 24Figure 18: Excellence Criterion Organizational Efficiency: Importance and Satisfaction 25Figure 19: Excellence Criterion of Stability: Importance and Satisfaction 26Figure 20: Ranking According to Importance of Each Excellence Criterion 26 Related to Personnel and OrganizationFigure 21: Other Excellence Criteria Personnel/Organization 27Figure 22: Objectives of Management Reporting 28Figure 23: Report Pyramid of Volkswagen AG 31Figure 24: Implementation of Performance Indicators 31Figure 25: Most Important Performance Indicators 32Figure 26: Total Expenditures Process Steps 33Figure 27: Critical Interfaces 34Figure 28: Basic Principle of Process Orientation 35Figure 29: Comments 38Figure 30: Integration of the Controlling Department 39Figure 31: Presentation and Distribution of the Reporting Contents 39Figure 32: Further Training of the Staff 40



1. Executive SummaryExcellence in management reporting is a major factor in achieving sustained, successful corpo-rate management. It raises the quality of business decisions by providing all relevant data for decision-making and by describing the effects of these decisions, both financial and non-financial. Management reporting must not be taken lightly, since it is an important channel for the internal communication of goals and responsibilities, as well as a driver for the successful implementation of strategies. Moreover, management reporting supports external communications by providing leading indicators based on value drivers, satisfying the increased demand for information from analysts, lenders and similar groups. In actual practice, however, very few management reporting systems support these functions adequately.

In view of these circumstances, this study was undertaken to identify critical success factors through a structured analysis of the fields of activity in management reporting. The results are used as a basis for recommendations how to design the system, taking into consideration three categories: Concept, Processes/IT, and Personnel/Organization.

A total of ten critical success factors was identified in each of these categories. Their significance is considered to be very high or high by the overwhelming majority of people surveyed. This has made it possible to identify the crucial success factors in management reporting. They are as follows:

Excellence Criteria in the Category ConceptRelevance•

Stringency•

Consistency•

Excellence Criteria in the Category Processes/IT SupportData quality•

Transparency and reproducibility•

Efficiency•

Up-to-dateness•

Excellence Criteria in the Category of Personnel/OrganizationPersonnel efficiency•

Organizational efficiency•

Stability•



Furthermore, individual satisfaction with the specific weighting of these criteria was defined and the current situation with respect to management reporting was analyzed in further detail during discussions with respondents. The most important problem areas in management reporting were derived from this analysis and recommendations for a new design were submitted:

Design Recommendations in the Category ConceptDefine reporting contents based on value driver logic•

Introduce coordinated mechanisms for the evaluation of information requirements•

Implement reporting pyramids•

Reduce complexity of management reporting by restricting it to essential elements •

Design Recommendations in the Category Processes/IT SupportDesign a consistent system architecture•

Reduce manual interfaces•

Designate people responsible for the process•

Define a standard report layout and guidelines for a user-oriented presentation of report • contents

Expand the understanding of the controller’s role as a way of substantiating comments•

Implement reporting tools•

Design Recommendations in the Category of Personnel/OrganizationDefine roles and areas of responsibility clearly•

Develop a concept for the role of the management reporting team as in-house consultants•

Conduct HR development measures to improve analytical and communication skills•

Implementing these design recommendations leads to quality improvements in both business analysis and corporate decision-making, as well as to an increase in efficiency in generating the management reports themselves. As a result, management reporting can contribute substantially to the overall success of corporate management.

This study was conducted as a cooperative project between Detecon (Switzerland) AG and the Institute for Accounting, Controlling, and Auditing at the University of St. Gallen.



2. Background and Procedure

2.1 Management Reporting as a Success Factor of Effective Corporate Management

Management reporting is decisive for the quality of corporate decisions and for effective internal and external communication. It represents a major factor for sustained, successful corporate management.

In this sense, the term “management reporting” is understood to mean a standardized internal reporting to the top-level management of a company on a regular basis. The primary task of ma-nagement reporting is to provide information critical for the company’s success, but it also serves as an aid in the decision-making process and in controlling. Moreover, a well-designed manage-ment reporting system can offer support for external communications, making it easier to satisfy the increased information needs of stakeholders such as analysts, lenders, etc.

If management reporting is to perform these functions properly, there must be general assurance that the major drivers for corporate success are included in it. The information critical for success must reach the appropriate recipients in secured quality, logically structured, and as timely as possible. The realization of these general requirements within the framework of financial manage-ment confronts the responsible people with the following challenges in daily practice:

Keeping pace with concept requirements. Owing to the accelerating dynamics of the market • and to changes in the company, report contents must be adapted in shorter and shorter cycles.

Maintenance and expansion of functional capabilities of the reporting system. At the same • time, money, time, and human resources are scarce and must not be overstretched.

Reduce complexity. This is a consequence of the rising number of reports as well as of • their increase in scope. This reduction is also a prerequisite for creating the required transparency with respect to costs and actual utilization of resources for management reporting.

Timely provision of report contents appropriate for specific recipients.•

High quality standards. For example, it is important to avoid inconsistent report contents so • that “working with the figures” is facilitated rather than “arguing about the figures”.

Striking a balance among conflicting targets. The requirements of up-to-dateness and quality, • for example, must be coordinated with each other.

Active knowledge management. The functional capabilities of management reporting • systems must be secured independently of the expertise of individual employees.



In many cases, these problems are not considered from a holistic perspective, and relevant target systems and possible leverage points for optimizing management reporting systems will not be identified. This lack of awareness is aggravated when there is no feedback from the report recipients concerning contents, presentation, report dates, etc., so that the originators may implicitly conclude that everyone is statisfied with the current status. There is also a lack of critical distance which is necessary to determine realistically where the management reporting system stands. Consequently, the goals for management reporting are formulated inadequately, and exi-sting leverage points for optimization remain unused. Furthermore, this means that the topic of management reporting is not always at the top of the agenda with the people responsible, even though most of the challenges mentioned above affect them as well. Seeing the need to develop an adequate goal system for management reporting and to analyze the possible leverage points, Detecon (Switzerland) AG and the Institute for Accounting, Controlling, and Auditing at the University of St. Gallen decided to conduct a joint empirical study on the topic of management reporting.

The so-called “excellence criteria” were used to define a goal system which was validated by an extensive, personal survey of more than 60 decision-makers from the financial and controlling departments (CFOs, Heads of Controlling) at leading companies in Switzerland, Germany, and Austria. Criteria for the three areas of Concept, Processes/IT and Personnel/Organization were defined. They will be presented in detail in the third part of the study, and the results of the survey with respect to significance and satisfaction of these criteria will be discussed. Moreover, the significant problem areas of management reporting were analyzed structurally within the framework of the interviews. An evaluation of this analysis is presented in the fourth section, and recommen dations for action are derived from the results. Supplementary appendices and case studies provide additional value for readers by expanding on certain aspects and offering thought-provoking ideas.

2.2 Methodology and Study Demographics

The target group of this study were CFOs and Finance Executives (e.g. CFO, Head of Finance & Controlling etc.) in leading large corporations in Switzerland, Germany, and Austria. A total of 64 personal interviews were conducted in the spring and summer of 2008. The interviews were structured on the basis of a questionnaire containing both quantitative and qualitative questions. Excellence criteria were subdivided into the areas of Concept, Processes/IT Support, and Perso-nnel/Organization as mentioned above. The significance of these criteria for excellent manage-ment reporting was validated with the respondents and their satisfaction with each criterion was determined. In addition, concrete fields of action were discussed in relation to questions about the status quo of management reporting, and design recommendations were drawn up.

Just under half of the interviews (29) were conducted with Swiss companies. The remaining inter-views were divided almost equally between Germany (17) and Austria (18).



The majority of study participants (67%) hold the position of Head of Controlling. This means that most of the people surveyed bear responsibility for management reporting. In addition, these people are in a position to influence the design of management reporting in their companies. 75% of the respondents held positions which entailed corporate-wide responsibility in this area. Furthermore, a good mixture of industries among the participating companies was secured (cf. Chapter 8: Participating Companies).

