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Automated processes mean better KPIs: CFO Research Services

July 9, 2008

Editor's note: The following is excerpted from the Research Reports, Managing Perormance Amid Complexity, prepared by CFO Research Services in collaboration with Cognos. In this excerpt, we examine the benefits Finance departments experience in automating core processes with respect to their key performance indicators (KPIs).
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Across the board, finance professionals expect to be more and more involved with collecting, analyzing, and using the data that will improve company performance.

The question is not whether finance will drive performance management, but rather, how well equipped is it to be an effective source of performance management expertise?

Our survey shows that the use of key performance indicators (KPIs) to help management make decisions is widespread.

Approximately 90 percent of survey respondents say that their C-suite and finance executives use KPIs either for specific purposes, such as budgeting, or for day-to-day decision making; 84 percent of respondents say their companies’ business unit and line managers also regularly rely on KPIs.

Clearly, most companies recognize the importance of having the right information in hand to make decisions.

Our survey reveals differences, however, in how these decision makers use KPIs, and in how satisfied they are with their performance data.

Closing the satisfaction gap

Figure 1: The level of satisfaction with performance management data rises in step with the level of automation.
Source: Managing Performance Amid Complexity, CFO Research Services, 2008. Click to close.

Figure 1: Enlarge.

At companies taking full advantage of automation, not only are decision makers more likely to have the data they need right at their fingertips, but they are also much more likely to be satisfied with the data they have. (See Figure 1.)

[But] substantially larger percentages of respondents from primarily manual and partially automated companies express dissatisfaction with the data available to them.

The level of satisfaction of different management teams also appears to rise in step with the level of automation.

At primarily manual companies, only a handful of respondents claim that any of their different constituencies are "very satisfied" with the performance management data available to them.

This "satisfaction gap" is also reflected in specific uses of the data. Respondents were asked their opinions on the timeliness and reliability of information needed to accomplish six different tasks related to performance management.

Satisfaction levels rise with automation

Once again, level of satisfaction rises with the level of automation. At primarily manual companies, for every task more respondents say they have room for improvement in the use of performance management data than say the information is either adequate or excellent.

In companies using manual processes, only 12 percent of decision-makers are happy with the amount, utility, and timeliness of their data.

In every category, much higher percentages of respondents from highly automated companies than from either of the other segments say the information they have available is "excellent," with the exception of measuring and managing business risk.

Similarly, substantially lower percentages of respondents from highly automated companies cite a need for improvement in any of the tasks we asked about.

Finance needs "deeper and more detailed" insights

In a separate open-response question, we asked finance executives what additional metrics (KPIs) they thought their companies should collect to manage business performance better.

Many of the respondents from partially automated or manual companies express the desire for additional metrics that would give them deeper and more detailed insights into the profitability of customer segments, lines of business, or operational areas (e.g., individual plants).

In other words, they seem to be looking for a higher degree of granularity in their data, which would allow managers to identify problem areas more readily and with more precision.

These insights are much more difficult and time-consuming to provide if the data has to be collected, disseminated, and analyzed manually. Finance executives appear to recognize the inadequacy of their technology.

Incremental improvements trump large-scale changes

Relatively few finance executives report that that their companies are likely to make dramatic changes in course, such as replacing or rebuilding their PM systems or employing a new PM methodology.

Most respondents (72 percent overall) indicate that they are either likely or very likely to add reporting, dashboards, or scorecards to existing systems.

Making existing systems work better or provide more useful information seems to be a more attractive option for most finance executives.

Interestingly, we found that finance executives from highly automated companies are least likely to standardize data definitions and inputs to their PM systems.

Standardization often is a key first step companies take to streamline their processes and reduce complexity. If a company is already highly automated, however, we can assume that it has already taken this step, and so has no need to make it a priority.

What, then, is holding finance back in making these improvements?

Culture and structure big barriers to change

Most often, respondents cite organizational or management issues as the largest obstacles to improving PM capabilities.

42 percent of respondents from companies with manual processes cite inadequate systems and technology as a significant barrier.

"Organizational culture or decision-making structures" is cited most frequently by all respondents as one of the biggest obstacles. (See Figure 2.)

But when we look at the level of automation in performance management systems, we see that this percentage rises to two-thirds of respondents from manual companies.

Manual companies also are the most concerned about the cost of changing systems and processes.

It appears that finance functions in companies lacking adequate technology are having a more difficult time grappling with the issue of complexity in their organizations and systems.

Looking outside for help

Figure 2: Finance executives look for best-practice knowledge and practical implementation experience from their PM partners.
Source: Managing Performance Amid Complexity, CFO Research Services, 2008. Click to close.

Figure 2: Enlarge.

Finance executives are not necessarily looking for outside help in their efforts to improve performance management. However, 70 percent of respondents from partially automated companies indicate they would do so.

About the same number of respondents from partially automated companies (74 percent) also say they are likely or very likely to modify their current PM systems to integrate better with finance systems in the coming year—an effort with which they may well be looking for external expertise.

When they do look outside for help, finance executives across the board place the most value on practical implementation experience and best-practice knowledge from their performance management partners.

Interestingly, executives at highly automated companies give much more weight to post-implementation support than their peers in either of the other two segments – perhaps a recognition of the difficulty of "getting it right" when increasing the level of automation, something these executives may have already lived through.