Business Performance Management

A KPMG study of corporate practices in working capital management, which was released last week, shows that organizations are doing a poor job of forecasting cash flow. This comes as little surprise in today’s economy; still, the numbers are staggering. Of the 556 finance executive participants, who come from companies across the U.S. and Europe, 95 percent expend the energy to forecast cash flows, but only 14 percent claim that their cash flow forecasts were accurate over the past year. Said Brad Hillier, a managing director in KPMG’s advisory services practice, “Many companies do not gather the right data to produce accurate forecasts, nor do they have the right people involved in the process. In addition to improving the forecasting and reporting processes, executives should consider using other best practices, such as targeting metrics and establishing dashboards and controls that offer better visibility into cash performance.”

In an open meeting Tuesday, the SEC finalized its rule requiring companies to begin filing their financial statements in extensible business reporting language (XBRL) format. In the final ruling, public companies with a market cap greater than $5 billion must begin filing their financial statements in XBRL format starting with their first fiscal period on or after June 15, 2009. All other large, accelerated filers will be required to file in XBRL format 12 months later; and all other public companies will need to comply starting with their first fiscal period on or after June 15, 2011. Companies still not ready for XBRL need to get to work — and a BPM Magazine survey conducted this summer suggests that the vast majority of companies fall into this camp.

The International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) Committee conducted a survey to see how public sector organizations around the globe develop financial and nonfinancial performance measurement and reporting structures. Participants — from local councils, public utilities, and various ministries — were satisfied with performance management processes that included a balanced combination of relevant financial and nonfinancial objectives supported by respective KPIs; accrual accounting for the budgeting, appropriation, and financial reporting processes; the capability to capture, report, and process financial and nonfinancial development information; an independent external review to assess financial and nonfinancial performance; a formal structure for measuring and assessing risk and developing strategies to mitigate it; and a regularly scheduled review to ensure that the performance measurement structure remains effective and efficient.

Late last week, the SEC proposed a road map leading to the filing of U.S. financial statements prepared in accordance with the International Financial Reporting Standards (IFRS). The road map introduces “several milestones that, if achieved, could lead to the required use of IFRS by U.S. issuers in 2014 if the [SEC] believes it to be in the public interest and for the protection of investors.” The road map also includes proposed amendments to various regulations, rules, and forms through which U.S. issuers in industries that use IFRS as the basis of its financial reporting “more than any other set of standards” could begin IFRS-compliant SEC filings as early as 2010.

Also, as the SEC’s deadlines for mandatory filing of financial reports in extensible business reporting language (XBRL) draw near — large, accelerated filers are now expected to be required to file in XBRL starting early next year — XBRL US has formed a working group to act as an advisory team on prospective changes to the U.S. GAAP taxonomy. The group includes Landon Westerlund of KPMG, Lisa Nelson of Microsoft, Lou Rohman of Merrill Corp., Patricia LaValle of Ernst & Young, Glenn Doggett of the CFA Institute, and Simon Hecht of United Technologies Corp.

As the economy continues to worsen, it also becomes increasingly murky. On Monday, Adaptive Planning and the BPM Forum released the results of a survey on finance executives’ attitudes toward both the future of the economy and their ability to project their organization’s performance into that future. Not surprisingly, the answers to the first set of questions was not optimistic; 75 percent of respondents said economic conditions in their industry are worse today than they were six months ago, and 27 percent expect them to get worse still. Also not surprising — but perhaps more alarming for corporate executives — are the facts that 57 percent came in below their revenue plans for the third quarter of this year, and only one-third expect to hit their financial plans in the next year.

New research by Ventana Research suggests that increasing numbers of companies are improving their systems for decision-making by improving the analytics technologies they rely on. The firm rated participants’ maturity in four categories: people, process, information, and technology. Surprisingly, more companies excelled in the information and technology categories — with evaluations focused on activities such as their use of spreadsheets in data analysis and their attention to data integration and data visualization – than in their people or processes. In terms of people, only 28 percent of companies received Ventana Research’s highest maturity rating (“innovative”), and in terms of processes, only 14 percent of organizations reached that level. Reasons behind this discrepancy, according to the study, include poor communication and a widespread lack of confidence in planning processes.

