EPM In Complex Organizations

Enterprise Performance Management

ReseaRch RepoRtEntErprisE pErformancE managE-mEnt in complEx organizations

Research Report – Enterprise performance management


coNteNt

4 About This Report

5 Executive Summary 5 Why this study focused on

management processes 5 the nature and importance

of management processes 5 changing Definition of leading

management process practices 6 Key capability gaps in participant

management processes 6 starting to address capability

gaps in less than one Week 7 How recommended actions

Benefit organizations

8 Perspectives About Greater Management Process Maturity

8 gauging management process maturity with four Questions

8 a source of competitive Differentiation

9 tangible Value sources 9 fundamental cost reduction 9 multiple applications required 10 Effective finance transformation

11 Detailed Survey Results 11 more than 50% of respondents

Had significant capability gaps 18 Key capabilities for full

management process integration Hadn’t fully matured

24 improving flexibility, agility, and profit and cash-flow forecast accuracy are Key issues.

27 large and complex organiza-tions Value management process maturity more

30 management process strate-gies are important to large and complex organizations

32 more mature management processes are integral to achieving finance objectives

34 Summary: Applying Research Insights


in november 2008 sap and column 5 consulting llc commissioned cfo research services (a unit of cfo publishing corp.) to conduct research on the views of finance executives of larger and more complex organizations on emerging planning and budgeting practices. the study sought to deter-mine how executives are using or con-sidering using more mature planning, budgeting, forecasting, reporting, and measurement tools as a strategy for improved organizational performance.

the hypotheses for this research were developed by Dean sorensen of column 5 consulting, who jointly developed the questions and survey structure with peter lull and sam Knox of cfo research services. scott leatherman and patricia faissol of sap provided editorial and analytical contributions.

all told, 166 responses to the survey were gathered across multiple indus-tries. the following is a summary of those participating:• 51% of respondents were from com-

panies with over Us$5 billion in annu-al sales, with 49% coming from com-panies with between $1 billion and $5 billion in annual sales.

• 57% of respondents held the position of cfo or executive vice president or vice president of finance, with the remainder holding positions such as controller, director, or treasurer.

the premise for this research study is based on a white paper called the ten Day plan. this paper argues that emerging planning and budgeting practices comprise continuous and fully integrated strategic, financial, and operational management processes that can be executed on a monthly basis. it is available for download at www.column5.com.

if you have any questions or comments about this research study, please contact Dean sorensen at [email protected] or directly at +1 425-260-6817.

about this RepoRt

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this section provides a high-level over-view of the logic behind the research, along with the resulting conclusions and recommendations.

Why This Study Focused on Management Processes

one of the most important leading indicators of the effectiveness and or-ganizational performance of the finance team is planning and budgeting cycle time. Why? Because long and highly political planning and budgeting pro-cesses are symptomatic of manage-ment process capability gaps that impede organizations from achieving aspirations of being more flexible, re-sponsive, cost-effective, and customer focused. large and complex organiza-tions are especially susceptible to im-paired performance caused by these gaps. these organizations and capability gaps are the focus of this research study.

The Nature and Importance of Management Processes

this report collectively refers to plan-ning, budgeting, forecasting, reporting, and measurement capabilities as “man-agement processes”: the means by which organizations define, adapt, de-ploy, resource, and execute strategy to create business outcomes. they com-prise a number of component process-es and tools (such as those illustrated in figure 1) that together provide the means to optimize performance and stakeholder value.

the term “management process” is not a universally defined and acknowl-edged one, like budgeting, reporting, or performance measurement. conse-quently, organizations don’t always think about management process development at such a broad level. as a result, strategic, financial, and operational management processes are often fragmented, resulting in key capability gaps.

such capability gaps are less likely to interfere in smaller, less complex orga-nizations, since their ability to work around them manually is often a viable option. However, larger and more com-plex organizations often outgrow the ability to effectively execute this manual work-around strategy. this results in a number of common challenges, which are the focus of this research.

Changing Definition of Leading Management Process Practices

the following describes insights that provide a context for the conclusions included this report:• recent developments in manage-

ment process applications are rede-fining leading management process practices.

• these developments are taking place outside traditional financial applications.

• the management process maturity models used in this study reflect these developments.

• larger and more complex organiza-tions stand to benefit most from more mature management processes.

• further details of the perspectives that underlie them are presented in the “perspectives about greater manage-ment process maturity” section.

executive summaRy

Figure 1: Processes and Tools That Comprise Enterprise Management Processes

Business Intelligence

set

Dire

ction

prioritize r

esponsemanage p

erfo

rman

ce

translate Direction

sales and operations planning

portfoliomanagement

governance,risk, andcompliance

activity based costing and planning

Budgeting planning consolidation

process and quality manage - ment

asset and investment management

Balanced scorecard

Business outcomes

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Key Capability Gaps in Participant Management Processes

the overarching conclusion from this research is that the majority of larger and more complex organizations have management process capability gaps, relative to the practices described above. Below are the supporting conclusions.

Most respondents had management process maturity levels indicating potential capability gaps. the majority of respondents were large and complex organizations having low to moderate levels of management process maturi-ty. such situations are characteristic of management process capability gaps that don’t fully support the ability to execute strategies and optimize per-formance across functions, business units, and legal entities.

Key capabilities hadn’t matured, indi-cating that management processes weren’t fully integrated. complex or-ganizations hadn’t fully developed four key capabilities that are fundamental to more mature and fully integrated man-agement processes. moreover, there were inconsistencies between the re-ported maturity of these capabilities and participant evaluations of manage-ment process integration and effective-ness. a potential cause for this is that organizations are using outdated defini-tions of what constitutes “full integra-tion” and leading practices.

