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KeyOn Planning bv
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A KeyOn research report
Management Reporting Excellence
A Vision of the Future
Management Reporting ExcellenceA Vision of the Future
Fabien Lennertz, KeyOn Consultant
Loek Lemmens, KeyOn Partner
Martin Daudey, KeyOn Partner
February 2010
A KeyOn research report
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Contents1 Management Summary 3
2 Introduction 42.1 Objectives and report question 42.2 Scope of the research 52.3 Research input 52.4 Structure of the paper 5
3 Management Reporting 63.1 What is management reporting? 63.2 Management reporting vs. financial reporting 63.3 KPIs in management reporting 6
4 Process 84.1 Reflect the company’s strategy 84.2 One version of the truth 84.3 The reporting process 94.4 Scenario modeling 94.5 Clear communication of the strategic direction 9
5 System 105.1 Functionality 105.2 Single data storage 105.4 User-friendly systems 115.5 System integration 11
6 Organization 126.1 Accountability 126.2 A balanced set of measures 126.3 Shift to empowerment 136.4 Organizational MDM 136.5 Multidimensional management reporting 13
7 Culture 147.1 Corporate cultures 147.2 Bureaucratic culture 147.3 Innovative culture 157.4 Supportive culture 15
8 Management Reporting Excellence 168.1 Process 168.2 System 168.3 Organization 168.4 Culture 168.5 Management reporting excellence 16
References 18
Definitions 19
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High Quality of Source Data
SuccessfulStrategy
Implementation
Right (Time)
Information
Sharing,Trust and Openness
Business-IT alignment
Management Reporting Excellence
1 Management SummaryMany organizations struggle with the delivery of accurate and up-to-date management reports. Managerial decisions drive information requirements. Management reports are produced to enable efficient and effective decision-making. Without an effective reporting process management is flying blind. Incomplete or irrelevant information reports could lead to wrong decisions. This paper describes our visionary thoughts on management reporting and performance measuring. It is based on the key findings of a survey amongst the Planning and Budgeting Systems Network. The following question is addressed in this paper:
“How can large-sized, profit-based organizations increase their overall performance by optimizing management reporting within the next 10 years?”
Best practice organizations match the information that is reported to the specific needs of the recipient at a specific time. Businesses prosper or fail based on their ability to identify, define, check and act on key performance indicators (KPIs) used in management reports. When defining key performance indicators, take into account that a KPI must be measurable, accurate, meaningful, understandable and relevant to the business. Furthermore, effective management reporting requires a balance between quality, quantity, efficiency and speed. The findings in this survey are grouped by process, system, organization and culture.
Process: Efficient and effective management reporting starts with the use of a structured approach that translates the company’s strategy to objectives, key value drivers and key performance indicators. Reliable and relevant KPIs rely on the creation and maintenance of a master list with metadata collected from various applications. Clean and up-to-date data is the perfect starting point to create different scenarios which can be used to comprehend the future. Finally, management reports are presented in such a way that they are fully understood by the recipients.
System: Information systems that contribute to management reporting contain sufficient functionality and are user-friendly. Reporting on data is based on a dynamic knowledge management solution enabling employees to easily organize, find and share information. Management reporting tools are seamlessly integrated with any source system, making it possible to create reports within less than a second.
Organization: A balanced set of financial and non-financial measures provides a holistic view of the company’s performance. KPIs are reported and analyzed from a multidimensional perspective. Accountability must be set for every performance indicator. People with the best information and perspective make the best decisions.
Culture: A company’s culture supports a way of working that values organized and systematic work. Standards, templates, explicit rules and regulations can help to standardize KPIs in management reports. Innovation subgroups create and share ideas which contribute to the quality of management reporting. A culture of sharing, trust and openness enforces a performance culture.
Best practices emphasize five cornerstones that are necessary to obtain management reporting excellence: successful strategy implementation, Business-IT alignment, high quality of source data, sharing trust and openness and right (time) information.
Figure 1: Management reporting excellence
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A company’s success largely depends on reliable and accurate management reporting. Performance indicators and steering variables which are intertwined in management reporting produce an x-ray to determine a company’s health. Whenever a company is under-performing, necessary actions must be taken to get the company back on track. Reliable and accurate management reports contribute to a more effective and efficient decision-making process. We will examine how companies can organize management reporting in the future without being held back by any restrictions.
