Lack of holistic performance management paints bleak picture

Firms have been slow to integrate performance management but take-up is increasing. By Nick Groves, senior manager in consulting, Deloitte.

Measuring corporate performance has always been a difficult business. Now with instant online availability of information, top management is under constant pressure to back up claims of success with tangible evidence.

Middle managers in turn need reliable, real-time information to deliver on corporate strategy and assess their own performance. At the same time regulatory pressures such as Sarbanes Oxley have increased the number of variables that companies need to keep an eye on.

Successfully integrating performance management across the organisation is at the heart of keeping all of these variables on track.

Symptoms of disparate performance management

Many organisations still lack an integrated set of performance management processes, supported by integrated technology. As a result they struggle with the following performance management issues:

• long-range planning activity doesn’t relate to the strategy
• the budget process is an extensive exercise in gaming rather than a financial realisation of the most appropriate deployment of resources to achieve year one of the plan
• KPI targets, where they exist, are not aligned to the strategy
• without focus, reporting flounders. It struggles to analyse the vast array of data available across ERP, CRM and multiple datastores
• without clear analysis to show deviation from strategy, senior management is not armed to intervene. Forecasting becomes a mechanistic activity rather than a dynamic tool.

This paints a bleak picture with organisations stuck in a constant cycle of moderate growth.

Slow to act

Faced with these issues it is, at first sight, surprising that organisations have been slow to address these challenges. In 2003 a Deloitte survey of CFOs showed that corporate performance management (CPM) was at the top of the boardroom agenda.

There are two key reasons why CFOs have not always been effective at addressing integrated performance management (IPM). First, other issues have been seen as more important than boosting quality performance management information. Regulatory compliance is one of these. Second, there has historically been a lack of confidence in IPM technology.

Focus back to performance

But times are slowly changing. Many organisations are up to speed on internal controls and compliance with international accounting standards. The focus can again switch to performance.

There have also been some fundamental developments in technology. There are now real alternatives to fragmented, spreadsheet-driven performance management. Indeed the trend in IPM technology is towards integrated solutions that allow organisations to address all aspects of performance management.

Holistic approach

Over the past six months we have seen a significant increase in the number of organisations starting to address performance management holistically.

Our approach is to apply an IPM framework which addresses all aspects of the IPM lifecycle from strategy definition to organisational realignment. This coordinated method puts strategy delivery into the hands of the workforce.

Integrating the components of performance management is challenging. But with investor confidence still at a low, IPM is seen as the key to delivering the sustained and predictable return so valued in today’s volatile markets.

October 2006