Identified management process priorities and benefits provide further evidence of these gaps. the majority of larger and more complex organiza-tions seek to establish greater flexibility and agility while improving the accuracy of profit and cash-flow forecasts. fully achieving these objectives can be diffi-cult for such organizations because it requires a level of sophistication that comes from very mature and highly integrated management processes.

The value of addressing these gaps is well recognized in more complex organizations. larger and more com-plex organizations place a higher value on more mature management process-es than smaller or less complex organi-zations do. organizations having higher

business process orientation also val-ued greater management process ma-turity more than others, thereby provid-ing evidence of the value stemming from greater cross-functional coordination.

Complex organizations are taking steps to address these gaps and real-ize this value. larger and more com-plex organizations are almost twice as likely to spend significant time develop-ing a strategy for management pro-cesses as well as the finance function, compared to others.

Greater management process matu rity will enable finance organizations to play more strategic roles. to enable organizations to more effectively exe-cute strategy, finance organizations require more mature management pro-cesses that readily adapt to change while also providing consistent informa-tion across organizations. such man-agement processes also equip finance to fulfill one of its most important self-described roles – to help organizations reduce costs.

Starting to Address Capability Gaps in Less than One Week

actions taking just one week can start to address management process capa-bility gaps. adopting more mature man-agement processes is an opportunity for organizations to more effectively manage complexity. However, many

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Define the Valuegetting traction on any initiative is con-tingent upon the value it creates. in the early stages, the process of quantifying management process value should be focused on key areas, most of which were identified in this research study. the purpose of this “rough cut” analy-sis is twofold:• to determine if the value is significant

enough to reprioritize the organiza-tion’s investment portfolio

• to identify the specific management process capabilities that are driving this value

Establish a championto establish greater management pro-cess maturity, organizations should identify a management process cham-pion. the champion’s role is to solve business problems by leveraging lead-ing practices and applications that are relevant to the organization. this entails ensuring that process design and appli-cation decisions benefit the organiza-tion as a whole, not just individual func-tions. Examples of these management process applications can be found at the beginning of this report.

create focusthe most obvious symptoms of man-agement process capability gaps are long and highly political planning and budgeting processes. setting aggres-sive cycle-time reduction targets (for example, less than 30 days) will prompt the “out of the box” thinking required

to address these gaps. in so doing, it will drive the type of cross-functional changes that are required to achieve other objectives, such as greater accu-racy of cash-flow and profit forecasts.

provide clear Direction“integration” is a term often used when describing management process applications. However, the term is often defined from technical perspectives, not from a business standpoint. to ad-dress this, executives should define the requirements for key integration points, some of which are addressed in this study. this will provide the direction required to focus management process evaluations and design decisions on those things that are critical to capitaliz-ing on identified value opportunities.

How Recommended Actions Benefit Organizations

By undertaking these steps, organiza-tions will be in a better position to es-tablish more effective and integrated management processes, while also capitalizing on the value opportunities they present. from a more pragmatic perspective, a holistic approach pro-vides the means to make process and technology design decisions that:• result in greater user acceptance • avoid performance issues and rework• minimize software integration• minimize implementation time • reduce overall implementation costs• achieve benefits and value faster

often lack meaningful focus on man-agement processes to capitalize on this opportunity. this is because they focus on point solutions that meet the needs of individual functions, rather than those of the organization as a whole.

this approach can result in automated but disjointed processes that lack the sophistication to be relevant, while con-tinuing to drive excessive cycle times. the result: management processes that leave organizations unable to react to changing market conditions soon enough to avoid dangerous perfor-mance issues.

Business leaders can address this by taking the following steps.

identify the gapto the extent that this research study reveals potential management process capability gaps, organizations should confirm them with further analysis. this should involve a more detailed gap analysis that is based on a shared understanding of two things:• How management process capability

gaps are contributing to recognized business issues that are important to key stakeholders

• How leading applications – those underlying the management process maturity model – provide the means to address these gaps

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this section provides a context for the research by identifying the underlying perspectives and related hypotheses that shaped it. for further information about these perspectives, please refer to the white paper titled the ten Day plan, available at www.column5.com.

Gauging Management Process Maturity with Four Questions

as organizations grow larger and more complex, it often becomes increasingly difficult to establish targets and allocate resources while balancing conflicting objectives across multiple functions, business units, and legal entities. such organizations often lack readily avail-able information to answer four key questions:• are revenue targets supported by

realistic volume, mix, and pricing assumptions?

• are organizational objectives and key performance indicator (Kpi) targets realistic and adequately funded?

• Does sufficient capacity exist to exe-cute projects and achieve revenue and Kpi targets?

• Do revenue and Kpi targets optimize organizational performance?

leading organizations incorporate integrated business models (strategic, financial, and operational) into their management processes to answer these questions. (Examples of the out-puts are contained in the ten Day plan white paper noted above.) While manu-al work-arounds can be useful, they typically give rise to four fundamental issues and related implications.

for larger and more complex organiza-tions, these manual work-arounds tend to be less effective. in fact, the inability to make significant improvements to the following three metrics are leading indicators of management processes in need of more advanced and effective capabilities:• cash-flow forecast accuracy• planning and budgeting cycle time• actual to planned investment roi

the ability to produce planning-risk information on demand related to these metrics is a leading indicator of the presence of such advanced capabilities. producing information on demand is also a leading indicator of “full manage-ment process integration” – from both a business and a technical perspective. for these reasons, this survey incorpo-rated these questions to gauge the presence of advanced capabilities and integration levels.