2.1 Objectives and report question
With a green field approach we will investigate how large-sized profit organizations can manage their performance through management reporting within the next ten years. We will not specifically focus on the path they have to travel to come to a perfectly managed environment. A survey and breakout sessions are the main sources to explore the ideal situation. A generally accepted taxonomy
2 Introductionis used to classify the findings in this report. This taxonomy consists of four building blocks which influence a company’s performance: process, system, organization and culture.
Management reporting systems can be positioned in the Corporate Performance Management (CPM) framework. A CPM system, like a management reporting system, enables a closed-loop process (Plan-Do-Check-Act) that starts with understanding the current situation, defining the future situation, setting the targets, and finally allocating the resources to achieve those targets. In Figure 2 the planning and control cycle is summarized. The closed-loop process is an essential approach to redesign and improve the process, system, organization and culture of management reporting in your company. The research question of this paper is as follows:
“How can large-sized, profit-based organizations increase their overall performance by optimizing management reporting within the next 10 years?”
Act
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Str
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Strategic planning
Strategic plan
Scenarioanalysis
“Plan”
“Check”
Strategic setting
ReviewReporting & Analysis
“Do”
Realization
“Act”
Correctiveactions
Figure 2: The planning & control cycle
Figure 3: Members participating in the Planning
and Budgeting Systems Network
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2.2 Scope of the research
Our research focuses on members of the Planning & Budgeting Systems Network. Most members are large-sized, profit-based organizations with a minimum annual sales revenue of 200 million Euro, and which are active in the industrial, food, high-tech, telecom and healthcare sectors. The Planning and Budgeting Systems Network Members can be found in Figure 3.
2.3 Research input
This paper is the outcome of the third Planning and Budgeting Systems Network: KPI to plan for performance, facilitated by KeyOn Planning. During breakout sessions the Network Members were asked to define the most important conditions that are needed to bring management reporting to a higher level of quality. The purpose was to gather a draft of how companies should have their management reporting organized in ten
years from now without thinking of all the restrictions that could undermine an ideal situation. A survey - conducted prior to the KeyOn Network Event - has also been used as input for this report. The conditions have been grouped into four main areas. Keep in mind that we made a choice to allocate conditions to these areas. Some of the conditions can be placed in more than one area.
2.4 Structure of the paper
We will start with a general introduction of management reporting in Chapter 3. In Chapters 4-7 the results will be presented in four main areas: process, system, organization and culture. For every area the ideal situation regarding management reporting will be outlined. Finally, Chapter 8 summarizes the most important conditions presented in the previous chapters. This paper concludes with five cornerstones that are required – according to KeyOn – to achieve management reporting excellence.
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Academic papers reveal a high variance of the perception of management reporting and key performance indicators. Therefore we will use this chapter to define our view on management reporting and key performance management indicators.
3.1 What is management reporting?
Quality management information delivered on time is the cornerstone of any business. According to Axson (2003) effective management reporting is about delivering the right information to the right people at the right time. Reports can present a great deal of data and yet have no relevant information about how to run the business. Drucker (1995) points out that “the challenges increasingly will be not technical; rather, they will be to convert data into usable information that is actually being used.” The quality of management reporting is dependent on the translation of your company’s strategy into mid and short-term action plans. The seamless integration of strategic planning, budgeting and forecasting, and management reporting is indispensable in terms of acquiring actionable management information that reflects the business direction.
Axson 2003: “Effective management reporting is about delivering the right information to the right people at the right time.”
3.2 Management reporting vs. financial reporting
Compared to financial reporting, management reporting is a relatively new term. Financial reporting, such as bookkeeping and account-ing, has been used for a long time. It is no surprise that managers have adopted finan-cial reporting methods to get information for managerial control. Such methods, however, were not designed for that purpose. Financial reports include accounting information for
people who are outside the organization or who are not involved in its day-to-day run-ning. They are based on historical data, which emphasizes a backward-looking perspec-tive. Furthermore, governmental regulations describe specific mandates and requirements for financial reporting. Management reports, on the other hand, provide information that aims to help managers make decisions for future action. These reports have a forward looking perspective. Management reports can contain information about financial transac-tions but also information that is increasingly useful in handling operational management problems. Think of a loss of market share or a failure to innovate influencing the company’s performance. Both indicators can appear in management reports but you won’t see them in financial reports.
