Chandler, N. (2009).

Top processes for corporate performance management:

[Gartner, G00172377]. Recuperado de la base de datos de UESAN (054619)

G00172377

Top Processes for Corporate Performance

Management
Published: 2 December 2009

Analyst(s): Neil Chandler

A fragmented approach to corporate performance management (CPM)

hinders an organization's ability to establish and optimize performance
management processes. All but the most fortunate organizations have
consistently underachieved in attempts to manage and execute strategies.

Key Findings
■ Organizations are too focused on the execution of financial transactional processes, rather than
performance-related processes. The most well-established management processes are related
to planning and financial reporting.
■ The economic downturn has accelerated organizations' needs for cost optimization and
improved operational efficiency, and created demand for more-flexible and agile approaches to
planning. These pressures will remain as organizations plan for the return to growth while the
increasing regulatory burden drives demand for more-sophisticated approaches to financial
reporting and disclosure.
■ Strategic management is not linked to operational activities, financial planning is not linked to
other planning processes, and financial close and reporting processes are disconnected from
management reporting processes.
■ There are CPM solutions available that not only support these management processes, but also
help optimize them.

Recommendations
■ Take a wider view of CPM as a series of "corporate" management processes, rather than purely
"financial" management processes, to fully leverage the transformational benefits of CPM.
■ Realize that CPM applications can address disconnected management processes by providing
an environment that enables them in a consistent and integrated manner, while providing
sophisticated functionality to support all aspects of strategy execution.
 ■ Understand that CPM is suitable for all organizations and can provide short- and long-term
business benefits. However, the application won't create the right process. Culture,
expectations and the right team are equally important.
■ Take a holistic approach to acquiring CPM applications by ensuring that IT and finance work
together.

Table of Contents

Analysis.................................................................................................................................................. 2
1.0 Align to Action............................................................................................................................ 5
2.0 Plan to Perform.......................................................................................................................... 6
3.0 Monitor to Measure.................................................................................................................... 7
4.0 Consolidate to Comply............................................................................................................... 7
Recommended Reading.........................................................................................................................8

List of Figures

Figure 1. The Top CPM Processes......................................................................................................... 4

Figure 2. The Links Between CPM Processes........................................................................................ 5

Analysis
CPM is rapidly being adopted by a majority (approximately 60%) of enterprises that provide a
comprehensive and unified environment to support core management processes, such as planning
and financial reporting, profitability modeling, strategic agendas, and operational initiatives These
processes are not uniformly adopted; those related to planning and financial reporting are more
widely used than those related to profitability modeling and strategy management. Not all four
processes discussed here will have the same degree of importance for all organizations (and there
may be differences in short-term versus long-term importance). Prioritize the processes you want to
implement or improve in support of your short-term cost optimization initiatives, longer-term
strategies and competitive advantage, and create a road map for process innovation to realize
longer-term strategies. Technology and vendor selection should follow documentation of processes
to ensure that solutions adequately support the processes you want to change or automate.

This research outlines the top four CPM processes that organizations should focus on during the
next five years. Improvements in these processes can help with short-term cost optimization and
profitability initiatives, improving the execution of strategy, and supporting longer-term business
growth and transformation.

Organizations have invested heavily during many decades to establish and optimize core
transactional processes, but these transactional processes are much less mature in their approach

Page 2 of 9 Gartner, Inc. | G00172377

 to management-related processes. During the past decade, methodologies, best practices and
packaged solutions have emerged to assist organizations to better establish and automate core
management processes. Gartner defines the heart of these core management processes under the
term "corporate performance management" (see "Understanding CPM Applications").

The primary functional areas of CPM are:

■ Budgeting
■ Planning and forecasting
■ Scorecarding
■ Profitability modeling
■ Financial consolidation
■ Financial/statutory reporting

This represents the broad set of functionality required to support all performance management
functions and processes at the corporate level.

Although awareness of the CPM concept has become widespread, most implementations are
focused on the core financial aspects — budgeting, planning and forecasting, financial
consolidation, and financial/statutory reporting. While this is not a bad thing, it shows that the more
strategic aspects of CPM (understanding the drivers of profitability and strategy management) are
not well-understood. This is beginning to change as the market and buyers continue to mature and
recognize the transformational benefits that these solutions can offer.

This research discusses the top four CPM processes (see Figure 1) that organizations should focus
on during the next five years, not only to support cost optimization, but also to improve the financial
close, support increased regulatory reporting, and align strategic and operations activities for better
execution of the strategy.