A Source of Competitive Differentiation

organizational complexity makes it increasingly difficult to coordinate busi-ness outcomes horizontally across functions, business units, and legal entities. alleviating this complexity is crucial. the value associated with many of the strategies organizations pursue – operational excellence, competitive cost structures, customer focus and in-timacy, and employee empowerment, for example – are all founded upon such coordination.

the problem is that organizations don’t always plan, manage, and govern this way. rewards and decision rights often follow functionally based planning, bud-geting, and reporting processes. the result: these process-based strategies don’t realize their full potential. this is the “alignment paradox” facing today’s organizations and represents the key challenge facing cfos who seek to

peRspectives about GReateR maNaGemeNt pRocess matuRityEstaBlisHing prioritiEs, Balancing conflicting oBjEctiVEs

Typical Issues Arising When Information Is Lacking

Issue Potential Implication

it takes too long to obtain and analyze information to answer the questions.

opportunities are missed or diminished.

the information used to answer questions isn’t always complete and accurate.

Decisions are delayed and disagreements lead to a lack of commitment once they are made.

overly simplistic models are used to conduct analysis needed to answer questions.

the wrong conclusions are reached, causing organizations to select the wrong projects or set inappropriate targets.

the analysis is narrowly focused on parts of the organization and doesn’t consider the impact on the whole.

the performance of functions, business units, and legal entities is improved at the expense of organizational performance.

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transform the finance team into more-effective business partners.

addressing this alignment paradox requires the ability to more effectively plan and manage business process performance, while maintaining tradi-tional views of spending and perfor-mance. such management process maturity is a source of competitive differentiation because it supports superior strategy execution.

the maturity models discussed in the first part of the survey results section incorporate this perspective. these five-stage maturity models converge at stage 4, where business processes become a focal point of planning and performance management. these ma-turity models provide insight into those organizations that have reached stage 4 across both dimensions.

this section summarizes findings and conclusions relating to levels of organi-zational complexity, management pro-cess maturity, and business process orientation. “Business process orienta-tion” expresses the degree to which organizations plan, measure, manage, and govern the performance of busi-ness processes.

Tangible Value Sources

in more complex organizations, invest-ments supporting management pro-cesses pay off when greater cross-functional coordination is institutionalized. such maturity levels enable organiza-tions to optimize the value from invest-ments in process-based initiatives such

as enterprise resource management, supply chain management, six sigma, total quality management, and continu-ous improvement. it is this logic that contributes to the following sources of value addressed in the survey:• Process cost reduction – coordinat-

ing resource allocation and perfor-mance management across functions and business units to optimize overall organization performance

• Purchase cost reduction – coordi-nating decisions about product de-sign and component sourcing, based on the impact on overall organization performance

• Margin improvement – coordinating the development of quality and service-level targets (across func-tions and business units) so that they are consistent with margin objectives and cost expectations of internal and external customers

• Investment optimization – priori-tizing, selecting, and sequencing investments on the basis of specific evidence about how potential invest-ments affect performance in the short, medium, and long term across functions, business units, and legal entities

the survey asks participants to quanti-fy the likelihood of value, and not the degree of value itself. our perspective, however, is that complex organizations with larger management process capa-bility gaps have significant value oppor-tunities. in fact, we believe that more effective management processes are a competitive differentiator, in that they enable superior strategy development and execution.

Fundamental Cost Reduction

Volatility in today’s economic climate has heightened the need for more effective management processes to reduce costs and preserve cash. one of the most significant benefits of greater management process maturity is the ability to maintain competitive cost structures that can naturally self-correct to changing market conditions. rather than across-the-board cuts, more mature management processes enable organizations to more effective-ly align service levels (a key driver of costs) with revenue streams while also establishing more effective accountabil-ity for gross and net profits. “funda-mental cost reduction” is a term that describes this approach.

as organizations pursue cost reduction opportunities, they would be well served to understand how the tools enabling greater management process maturity also support a more effective and informed approach to cost reduction.

Multiple Applications Required

traditional financial planning, budgeting, and reporting applications will always lie at the core of any management pro-cess design. of equal importance are process-driven business intelligence tools that provide the means to inte-grate other leading applications into a cohesive management process. the following are examples of such tools, along with the potential roles they play in an integrated management process:

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• Activity-based costing – the impor-tance of activity-based costing tools is reemerging as organizations under-stand the need for accurate process costs, in total and expressed as a cost per unit of output. this is espe-cially true of organizations seeking to manage customer value propositions across legal entities.

• Sales and operations planning – sales and operations planning has evolved from simply a tool that sup-ports supply chain management to one that can be extended across the entire enterprise. this continuous process, which has been used so successfully in manufacturing for the past 20 years, can now be leveraged in other functions and industries to fundamentally reshape the budgeting process.

• Integrated business planning – inte-grated business planning provides the means to dramatically improve prioritization, target-setting, and capi-tal allocation processes. advanced modeling and logic helps identify Kpi targets and select investments that optimize profitability and roi respec-tively, while also minimizing the risk of unforeseen capacity constraints or funding shortfalls.

• Business intelligence (BI) platform – Bi platforms provide interoperability and support collaboration required to achieve rapid planning cycles. leading tools provide both data and process management capabilities that are fundamental to integrated management processes.

these specialized tools play an essen-tial role in an integrated management process. However, decisions about which ones to use should not be under-taken individually. rather, the decision needs to be made in view of key capa-bilities that are created through integra-tion and that aren’t available from these applications individually.

Effective Finance Transformation

finance transformation is the process equipping finance functions with the processes, tools, and skills to more effectively protect and enhance share-holder value. at the heart of this trans-formation lies the development of an organization’s most important source of competitive advantage: its ability to quickly, cost-effectively, and profitably adapt to change.

greater management process maturity is central to fully developing this capa-bility. therefore, it is also a central component of strategies aimed at establishing finance functions that can play a more strategic role in organizations.

the implication is that “real” finance transformation cannot be fully achieved by finance organizations alone. it re-quires coordination with functions to develop management processes that brings together strategy, finance, sales, and operations to meet the needs of the entire organization. this more holis-tic approach to management process design is fundamental to more strategic approaches to finance transformation.