3.3 KPIs in management reporting
Key performance indicators (KPIs) are quantitative measures that are used to monitor business objectives. Many things are measurable. That does not make them key to the organization’s success. In selecting key performance indicators, it is critical to limit them to those factors that are essential to the organization reaching its goals. Limiting their number also helps to keep everyone’s attention focused on achieving the same goals. When defining key performance indicators, you should at least take into account the following conditions:
• A KPI must be measurable: KPIs must be analyzed over time to identify trends. This allows you to make decisions to improve your company’s performance. KPIs should be re-evaluated regularly to determine if your performance is moving forward.
• A KPI must be accurate: KPI reports that rely on inaccurate data are not only invalid but also dangerous as they may lead to wrong decisions.
3 Management Reporting
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• A KPI must be meaningful: Raw numbers must be placed in context to comprehend their meaning.
Figure 4: KPI Champion
Source: www.epmreview.com
• A KPI must be relevant to the business: KPIs must be tied to your organization’s strategic direction and they must represent the business areas.
• A KPI may be required by legislation and/or regulations: In some cases reporting on a certain set of KPIs may be prescribed by legislation or regulations.
• The KPI set must be balanced: To make management reports effective, KPIs must have a balanced range, representing quality, quantity, efficiency and speed in equal measure. This means that there should be a balance between the number of KPIs being measured, how they are measured, and in which frequency they are measured. KPIs should also reflect both financial and non-financial performance areas.
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In this chapter we will focus on the processes that are necessary to increase the company’s performance through management reporting. A timely and smooth flow of information is necessary to reach excellence in the management reporting process.
4.1 Reflect the company’s strategy
Efficient and effective management reporting starts with the use of a structured approach that links the company’s strategy to key performance indicators. In practice, companies insufficiently link strategic objectives to key performance indicators. In order to measure and report on figures that truly matter it is important that your metrics reflect the company’s strategic direction. As can been seen in Figure 5, cascading or rolling out the strategic direction to your operations requires the completion of a few intermediary steps.
Objectives
Strategy
Key value drivers
Key performance indicators
Feed
back
Develop
men
t
Figure 5: From strategy to action
The first step is to define the company’s strategic direction. On the basis of this a clear and concise understanding of the overall strategy must be developed. This insight is gained by discussing the organization’s vision and mission, as well as the company’s internal and external environment. Subsequently, the strategy is described as a limited number of statements which are called strategic objectives. These objectives
are derived from the strategy. Between two and five strategic objectives should be enough to focus the organization’s efforts over a 3-5 year period (Kouwen Van, Lemmens & Tullemans, 2007). The table below shows an example of a set of strategic objectives:
Strategic objectives
To establish year-over-year improvements in yield and cost efficiency
To take a leading position in all the markets that we serve
Once the strategic objectives have been determined, key value drivers (KVD) can be defined. KVDs are the critical factors or activities required to ensure the success of a business. There are a reasonable number of key value drivers for each strategic objective – between two and five is a useful rule of thumb.
For each strategic objective and key value driver appropriate measures must be identified. It is critical that KPIs measure those vital few activities and processes which monitor the performance of the organization. Deriving performance metrics from your company’s strategy can be a time-consuming and cumbersome activity. The definition of KPIs and the way they are measured do not change often. The objectives for a specific key performance indicator may change as the organizational goals change.
4.2 One version of the truth
One of the top-rated conditions participants mentioned to increase the company’s performance with the help of management reporting is producing one single version of the truth. As we can see in the next chapter - from a system point of view - data is to be stored in integrated databases. However, the data stored in this repository can be right or wrong. The quality of data relies on the creation and maintenance of a master list which is created by the metadata, collected from various applications. The objective of this list is to easily track the correct
4 Process
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information to all the linked applications. This is called master data management. It prevents, for example, that data is stored more than once.
One of the starting points for achieving one version of truth is to establish accountability among business owners. They are the responsible actors that guard the applications so that clean data is entered, which remains clean and does not degrade. Furthermore, processes should be available that enforce the definition of attributes and calculations. Non-integrated systems are the main reason why not every business unit applies the same data definitions. Figures in management reports will lose their credibility. The value of these kinds of dictionaries strongly depends on the frequency at which they are updated.