Figure 1: Number of participating companies by origin

Figure 2: Study participants by position and area of responsibility

Origin of the participating companies

1718

29

Switzerland Austria Germany

Number of companies: 64

75%75%

For what area(s) are you responsible?

Study participants by area of responsibility

What position do you hold in your company?

Study participants by position

Number of companies: 64Respondents: 72

Number of companies: 64Respondents: 72

11%

67%Head of Controlling

14%

ChiefFinancial

Officer

8%

Head of Management

Reporting Other

Entire company

11%Company unit

14%

Country/Countries/Region(s)



3. The Major Features of Excellent Management Reporting

Major objectives of the study are to identify, validate, and prioritize major criteria which characterize high-quality management reporting (so-called “excellence criteria”). The criteria describe the standards expected of excellent management reporting as observed in practice, so they can serve as target dimensions for the design of management reporting systems and for an individual assessment of a current situation. Based on consultants’ experience at Detecon (Switzerland) AG and on the practice-oriented teaching at the University of St. Gallen, ten criteria in the categories of Concept, Processes/IT, and Personnel/Organization were pre-defined and validated in the course of the interviews. These criteria represent generally appli-cable attributes of management reporting (see Figure 3). Additional criteria were discussed and identified which, in the opinion of the respondents, were as characteristic of excellent manage-ment reporting as the proposed criteria. These attributes are specific to the companies, e.g., they included the competitive environment, industry, or corporate culture.

Figure 3: Overview of Excellence Criteria

Related to technical aspects of the process for the creation of the management reporting and its technical support by IT

� Data quality

� Transparency and reproducibility

� Efficiency

� Up-to-dateness

Generally Applicable Excellence Criteria Processes/IT

Related to the content design of the management reporting

� Relevance

� Stringency

� Consistency

Generally Applicable Excellence Criteria Concept

Related to the organizational structure and the employees who are the basis for the management reporting

� Personnel efficiency

� Organizational efficiency

� Stability

Generally Applicable Excellence Criteria Personnel/Organization

Excellence Criteria

Specific CriteriaSpecific Criteria Specific Criteria

3.1 Major Properties of Management Reporting in the Category of Concept

The major properties in terms of concept are related to the content design of a reporting system. A distinction is made in this category between relevance, stringency, and consistency. These criteria describe guidelines for report contents which ensure that the right performance indicators are reported. Following these guidelines makes it possible to prevent conceptual problems such as the perception of reports as “graveyards for figures”.



3.1.1 The Excellence Criterion of “Relevance”

This criterion refers to the significance of individual performance indicators in terms of the support they provide to decision-making and controlling. In other words, the appropriate performance indicators are used for corporate management and for controlling the achievement of goals. This aims to raise the level of rationality in the decision-making processes and to offer an objective basis for assessing success.

Appendix 1: The Fundamental Functions of Management Accounting: Decision vs. Responsibility Accounting

The term of “managerial accounting” used in the Anglo-Saxon world is essentially the same as the concept of internal accounting from German-language literature concerning controlling. A distinction is made between two fundamental functions within managerial accounting: “decision accounting” and “responsibility accounting”.

The goal of decision accounting is to support the decision-making process by providing the relevant performance indicators and analyzing the potential effects of a decision on the company’s success. In each case it will depend on the assumptions underlying the decision-making situation which performance indicators are required.

In contrast, the primary goal of responsibility accounting is delegating and controlling of responsi-bilities. So-called “responsibility centers” (cost, revenue, profit, or investment centers) serve as a reference framework. Responsibilities are generally delegated by means of plans (budgets) which are checked at regular intervals to ensure compliance with them. As a rule the performance evaluation of responsible people is directly influenced by the extent to which they have achieved their goals. A prerequisite for the functioning of responsibility accounting systems is “controllability”, i.e., the extent to which assessment values can be influenced by the responsible person in each case.

In actual practice, management reporting has both functions in many companies. It is frequently designed as a tool to support decision-making as well as to measure success. However, this dual nature can lead to conceptual difficulties being overlooked because not all of the performance indicators relevant for the decision can be controlled by the responsible people and not all of the performance indicators which can be controlled are relevant for the decision.

Source: Cf. A. Bhimani, C. T. Horngren, S. M. Datar, G. Foster, 2008, p. 488



The continuous review of performance indicators in the reports with respect to “relevance” is one of the key tasks within the framework of financial management, as an example from the insurance business shows.

Appendix 2: The Significance of the Criteria “Relevance” and “Stringency” using the Perfor-mance Indicator “Combined Ratio” as an Example in the Insurance Business

In addition to their operational business, insurance companies play a role on financial markets because they invest revenues from premiums in various investment classes, usually over a longer period of time. During the late 1990s, the companies realized extraordinary returns on the stock markets. The income from this investment business was used to compensate or to overcompensate combined ratios from the operational insurance business. The poor performance in the operational insurance business as expressed by the performance indicator “combined ratio” was largely ignored. Consequently, this performance indicator was not regarded as relevant for the management of the business. But combined ratios of more than 100% could be accepted only as long as the losses for the core business could be compensated by the comparatively high yields from investments. This combination of neglecting the core business and concentrating on the investment business led to an extremely disadvantageous risk position. The corrections on the stock markets after the implosion of the dotcom bubble, the terror attacks of 9/11, and natural disasters made this position glaringly evident and plunged the industry into a crisis. The key importance, i.e., relevance, of the performance indicator “combined ratio” for the insurance industry was not acknowledged until this shakeup occurred.

Figure 4: Combined Ratios of Swiss Insurance Companies from 2000 to 2007

Combined Ratios of Swiss Insurance Companies from 2000 to 2007

Source: Detecon, own research

95,194,0

100,8102,0

104,6

110,9110,9

104,5

95,6

100,0

97,5

103,2

111,5107,4

106,5

94,593,994,0

99,2

98,499,9

101,4104,2

9092949698

100102104106108110112114116118

2000 2001 2002 2003 2004 2005 2006 2007

94,1

Swiss Insurance Company ASwiss Insurance Company BSwiss Insurance Company C

%

Source: Own research



The necessity of balanced reporting is also reflected in the criterion of “relevance”. Financial per-formance indicators do not suffice for a comprehensive assessment of a company’s position and for the support of decision-making processes because they frequently only describe the past and take into account only one goal dimension of the company. Integrating leading and non-financial performance indicators is essential for a greater emphasis on relevance in management repor-ting.

“Relevance” was given a “very high” (54 respondents) or “high” (10 respondents) significance rating by all respondents. With respect to satisfaction as far as “relevance” is concerned, the dissatisfaction with the non-financial performance indicators as well as with the external perfor-mance indicators turned out to be relatively high while there was high satisfaction with the finan-cial performance indicators.

It must be noted here that many of the respondents see the focus of their work in the reporting of financial performance indicators. They often express the opinion that the non-financial and external performance indicators play only a subordinate role for top-level management. It is only in very few companies that non-financial and external indicators are integrated into manage-ment reporting consistently and all the way through to the very top managers. All the profound discussions about Balanced Scorecards appear to have had little effect on this point in practice. If reports include information about non-financial and external factors, they come from the depart-ments themselves. This one-sided focus on the reporting of financial performance indicators is contrary to the controller’s self-image as an in-house consultant to the business departments as described by the International Group of Controlling (IGC).

Figure 5: Excellence Criterion Relevance: Importance and Satisfaction

How satisfied are you with your performance indicators with respect to their relevance?

Satisfaction

How high do you assess the general significance of “relevance” for the performance indicators in your management reporting?

Importance

54

10

00

Very low Low High Very high

Not satisfiedNot satisfiedLess satisfiedLess satisfiedSatisfiedSatisfiedVery satisfiedVery satisfied

10%

10%

3%11%44%

27%External

Financial

33%

Non-financial

30%

42%

27% 34% 29%

Usable responses: 64 Usable responses: 64

Satisfaction with the criterionSatisfaction with the criterionSignificance of the criterion

Num

ber o

f res

pons

es



Moreover, the focus on financial performance indicators also gives rise to questions about the implementation of strategies. After all, performance indicators draw attention to the parameters on which they are based. If top managers give little consideration to non-financial, leading per-formance indicators, there is a risk that the lower ranks will not pay the necessary attention to these leverage points either, even though they are necessary for a sustainable development of the company.