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this section comprises the details of the survey results. reading the “perspectives about greater manage-ment process maturity” section is a way to better understand the conclu-sions reached herein.

More than 50% of Respondents Had Significant Capability Gaps

this section summarizes findings and conclusions relating to levels of organi-zational complexity, management pro-cess maturity, and business process orientation. “Business process orienta-tion” expresses the degree to which organizations plan, measure, manage, and govern the performance of busi-ness processes.

conclusionsthe majority of respondents were large and complex organizations having low to moderate levels of management

process maturity. such situations are characteristic of management process capability gaps that don’t fully support the ability to execute strategies and optimize performance across functions, business units, and legal entities. Detailed findings supporting this include the following:• more than 50% of respondents were

complex organizations having low lev-els of management process maturity.

• these capability gaps varied by industry, with some being much larger than others.

• more than 50% of respondents also exhibited low cross-functional coordination capabilities.

Key insightsthe data supporting the detailed find-ings was further combined and ana-lyzed to produce the graphs noted on the pages that follow.

DetaiLeD suRvey ResuLtsinsigHts anD conclUsions

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More than 50% of respondents were complex organizations having low levels of management process maturity.

Data from questions 10 and 11 was combined to produce the graph in figure 2. What it shows is that the majority of respondents are represented in the top left corner of the graph. given the level of complexity, these organizations appear to have management process capability gaps.

These capability gaps varied by industry, with some being much larger than others.Data from questions 10 and 11 was combined by industry to produce the graph in figure 3. it shows that these capability gaps vary significantly by industry, with the highest ones being reported by wholesale and retail, pharmaceuticals, and media and entertainment.

Figure 3: Capability Gaps by Industry

financial services, real estate, and insurance

Healthcare

chemicals, energy, and utilities

food, beverages, and consumer goods

public sector and nonprofit

pharmaceuticals, biotechnology, and life sciences

transportation and warehousing

construction

other

telecommunications

media and entertainment

auto, industrial, and manufacturing

Hardware, software, and networking

Wholesale and retail trade

aerospace and defense

Business and professional services

Complexity and capability gap Reported capabilities

0.00.51.01.52.02.53.03.54.04.55.0

Figure 2: Management Process Maturity

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Management process maturity

Circle = Average

>50%

<10%

Research Report – Enterprise performance management12

More than 50% of respondents also exhibited low cross-functional coordination capabilities.

Data from questions 11 and 14 were combined to produce the graph in figure 4. What it shows is that the more than 50% of participants had achieved only moder-ate levels of both management process and business process management matu-rity. organizations exhibiting these characteristics typically have planning and performance management approaches that continue to be functionally or vertically dominated. as a result, they don’t fully support the type of superior strategy exe-cution that comes from more horizontally based approaches. a minority of partici-pants, on the other hand, exhibited such characteristics, as illustrated by the 8% in the top right-hand corner of the graph.

Detailed findings the following are the responses from the survey questions, together with the key findings, that support the conclusions reached above.

Figure 4: Business Process Orientation

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Research Report – Enterprise performance management 13

Q10: Complexity – participants exhibited characteristics of highly complex organizations.

participants were asked if the following complexity characteristics strongly applied to their organization:• large scale: many products, services, customers, employees, and vendors• significant variability in pricing, volume, product and service mix, customer

support, and input costs• change: frequent change to products, services, processes, projects, and

organizational structures• organizational structure: large number of business units, legal entities, and

many geographic regions• interconnectivity: business units share customers, production, services,

outsourcing vendors

the following insights were revealed from the survey and are illustrated in figures 5 and 6:• 39% of respondents said all five complexity characteristics apply to them.• the majority of participants (107 out of 166, or 65%) were categorized as being

highly complex organizations that exhibited four or five of the complexity characteristics.

• Each respondent was assigned a complexity score on a scale of 1 to 5, based on the number of characteristics applying to their organization. the average score for all respondents was 3.8.


Figure 5: Organizational Complexity – Characteristics

0% 40% 60% 80% 100%20%

large scale: many products, services, customers, employees, and vendors

significant variability in pricing, demand volume, product and service mix, customer support, and input costs

complex organizational structure: large number of business units, legal entities, and many geographic regions

change: frequent change to products, services, processes, projects, and organizational structures

interconnectivity: business units share customers, vendors, production, services, or outsourcing vendors

No = 29%

No = 39%

14%Yes = 86%

18%Yes = 82%

20%Yes = 80%

Yes = 71%

Yes = 61%

Figure 6: Number of Complexity Characteristics

0% 10% 20% 30% 40%

Five = 64 organizations representing 39% of respondents

Number of Complexity Characteristics

Four = 43 organizations representing 26% of respondents

Three = 33 organizations representing 20% of respondents

Two = 18 organizations representing 11% of respondents

One = 8 organizations representing 5% of respondents

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1

2

11

8

36

10

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2

Sales Dollars $5 to $10 billion< US$5 billion > $10 billion

17

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21

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Q11: Management process maturity – Despite relatively high automation levels, management processes exhibited only moderate maturity.

participants were asked to identify one of the following statements that best describes their organization’s current practice for planning, budgeting, forecasting, and broader enterprise management:• Basic: spreadsheets are our primary tool for planning, budgeting, and forecast-

ing and for measuring results. maturity score = 1.• Formalized: planning, budgeting, and forecasting process is automated and

some other elements of enterprise management (for example, pricing, grc, business intelligence) are automated as well. maturity score = 2.

• Coordinated: planning, budgeting, and forecasting process is automated and most elements of enterprise management (for example, pricing, governance, risk and compliance, business intelligence) are automated as well. maturity score = 3.