In a perfect world all processes are automated and all business applications are connected to integrated databases that format, cleanse, and redistribute data back to all the applications in real-time.
4.3 The reporting process
The Network Members emphasize the need for a clear reporting process. At the moment few companies have strict guidelines about what their reporting process should look like. Management reports should be produced in a consistent way and should be understandable for all involved actors. Clear management reporting is the result of a clear management reporting process. Clear processes give insight into transparent information flows, which allow for more extensive reporting.
The first step of defining your reporting process consists of determining relevant KPIs. The next step is to identify your audience. On the basis of the contents of your management report the audience should be determined. The audience can vary from internal stakeholders such as senior management and the project sponsor to external stakeholders like shareholders, clients, suppliers and governmental institutions. Data sources
should then be identified and reviewed to select the leading systems that deliver the data as input for management reports. Once you have gathered the right data, you can start reporting on it.
4.4 Scenario modeling
Scenario modeling is a method for analyzing the main uncertainties in future business conditions in order to prepare for decision-making. The Network Members emphasized that they would like to make (more) use of scenario modeling. They find it important to build scenarios of real-life situations in the future. In terms of the tactical planning horizon in particular, it is essential to quickly make “what-if” analyses and so support decision-making (Aertsen, Theeuwen & Van Geel, 2008). This process requires involvement of different parties throughout the entire company to produce and share the variables necessary to construct scenarios. Systems should support the calculation of different scenarios. Unfortunately, the current systems are often batch oriented, which means that the answers to “what-if” questions are available only after the completion of batch jobs. Companies need models that immediately come up with the answers within one single mouse click.
4.5 Clear communication of the strategic direction
The progress of strategy implementation must be communicated throughout the company. Whenever reports are not credible, the process of defining key performance indicators and the frequency with which management reports are produced should be repeated. Replace the irrelevant KPIs with the KPIs that matter and distribute the reports again.
A total of 74% of the Network Members create management reports at least every month. The success of management reporting processes depends on reports that are ready on time.
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5 SystemIn the ‘System’ chapter we will focus on information systems and technology that enable management reporting. The design and implementation of a management reporting system requires some deep thought about what is really important in order to assist management in decision-making. Reports should be created with user-friendly systems that contain a broad range of functionality. Furthermore, technology can automate processes and integrate systems to retrieve information from various source systems.
5.1 Functionality
Network Members indicated there is a lack of functionality regarding the systems that contribute to management reporting. These systems do not meet the overall business needs.
The systems being used to create management reports lack the functionality to capture and report on non-financial data. In Section 6.2 we will consider this topic in more depth. In a vision of the future, companies will have management reporting systems at their disposal that contain right-time dashboard functionality.
Figure 6: Example of a dashboard
Whereas management reports produced in various spreadsheets are hard to compare, due to the freedom employees have to modify or extend the results and metrics, dashboard functionality enables employees to see at a glance the current status of the business’ performance. Dashboards encourage a
consistent way of showing results, triggering a fast and reliable decision-making process.
Management reporting systems should also contain the possibility to configure alerts. A manager wants to know if he is outside or inside the target, and if there is an even, an upward or a downward trend.
5.2 Single data storage
Companies are often fractured due to the independent actions of separate organizational units. These organizational units have systems with data stores that have been implemented specifically for the benefit of their own unit. A mishmash of systems can also be caused by mergers and acquisitions, and changing business processes. All the necessary information used in management reports is gathered from all these different source systems.
Furthermore, spreadsheets are used to make calculations and present the data in a way that is consistent with the needs of the individual user. To make use of relevant, unambiguous and correct data, all the information should be connected to a single data store.
In a vision of the future, companies prefer to have their data stored in integrated databases to ensure data accessibility for the entire organization. At the moment 58% of the companies manually gather their data used in management reports. In those cases where companies gather their data automatically, about half of them use interfaces from several data sources. In an ideal situation all the data is collected automatically and only one source system is used instead of several systems that collect overlapping data leading to redundancies and anomalies. A central point for data retrieval will increase the quality of management reports and will subsequently lead to an efficient and effective decision-making process.