Appendix 3: The Controller Model of the IGC

Controllers design and accompany the management process of defining goals, planning, and controlling and thus have a joint responsibility with the management to reach objectives.

This means:Controllers ensure the transparency of business results, finance, processes, and strategy and thus •

contribute to higher economic effectiveness.

Controllers co-ordinate sub-targets and the related plans in a holistic way and organize a repor- • ting system which is future-oriented and covers the enterprise as a whole.

Controllers moderate and design the controlling process of defining goals, planning, and mana- • gement control so that every decision-maker can act in accordance with agreed objectives.

Controllers provide managers with all relevant controlling information. •

Controllers develop and maintain controlling systems.•

Source: http://www.igc-controlling.org/DE/_leitbild.php



What gets rewarded really counts

What gets measured,gets done

StrategyWhat counts,gets measured

What gets done,gets rewarded

What gets rewarded really counts

What gets measured,gets done

StrategyWhat counts,gets measured

What gets done,gets rewarded

Effects of Performance Indicator Systems on Conduct

Source: Robert N. Anthony, Vijay Govindarajan, 2003, p. 494

Appendix 4: Effects of Performance Indicator Systems on Conduct

Managing a value driver is not possible unless the influence that employees have on it is made visible to them and they receive feedback about their performance. But this in turn requires making the value driver measurable (“What counts gets measured”).

However, simply defining a performance indicator is not adequate because a mere calculation does not trigger any changes. The employees must also realize the measures appropriate for achieving their goals. The employees’ motivation to achieve goals can be further increased by rewards. Ultimately, the performance indicators must be integrated into the employees’ reward system (“What gets rewarded really counts”). The consequence is that the things that employees primarily do are also rewarded (“What gets done gets rewarded”).

Thus the employees know where they stand and what is expected from them. This necessary operationalization of target values leads to a better understanding of their causes and the degree to which they can be influenced. “If you can’t measure it, you can’t manage it.” (Kaplan, Norton 1997, p. 20). But the opposite is also true: if certain aspects are not measured, they appear to be unimportant to employees (if something is not important enough to be measured, it is not important enough to get done) and will not be done (“What gets measured gets done”).

3.1.2 The Excellence Criterion of “Stringency”

The excellence criterion of “stringency” describes the conformity between collected performance indicators and corporate strategy. It is mandatory that report contents be based on the strategy. Yet it must also be noted that different business models require different report contents or focal points in the reporting. Effectively communicating, anchoring, and thus implementing the strategy in the company are only possible if report contents are strictly in accordance with it.

Figure 6: Effects of Performance Indicator Systems on Conduct



The significance of this criterion is clearly illustrated by the following quote from Robert Kaplan, thought leader in management and controlling theory: “The strategy itself is not really so impor-tant, that is, whether a company is positioned as a low-cost provider or an innovation leader in its industry; nor is it essential that a company succeeds in finding impressive wording to describe its strategy. The decisive point is whether companies find the ways and means to realize strate-gies consistently and measurably. This is what is missing time and time again.” (Interview with R. Kaplan; Handelsblatt of 09/02/20007, source: http://www.handelsblatt.com/unternehmen/stra-tegie/viele-kennen-die-strategie-nicht-mal;1217796)

The assessment of “stringency” with respect to significance and satisfaction revealed a picture similar to that of “relevance” for the respondents. Once again, the significance of the criterion was ranked by everyone as “high” or “very high”, and the greatest shortcoming with regard to satisf-action was expressed for the non-financial and external performance indicators. Consequently, there is a deficit in the translation of the strategy into non-financial performance indicators and their reflection in management reporting.

3.1.3 The Excellence Criterion of “Consistency”

This criterion describes the comparability of performance indicators over the course of time and in aggregate form without any contradictions. Performance indicators which are reported for the entire enterprise must be generated on the basis of standardized definitions and aggregation rules. Meaningful comparisons can only be made if the data which are to be compared have been determined according to the same logic over the course of time. This is essential for the decision-making process when it is a question of weighing possible alternatives for action on the basis of reported performance indicators. In addition, consistency is a prerequisite for being able to eva-luate performance in varying dimensions (company units, products, markets, customers, etc.) so that any needs for action can be identified and measures can be prioritized.

Figure 7: Excellence Criterion Stringency: Importance and Satisfaction

How satisfied are you with your performance indicators with respect to their stringency?

Satisfaction

How high do you assess the general significance of “stringency” for the performance indicators of your management reporting?

Importance

47

13

40



5%16%34%45%Financial

6%20%43%31%Non-financial

3%34%32%32%External


Significance of the criterionSignificance of the criterionSignificance of the criterion

Num

ber o

f res

pons

es



It turns out in practice that harmonizing internal and external reporting represents a major driver for maintaining consistency. So progress in harmonization is already far advanced in the majority of companies surveyed. There are isolated cases in which separate reporting chains are pursu-ed – in these cases precise transfer rules are used to secure their consistency. There is a risk here that performance indicators will be doubted rather than accepted, or ignored. There will be “arguing about the figures” rather than “working with the figures”. This is a development which controlling must prevent, not least in its own interest.

“Consistency” was given “high” importance throughout and most respondents were satisfied with it.

Figure 8: Excellence Criterion Consistency: Importance and Satisfaction

When interpreting satisfaction, one must keep in mind that creating consistency in reporting is one of the fundamental tasks of controlling, so it is the object of intense scrutiny.

How satisfied are you with your performance indicators with respect to their consistency?

Satisfaction

How high do you assess the general significance of “consistency” for the performance indicators of your management reporting?

Importance

44

18

10

Very highVery low Low High

Not satisfiedLess satisfiedSatisfiedVery satisfied Not satisfiedNot satisfiedLess satisfiedLess satisfiedSatisfiedSatisfiedVery satisfiedVery satisfied

2%10%44%45%Financial

2%10%31%57%Non-financial

3%10%31%55%External


Num

ber o

f res

pons

es

Significance of the criterion

Num

ber o

f res

pons

es

Significance of the criterion Satisfaction with the criterionSatisfaction with the criterion



Moreover it was “Simplicity and Understandability” which were mentioned most frequently as Concept Criteria. This reveals a desire for quantitative limitations and for a reduction of the degree of abstraction in report contents.

3.1.4 Ranking and other Excellence Criteria

“Relevance” was mentioned most frequently as the most important criterion while “stringency” and “consistency” were mentioned almost equally as the second-most important criterion.

Figure 10: Other and Specific Excellence Criteria in the Dimension Concept

In your opinion, what other excellence criteria in the area of concept are decisive for excellent management reporting?

Other and Specific Excellence Criteria

11

22

3

9

Harmonization of the accounting

Inclusion of the outside perspective, balanced performance indicators

OtherSimple, understandable performance indicators

Customer/Recipient orientation

Number of responses: 27

Num

ber o

f res

pons

es

Figure 9: Ranking According to Importance of each Excellence Criterion of the Dimension Concept

8

12

32

0

5

10

15

20

25

30

35

2219

9

0

5

10

15

20

25

30

35

2019

12

0

5

10

15

20

25

30

35

Can you rank the previous criteria according to their significance?

Ranking According to Importance of Each Excellence Criterion of the Dimension Concept

Number of companies: 64 No ranking possible = 6 Usable responses: 57

Relevance

Most importantMost important Second-most importantSecond-most important Third-most importantThird-most importantLegend:

Stringency Consistency



3.2 The Major Properties of Management Reporting in the Category of Processes/IT Support

The criteria described below are related to technical aspects of the process of creating manage-ment reports and to its technical support by IT. The range of the process starts with capturing data from pre-systems (e.g., billing systems) and extends to the providing and presenting report contents offline (e.g., print-outs of the report) or online using IT-supported applications (e.g., Web portal, management cockpit). In the IT/process perspective, a distinction is made between data quality, transparency/reproducibility, efficiency, and up-to-dateness as excellence criteria. Excel-lent management reporting is characterized by being generated efficiently and by high quality standards for data correctness and up-to-dateness. Moreover, the process should be designed to be transparent so that it is also understandable for third parties. This ensures an optimal utilization of available resources.