• Integrated: one single system and process is used for planning, budgeting, forecasting, and measuring sales, operations, finance, projects, and business processes. plans are based on one set of explicit and shared assumptions and data that are available upon demand. maturity score = 4.

• Dynamic: planning, budgeting, forecasting, and measurement mature into one continuous, monthly process. annual budgeting is abandoned. maturity score = 5

.the following insights were revealed from the survey and are illustrated in figure 7:• two-thirds of respondents had automated aspects of their planning, budgeting,

and forecasting processes, while only a third was still using spreadsheets to support these processes.

• fewer than one in seven say their company runs integrated systems for these activities, and very few (3%) have a dynamic, continuous monthly process where annual budgeting is not necessary.

• of the 13% of respondents indicating that their management processes were integrated, more than half didn’t have key information available upon demand – a key feature of integration that is addressed in the next section. the implication is that the reported 13% should actually be 5% and the coordinated score should be 27%, not 19%.

• respondents were assigned a maturity score on a scale of 1 to 5, based on their selection. the average score for all respondents was 2.2.

Figure 7: Stages of Management Process Maturity

1. Basic

2. formalized

3. coordinated

4. integrated

5. Dynamic

13%

19%

34%

31%

3%

0% 10% 20% 30% 40%


Q14: Business process orientation – on average, process management capabilities were moderately developed.

participants were asked to identify one of the following statements that best de-scribes their organization’s current capability for driving performance improvement across functions, business units, and legal entities:• Informal: our business processes are not formally defined, and formal process

and quality management approaches (for example, total quality management and six sigma) are not used.

• Some: formal process and quality management approaches are used to im-prove cross-functional performance, but efforts are often undermined by a lack of accessible and accurate cost and performance data.

• Considerable: We have deep process and quality management expertise and readily available process cost and performance data to drive strategically signifi-cant process improvements.

• Significant: our process-based approach to planning, budgeting, and measuring and rewarding performance has institutionalized “process thinking” throughout the organization.

• Complete: Business processes are the basis for governance and decision rights.

the following insights were revealed from the survey and are illustrated in figure 8:• 88% of respondents report basic processes and quality management

capabilities are in place to drive performance improvement across functions and business units, but it is very rare to see complete process capability.

• only 1 in 25 (4%) says the company has a complete process as the basis for governance and decision rights.

• respondents were each assigned a maturity score on a scale of 1 to 5, based on their selection. the average score for all respondents was 2.7.

Figure 8: Stages of Business Process Orientation

1. informal

2. some

4. integrated

5. complete

18%

32%

33%

12%

4%

0% 10% 20% 30% 40%

3. considerable


Key Capabilities for Full Manage-ment Process Integration Hadn’t Fully Matured

this section summarizes the conclu-sions drawn from the information pro-vided by survey respondents about management process integration and effectiveness.

conclusionscomplex organizations hadn’t fully de-veloped four key capabilities that are fundamental to more mature and “fully integrated” management processes. moreover, there were inconsistencies between the reported maturity of these capabilities and participant evaluations of management process integration and effectiveness. a potential cause for this is that organizations are using outdated definitions of what constitutes full integration and leading practices.

Key insightsanswers to the survey questions con-tained in this section revealed three things:• complex organizations lacked readily

available information about four measures that gauge the level of “planning risk” in their business plans.

• Despite a lack of on-demand access (to this “planning risk” information), management processes were rated as effective.

• Despite a lack of on-demand access (to this “planning risk” information), management processes were rated as integrated.

What these findings also reveal is an inconsistency between how organiza-tions answered questions relating to the first point and how they provided answers to the last two. this inconsis-tency is represented in figure 9.

What this means is that the capabilities represented by questions 3 to 6 were not weighted heavily in the answers to questions 1 and 2. the implication is that (for more complex organizations) the level of effectiveness and integration is probably lower than that reported by participants.

Detailed findingsorganizations reported that manage-ment processes were effective and integrated, with key information readily accessible. provided below are the re-sponses to the survey questions that support this finding.

Figure 9: Management Process Integration and Effectiveness

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Management process effectiveness

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Gap1

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average level of reported management process effectiveness and integration

Difference between 1 and 2: inconsistency between measures

Weighted average of responses related to the availability of key information about revenue, key performance indicator target, capacity, and project portfolio risk


Q3 to 6: Data availability – complex organizations lacked on-demand access to key information.

participants were asked about how available accurate “planning risk” information is to determine whether:• revenue targets are consistent with demand forecasts• Kpi targets are adequately funded by the budget process• functions and business units have sufficient capacity to achieve Kpi targets• revenue and Kpi targets optimize organizational performance

participants were asked to categorize their answers as follows, with values assigned for indexing purposes as indicated:• information available with substantial manual effort (index value = 1)• information available with some manual effort (index value = 2)• information available upon demand – no manual effort (index value = 3)

the following insights were revealed from the survey and are illustrated in the graph in figures 10 and 11:• responses to these questions are consistent with one another across most

dimensions.• the major differentiator was level of complexity, with the median response for high-,

medium-, and low-complexity organizations being 2, 1.7, and 1.0 respectively.

the key conclusion is that the level of information availability is likely not sufficient to meet the needs of complex organizations. refer to the “perspectives about greater management process maturity” section for the rationale behind this conclusion.

Figure 11: “Planning Risk” Information Availability – Effort Required

0% 20% 40% 60% 80% 100%

revenue targets are consistent with demand forecasts.

Key performance indicator (Kpi) targets are adequately funded by the budget process.

functions and business units have capacity to achieve Kpi targets.

revenue and Kpi targets optimize organizational performance.

