16th January 2006
Several surveys say it is, but are systems, the compliance burden or management attitudes to blame?
If recent surveys are to be believed, there is a sizeable mismatch between managements' expectations of strategic planning and what is being delivered in practice. On the one hand there is unanimity around the importance of strategic planning but on the other hand very few companies appear able to deliver on it, for example by linking strategic objectives to operational plans. Given the many advances in the capability of the systems available to support planning, budgeting and forecasting processes and the broad level of dissatisfaction with the status quo, one would think that the case for change is compelling. Yet, many companies are stuck in a groove, apparently unable or unwilling to bring about change in a business critical area. So what factors are to blame for the lack of progress?
Geac, a provider of financial applications concludes that "complacency impedes strategy in UK business" after finding that half of UK businesses admit they have no idea if their budget actually supports their operational plans. Michael Coveney, director of best practices at Geac, told FSN, "The difficulty with the strategy process is that senior management do not see the problem. As far as they are concerned they understand the strategy, it has been communicated to the organisation and the appropriate budgets have been set. What they do not see is the difficulty that other layers of management experience in linking the strategic objectives with operational plans."
According to Coveney the problem is exacerbated if the company also happens to be performing quite well. "If the company is achieving its results then management believes there is no case for change."
This level of complacency is surprising given the importance that large companies ascribe to processes around strategy development and performance management. For example, a survey of 236 European CFOs, working in top 500 companies in France , the Netherlands Spain and the UK by Atos Consulting to be released shortly shows that almost 60 percent highlighted the role of the finance function in strategic business decisions as a key priority.
However, Atos pointed to the weighty compliance burden rather than management complacency as one of the main factors holding back the finance department. "Whilst there are some clear benefits emerging from the implementation of compliance programmes, there's no doubt that increased workloads have resulted in CFOs having less time to focus on the value-add aspect of their roles," Nick Jarman, partner responsible for financial management solutions, Atos Consulting told FSN. "The finance function recognises the importance of its position in promoting public confidence in a company's stewardship, for example, or in implementing business strategy, but it appears that finance is 'rolling backwards' in terms of being able to make a real impact in these key areas."
Coveney on the other hand says that lack of systems support is also partly to blame. "If companies used more appropriate systems for strategic planning and budgeting then they would have more time to spend on other activities. Most companies I see use a mixture of PowerPoint presentations and Word documents to record their strategy which doesn't force any action and has serious failings as a means of communication. If an organisation is ever going to truly manage performance, everyone in the organisation needs to have a solid grasp on where the business is heading and how it is going to get there. Similarly budgets must be aligned to plans that support strategic goals or resources will be wasted on activities that actually work against business goals."
"In far too many companies operational plans and business strategy are developed separately from budget concerns. This flies in the face of common sense: you need to measure the effectiveness of the budget in bringing about a successful strategy and you need to allot the right financial resources to relevant operational areas to ensure such success. It is a virtuous circle that few companies seem able to get right."
The results are supported by a new survey released last month by Cartesis, the performance management software house, which pointed to similar concerns. The survey, based on interviews with senior financial executives involved in the planning, budgeting and forecasting process at 281 global companies with revenues exceeding $100 million - in the US, UK, Germany and France found high levels of dissatisfaction and poor strategic alignment in business planning, forecasting and budgeting processes. The survey also revealed that although global businesses understand the importance of linking execution to corporate strategy, they are failing to achieve this alignment, with 76% of companies worldwide responding that they need to better tie operational execution to corporate objectives. A strikingly similar figure to the Geac survey.
Trevor Walker, VP Product Marketing, Cartesis told FSN "This survey confirms that there is a strong disconnect between the vision a company has and how it will implement it. A chieving strategic and operational alignment is t he number one area of pain that companies are focused on improving. A key way to accomplish better organisational alignment is to push accountability deeper into the organisation." But the companies responding to the survey ranked this very low on their priority list. Only 43% of respondents cited the need to "drive accountability down to the line managers" as a key objective, and three times as many companies cited they wanted fewer people involved in the budget process than increased involvement.
Another way to ensure that strategic objectives are carried out in an organisation is to establish strategic metrics as measurement against those objectives; yet the survey showed that companies were more focused on non-strategic objectives, such as cost control, as opposed to more strategic measurements.
Furthermore, better linkage between execution and strategy can also be achieved by increasing the frequency of plan and forecast updates, yet the majority of companies are not "best practice" in their update frequencies. For example, only 23% update their Operational Plan quarterly, only 31% update their Budget quarterly and only 41% update their Forecast monthly
"Cartesis' research highlights the reality that most global companies design their planning and forecasting processes almost exclusively for a number of basic and high-level purposes," commented Robert Kugel, VP & Research Director, Ventana Research. "While achieving strategic and operational alignment, controlling cost and improving profitability are appropriate objectives, they are not sufficient in today's' complex organisations. Companies also must use the planning and forecasting process to drive individual performance and to better understand the real cost drivers in their business."
Reflecting on reasons why strategic issues are being neglected, Dennis Horner, Managing Director at Atos Consulting, told FSN, "The role of the finance function swings like a pendulum between competing needs to maintain adequate control and providing strategic insight to the management team. It appears that this year finance professionals are pre-occupied with compliance issues and there is a need to establish more balance."
Cartesis' Walker told FSN, "The survey results show that companies believe that aligning corporate strategy with operational execution is the most important overall objective of the planning process. That's the good news because there is total awareness of how important a role strategy plays in planning. A possible reason for the lack of success in delivering in this area is an overriding focus on financial drivers for measuring and tracking strategic objectives, rather than the non-financial drivers of the business that are often leading indicators of financial success or trouble."
Other relevant articles
FSN's product review of GEAC's Strategy Management
FSN's review of Hyperion's "Blue Print" for success |
