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1 24, rue Salomon de Rothschild Suresnes - FRANCE INEUM Kurt Salmon M100 Y100 Managing Business Performance to Drive Growth and Profitability

2 Managing Business Performance to Drive Growth and Profitability: Getting the Basics Right is the Foundation for Success In recent years, many companies have been addressing the issue of how to improve the efficiency of their Finance operations to good effect. Much less effort has been devoted towards improving management information and related planning and reporting processes. This is arguably the area where Finance can add most value to the business. Getting the basics right includes establishing an effective process to manage business performance that changes behaviours and actively drives the organisation towards its strategic objectives. As the economy recovers, now is the time for CFOs to be asking tough questions in order to understand how effective their performance management is. For the purpose of this document business performance management activity covers planning, budgeting and forecasting, business performance measurement, profitability and cost management, group reporting and consolidation, finance systems applications and development, and business partnering.

3 24, rue Salomon de Rothschild Suresnes - FRANCE INEUM Kurt Salmon M100 Y100 A Basic Health Check 1 Planning, What Planning? 2 Overloaded with Data but Lacking Information? Planning, budgeting and forecasting should be a valuable management exercise that impacts the future of the business. Management information should provide a clear view of past, current and future performance in the context of business strategy, risks and opportunities. Does the information that you receive include supporting commentary and analysis which drives decisions and actions? Are you able to get a clear view of how performance needs to change in the future to deliver business objectives? Is this information available to executives in good time and in a succinct format? What value do your planning, budgeting and forecasting activities deliver do they drive real changes in business performance? Are your planning, budgeting and forecasting processes protracted - consuming too much management attention unnecessarily focusing on numbers not actions? Business managers often comment that these processes add little value and take too long, that budgets are not linked to plans, and that forecasting amounts to a finger in the air exercise. Very often the outcome is an adding up exercise trying to predict the unpredictable with huge detail that bears no relation to the real drivers of performance. Does this sound familiar? We regularly find that managers are being overwhelmed with too many reports. There is too much data and too little insight. Reports are not available on a timely basis, and are not clear and concise. Furthermore, business managers don t know how to interpret or react to the information they receive. We often find that over 50% of the reports that are produced across the business are adding little value. Effective Planning and Budgeting A leading FMCG business was able to halve the amount of time taken to produce budgets and forecasts through challenging and changing existing workflows, cross functional interactions, and management information requirements Improving Management Information A global real estate business completely overhauled its management information and reporting processes by focusing on real drivers of value. This brought business strategy to life and helped transform operational performance

4 3 Too Many Products or Services Competing for too Few Resources? 4 Under Pressure to Reduce Costs and Improve the Timeliness of Reporting when the Reporting Burden is Increasing? It is crucial to understand the true profitability of the products / services you provide and the customers you serve. Being able to report accurate information quickly and efficiently, both to external stakeholders and internally to decision makers should be the goal. How well are you balancing the management information needs of the corporate centre and those of the wider business? Is there duplication of effort (and systems costs) driven by reporting processes that meet the needs of the corporate centre but not business units? Do separate processes, systems and teams exist for management and statutory reporting? Is consolidation a manually intensive exercise involving endless reconciliations? Do business managers understand what drives cost and how these costs relate to revenues? Where can improvements be made? Is the allocation and reporting of centralised / shared costs appropriate, clear and transparent? While the drivers of business value may be well defined, the performance behaviour of those drivers are often not well understood. There is limited understanding of the true profitability of different products, services, customers and channels to market. In an increasingly competitive and complex operating environment this can result in poor or misguided decision making, whether related to product strategy, pricing or resource allocation. Understanding Costs and Revenues We often find poorly defined reporting needs and processes with inappropriate controls. This drives unnecessary effort for consolidation and business unit reporting. Poor use is also made of high quality reporting systems that have been available for many years. As reporting requirements become more complex, the cost of reporting and the time taken to report are increasing. A leading financial services business applied activity based analysis to identify the true cost of products and services. As well as providing invaluable information, the resulting analysis delivered significant changes in business efficiency Improving Processes and Aligning Measures A large high tech organisation was able to reduce its reporting inventory by 50% and simplify its processes through eliminating duplication, standardising formats and aligning business unit reporting with corporate requirements