Gartner, Inc. | G00172377 Page 3 of 9

 Figure 1. The Top CPM Processes

Vision and Goals and Execution Evaluation

Strategy Objectives

Align to Action

Plan to Perform

Monitor to Measure

Consolidate to Comply

Source: Gartner (December 2009)

For simplicity's sake, we have introduced the key processes in a linear, almost sequential fashion. It
is important to understand that these processes are interlinked (see Figure 2) with closed-loop and
feedback cycles that enable processes to coexist, and that enable organizations to recalibrate/
adjust rapidly.

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 Figure 2. The Links Between CPM Processes

Corporate Scenario
Stakeholders
Analysis

Strategic
Plan

Profitability
Report Evaluate
Modeling

Scorecard/
Strategy Map
Functional
Financial Forecast
Consolidation
Financial
Monitor
Plan/Budget

Communicate

Operational
Forecast
Forecast
Forecast
Transaction Operational
Operational
Monitor
Monitor Operational
Plan/Budget
Reporting Monitor Plan/Budget
Plan/Budget
Communicate
Communicate
Communicate

Source: Gartner (December 2009)

1.0 Align to Action

Despite decades of investment in business intelligence, most organizations still struggle to execute
on their business strategies. Strategies are intended to focus everyone's attention on what to do;
however, in many cases, they are inadequately created, poorly communicated and badly measured.
The align-to-action process is aimed at helping organizations synchronize their strategic and
tactical activities, and better execute their strategies. This process includes the use of scorecarding,
goal management, strategy maps, methodologies (such as the balanced scorecard or Six Sigma)
and the analysis of key metrics. Also included is the basis of long-term planning (high-level business
plans to evaluate the impact of different strategic alternatives), which forms the scope of the more-
detailed planning covered by the plan-to-perform process. This includes creating strategic plans on
a "base case plus" or an initiative-based approach, along with scenario modeling to compare the
financial outcomes of various strategies. Strategic planning includes long-term financial planning,
which creates a high-level perspective of revenue, expenses, balance sheet items and cash flows to
show the financial impact of different strategic alternatives.

Gartner, Inc. | G00172377 Page 5 of 9

 People issues are a significant impediment to the successful adoption of the align-to-action
process, not the specific methodology used or the identification of the right metrics. Therefore, a
well-designed metrics system aligned with a compensation/reward program (such as allocating
bonuses to teams or business units that perform well, and differentiating rewards for outstanding
performance) will encourage appropriate behavior. Individual and team contributions can easily be
better-designed, communicated and measured when aligned with the overall strategic objectives
(see "Using Corporate Performance Management to Deliver the CEO's Strategic Vision").
Successful implementations of this process are less common than for other CPM processes, and
most of those that are tend to be stand-alone and not linked to other performance management
processes.

Required Capabilities and Investments: Most of the capabilities required to support this process
are people skills, rather than IT investments. Successful approaches require consulting to help
articulate the strategy, create strategy maps and identify the key metrics. Many solutions are
available — from stand-alone scorecarding tools to CPM suites that support implementation of this
process.

Action Item: Create strategy maps to define and align the strategy with tactical activities, and use a
metrics model to communicate and drive the desired behavior to support strategy execution. Look
to external professional services to help deliver these capabilities.

2.0 Plan to Perform

The plan-to-perform process represents an evolution of the plan-do-check-act process defined as a
core management principle by statistician, professor and author W. Edwards Deming in the 1950s.
Unlike its earlier iterations, the plan-to-perform process recognizes that there are multiple planning
cycles that need to integrate with each other. For example, there are the strategic planning
(primarily the focus of the align-to-action process), financial planning and operational planning
cycles. Additionally, some planning approaches use activity-based management concepts by which
to determine and allocate costs at a highly granular level to help determine product and customer
profitability. More-sophisticated instances of this process enable costs and revenue to be allocated
and modeled, which provide after-the-event, detailed analysis of costs and profitability, as well as
before-the-event planning and scenario capabilities.

Planning is one of the most commonly deployed aspects of CPM processes, due to its long-
established principles and broad applicability. It includes strategic planning, financial budgeting and
high-level operational planning. This process supports the concept of planning from multiple
perspectives — for example, top-down, high-level planning (which sets goals at a corporate-/
business-unit level and allocates these to lower-level organizational elements) and bottom-up
budgeting (which creates corporate budgets by aggregating lower-level organizational unit
budgets). Increasingly, this process is executed as an ongoing iteration, rather than an historical
point-in-time exercise, to deliver rolling budgets and has, therefore, incorporated the concepts of
beyond budgeting. Furthermore, this process incorporates forecasting and modeling capabilities to
help finesse existing iterations into new scenarios that provide multiple new outcomes as an early
indicator of future performance.