3.2.1 The Excellence Criterion of “Data Quality”

”Data Quality” as used in this context refers to the standardized definition and error-free collection and further processing of performance indicators. Data quality is a decisive factor when the aim is to provide meaningful management information and is a prerequisite for the acceptance of the calculated parameters. The following example from NASA impressively demonstrates the drastic consequences that can result from poor data quality.

Appendix 6: Effects of Poor Data Quality as shown by the Example of the Loss of the Space Probe “Climate Orbiter” by NASA

The topic of data quality is of key importance because erroneous, incomplete, or false data can result in enormous financial losses. The crash of NASA’s Climate Orbiter illustrates the losses which can be caused by the defective processing of data. NASA launched a rocket on its way to Mars on 11 December 1998. It was carrying the Climate Orbiter, a satellite which was supposed to orbit the “Red Planet” and study the Martian atmosphere. The launch went smoothly, but on 23 September Climate Orbiter fell apart or vaporized in the Martian atmosphere. A fatal error in the conversion of flight data from American measurements to the metric system led to the incorrect programming of the satellite and to its crash. Some of the data required to calculate the orbit used in the American measurement unit “pounds of force” instead of in the metric unit “Newton”, indicating that the crash was the result of human error and not of a technical breakdown. The space experiment with a price tag of $125 million was a total failure.

Source: http://www.handelsblatt.com/technologie/produkte-trends/die-pflege-von-firmendaten-verhindert-teureflops;872152



The high significance “Data Quality” was confirmed by the results of this study as expected. Ten of the surveyed companies reported that the data material on which their management reporting was based was not of satisfactory quality. The two most common causes:

Decentralized data entry and data storage due to heterogeneous and non-integrated system • landscapes

Incorrect data entry - unintentional or possibly even intentional•

But in addition to the possible adverse effects on the validity of performance indicators, poor data quality is a high risk with respect to compliance. If they do not have security and control measures such as an authorization system to limit data manipulation, companies are at risk in this respect.

3.2.2 The Excellence Criterion of “Transparency and Reproducibility”

This criterion describes the possibility to analyze and reproduce data with respect to their origins by means of systematic and technical backups. The aim here is to be able to reproduce where the data in a report come from and what transformations have been carried out. Transparency and reproducibility imply a robust reporting process which ensures that the same data transformations always lead to the same results.

The criterion of “Transparency and Reproducibility” also proves to be highly significant. Only one company evaluated transparency and reproducibility of performance indicators as minor.

Figure 11: Excellence Criterion of Data Quality: Importance and Satisfaction

How satisfied are you with the processes for generation of the management reporting with regard to the criterion “data quality"?

Satisfaction

How high do you assess the general significance of “data quality” for the performance indicators of your management reporting?

Importance

56

620


8%8%48%37%Data quality


Num

ber o

f res

pons

es


Num

ber o

f res

pons

es

Significance of the criterion Satisfaction with the criterionSatisfaction with the criterion




Figure 12: Excellence Criterion of Transparency and Reproducibility: Importance and Satisfaction

3.2.3 The Excellence Criterion of “Efficiency”

“Efficiency” is understood as a reasonable cost-benefit ratio in terms of the utilization of labor and technology.

This criterion played more of a subordinate role for some of the surveyed companies. Especially reports to the very top level of management frequently emphasize the idea of service, leading in extreme cases to a mentality of “no matter what it costs” in the area of management reporting. This is reinforced by the common situation that there is a lack of transparency concerning the true costs and the actual utilization of resources for management reporting.

Figure 13: Excellence Criterion of Efficiency: Importance and Satisfaction

How satisfied are you with your management reportingprocesses with regard to „efficiency“?

Satisfaction

How high do you assess the general significance of “efficiency” for the performance indicators of your management reporting?

Importance

23

31

8

2


5%8%

39%48%Efficiency

Usable responses: 64

Num

ber o

f res

pons

es



Satisfaction with the criterionSatisfaction with the criterion


How satisfied are you with the processes for generation of the management reporting with regard to the criterion “transparency and reproducibility"?

Satisfaction

How high do you assess the general significance of “transparency and reproducibility” for the performance indicators of your management reporting?

Importance

41

21

01


8%39%48%Transparency/

Reproducibility5%


Num

ber o

f res

pons

es

Significance of the criterionSignificance of the criterion Satisfaction with the criterionSatisfaction with the criterion




3.2.4 The Excellence Criterion of “Up-to-Dateness”

“Up-to-dateness” is measured by the time difference between the end of an accounting period and the availability of the core management figures.

The study results show that efforts to achieve up-to-dateness vary greatly among the different industries. For example, a high level of tangible assets means that the decision-making period is relatively long, so that the criterion of up-to-dateness tends to have less weight for companies in these industries. Moreover, it must be noted that, as a rule, an improvement in up-to-dateness in-volves an increase in manual work, substantial investments in IT, and/or a lowering of data quality. So some of the initiatives in this direction must be regarded with a critical eye when considered from a rational viewpoint. The view of Jürgen Weber that the fastest possible preparation of the report is mandatory in every case to gain the acceptance and satisfaction of the managers is not shared in this aspect. (cf. T. Lührmann, J. Weber, R. Malz, 2008, p. 48)


The criterion of “Data Quality” was mentioned far more often than any others as the most impor-tant criterion. There were contrary opinions with respect to importance - these were reflected in the evaluation for the excellence criterion of “Efficiency”.

Figure 14: Excellence Criterion of Efficiency: Up-to-dateness

How satisfied are you with the management reporting processes with regard to „up-to-dateness“?

Satisfaction

How high do you assess the general significance of “up-to-dateness” for the performance indicators of your management reporting?

Importance

35

21

7

0


5%43% 15%Up-to-dateness 37%

Num

ber o

f res

pons

es

Significance of the criterionSignificance of the criterion Satisfaction with the criterionSatisfaction with the criterion





From the IT and process perspective, the most frequently mentioned additional criteria were “Fle-xibility” and “High Level of Automation”. High systems flexibility is necessary so that the reporting can be adapted to changes in the market and in corporate conditions. A basic prerequisite it is the standardization of processes and data, but in practice there is frequently a lack of diligence in this area. “High level of automation” was also often mentioned as an additional excellence criterion. But a high level of automation is not the goal per se; it is merely the means to an end, the achie-vement of data quality, up-to-dateness, and efficiency. “Process Orientation” was also mentioned as another excellence criterion and a major success factor for the achievement of quality, trans-parency, up-to-dateness, and efficiency targets.

Figure 15: Ranking According to Importance of Each Excellence Criterion regarding Processes/IT Support


Ranking According to Importance of Each Excellence Criterion of regarding Processes/IT Support


41

8

45

0

5

10

15

20

25

30

35

40

45

8

19

28

20

5

10

15

20

25

30

35

40

45

2824

41

0

5

10

15

20

25

30

35

40

45

Data quality Transparency and reproducibility Efficiency Up-to-dateness

1613

17

10

0

5

10

15

20

25

30

35

40

45

Most important Second-most important Third-most importantLegend: The fourth most importantMost importantMost important Second-most importantSecond-most important Third-most importantThird-most importantLegend: The fourth most importantThe fourth most important

Figure 16: Other and Specific Excellence Criteria in the Dimension Processes/IT

In your opinion, what other excellence criteria in the area of processes and IT support are decisive for excellent management reporting?


11

2

33

Other (each mentioned only once)

Flexibility High level of automation Presentation


Num

ber o

f res

pons

es



3.3 The Major Properties of Management Reporting in the Category Personnel and Organization

If management reporting is to be assessed from a holistic perspective, the structural organization and the employees must be considered as well as conceptual aspects and those of process and IT. We distinguish between personnel and organizational efficiency as well as stability as excel-lence criteria. It is just as true for management reporting as for anything else that employees are the most important resource. If they are to utilize their skills fully, it is decisive that, first of all, their skills are rigorously developed further and that, second, they are not hindered in the performance of their duties by the structural organization. Management reporting depends on effective team-work; this requires a team which is functioning together smoothly, and this is in turn possible only if a certain degree of consistency is maintained on the team.