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5.4 User-friendly systems
A management reporting tool may have all the required functionality, but that is no guarantee that the tool is user-friendly. End-users of the networking companies attach a lot of value to future systems that fulfill their requirements in terms of usability. User-friendliness is about the look and feel of an object. A relatively high level of user-friendliness will encourage managers to use a system – leading to a higher acceptance rate. If a system does not function as is expected by its users, those users may become reluctant to use the system, or even worse abandon it and use other ways or tools to accomplish their activities. Companies want to stimulate the usage of preferred tools to support a standard way of working. This also applies to management reporting tools and tools that produce the input for these reporting tools. Tools which are user-friendly will lead to more reliable data and standard formats since everyone is using them.
A management reporting tool must be efficient to such an extent that once users have become familiar with its design, they are able to perform their tasks fairly quickly. Default templates and reports increase the user-friendliness by enabling end-users to rapidly produce management reports for recurring events.
The involvement of business users at an early stage of a tool selection and/or tool development process is very important. User acceptance tests will make sure that business users are satisfied with the tool. Also think of proper training and user manuals to increase learning ability so that new users can quickly use the tool in practice.
5.5 System integration
Nowadays, large companies in particular are having trouble integrating different system solutions. Due to the complex organizational structure, IT departments are catering for the needs of various organizational units,
and there is a proliferation of enterprise applications.
The Network Members produce management reports within a timeframe varying from a few seconds to a couple of weeks (see Figure 7). About 40% of the networking companies create final reports within a couple of days. The time necessary to create management reports depends on the availability and quality of data. When systems lack integration, this means that data is scattered throughout the organization. To make sure that reports are credible, information should be available in the right place at the right time in the right way. Integration gaps are frequently bridged by Excel spreadsheets, resulting in a lot of manual intervention in order to collect and process the data.
No time(real-time)
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1 day Coupleof days
1 week 2 weeksor more
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Figure 7: Time to create management reports
Companies that aim for a best-in-class solution completely satisfying their needs are usually dependent on a best-of-breed solution. The integration of best-of-breed solutions can be a cumbersome and time-consuming challenge.
In the future, management reports should be created that involve no delay, which means that management reporting tools should be seamlessly integrated with every source system that offers data as input for KPI dashboards and reports. Fully integrated systems support and manage real-time data feeds. Future solutions should embrace architectures which easily support integration and interoperability.
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6 OrganizationIn this chapter we will outline some organizational conditions that should be met to lift management reporting to a higher level. Almost every participating networking company uses KPIs one way or another. However, most of the companies are up against inadequately developed organizational conditions, resulting in ineffective KPIs and management reports. Unclear accountabilities and an unbalanced set of measures are just two examples of why the presence of KPIs in management reports is insufficient.
6.1 Accountability
Defining and creating KPIs does not guarantee that they are used effectively. Accountability must be set for all the indicators. KPIs used in management reports indicate whether targets are met. Failing targets will reduce a company’s performance. It is important that companies can track the reasons for lagging behind. This is the main reason why the networking companies would like to define accountable parties for each KPI. The responsible party is the KPIs “owner”, and it must be able to either directly influence the KPI value or have the authority and power to control it by assigning tasks to employees who can influence it. A condition for the effective use of accountability is that the KPIs are populated with timely, actionable data so that the responsible party can intervene to improve performance before it is too late.
Without ownership, reporting on KPIs has no priority or urgency. Consequently this will lead to poor records, and eventually incomplete and out-of-date management reports. This creates a negative spiral.
6.2 A balanced set of measures
As long as data is accurate, it shouldn’t be too hard to measure and evaluate financial KPIs. For example, the total cost per operation per hour can be calculated quite easily. A KPI measure like this is reliable and can be calculated in a consistent and objective way.
By the 1980s the awareness was growing that traditional performance measures were insufficient to manage organizations that compete in modern markets (Johnson and Kaplan, 1987). According to Au, Lemmens and Tullemans (Au, 2006) financial performance measures fail to reflect changes in the competitive environment of organizations and it is no longer satisfactory to use financial measures as the sole criteria for assessing success. Leading non-financial performance indicators can provide a more reliable indication of the future outlook than lagging financial performance indicators. They give insight into the value drivers that sustain stakeholder satisfaction and loyalty. Furthermore, non-financials cover risks by monitoring performance objects from a business perspective. A balanced set of financial and non-financial measures provides a true and objective view of the company’s performance.
The members of the Planning and Budgeting Systems Network mentioned that, unlike financial data, non-financial data were difficult to measure. In the future they would like to have a balanced set of both financial and non-financial measures (covering economic, environmental and social factors) to give stakeholders an overall picture of the organization’s performance.