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 Required Capabilities and Investments: Many sophisticated solutions are available to address
financial budgeting needs and to support an enterprisewide approach to this process. For example,
CPM-based budgeting, planning and forecasting applications are mature and sophisticated in
functionality to support this process. However, Microsoft Excel is also still widely used; Gartner
estimates that nearly 50% of large enterprises and 75% of midsize organizations are still using
spreadsheets or legacy applications to support this process. CPM processes can help identify how
to manage cost-cutting initiatives, while protecting profitable revenue (see "Update: Cost
Optimization Requires Corporate Performance Management").

Action Item: Improving the plan-to-perform process can be one important way to reduce costs and
improve productivity. Users should replace Excel-based systems or manually intensive processes
with packaged budgeting, planning and forecasting applications.

3.0 Monitor to Measure

Most organizations continue to produce their key financial reports (such as the three core financial
statements — profit and loss [P&L], balance sheet and cash flow forecast), as well as a raft of
management reports, via manually intensive processes.

The monitor-to-measure process defines an organization's internal financial reports and

management reporting. This process involves the steps required to generate the core financial
statements (P&L, balance sheet and cash flow forecast), and incorporate and align actuals with
budgets/forecasts for comparative reporting. Many solutions may present information in the form of
cascading dashboards or, alternatively, provide links to business intelligence platforms. With direct
links to the consolidate-to-comply process, this also covers the financial and related information
classification structures and the steps to analyze and report information consistently at the
appropriate levels of detail for multiple users, such as accountants, senior executives, managers,
auditors, investors and other stakeholders.

Required Capabilities and Investments: The monitor-to-measure process has been incorporated
into many of the CPM suites available today to simplify sharing financial data, improve auditability
and streamline financial statement production. In addition, we have seen the emergence of stand-
alone financial reporting solutions to automate more of the controls and governance related to the
financial disclosure process. However, more-recent innovations, such as eXtensible Business
Reporting Language (XBRL; see "XBRL Will Enhance Corporate Disclosure and Corporate
Performance Management") are emerging.

Action Item: IT organizations and finance must audit their existing systems to ensure they are
sufficient for increasing regulatory and financial reporting, and to enable tight integration with
business intelligence platforms for management reporting. Consider how to leverage XBRL to
improve internal financial and management reporting.

4.0 Consolidate to Comply

Financial consolidation and the financial reporting close are highly specialized, interconnected
stages in a core management process. They are usually managed by a small team of accountants at

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 the corporate head office in support of the legal and regulatory needs to create the master financial
data and key external reports (such as Form 10-K, Form 10-Q, interims, annual report and other
regulatory reports). This process is a fundamental part of CPM, and creates the audited, enterprise-
level view of financial information that must be shared with other CPM applications and a wider
management community via business intelligence to report and analyze variance from targets. The
consolidated financial data is also the ultimate financial performance measure. Executive
management uses this information to communicate financial key performance indicators to
shareholders, regulators, analysts and other stakeholders.

Best-practice approaches automate this process, which starts with the financial close and involves
the consolidation of multiple legal entities for group accounting and support for multiple financial
standards, such as U.S. generally accepted accounting principles (GAAP) and International
Financial Reporting Standards (IFRS; see "The 21st Century Disclosure Initiative Will Reprioritize
Your Business Intelligence and Performance Management Strategies"). This process is heavily
regulated and subject to external auditing, and is, therefore, rigorously and comprehensively
understood and implemented. Successful implementation of this process will improve compliance
with regulatory and financial standards, provide transparency, and reduce internal accounting and
external audit costs.

Required Capabilities and Investments: Many well-established applications, such as general

ledger, ERP and CPM applications, support the financial close, financial consolidation and financial
reporting. Changes to the regulatory and financial reporting standards, such as the adoption of IFRS
and 21st Century Disclosure, are driving the need for additional investment.

Action Item: IT organizations and finance must ensure that the solutions to support the consolidate-
to-comply process are not restricted to group finance, can meet the emerging standards and are a
key part of the management-reporting environment.

Recommended Reading
"Understanding CPM Applications"

"XBRL Will Enhance Corporate Disclosure and Corporate Performance Management"

"The 21st Century Disclosure Initiative Will Reprioritize Your Business Intelligence and Performance
Management Strategies"

"Update: Cost Optimization Requires Corporate Performance Management"

"Using Corporate Performance Management to Deliver the CEO's Strategic Vision"

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