5 24, rue Salomon de Rothschild Suresnes - FRANCE INEUM Kurt Salmon M100 Y100 5 Are you Making the Best Use of your Information Systems? 6 Is your Finance Team Focused in the Right Areas? Performance management and information systems go hand in hand. When combined they provide a powerful route to competitive advantage. Does the business believe it has got value from investment in reporting and planning systems? Have you seen a step change in performance? Do your systems enable people to collaborate and share information? If you are considering changes to systems, have you developed the target processes and outputs first? Are your information systems supporting business opportunities and new strategies? It is crucial that management information demands are managed efficiently and regularly value assessed. Finance business partnering should also focus on driving tomorrows winning business model. Is your team focusing on routine activities rather than providing insight? How well does the finance team link with the wider business? Is your team flexible enough to support the analysis requirements of different stakeholders? Whilst having knowledge of the latest technology is valuable we often see businesses trying to select technology before business requirements and process improvement objectives have been defined. In the worst cases, old processes are applied to new systems providing little return on investment and missing significant improvement opportunities. Group Reporting and Improved MI A global healthcare firm was able to reduce the time taken to produce accurate reports and to lower costs through automating processes and working with a scalable web-based system. This enabled the submission of numbers securely online rather than through sending countless file attachments Despite investment in systems and technology, we often find that business processes remain inefficient, finance workloads are increasing, and high performers have limited opportunities to demonstrate their ability. Focus on the Role of Finance Following a comprehensive review of finance function activities, a multinational manufacturing business was able to reduce headcount engaged in back office transactional tasks which resulted in freeing up resource for more forwardlooking business initiatives

6 Performance Management and the Finance Function Value is created through the effective implementation of a robust strategy. Businesses need to determine the right actions to deliver the strategy, develop the right measures to drive and track progress, set appropriate targets, and then measure and monitor performance. Where performance is behind target, actions need to be determined and tracked to enable objectives to be achieved. The Finance function has a major role to play throughout this performance management cycle. 4 1 Validate objectives Adjust actions Finance Business Agree metrics Measure & Forecast Figure 1. The Performance Management Cycle performance 2 3 In a rapidly changing world the future vision for Finance would appear to be relatively clear. Finance needs to: Play a leading role in developing and deploying effective planning and reporting processes that support the business Drive and challenge the business to ensure budgets and forecasts are realistic but stretching Ensure that high quality management information is accessible to business managers Support the business in interpreting that information and deriving appropriate actions Through better use of technology and information systems, Finance can deliver more efficient processes and more focused management information to drive performance and deploy its own resources more effectively. The prize is increased efficiency, growth and improved profitability. Businesses need to determine the right actions to deliver the strategy, develop the right measures to drive and track progress, set appropriate targets, and then measure and monitor performance.

7 Conclusion There are many complex challenges in today s global business environment. The CFO must contend with increasing reporting and regulatory demands and operate with ever more complex group structures. Business processes must continually evolve to be made more cost efficient. Tackling these challenges is critical simply to survive. The gap between average and fit for purpose planning and reporting processes is considerable. For many organisations an opportunity exists to: Streamline reporting and planning processes Enhance the relevance and insight gained from management information Increase the value of planning and forecasting Improve the efficiency of these processes Apply systems effectively The net result is lower cost, more value add and the opportunity to deploy Finance skills appropriately within the business.

8 INEUM Kurt Salmon An Overview of Kurt Salmon s Finance and Performance Management Team Kurt Salmon is one of the world s leading strategy and transformation business advisory firms We have experienced teams with a dedicated focus on the Finance change and improvement agenda We have worked with over 30% of the Fortune 500, 30% of the FTSE 100 and 75% of the CAC 40 We bring unrivalled experience in the definition, design and implementation of performance management processes. We are recognised for our practical approach rolling up our sleeves to make change happen We know what works, how best to make it work and the pitfalls to avoid, and ensure these lessons are shared throughout our involvement with our clients We are independent and have no exclusive ties to any systems or software vendor, or outsourcing service providers Over 70% of our business is repeat, with client satisfaction independently assessed at over 97%. We deliver against our commitments Contact Rashpal Hullait Managing Partner E.: rashpal.hullait@kurtsalmon.com Simon Bennett Practice Director E.: simon.bennett@kurtsalmon.com Paul Lever Senior Manager E.: paul.lever@kurtsalmon.com Kurt Salmon 10 Fleet Place 2nd Floor London EC4M 7RB T: +44 (0) Kurt Salmon