Despite these problems, the benchmark research rated nearly two-thirds of organizations as mature (either “innovative” or “strategic”), overall, in terms of their use of analytics in performance management. Technology is helping companies make better decisions. Companies that have not invested in processes and technologies in the area of performance management analytics cite the following reason: budget (66 percent), resources (56 percent), and a failure to recognize the value of an upgrade (46 percent). The study concludes: “To maximize the value of what [business analysts] do, organizations must provide them with tools and support that make their work easier and more productive. Doing so involves committing to moving away from spreadsheets and inefficient processes and establishing a shared platform and technologies that enhance analytics for decision-making and performance management. Giving analysts and management immediate access to accurate information can yield business value in the form of optimized prices, successful marketing of products, and more effective competition.”

An American Institute of Certified Public Accountants (AICPA) study released this month found that 62 percent of CPAs in business-executive positions are pessimistic about the economic outlook for the United States over the next year. Yet 38 percent are upbeat about the near-term future of their own company. How do they expect their organizations to fare better than the economy as a whole? According to Deloitte it’s not through smart cost-cutting. A Deloitte survey found that companies are, indeed, tightening their figurative belts, but it also found that two-thirds of executives expect those measures to result in only single-digit savings.

In a recent McKinsey & Co. survey of 273 corporate executives from around the world, 77 percent said that the amount of supply-chain risk faced by their company has increased in the past five years. In 2006, only 65 percent felt supply-chain risk was on the rise. The causes of this increasing risk aren’t surprising; among North American respondents (who could choose as many as three answers each), 35 percent blamed it on the increasing complexity of products and services, 39 percent blamed it on rising energy prices, and 38 percent blamed it on increasing financial volatility. However, responses to the risk are lackluster. Only 35 percent of participants (75 percent of those who cited product complexity as a risk-stimulator) said their company has taken action in the area of product complexity; 18 percent (62 percent of those who complained about it) have taken action on financial volatility; and 16 percent have taken action to mitigate the risk related to rising energy prices.

Host Analytics, which offers a software-as-a-service (SaaS) model for its BPM suite, announced some major corporate changes this month. The company appointed a new CEO, Jon Kondo, who comes to Host from senior positions in the performance management division of Oracle and, before that, the BI division of Hyperion. Host’s founder, Jim Eberlin, will become the company’s vice president of business development. These changes follow a round of financing, in which Advanced Technology Ventures and Trident Capital invested in the BPM vendor. Said Eberlin on the event of the announcement, “We started the company to make corporate performance management flexible, feasible, and approachable to both midmarket and large enterprise companies. … That this high level of experienced industry talent was anxious to join us speaks well to the product, our customers, and the incredible market opportunity for SaaS-based CPM solutions.”

As “Web 2.0” becomes the hottest buzzword in BPM, and as the importance of adding collaboration capabilities to planning software gains prominence (at least among vendors), a new study by Aberdeen Group lends support to the buzz. Aberdeen surveyed 270 organizations worldwide about their workforce collaboration practices — or lack thereof.

First, the survey asked respondents to define “workforce collaboration.” Two common themes emerged in the definitions Aberdeen collected: connecting employees with others across the company who are working toward similar goals and developing a means for capturing employee knowledge and distributing it to others for whom it can be useful.

After defining workforce collaboration, Aberdeen examined respondents’ activities in this area and determined whether each organization is “best in class.” A closer look at the companies classified as tops in collaboration reveals some stunning results. Best-in-class companies, this study found, reduce the time to completion of their average project by 34 percent. They improve employees’ time to productivity by 19 percent. And they reduce their training cost per employee by 14 percent, on average.

How do they achieve these benefits? Among other forces driving their workforce collaboration, 78 percent require employees to attend training on the company’s workforce collaboration software tools, and 69 percent encourage workers to submit information to a knowledge base where it will be accessible to others across the company.