Business-IT alignment
Inventorynet
workingcapital
Cu
rren
t d
eb
Net profits on net sales
Customersatisfaction
Product quality
Inventorynet
workingcapital
Net profits on net sales
Customersatisfaction
Product quality
Figure 8: Balance financial and non-financial
performance indicators
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6.3 Shift to empowerment
Empowerment is expanding the degree of freedom of choice and action. It means that employees are given more authority and control over available resources and decision-making. Assign responsibilities for operational decision-making and performance improvement. Individuals and work teams with the best information and perspective should make the decisions. According to De Waal (Waal De, 2005) a climate of choice and freedom is to be established for individuals to develop their natures and express their diverse qualities, but stress that the liberty of individuals should not be at the expense of others.
6.4 Organizational MDM
Selecting and implementing the right technology is not enough to make master data management successful. The greatest challenges are of an organizational rather than a technical nature. Large master data management solutions typically involve marketing, sales, finance, customer service, IT and potentially other departments, each with its own views and interests. Conflicting interests and political issues can make it difficult to introduce efficient and effective master data management. A successful Master Data Management (MDM) project requires leadership and executive sponsorship coming from the business with IT as an important contributor and facilitator. MDM has to be driven by business needs.
An MDM competence center should be developed, consisting of a small number of dedicated persons from business and IT. The competence center makes sure there is sufficient alignment between the business and IT. According to Gartner (Gartner, 2009) data stewards should be selected for the key areas of the business. They are accountable for the production, definition, security and integrity of MDM assets.
6.5 Multidimensional management reporting
Most large organizations operate a multiunit organization, consisting of self-contained, organized business units, divisions and/or operating companies. Business units also depend upon resources organized outside their units to achieve their objectives. This approach results in problems like how to organize account management and project management across business units.
In a vision of the future (Strikwerda, 2008), organizations overcome such problems and similar dilemmas by defining accountability for turnover and profit-and-loss simultaneously for multiple dimensions (product, region, account, market segment, industry). Individual managers are held accountable for the organization’s performance in their specific dimension.Companies require multidimensional transparency in terms of profitability on the basis of three pivots: Products, Customers and Markets. The objective of this approach is to enhance performance visibility in order to grab more and better opportunities in the marketplace.
A multidimensional organization calls for a new form of management reporting. In a multidimensional organization, key performance indicators are set for each dimension and multidimensional management reporting is applied. Multidimensional KPIs are the same for each dimension. The only difference is that they are measured and reported from different perspectives, called dimensions. KPIs only reflect those dimensions that are critical for the success of the organization.
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The company’s culture is one of the factors that influences a company’s performance. It is essential both for successful organiza-tional change and for maximizing the value of human capital. Companies face significant cultural barriers to successful management reporting. This chapter will elucidate the importance of culture for effective and efficient management reporting.
7.1 Corporate cultures
No two companies have the same culture. Wallach (1983) identified three types of corporate culture: bureaucratic, innovative, and supportive cultures. Companies can have a mix of different types of culture. For management it is an important challenge to determine what the most effective mix of cultures is to increase the company’s performance. We will not evaluate which mix is best, but we will use Wallach’s taxonomy to categorize the visionary ideas of the Network Members regarding effective management reporting.
7.2 Bureaucratic culture
Bureaucratic or hierarchical organizations are defined by their stability and control as well as their internal focus and integration. They value organized and systematic work. To accomplish this, standards, templates, explicit rules and regulations are used.
In a vision of the future, networking companies pay more attention to the standardization of KPIs used in management reporting. One way to standardize is to make use of templates. During the Network Event: KPI to Plan for Performance we introduced a template which can be used when defining KPIs in a content management system. If it is applied properly, it will tell you what the KPI is about, who the responsible party is, for which details that party is responsible, with which frequency each indicator needs to be measured, what the variables are that influence KPI value, etc.
Name of KPI
Description Description of the KPI
Current value The current value of the KPI
Target setting The target/plan that is set for the KPI
Progressbar04 weeks, 02 days, 14 hours The progress that has been made so far and the time left to report on the KPI. Current Value: Target setting
Responsible party The person/echelon that is responsible for the KPI
Purpose What are the objectives of the KPI - what is it measuring? Why is it important?
