In order to enhance shareholder value and align employees’ efforts with this overarching objective, businesses have been introducing and implementing various performance management tools and techniques: strategy implementation dashboards, balanced scorecards, planning and budgeting methodologies, management reporting dashboards, product and service costing methodologies amongst others.
When these tools are implemented in a fragmented manner without a cohesive approach and strong integration across the organization (strategy, people, processes and systems), they do not create a strong link between employees’ performance and shareholder’s wealth, nor do they lead to transparency throughout the organization.
The implementation of these tools are costly and if they do not lead to the desired alignment, the capital invested can be futile, which often requires additional funds for the integration. The pathway of successful companies indicates that when there is a clear strategy to effectively integrate performance management tools across the organizational elements of strategy, people, processes and systems, an enhanced alignment is achieved between shareholder’s interest and employees’ actions. Alongside this, the integration of different tools leads to cost savings and implementation of cost-efficient solutions.
Companies often adopt business management and improvement methodologies in fragmented ways. Frequently following a need to set a direction, businesses develop a corporate strategy with their internal resources or with the involvement of a professional consultancy. Once the strategy is in place, the consultants leave and the strategy team is disbanded with limited follow up on the strategic implementation at a later stage. Often, planning, budgeting and forecasting is implemented using standard IT solutions available in the market.
Later, planning, budgeting and forecasting is managed by a business planning unit under the CFO’s supervision. Individuals involved in the strategic planning do not necessarily play a pivotal role in the planning, budgeting and forecasting cycle. Balanced-scorecard methodology is introduced to cascade the strategic objectives at both a department and individual level. This can also be supported by the introduction of career plans for employees. The initiative can be driven by the HR unit of an organization. And again, the individuals dealing with the strategy development and planning, budgeting and forecasting cycle do not always play the pivotal role in this process. As a result, businesses fall into a natural trap – disintegrated business management methodologies, which result in disjoints at key interfaces, which may erode shareholder value in an organization.
With the successful introduction and implementation of integrated performance management tools, strategic plans are strongly integrated with budgets and forecasts. There is support from all functions and the commitment is strong and sustainable. Alongside this, the frameworks for corporate strategy, resource allocation and planning, performance management, and consolidation are strongly integrated. There is an alignment of the strategic thought process with the operational thought process. This shapes and influences business outcomes, improves decision making, responds to shifting market dynamics, intelligently allocates and utilizes critical resources, and consistently meets shareholder expectations.
No matter how sound the strategy or advanced the technology, solutions that do not prioritize integration often fail to meet expectations. With a plummet in oil prices, overhaul in public finances, impending taxation in the region, reduction in the liquidity of banks and a risk of possible hikes in the interest rate - spending smart and being cost-aware is more so important than ever before. Integrated Performance Management is the tool which will ensure that costs are well-controlled, given any costs are traced with the value they bring – which in turn will ensure investments within the organization will deliver value and that businesses continue to retain and enhance their competitive advantage in the market over a prolonged period.
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Article featured in CFO Middle East Magazine and can be accessed via http://issuu.com/thecfome/docs/01_-_issue_13_-_the_cfo_middle_east/29?e=18122599/33028349