3.3.1 The Excellence Criterion of “Personnel Efficiency”

“Personnel Efficiency” signifies the qualitative factor related to staff members on the reporting team, not the quantitative one. This includes, among other considerations, knowledge potential with respect to requirement profiles, motivation, and personal levels of performance (work speed and quality). The significance of this criterion was rated as very high by all of the respondents. Satisfaction was also assessed as very high. Despite a high level of Personnel efficiency, most of the respondents definitely see further potential for development, especially in the areas of analy-tical and communication skills.

Figure 17: Excellence Criterion of Personnel Efficiency: Importance and Satisfaction

How satisfied are you with regard to the management reporting team regarding “personnel efficiency"?

Satisfaction

How high do you assess the general significance of “personnel efficiency” for the performance indicators of your management reporting?

Importance

49

13

10


10%52%Personnel efficiency 38%



Num

ber o

f res

pons

es





3.3.2 The Excellence Criterion of “Organizational Efficiency”

“Organizational efficiency” is understood in this context as a meaningful design of the structural organization and as a clear definition and communication of roles and responsibilities. Most re-spondents attributed high to very high importance to this criterion. About 12% of the companies showed that they were dissatisfied with it.

3.3.3 The Excellence Criterion of “Stability”

Stability is understood in this context to include both organizational consistency and low staff tur-nover rates within the reporting team. A continuous knowledge transfer both inside the team and to newcomers is also a factor here. There is quite a controversial discussion about this criterion with respect to its significance. About 14 companies attributed slight or very slight significance to this criterion. In most cases, natural turnover was given as the reason behind this assessment. In some cases, the centralized Controlling function was regarded as a stepping stone for a later advancement into a senior management function. These companies specifically accept a certain amount of turnover as a way of promoting both development of their employees and of their net-working. The respondents who attributed high significance to this criterion emphasized the risk of knowledge losses. Other companies even went so far as to say that a “certain amount of unrest” was highly desirable because it could trigger change processes.

Figure 18: Excellence Criterion Organizational Efficiency: Importance and Satisfaction

How satisfied are you with the organizational model of your reporting with respect to „organizational efficiency"?

Satisfaction

How high do you assess the general significance of “organizational efficiency” for the performance indicators of your management reporting?

Importance

2828

61


10%2%

45%44%Organizational efficiency


Significance of the criterionSignificance of the criterion

Num

ber o

f res

pons

es






Personnel efficiency tends to be weighted higher than organizational efficiency. As mentioned above, there was a broad range of assessments with respect to the criterion of “Stability”.

Figure 20: Ranking According to Importance of Each Excellence Criterion Related to Personnel and Organization


Ranking According to Importance of Each Excellence Criterion in the Dimension of Personnel/Organization


Personnel efficiency

3

1816

0

5

10

15

20

25

30

35 33

17

7

0

5

10

15

20

25

30

35

2122

14

0

5

10

15

20

25

30

35

Organizational efficiency Stability

Most important Second-most important Third-most importantLegend: Most importantMost important Second-most importantSecond-most important Third-most importantThird-most importantLegend:

Figure 19: Excellence Criterion of Stability: Importance and Satisfaction

How satisfied are you with the organization of your reporting with respect to „stability“?

Satisfaction

How high do you assess the general significance of “stability” for the performance indicators of your management reporting?

Importance

2424

12

2


49%Stability 33% 2%16%


Num

ber o

f res

pons

es

Satisfaction with the criterionSatisfaction with the criterionSignificance of the criterionSignificance of the criterion




Other excellence criteria most frequently mentioned were the “Professional Competence of the Employees” and “Communication Skills”. This clearly reflects the change in the understanding of a controller’s role as an in-house consultant, which has already been mentioned several times.

Figure 21: Other Excellence Criteria for Personnel/Organization

In your opinion, what other excellence criteria in the area of organization and personnel are decisive for excellent management reporting?


5

2

33

5

Other (each mentioned only once)

Efficient knowledge management

Professional competence of the employees

Communication skills Corporate culture


Num

ber o

f res

pons

es



The high proportion of companies for whom controlling was the main objective of management reporting gives rise to the question as to whether it is possible that the “right” performance indica-tors are not reported in these companies, so that there is no effective support for decision-making. Focusing strongly on financial performance indicators can be evidence for this, because financial performance indicators frequently model the past, and findings derived from them are as a rule not adequate for decisions concerning the future.

Figure 22: Objectives of Management Reporting

Objectives According to Head of Controlling/Group ControllingObjectives According to CFO

4

5

For support of decision making

For ex-post control

2123

For support of decision making

For ex-post control

Number of responses: 9 Number of responses: 44

Num

ber o

f res

pons

es

Num

ber o

f res

pons

es

4. Major Fields of Action and Design Recommenda- tions for Excellent Management ReportingAfter confirming the significance of the excellence criteria, a status quo of management reporting in actual practice is determined on the basis of the study results. Design recommendations are given for the fields of action which were identified.

4.1 Fields of Action and Design Recommendations with Respect to ConceptBased on the analysis of the excellence criteria of “Relevance”, “Stringency”, and “Consistency”, fields of action are identified and design recommendations are given in the following sections. Most of the respondents (52.4%) designated “Support for Decision Making” as the primary objec-tive of management reporting. However, a notable 42.8% of the respondents gave ex-post control as the primary objective of management reporting. In this question, respondents’ answers varied little between functions (CFO, Head of Controlling). Only 4.8% of respondents considered the primary objective of management reporting to be documenting the past course of business.



For this reason, the heavy emphasis on controlling can be interpreted to mean that in these com-panies there is a deficit in the relevance and stringency of the report contents. There is a need for action here, and processes should be initiated to increase the relevance and stringency of reported performance indicators. The steps described in the next appendix can be taken as an orientation aid.

Appendix 7: Procedure for the Derivation of stringent and relevant Performance Indicators

The inherent risk in managing a company solely on the basis of financial performance indicators is that emphasis will be placed on considerations aimed at short-term financial optimization, and investments in future potential will be neglected. If stringency with respect to strategy is to be achieved, it is necessary to start by establishing the strategic framework. The starting points for this are a company’s mission and vision. The mission statement describes the areas of activities, capabilities, and competencies. It indicates how a company intends to create value for its customers. In the Vision a future image of a company is designed on the basis of its plans. Positioning in the competitive environment is another major component.

Starting from this foundation, an answer must be found to the question as to how mission and vision are to be realized. This involves deriving so-called strategic goals or value drivers from mission and vision. Kaplan/Norton propose so-called strategy maps as an instrument for the implementing a strategy. They should visualize cause and effect relationships directly, illustrating the effect of the value drivers on corporate value and vision. At the beginning, the causal relationships are based mostly on logical assumptions, intuition, and management’s knowledge from experience; later, uncertain contexts can be examined by applying correlation analyses.

If value drivers are to be managed, they must be made measurable. First, one or two performance indicators for measuring goal achievements must be defined for each value driver. The measurement variables should be objective and in line with the goals, i.e., they can be calculated clearly and are not influenced by other factors. Possible sources include benchmarks, market research, or legacy data. The performance indicators are then allocated to target specifications and given a time reference. Finally, any remaining uncertainties are reviewed by using sensitivity and correlation analyses.

In the final step, a value driver analysis is required to make sure only the major performance indicators are taken into consideration and to prevent foundering in a sea of data. First, each goal must be reviewed as to its relevance to a company’s value. The achievement of the goal must offer a decisive competitive advantage, or failure to achieve it entail a risk of suffering a competitive disadvantage. Ultimately, value relevance indicates whether a goal is capable of increasing corporate value by a significant degree. Second, each goal must be assessed as to its relevance to corporate action. A goal has high action relevance if the company is below its planned goal achievement level and if the goal can also be influenced by the company.

This procedure ensures that all performance indicators are related to a company’s strategy, and will also have a significant effect on it .