51% 15%

16%

19%

20%

1 = substantial effort 2 = some effort 3 = no effort – on demand n/a or don’t know

33%

35%

34%

29%

51%

49%

46%

50%

Average

1.7

1.7

1.8

1.9

Figure 10: Information Availability Compared to Organizational Complexity

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1=low 2=medium 3=High

Median information availability


Q1: Management process effective-ness – despite a lack of on-demand access, management processes were rated as effective.

participants were asked how effectively the finance function executes the following planning, budgeting, and forecasting activities:• operational and capital budgeting• planning and target setting• p and l (revenue and expense) forecasting• Balance sheet and cash-flow forecasting

the following insights were revealed from the survey and are illustrated in figures 12 and 13:• on average, 90% of respondents say their company is either effective or very

effective in executing the above activities.• these activities were more likely to be effective at organizations with higher

revenues and greater complexity.• organizations that categorized their processes as being very effective only had

“planning risk” information available on demand between 20% and 24% across all processes.

the implication of these findings is that, while respondents rated the level of effectiveness high, compared to leading practices, the actual level of effective-ness is lower than that reported by complex organizations.


Figure 12: Process Effectiveness – Responses

0% 20% 40% 60% 80% 100%

p and l (revenue and expense) forecasting

Balance sheet and cash-flow forecasting

planning and target setting

operational and capital budgeting

51% 8%

13%

9%

11%

1 = Not very effective 2 = Effective 3 = Very effective

50%

47%

56%

61%

42%

40%

36%

28%

Average

2.3

2.3

2.2

2.1

Figure 13: Process Effectiveness – “Very Effective” Responses Adjusted for Planning Risk Availability

76%

0% 20% 40% 60% 80% 100%

p and l (revenue and expense) forecasting

Balance sheet and cash-flow forecasting

planning and target setting

operational and capital budgeting

Degree of effectiveness

80%20%

80%20%

76%24%

Available on demand Manual intervention

24%


Q2: Management process integra-tion – despite a lack of on-demand access, management processes were rated as integrated.

participants were asked the degree of integration of their financial planning, budgeting, and forecasting processes with the following management processes and methods:• Business intelligence• sales and operations planning• governance, risk, and compliance• project and portfolio management• Balanced scorecard and performance measurement• activity-based costing• operational planning optimization• portfolio and capital planning optimization

the following insights were revealed from the survey and are illustrated in figures 14 and 15:• two in five say there is tight integration between financial planning, budgeting,

and forecasting and the six management processes and methods.• greater integration was found in organizations with higher revenues and

greater complexity.• organizations that categorized their processes as being tightly integrated

only had “planning risk” information available on demand between 20% and 25% across all management processes and methods.

the implication of these findings is that, while respondents rated the level of integration high, compared to leading practices, the actual level of integration is lower than that reported by complex organizations.


Figure 14: Process Integration – Responses

0% 20% 40% 60% 80% 100%

51% 7%

14%

15%

2%

2%

2%

8%

10%

13%

13%

40%

39%

35%

50%

46%

47%

52%

45%

42%

40%

40%

40%

2.4

2.3

2.1

2.2

2.3

2.2

Business intelligence

project and portfolio management

Balanced scorecard and performance management

activity-based costing

governance, risk, and compliance


1= little integration 2 = some integration 3 = tight integration 0 = Don’t know

Figure 15: Process Integration – “Tightly Integrated” Responses Adjusted for “Planning Risk” Availability

80%

79%

75%

0% 20% 40% 60% 80% 100%


governance, risk, and compliance

Business intelligence

Balanced scorecard and performance management

project and portfolio management

activity-based costing

77%23%

78%22%

79%21%

Integration level On demand Effort needed

20%

21%

25%


Q7: Business benefits – 75% of larger organizations sought great-er flexibility and agility.

participants were asked to identify three of the most important business benefits that their companies could realize from more effective planning, budgeting, forecasting, and performance measurement. the following graphs summarize responses:• figure 16: shows results from all respondents• figure 17: identifies differences in responses by company size• figure 18: identifies differences in responses by industry

the following are the key insights taken from these responses:• nearly two in three respondents say greater flexibility and agility would be

the leading benefit.• this flexibility, along with greater customer focus, is prized more by larger

companies.• the primary focus of organizations with less than $5 billion is driving greater

operational excellence.• in some industries, there was complete consensus about the relative impor-

tance of these benefits.• there were significant differences in responses between sectors, further

reinforcing the relevance of these benefits.

Figure 16: Business Benefits – Results from All Respondents

50%

51%

51%

63%

31%

0% 20% 40% 60% 80%

greater flexibility and agility

greater customer focus

more consistent strategy execution

none of these

promote a business owner mentality

other

Drive operational excellence

Improving Flexibility, Agility, andProfit and Cash-Flow ForecastAccuracy Are Key Issues

this section summarizes participantmanagement process improvementpriorities and expected business bene-fits associated with more effectiveplanning, budgeting, forecasting, andperformance measurement.

conclusionsthe majority of larger and more com-plexorganizations seek to establish greater flexibility and agility while im-proving the accuracy of profit and cash-flow forecasts. fully achieving these, as well as related management process improvement objectives, can be very difficult for such organizations because it requires a level of sophisti-

cation that comes from very mature and highly integrated management processes.

Detailed findingsprovided below are the responses from the survey questions, together with the key findings, that support the conclusions reached above.