Stakeholder The stakeholders that are involved
Effort Low/Medium/High?
Unit/Department The Unit/Dpt. which is affected
Method The method(s) used to measure your KPI
Tools The potential tools used to support the measurement and reporting
Frequency The frequency of reporting e.g. the 1st day of a month
Comments Additional information
Figure 9: KPI template example
The use of KPI templates offers a lot of advantages. A KPI template encourages a standard way of working. Furthermore, it makes it easier to determine if and why the value of your KPI is below target. Consequently, KPI templates are integrated in a knowledge management system so that every interested party can view the status of the KPIs. This also deals with one of the main concerns, namely that KPIs are delivered too late and therefore lose their value. The companies’ visionary thoughts also comprise frequent KPI evaluation. KPI templates encourage a standard way of working resulting in easy KPI evaluation and easy KPI comparison internally – between departments – and externally – with peer groups from other companies.
7 Culture
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7.3 Innovative culture
An innovative culture is exciting and dynamic. It provides a creative place to work, filled with opportunities and risks.
Companies with an innovative culture attain new values by combining different kinds of knowledge. A company’s culture must stimulate the desire to encourage and develop new ideas about management reporting. In a vision of the future, people are aware of the company’s strategy and innovation subgroups are created to contribute and share ideas. Organizations must hold managers accountable for creating the innovative culture. They are a role model for the employees. Therefore, make people accountable for achieving objectives that create innovation and make sure that people have the time to innovate.
7.4 Supportive culture
A supportive culture can be characterized as a trusting, encouraging, relationship-oriented, and collaborative culture. It provides an open, harmonious, and pleasant place to work. People are friendly and helpful to each other.
Networking companies value trust and openness. Both conditions are must-haves for future companies that want to stand out in management reporting.
The physical sharing of information depends on the availability of appropriate infrastructures, but the added value of sharing is lost when there is no supportive culture of trust and openness. People who trust each other will share information and will be more likely to listen to one another in a team situation. Openness establishes an open line of communication throughout the entire organization and encourages the sharing of information. Don’t blame people for their mistakes but praise them for their efforts. Reward appropriate risk-taking and failure, and telling the truth. Management
reports benefit from trust and openness in that they become more transparent and reliable. People will be more honest when presenting figures and will not disguise the errors made by themselves or their team.
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In this final chapter we will summarize the conditions by building block. The chapter ends with the conditions that – according to best practices – contribute most to management reporting excellence.
8.1 Process
A decent process starts with the translation of the company’s strategy into objectives, key value drivers, and key performance indicators. In practice many companies are capable of defining their vision, strategy, and strategic objectives, but few companies are able to successfully communicate and implement the strategy.
Credible KPIs rely on the creation and maintenance of a master list with metadata collected from various applications. A single, integrated database formats, cleanses, and redistributes data back to all the applications in real-time. Clean, up-to-date data is the perfect starting point for scenario modeling. Different scenarios can be used to comprehend the future. Finally, management reports are presented in a way that is fully understandable to its audience.
8.2 System
The quality of management reports depends on the availability and quality of data. In a vision of the future, companies prefer to have their systems connected to each other with one leading source system. In large-sized companies especially, this may seem like a mission impossible, since dozens of systems are used containing both unique and overlap-ping data. A “think big, start small” approach should do the trick. Seamless systems inte-gration reduces human intervention. From now on only one source system needs to be queried, making data more reliable and much easier to access.
8 Management Reporting Excellence8.3 Organization
From now on there should be a balanced set of both financial and non-financial measures. Financial measures give a clear view of the company’s health expressed in monetary values. Companies need to have multidimensional Profit & Loss transparency in multiple dimensions, e.g. Products, Customers and Markets. Better visibility in business performance leads to more and better opportunities in the marketplace.The ability to endure also depends on other factors that cannot be expressed directly in money. Think of product quality, customer satisfaction and company image. Those factors can make the difference between being one among the others and being a best-in-class company.
The sole presence of performance measures is not sufficient. An individual, group or echelon must be held accountable for multidimensional measures and the target setting. In addition to that, employees who are responsible for the data used in management reports must be empowered to make sound decisions. A competence center should be present containing these responsible employees.
8.4 Culture
A company’s culture supports a way of working that values organized and systematic work. Standards, templates, explicit rules and regulations can help to standardize KPIs used in management reports. Innovation subgroups create and share ideas which contribute to the quality of management reporting. A culture of sharing, trust and openness manages the performance culture.
