PricewaterhouseCoopers conducted an extensive research to understand if, and to what extent, Corporate Performance Management (CPM) is implemented in businesses today and how it contributes to a companies’ success. The survey was conducted from September 2008 to April 2009 in 22 European countries. Nearly 400 companies took part and supplied the necessary data to answer the following questions:
- To what extent are CPM programmes set up across Europe to increase the quality of management information?
- What does CPM look like in the operational reality of businesses today?
- What is the current development level of CPM and does this level differ between regions (East and West) and industries?
- What are the biggest obstacles in implementing CPM programmes?
- How well do companies rate their ability to ‘operationalise’ strategic goals through CPM initiatives in order to provide greater transparency of profitability?
- How well do they leverage information technology to enable and realise a better CPM?
- What are the future trends in CPM?
The high level of interest shown indicates that companies have realised the importance of CPM in improving the quality of business management. From smallscale companies with less than 100 million euros in revenue (22%) to blue chips with recorded revenue of more than 5,000 million euros (18%), CPM is a topic of particular relevance. Significant differences between regions (East and West) and industries are highlighted on the following pages.
The results of the survey reveal that there is still room for improvement and that the perceived quality is sometimes higher than what is actually delivered. To define corporate strategy and cascade it into business unit strategies, companies need an integrated set of processes, guidelines and tools. Participants acknowledge the challenge posed by communicating their strategies on all organisational levels and about 90% have implemented, or plan to implement, related communications tools. Nevertheless, only 33% use strategy maps as a tool to communicate their strategy.
Value-based performance management approaches are not included in the KPI set-up of most of the companies participating. The survey shows that at present only 30% rely on value-orientated KPIs, such as Economic Value Added (EVA), as leading performance indicators. The negligence of value-oriented KPIs can however result in the fact that the needs of company’s key stakeholders are not properly accounted for. Companies have to deal with a wide spectrum of investors with differing interests. Only those offering investors the opportunity to earn adequate returns will survive in the long run. Therefore, managers should see their companies from the angle of their investors. They should focus on the enhancement of value to increase their attractiveness for investors in the competitive business environment of today.
It is remarkable that the importance of cash flow analysis and integrated cash flow planning is often neglected. 22% of the participating companies do not perform cash flow analysis on a regular basis. Cash flows are not static and depend much on changes in market forces, competitors, suppliers and customers. Companies need to measure their “liquidity” on a regular basis and track the generation of cash especially in times when illiquidity becomes the major threat for businesses around the world.
The majority of participating companies spend more than three, and even up to six months a year on planning activities. Best practice companies show that it is possible to spend less than three months’ time on annual planning and budgeting activities.
In terms of organisation, companies identified complex hierarchies, missing responsibilities, undefined escalation rules and delayed delivery of information as major obstacles to improving the quality of business management through CPM. To overcome actual obstacles companies plan different initiatives, and CPM itself is developing further.
The top three trends are:
1) From data collection to data analysis
Companies currently spend too much time on non-value creating activities such as data collection, calculation, reconciliation and structuring. This means that the time available for beneficial decision-making is insufficient. While non-value creating activities currently take up to 59% of time available, companies would like to reduce this to 33%.
2) Further investments in business intelligence (BI)
Companies seem to have perceived the great benefits of BI systems as more and more companies are investing in such technologies. Some are already trying to improve the performance of already implemented BI solutions to further enhance their CPM systems. Expanding BI to focus on strategy in addition to operational aspects is essential for driving business success. The survey results show that more than 50% of the companies which are not using BI are unsatisfied with their data delivery. On the contrary, from all companies which have BI in place more than two-thirds are satisfied with their data delivery.
3) Reducing the budget cycle time
The third trend is the increasing interest in innovative budgeting and forecasting approaches, such as Better Budgeting and Beyond Budgeting. Even though Beyond Budgeting is more an academic discussion and not yet a solution for all businesses, more than 20% of the respondents are considering this concept and some of them are already partly applying it.
You may find more about PricewaterhouseCoopers’ understanding of Corporate Performance Management and survey results at: PwC CPM Survey