In order to maintain the relevance of reported performance indicators over time and in order to ensure that the recipients’ information requirements are given due consideration in all manage-ment reporting, it is important to institutionalize specific coordinating processes. Thresholds or criteria must be defined which will trigger a review of current performance indicators, enabling a systematic determination of whether current report contents correspond to the requirements of individual business departments. This can be the result of a formal feedback process, e.g., within the scope of regular reporting reviews between the report originator and its recipients, or it can be done ad hoc. The decisive point is that the contents are given critical consideration on a regular basis. The surveys bring this necessity to light: Just under half of the surveyed companies have not set up a process of this kind.

Appendix 8: Determination of the Information Requirements: Subjective vs. Objective Information

Requirements

Management’s actual information requirements cannot be defined objectively or according to gener-ally applicable principles; they must be deducted on the basis of circumstantial evidence. The first indication is the so-called “objective information requirement”. This covers the information which a qualified manager needs in order to solve “well-structured” and “well-defined” tasks. Frequently, however, the problems with which management is confronted are new in nature and poorly struc-tured. In these cases, finding a solution involves a strong intuitive component which entails a higher demand for subjective information. Moreover, the following should be considered: “The demand for information as formulated by management is characterized by being highly subjective because the controlling preferences of management differ broadly (e.g., controlling with cost and profit perform-ance indicators or with performance indicators oriented to cash flow) and because not absolutely necessary information (so-called nice-to-have information) is also requested out of a sense of pres-tige or security.” The demand for subjective information is therefore the second indicator of actual information requirements.

Source: W. Gladen, 2005, p. 4 ; T. Joos-Sachse, 2001, pp. 287-28

In addition, it must be taken into account that information needs vary from one management level to another and that the aggregate level must be adapted accordingly. A so-called “Report Pyramid” is the best tool to achieve this. A hierarchy of this type has already been implemented at about two-thirds of the surveyed companies. Virtually all of the companies without a report pyramid intend to implement one. A report pyramid with the structure shown below has been im-plemented at Volkswagen AG.



Figure 23: Report Pyramid of Volkswagen AG

Report Pyramid

Plants, business units, people responsible for processes, products, and cost centers

Subgroups and Subsidiaries

VW Group

Major Recipients: Major Contents:

Supervisory and Management Boards

Management Board, Management

Plant Manager, Cost Center Director

Financial analysis: Deliveries to customers, sales, production, staff, turnover, results, returns, investments, financing, net cash flow, liquidity

As above, but additionally:Factory costs, productivity, reach duration, compliance with delivery agreements, marketing costs, purchasing services, etc.

Quality, presence:overtime, costs dependent on personnel, materials, and investments, costs per unit, capacity

Besides the low concrete benefits frequently determined, i.e., relevance and stringency of the reported performance indicators, their large number is also a wide-spread problem. New perfor-mance indicators are integrated or cascaded further, but existing performance indicators are very rarely actually eliminated as a result of a systematic review. So it was seen among the surveyed companies that in many cases they were seeking to implement new financial performance indi-cators, although their management reporting was already dominated by such figures. Moreover, the respondents mentioned most frequently the classical financial values such as profit (EBIT, EBITDA) and turnover as the most important performance indicators in management reporting.

Figure 24: Implementation of Performance Indicators

Yes, the following performance indicators:

Integration of New Performance Indicators

Are there any plans to integrate new performance indicators in your management reporting in the short or middle term (about 18 months)?

Integration of New Performance Indicators

Usable answers: 50

40%Internal non-financial

performance indicators

22%

External performance

indicators

38%

Internal financial performance indicators

69%

No

31%

Yes




Figure 25: Most important Performance Indicators

What are the three most important performance indicators in your management reporting, or which of these three indicators do you look at first when you are interested in how good business was in the previous reporting period?

The three most important Performance Indicators in Management Reporting

1218

44

Profit performance indicators (e.g., EBIT, EBITDA)

Sales Value-oriented performance indicators


Num

ber o

f res

pons

es

In practice, companies can counter this problem by implementing new performance indicators only if the same number of current performance indicators is eliminated. The criteria of stringency, relevance, and consistency described in the sections above can be selected as guidelines for this evaluation. A new performance indicator should be included in management reporting only if it satisfies these criteria better than the current one.



4.2 Fields of Action and Design Recommendations with Respect to Processes and IT Support

Companies allocate substantial resources to the preparation of their management reporting. The major cost factors in generating management reporting are IT and labor. Efficient utilization of resources means that the greater part of available funds goes into non-repetitive activities which offer added value beyond the simple provision of data. If Controlling or the Finance department acts as a “guardian of efficiency” in the company, the same standards must apply to its own work as to the rest of the organization.

All too often, however, we find a disparity between the resources used for generating the reports and the resources used for activities generating added value, such as analyzing performance indicators and drafting recommendations. Among the surveyed companies, a ratio of about 50:50 between repetitive and non-repetitive activities is revealed across the board. At first glance, this might seem acceptable – but quite a few of the surveyed companies are relatively far removed from the best practice ratio of 20:80. Nevertheless, at almost one-third of the surveyed companies less than 30% of total expenditures go to the simple generation of management reporting.

However, it must be taken into account that there was a certain amount of uncertainty among interview partners at “Group” or “Holding” level with regard to expenditures in individual units. It must be assumed that in particularly decentralized organizations a large part of the expenses for generating of management reports is often performed by subordinate units beforehand and therefore never becomes transparent at headquarters.

Figure 26: Total Expenditures Process Steps

What is the percentage breakdown of the total expenditures for reporting with respect to own report generation, analysis, evaluation, and comments?

Total Expenditures Process Steps

5

3

55

15

1

89

6

2

>89%<10% 10-19% 20-29% 30-39% 40-49% 50-59% 60-69% 70-79% 80-89%

Usable answers: 59

Num

ber o

f res

pons

es

Own share “report generation” in total expenditures of the reporting process in %



A solution to this problem is a consistent system architecture and a high level of automation of the systems and their interfaces. Moreover, designating people responsible for the processes is an effective means for countering this problem. A distinction must be made here between defining the responsibility for the correctness of the report contents and the responsibility for the actual pro cess, which is characterized, among other features, by the authority to intervene in decentra-lized units and in pre-systems. Process orientation was mentioned as an additional excellence criterion because it is vital for the excellence criteria of data quality, up-to-dateness, and cost transparency or efficiency.

Figure 27: Critical Interfaces

When you think about the process for the generation of the management report: Are there any critical interfaces or manual procedures which impair the process quality and the workflow?

Critical Interfaces and Procedures with Adverse Impact

42

11

36

13

41

9

None Critical system transfer points

(e.g., ERP-DWH)

Integration of new systems/

entities

Heterogeneous system

landscape

Manual procedures/human error

Susceptibility of the systems to

errors caused by technology

Interface between internal

and external reporting

NA


Num

ber o

f res

pons

es

Manual interfaces in the management reporting process are a frequent cause for excessive labor deployment; this in turn is frequently caused by the lack of links within the heterogeneous system landscape.



Appendix 10: “The Process Ownership Concept” Process orientation means the alignment of company procedures with the underlying processes. The emphasis is not on functions, but on the customers with their requirements and wishes. In a process-oriented structural organization, responsibilities for processes are defined as well as responsibilities for functions. The former are shown across functions, as in a matrix organization.

(Research and Development, Purchasing, Production – shown as boxes...)

Process-oriented View: Cross-function Processes

Traditional View: Functions

P

Production

D

Development

S

Sales

e.g., innovation process

e.g., order processing process

Management

P

Production

D

Development

S

Sales

e.g., innovation process

e.g., order processing process

Management

Figure 28: Basic Principle of Process Orientation

The process as a whole as well as each of its sub-processes are transferred to a so-called pro cess owner and his/her responsibility; this person holds the decision-making authority and resources (e.g., funding, staff) required for the fulfillment of his/her duties. The person in this position is the primary contact when weaknesses in the process require intervention in the system and with the parties involved.