Figure 17: Business Benefits – Responses by Company Size

50%

56%

57%

75%

31%

0% 20% 40% 60% 80%

greater flexibility and agility

greater customer focus

more consistent strategy execution

none of these

promote a business owner mentality

other

Drive operational excellence

50%

45%

46%

> US$5 billion < $5 billion

flexibility and agility greater customer focus operational excellence

100%

73%

67%

TEL

CON

PUB

100%

100%

75%

PUB

M&E

A&D

W&R

F&PG

83%

80%

75%

75%

F&PG

T&W

H&S

A&D

AVG = 63% AVG = 51%

67%

AVG = 51%

strategy execution

100%

80%

75%

M&E

T&W

PHM

W&R

HTC

F&PG

AVG = 50%

t&W = transportation and warehousingf&pg = food and packaged goodsa&D = aerospace and defenseH&s = Hardware and software

m&E = media and entertainmentW&r = Wholesale and retailpHm = pharmaceuticalsHtc = Healthcare

con = constructiontEl = telecompUB = publicaVg = average

71% 71%

71%

67%

Figure 18: Business Benefits – Responses by Industry


Q12: Improvement priorities – 55% sought to improve the accuracy of profit and cash-flow forecasts.

participants were asked to identify the three most important business benefits their company could realize from more effective planning, budgeting, forecasting, and performance measurement. the responses are shown in figures 19 and 20. the following is a summary of the key insights:• improving the accuracy of profit and cash-flow forecasts resonates with more

than half of respondents as a company priority in the next two years.• responses were balanced across organization size, complexity, and manage-

ment process maturity.• there were significant differences in responses between sectors, further

reinforcing the relevance of improvement priorities.

Figure 19: Improvement Priorities – Results from All Respondents

0% 20% 40% 60%

improving accuracy of profit and cash-flow forecasts

reducing planning and budgeting cycle time

greater forward visibility into market conditions

aligning financial and operational information

tying budgets to key performance indicator targets

greater collaboration among functions and business units

ability to audit budget variances

none of these or other

linking financial and operational plans and forecasts

35%

32%

25%

23%

22%

2%

55%

36%

35%

Figure 20: Improvement Priorities – Responses by Industry

profit and cash-flow accuracy

100%

80%

PHM

TEL

T&W

A&D

AVG 55%

75%

75%

link financial and operational plans

100%

67%

60%

60%

M&E

FPG

TEL

W&R

35%

link financial and operational info

53%

50%

50%

reduce budget cycle time

67%

53%

PUB

PRO

M&E

A&D

50%

50%

tie budgets and Kpi targets

80%TEL

M&E 50%

50%

50%

50%

A&D

PHM

t&W = transportation and warehousingfpg = food and packaged goodsa&D = aerospace and defensepro = professional services

m&E = media and entertainmentW&r = Wholesale and retailpHm = pharmaceuticalsHtc = Healthcare


35% 25%

FPG

W&R

TEL

T&W

36%


greater return on investments and projects or higher revenue or margins as very likely; in addition, nearly half of respondents see such results as likely.

• the percentage of respondents indi-cating that the value was very likely was higher in organizations with greater revenues, complexity, busi-ness process orientation, and infor-mation availability.

• the percentage of respondents indicating the value was very likely varied significantly from one sector to another.

• there was a direct relationship between higher levels of business process orientation and responses indicating that value was very likely.

practices in planning, budgeting, fore-casting, and performance measurement would lead to the following outcomes at their companies. three response choices were given: not likely, likely, and very likely. the following graphs summarize responses:• figure 21: shows results from all

respondents by value source• figure 22: identifies differences in

responses by size and value source• figure 23: identifies differences in

responses by industry and value source

• figure 24: identifies differences in overall value responses by level of business process orientation

the following are the key insights iden-tified from these responses:• more than two in five participants cite

Large and Complex Organizations Value Management Process Maturity More

this section summarizes the conclusions drawn from the information provided by survey respondents about management process value opportunities.

conclusionslarger and more complex organizations value management processes maturity more than others. the same is true of organizations having higher business process orientation, thereby providing evidence of the value stemming from greater cross-functional coordination.

Detailed findingsin question 8, participants were asked how likely it was that more advanced



Figure 22: Likelihood of Value – Responses by Company Size and Complexity

Revenue > US$5 B

Revenue < $5 B

Very complex

Less complex

High business process orientation

Low business process orientation

Info not available

Available info

20%

20%

26%

31%

45%

39%

39%

45%

37%

23%

34%

36%

54%

51%

51%

57%

24%

21%

30%

30%

47%

42%

39%

49%

33%43% 35%

greater return on investments and projects

lower costs for purchased goods

Higher revenue and/or margins

lower costs for business processes

36%

36%

36%

37%

50%

47%

51%

58%

44%

Figure 21: Value Creation

0% 20% 40% 60% 80% 100%




lower costs for purchased goods and services

51% 7%

9%

9%

20%

49%

48%

56%

47%

44%

43%

35%

33%

Very likely likely not likelylikelihood of significant value


Figure 24: Likelihood of Value – Median Responses by Level of Business Process Orientation

Business process orientation levels

median likelihood of value on a 3-point scale

1

2

3

4

5

2.8

2.5

2.2

2.2

2.1

Figure 23: Likelihood of Value – Responses by Industry


lower costs for purchased goods



aUt = automotivet&W = transport and warehousinga&D = aerospace and defense

m&E = media and entertainmentW&r = Wholesale and retailcon = construction

tEl = telecomotH = other

35%

W&R

A&D

CON

OTH

76%

86% W&R

OTH

CON

TEL

43%44%

67%

67%

100%

67%

67%

60%

33%

46%

OTH

W&R

M&E

AUT

67%

57%

50%

OTH

T&W

M&E

AUT 46%

50%

57%

67%


0% 20% 40% 60% 80% 100%

Developing a company-wide strategy for improving planning, budgeting, forecasting, and broader enterprise

management

Developing a vision for the finance function to leverage planning, budgeting, forecasting, and broader enterprise

management

coordinating the selection and implementation of component applications to minimize time and costs

51% 7%

11%

9%

52%

51%

55%

41%

38%

37%

substantial some little or nonetime and attention to be devoted

Figure 25: Strategy – Results from All Respondents by Value Source

the proportion of responses to these questions was similar by industry and in total. the biggest variations came by organization size, complexity, and management process maturity. the following are the key insights support-ing this:• organizations having high sales

volume (over $5 billion), complexity, business process orientation, and management process maturity were most likely to spend a substantial amount of time on the above activities.