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High Quality of Source Data
SuccessfulStrategy
Implementation
Right (Time)
Information
Sharing,Trust and Openness
Business-IT alignment
Management Reporting Excellence
8.5 Management reporting excellence
At least five cornerstones (see Figure 10) are required to distinguish the primus inter pares in excellent management reporting. Organizations with excellent management reporting perform significantly better in these five fields than organizations with average to poor management reporting abilities. The concepts of the cornerstones have been clarified in the previous four chapters. The five cornerstones that lead to management reporting excellence are:
• Successful Strategy Implementation;• Business-IT Alignment;• High quality of Source Data;• Sharing, Trust and Openness;• Right (Time) Information.
Figure 10: Management reporting excellence
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• (Aberdeen Group, 2006) Aberdeen Group (2006). Achieving collaboration excellence content management: Data integration and the enterprise portal.
• (Aertsen, Theeuwen & Van Geel, 2008)Aertsen, F.; Theeuwen, M.; Geel, E. van. (2008). Stop met forecasten – Praktisch plannen en budgetteren (NL).
• (Au, Lemmens & Tullemans, 2006) Au, J.; Lemmens, L.; Tullemans, P. (2006). The (r)evolution in management control. EyeOn Research Report.
• (Axson, 2003) Axson, D. A. J. (2003). Best practices in planning and management reporting: from data to decisions. Hoboken, N.J.: Wiley.
• (Bowman, 1998) Bowman, C. (1998). Strategy in practice.
• (Drucker, 1995)Drucker, P. F. (1995). Managing in a time of great change. New York: Truman Talley Books/Dutton.
• (Gartner, 2009)Gartner, (2009). The seven building blocks of MDM: A framework for success.
• (Johnson and Kaplan, 1987)Johnson, H. T. and R. S. Kaplan. (1987). Relevance lost: The rise and fall of management accounting. Boston: Harvard Business School Press.
• (Kouwen Van, Lemmens & Tullemans, 2007)Kouwen, E. van; Lemmens, L.; Tullemans, P. (2007). From strategy to action – Planning for value.
• (Lemmens & Munsters, 2007) Lemmens, L.; Munsters, R. (2007). Strategic scenario planning – Linking performance indicators to bottom-line results. EyeOn Research Report.
• (Strikwerda, 2008)Strikwerda, J. (2008). From multiunit management to multidimensional organizations.
• (Waal De, 2005)Waal, A.A. de (2005). The characteristics of a high performance organization.
• (Wallach, 1983)Wallach, E.J. (1983). “Individuals and organizations: The cultural match”. Training Journal 37 (February). pp. 29–36.
References
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Definitions• A Key Value Driver (KVD) is the translation
of a strategic objective into how it will be achieved.
- Variables that must be achieved or implemented successfully to meet strategic objectives and to make sure that the intended strategy of the business succeeds.
- These variables are the few key areas where things must go right for the business to flourish. If things should not go right in these key areas, this would cause the strategy to fail.
- Synonymous to KVD are the terms critical success factors (CSF), and key performance areas.
• Key Performance Indicators (KPI) are quantitative measures for monitoring objectives and KVDs.
- Many things are measurable. That does not make them key to the organization’s success. In selecting Key Performance Indicators, it is critical to limit them to those factors that are essential to the organization reaching its goals.
- It is also important to keep the number of Key Performance Indicators small just to keep everyone’s attention focused on achieving the same KPIs.
• Strategic objectives express the aspiration that defines the purpose or expected level of achievement of the organization.
• Master Data Management (MDM) (according to Gartner) is the consistent and uniform set of identifiers and extended attributes that describe the core entities of the enterprise, and are used across multiple business processes. Core entities include parties (for example, customers, prospects, people, citizens, employees, vendors, suppliers and trading partners); places (including locations, offices, regional alignments and geographies); and things (such as accounts, assets, policies, products and services). Groupings of master data include organizational hierarchies, sales territories, product roll-ups, pricing lists, customer segmentations and preferred suppliers.
MDM is a technology-enabled discipline in
which business and IT organizations work together to ensure the uniformity, accuracy, stewardship, semantic consistency and accountability of the enterprise’s official, shared master data assets.
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