As a rule, the process owner has the following duties and responsibilities: • Planning and implementation of the process, training of the process users • Complete and correct documentation of the process • Definition of the process limits with other process owners (demarcation of the process) • Managing all interfaces with neighboring process owners • Managing the staff responsible in the process and leadership the teams who design and develop the process • Assuring achievement of the process goal • Monitoring and auditing of the process using appropriate parameters (performance indicators) • Continuous process improvement (CIP, Six Sigma, etc.) • Planning and seeking approval for the budgets and resources required to perform duties

The primary advantage is a heightened orientation to the customers, whose requirements can be taken into account during the conduct of the entire process. “Customers” in this case includes in-house departments as well as external parties. All of this means that questions and coordination problems can be handled much more quickly and effectively by the process owner as the key contact, which also leads to a shortening of the process run times (as a consequence of fewer time delays and queries to the interfaces). When a process-oriented structural organization is in place, breaches and error sources in the process relevant to reporting can be corrected quickly and efficiently.

Sources: M. Hammer, J. Champy, 1994; A. Picot, E. Frank, 1995; A. Picot, H. Dietl, E. Frank, 2002



Appendix 11: Presentation of Report Contents The primary elements in presentations are tables, charts, and text elements. Charts and texts in particular should create added value going beyond the simple presentation of facts and figures. They should help recipients to grasp and interpret the contents quickly. The decisive point is that these fundamentals have been communicated in the company and are strictly applied.

A. General Recommendations:

1. When structuring a presentation, the “Pyramid Principle”® should be used. This is a well-proven system for a clear structure in any text or presentation. Statements and arguments are structured strictly hierarchically in the shape of a pyramid, with key messages and broader concepts on top, and all statements serving to support a core argument or key message grouped beneath it.

The decisive point here is that the full statement is found at every level, but in increasingly greater degrees of abstraction. There must be a clear separation between the overview level and the detailed information supporting it. Overviews and details must be clearly structured in the presentation. The advantage for the recipient of the message is that the key statement is clear right from the beginning of the text.

The subsequent information then provides the details which can immediately be understood within the framework of the overall context. The key statement of a text is at the beginning and represents the peak of a series of arguments which are supported by details (reasons, meas-ures, results, or benefits). Lists and structures should contain similar elements at every level, the elements should not overlap, and the structure should be exhaustive, i.e., a primary topic should be fully explained by the points following itt.

2. Compression of information. To avoid losing sight of the big picture, every consideration should focus on the question of what should be reported. In other words, strict standardization and re-duction to the essentials is of great importance. This requires compressed information. High in-formation density is decisive for a logical analysis.

3. Communicating the message. No matter what the form of the presentation, the first step is to define the statement being made and then to undertake its graphic conversion. The message must be visible from every object in the report, be that charts, tables, or diagrams. These objects do help to present a message clearly, but they must be carefully selected to achieve the desired effect.

Another problem area during the generation of management reporting is the presentation or pre-paration of the report contents. For example, it is frequently seen in practice that standardized re-port templates have been defined, but they are not used consistently. The need for action appears to have been recognized here – virtually all of the surveyed companies who do not have defined report templates stated that they wanted to implement such templates in the middle term.



4. The same contents should always be presented in the same way. Decorative and meaningless design elements should not appear in a report. A clear line in the layout makes any report easier to read. Forms must be defined and their arrangement should remain the same throughout the report. The same rule applies to shapes, patterns, borders, fonts, paragraphs, and similarly, to typical style elements: all elements with a similar appearance should carry the same meaning. 3-D charts should be avoided because they cause distortion and reduce the force of a statement.

5. Colors should be used sparingly and only if they have a clear purpose inindividual case (e.g., red and green only for negative/positive). Using colors for decorative purposes as well substantially reduces their effectiveness.

B. A few recommendations for Graphics Design

A graphic representation should be comprehensive, comparisons should be visible, causal connec-tions should be highlighted, and texts as well as captions should be integrated into the graphics. Different analytical approaches should be visualized by different types of graphics. Format and ap-pearance of all graphics must remain the same. Graphics are intended for viewing and should con-vey a specific message at a single glance. The wrong scaling can often cause graphics to be misun-derstood. Examples of such errors are cut-off axes and different scalings for the same factual contents.

C. A few recommendations for Designing Tables

As a rule, tables do not have a message except in cases in which a specific aspect is emphasized and commented on. The layout of each table should be structured uniformly and contain the appropriate headers. The header line should contain all of the important information such as category (e.g., turnover), reference values (e.g., country, department, or time period), or unit (e.g., euros).

D. A few recommendations for Texts

Texts related to the report objects should be used to provide explanations and recommendations, and should therefore not be repeated in the table or diagram itself. A glossary showing terms in long and short forms, abbreviations, definitions, and, if necessary, with translations, should be used and strictly followed in the composition of texts. Footnotes can be used for background information as needed to make contents more understandable. There should not be any ambiguity about the points to which comments refer. Insignificant points must be left out and information should not be repeated unnecessarily.

Source: http://www.hichert.com; J. Weber, S. Schaier, O. Strangfeld, 2005, pp. 24-26



The topic of comments was also identified during the interviews as a field requiring urgent action. The shortcomings here are related both to quantity and quality of the comments.

Figure 29: Comments

Which of the following statements related to the comments in your top management reports do you agree with most?

Comments

22

10

24

3

Number not satisfactory Quality not satisfactory Number and quality not satisfactory


Num

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f res

pons

es

Number and quality satisfactory

One frequent criticism is that the comments do nothing more than summarize the meaning of the performance indicators in words, without going into the cause and effect relationships. One common cause for this qualitative shortcoming is the lack of time, which results from the fact that the mere generation of performance indicators, including relevant measures for quality assu-rance, takes up most of the available time. As has already been described above, it is the level of automation and process responsibilities which are key to a more efficient design of the process. Moreover, improving the analytical and communication skills of employees by means of the ap-propriate HR development measures is decisive for the quality of the comments.

In addition, the number of comments is frequently unsatisfactory – either there are too many of them, or they are too comprehensive, or there are too few. If an appropriate quantity and quality of comments is to be secured, it is important that Controlling will work proactively with business departments and become involved during the later use of any performance indicators. This is the only way to achieve a close meshing between business departments and Controlling which will become evident in a better quality and a more appropriate quantity of the comments.



The study results also show that reporting tools such as “cockpits” tend to play rather a subordina-te role in the distribution of report contents. This is above all true for reports to top management, where, as a rule, printed reports are expressly requested for reasons of practicality.

Figure 30: Integration of the Controlling Department

Is the controlling department – besides giving comments – actively involved by the business department during the interpretation of the results/reports?

Integration of the Controlling Department

60%

Yes, regularly

26%

Yes, sometimes

14%

No

Figure 31: Presentation and Distribution of Reporting Contents

How are the reporting contents presented and distributed (e.g., Excel tables, dashboards, cockpit) ?

Presentation and Distribution of the Reporting Contents

13

3

11

18

19

Cockpit with analysis function

Sent as PDF

Sent as Excel

Sent as Word or PowerPoint

Excel with drill-down function

Delivered as hardcopy

Access via Intranet

Sent by e-mail

Usable answers: 63 (multiple answers possible)

Number of responses Number of responses

19

22

26



4.3 Fields of Action and Design Recommendations with Respect to Personnel and Organization

Where organization and staffing are concerned, it is striking that while many of the surveyed companies place a very high value on high labor efficiency (i.e., the qualitative factor with respect to staff), they nevertheless tend to place a lower priority on the stability of their staff and organiza-tional structures. While organizational inefficiency can to some degree be compensated by good staff, a high turnover rate may put a heavy burden on the functional capability of a controlling department and should therefore, in view of the people in charge, be avoided as far as possible. However, some of the respondents confirmed that a certain turnover cannot be avoided and is even desirable. The Controller’s position, especially at the corporate level, often provides ideal preparation for a management role in another area, and the internal networking effect it entails secures a certain proximity and bonding of this position with business departments and corporate units. But the prerequisite for this is that knowledge be externalized (documentation, manuals, etc.) and that turnover be handled pro-actively (well-ordered transfer, adequate orientation for new staff, etc.).