• conversely, organizations having lower sales volume (less than $5 billion), complexity, business process orien-tation, and management process ma-turity were more likely to spend some or no time on the above activities.

and attention to the following items in the next three years, concerning inte-grated planning, budgeting, forecasting, and broader enterprise management:• Developing a company-wide strategy

for improving these processes• Developing a vision for the finance

function that leverages these processes

• coordinating the selection and imple-mentation of component applications to minimize time and costs

the following graphs summarize responses:• figure 25: shows results from all

respondents by value source• figure 26: identifies differences in

responses by size, complexity, and business process orientation

Management Process Strategies Are Important to Large and Complex Organizations

this section summarizes the conclu-sions drawn from the information pro-vided by survey respondents about developing management process strategies.

conclusionslarger and more complex organizations are almost twice as likely to spend sig-nificant time developing a strategy for management processes as well as the finance function, compared to others.

Detailed findingsin question 13, participants were asked if their company will devote more time


Revenue > US$5 B

Revenue < $5 B

Very complex

Less complex

High business process orientation

Low business process orientation

High management process maturity

Low management process maturity

26%

25%

26%

35%

46%

43%

46%

39%

29%

30%

32%

41%

50%

46%

50%

42%

24%

25%

31%

32%

50%

48%

44%

48%

AVG = 41% AVG = 38% AVG = 37%

Develop a company-wide strategy

Develop a finance vision to leverage strategy

coordinate selection and implementation

Figure 26: Response Differences by Size, Complexity, and Business Process Orientation


Q9: Finance impact – finance finance groups can have the most impact by helping organizations reduce costs.

in question 9, participants were asked to describe (in a few sentences or phrases) the aspects of their company’s management processes where the finance function could have the most impact. the most common response to this question revolved around helping organizations to reduce costs. this included the following comments:• pursuing an aggressive approach to cutting production costs and getting more

out of employees for less• Evaluate the precost and possibility of a new product• facilitate cooperation on spending strategies that cut wasteful spending• optimal resource utilization to reduce operating costs

other comments worth noting included the following:• more effective target setting and capital allocation• Better communication between departments• Developing a team mentality as well as encouraging and rewarding employee

input• Using insight about past performance to identify potential issues

to fulfill one of its most important self-described roles: to help organizationsreduce costs.

Detailed findingsprovided below are the responses fromthe survey questions, together with the key findings, that support the con-clusions reached above.

conclusionsto enable organizations to more effec-tively execute strategy, finance teamsrequire more mature management pro-cesses that readily adapt to changewhile also providing consistent informa-tion across organizations. such man-agement processes also equip finance

More Mature Management Processes Are Integral to Achieving Finance Objectives

this section summarizes the conclu-sions drawn from the information pro-vided by survey respondents about the impact on the finance organization.



Q15: Barriers – finance groups must work to improve information accuracy and change navigation.

in question 15, participants were asked to describe the greatest barriers to using planning, budgeting, forecasting, and performance measurement data to deploy and execute strategy at their company. the two most common responses to this question revolved around managing variability and information consistency and accuracy. these included the following comments:• managing variability

– staying on top of market demands– Daily fluctuations on today’s economy – frequent change and substantial variability– commodity price fluctuations– forecasting cash flow in times of uncertainty

• information consistency and accuracy– getting valid information that is truthful for its time period– getting accurate forecast information on all levels– information not available– inaccurate data– too much data



many organizations have invested in business intelligence and business per-formance management applications to automate planning, budgeting, forecast-ing, measurement, and reporting pro-cesses. While benefits arise from these tools, they don’t always have the impact on performance that organiza-tions expect.

for example, those that have automat-ed budget processes would say that the process is faster and has fewer er-rors but often agree that it isn’t a more effective one because it isn’t well con-nected to strategy or operations. oth-ers using the balanced scorecard ac-knowledge that it creates greater focus on strategy but doesn’t always improve the ability to execute it. moreover, they find it increasingly difficult to squeeze further reductions to planning and bud-geting cycle time from these tools. in other words, they “hit a wall.”

the question that such organizations are asking is, how do we leverage what we’ve done and learned to get to the next level? and what is that next level? those that are just beginning to assess the applicability of these tools are ask-ing the question, how can we leverage the experiences of others to avoid these issues?

such questions are symptomatic of or-ganizations needing to more effectively manage complexity. they are often the ones that understand the benefits of continuous planning processes, ones that overcome the well-documented limitation of traditional budgeting pro-cesses. their question is, how do we get there?

the answer to this question will vary with the size and complexity of organi-zations. traditional business perfor-mance management applications are likely to meet the needs of smaller and less complex organizations. However, multiple applications may be required for large and complex organizations.

for example, sales and operations planning applications are likely to be a key component of solutions for orga-nizations in the manufacturing sector. integrated business planning applica-tions may play similar roles to coordi-nate target setting and investment plan-ning across business units and legal entities.

making decisions about such applica-tions can’t be done in isolation and must consider multiple factors. one of the most important factors is choosing a vendor that provides the best founda-tion for building such integrated man-agement processes.

management process applications are at the same point enterprise resource planning (Erp) systems were two de-cades ago. Back then, forward-thinking executives capitalized on the benefits of being early Erp adopters. the chal-lenge now is to recognize that similar opportunities exist, from a manage-ment process perspective. organiza-tions that establish greater manage-ment process integration and maturity can separate themselves from competi-tors while fully realizing their aspirations of being more flexible, responsive, cost-effective, and customer focused.

summaRy: appLyiNG ReseaRch iNsiGhtsgEtting to tHE nExt lEVEl

34

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EPM In Complex Organizations

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