changing performance management paradigm

Budgeting, Planning & Forecasting

- 3 min read

Changing the Performance Management paradigm

The concept of Corporate Performance Management (CPM) has been a resounding success for more than 20 years, and FSN’s most recent research, “The Future of Analytics in the Finance Function”, shows that around 20% of companies leverage specialized CPM systems for budgeting, planning, forecasting, consolidation, analytics and reporting. The foundations of the CPM concept remain solid, but in the face of market upheaval and change there is an opportunity to extend the reach and potency of this essential management tool. 
CPM is essentially a closed-loop process, in which strategic objectives give rise to operational business plans which are progressively monitored against actual performance, eventually informing whether the strategy needs to be refined.  Over the years, the process steps implicit in this cycle have been extended. Modern performance management platforms support the integration of business plans from across all functional areas and the optimum allocation of resources based on the coalescence of operational and financial data. This is coupled with near real-time decision making based on increasingly advanced analytics and business intelligence. 
Supporting these applications is a vastly growing and diversified pool of financial and non-financial data, both structured and unstructured. It is this rich reservoir of data that presents the biggest opportunities and challenges for the next decade. Yet FSN’s latest research shows that 52% of businesses do not have an up-to-date information systems strategy and are unable to exploit their data advantage. Others are beset with data problems, for example only 39% of organizations are able to regularly add new sources of data to enrich business understanding; only 53% of organizations say they have ready access to at least 5 years of comparative financial data and only 38% of organizations are able to make widespread use of non-financial data. 
The COVID crisis illustrates vividly why a robust performance management platform is so important. Never before has a crisis turned so many performance management indicators in an unwelcome direction. The crisis affected liquidity, health and safety, supply chain, buildings, sales, and inventory (to name but a few), all at the same time. A multidimensional impact such as this requires a multidimensional solution and a performance management platform is the perfect remedy.  
But this time around, even performance management was stretched. CFOs needed to peer inside their supply chain, and its mirror image, customer demand. The strength of the purchase to pay process (P2P) and order to cash (O2C) process was pivotal in providing real-time insight into the performance of the business. Yet for the vast majority of businesses, P2P and O2C processes have historically been viewed as transaction systems and the information potential locked up in these processes has been overlooked. For example, only 4% have recently changed their P2P system, only 9% are currently implementing and only 15% are currently evaluating. The vast majority have no plans at all for change. 
The findings of this survey predate the crisis, but it was already clear that businesses should be incorporating operational data from their P2P and O2C applications into their overall performance management regime. FSN’s research highlights that those that deploy specialist capability in this area strikingly outperform businesses that do not in terms of analytics and data mastery, i.e. the ability to leverage data as a corporate resource. 
The survey may have highlighted this need, but the ‘crisis’ cemented the logic of shifting the performance management paradigm to fully embrace P2P and O2C operational data. 
Discover more about the findings of the FSN Global Survey 2020 by downloading the Research Study

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FSN - The Future of Analytics in the Finance Function

Global Survey 2020