Another important aspect with respect to staffing and organization is a clear documentation and communication of rules and responsibilities (e.g., by means of the “RACI” methods). Process orientation with the appropriate responsibilities is to be recommended here. In particular, it should be clear who in the company is responsible for the databases (variable and master data) for all core management parameters and who is to clean up incorrect data according to what proce-dures. In most cases, these responsibilities will be documented in manuals. But the decisive point is that the rules are communicated and that compliance with the rules is monitored.

26

17

11

Conceptual topics Process and IT topics Improvement of analytical competence

In what topic areas do you think the management reporting team needs further training?

Further Training of the Staff

Number of companies: 63

Num

ber o

f res

pons

es


Figure 32: Further Training for Staff



Controlling must not neglect this task for various reasons, not the least of which is compliance. Furthermore, the study results indicate that rising demands on employees in the controlling func-tion have resulted in the need for a broader understanding of their roles and a corresponding improvement of their skills in the areas of analysis and communication. This shows that analytical and communication skills are turning more and more into core competencies of the controlling function and that expectations in this area can only be met over the mid- term by making neces-sary investments.

5. Final Thoughts and OutlookThese study results represent a holistic, structured overview on the topic of management repor-ting. They show the criteria in the categories of Concept, Processes/IT Support, and Personnel/Organization which are key to excellence in management reporting. Taking these results as a starting point, an evaluation framework has been defined which can be used to assess the perfor-mance of management reporting systems. Moreover, satisfaction with the criteria and an analysis of current situations were used as guideposts to identify major fields of action and to formulate corresponding recommendations.

People in responsible positions will increasingly have to assume an active role in enhancing management reporting in the three described categories, using a holistic approach. It is the only way for them to live up to their future role as in-house consultants and to develop management reporting into a success factor for corporate management. As its value as a success factor is re-cognized, enhancing management reporting is a joint responsibility which must not be neglected by originators and recipients alike. If there are one-sided efforts only, standards and reality will inevitably drift apart, and this is to be avoided at all costs.

When implementing the results of this study, it must be noted that it is mainly based on the statements of respondents who were responsible management reporting in their companies. Consequently, the question arises as to whether the recipients of these reports would confirm the findings discussed here or whether other criteria are decisive for excellent management reporting from their perspective. There should definitely be a discussion on the possible divergence of the-se two viewpoints. The study results are a suitable foundation for just such a discussion.



6. The Authors

Robin Euler is Managing Partner and member of the Executive Board of Detecon International. He has been head of the Industry Practice “Telecommunications” since 2008. Robin Euler is therefore responsible for the national and international business relationships of Detecon to Deut-sche Telekom. He was previously a partner at Detecon (Switzerland) AG, where he had worldwide responsibility for the topic of financial management.

Contact: +49 228 700 1400, [email protected]

Christian Layr is a Consultant at Detecon (Switzerland) AG an member of the Global Compe-tence Team Financial Management and was responsible project leader for this study. Christian Layr has been working at Detecon since 2005. His consulting work focuses on the areas con-trolling, in particular steering logic, reporting, management information systems, and financial analysis and modeling.

Contact: +41 43 888 65 32, [email protected]

Thomas Deuser is a Managing Consultant at Detecon (Switzerland) AG. He is Group Head and director of the Global Competence Team Financial Management. His consulting work focuses on the areas finances, controlling, and compliance.


Dr. Dirk Schäfer is Vice-Director at the Institute for Accounting, Controlling, and Auditing (ACA-HSG) and associate professor for financial management at the University of St. Gallen. He is in charge of the program for the Master’s in Accounting and Finance (MAccFin) and heads consul-ting and further training projects at the Institute. In addition, he is active as the general manager of a midsize company and as a coach.


Prof. Dr. Peter Leibfried is executive director of the Institute for Accounting, Controlling, and Auditing (ACA-HSG) at the University of St. Gallen. Moreover, he is the co-founder and one of the managers of the consultancy FAS AG / Academy for International Accounting and a member of a number of supervisory boards (including the long-established Swiss company Malbuner). As a qualified certified public accountant (CPA), he is a member and advisor to numerous professional committees and associations.




7. The PublishersDetecon (Switzerland) AG

Detecon (Switzerland) AG, headquartered in Zurich, is a subsidiary of Detecon International GmbH, whose 700 consultants make it one of the world’s leading consulting companies for inte-grated management and technology consulting. Detecon (Switzerland) AG bundles the compe-tencies of financial and ICT management. The international array of services ranges from analytic and strategic themes to organizational and process consulting to support in the planning and establishment of technical infrastructures. The consultants are represented on virtually every con-tinent by additional international offices as well as project offices.

Institute für Accounting, Controlling und Auditing (ACA-HSG)

The Institute for Accounting, Controlling, and Auditing of the University of St. Gallen (ACA-HSG) sees itself as a competence and transfer center for the common benefit of academics, research, and practice. Its focus is on the sustained financial management of companies as concretized in its teaching program leading to a Master of Arts in Finance and Accounting (MAccFin) and in various programs for executive education, its activities as assessors, or consulting projects for private companies and public institutions.

8. Participating CompaniesAlcatel-Lucent Austria AG Energie AG RHI AG

Allianz Group Austria Flughafen Wien Richemont

Axel Springer Fraport AG Salzgitter

Bank Austria - Creditanstalt Freudenberg SBB Konzern

BASF SE Helvetia Gruppe Schindler Aufzüge AG

BAWAG P.S.K. Holcim (Schweiz) AG Siemens Schweiz AG

Böhler-Uddeholm AG HUK-Coburg Swiss Reinsurance Company

Brau Union AG Institut Straumann AG Swisscom AG

Bühler AG JetAviation Tele 2 Telecommunication GmbH

bwin Interactive Entertainment AG KOMAX AG Telekom Austria Group

Cargill International Kühne + Nagel Thyssen Krupp

Casinos Austria AG Leica Geosystems AG T-Mobile International AG

Credit Suisse Lindt & Sprüngli AG T-Systems

Daimler Maus Frères SA Valiant Holding

Deutsche Lufthansa AG Münchner Rück Valora Holding AG

DHL Express (Schweiz) AG o2 Germany Volksbank AG

Die Mobiliar ÖBB Holding AG Volkswagen

Die Post Palfinger Wacker Chmie AG

DKSH Management AG Porsche Holding AG Wiener Städtische

Dresdner Bank AG Rehau GmbH Xstrata

E.ON AG Reichle & De-Massari AG Zurich Financial Services



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Robert S. Kaplan, Mark S. Young, Anthony A. Atkinson:Management Accounting 2004, Prentice Hall International, 4th edition

Robert N. Anthony, Vijay Govindarajan:Management Control Systems 2003, McGraw-Hill Professional

Robert S. Kaplan, David P. Norton:The Balanced Scorecard 1997: Translating Strategy Into Action, McGraw-Hill Professional

Thomas Lührmann, Jürgen Weber, Regina Malz:Management Reporting Excellence 2008: Transparenz für die Unternehmenssteuerung, Wiley-VCH Verlag, 1st edition, 2008

Jürgen Weber, Sven Schaier, Oliver Strangfeld:Berichte für das Top-Management 2005: Ergebnisse einer Benchmarking-Studie, Wiley-VCH; edition: 1, 2005

Werner Gladen:Performance Measurement 2005, Controlling mit Kennzahlen, Gabler, 3rd edition

Thomas Joos-Sachse:Controlling, Kostenrechnung und Kostenmanagement 2002, Gabler, 2nd edition

Arnold Picot, Egon Frank:Prozessorganisation: eine Bewertung der neuen Ansätze aus Sicht der Organisationslehre1995, Freiberg, Techn. Univ., Faculty of Economics and Business Administration

Michael Hammer, James Champy:Business reengineering: die Radikalkur für das Unternehmen 1994, Campus-Verlag

Michael Nippa, Arnold Picot:Zum Stand der prozessorientierten Unternehmensgestaltung in Deutschland 1995 in: Prozessma-nagement und Reengineering: Die Praxis im deutschsprachigen Raum, Campus, pp. 227-247

Arnold Picot, Helmut Dietl, Egon Frank:Organisation – Eine ökonomische Perspektive, Schäffer-Poeschel 2002, 3rd edition

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