Grant Thornton’s associate director of business consulting, Komil Ahmetov, gives his take on why integrated performance management tools are essential in delivering the promise of strategic planning.
In order to enhance shareholder value and align employees’ efforts with that overarching objective, businesses have been introducing and implementing various performance management tools and techniques. These include strategy implementation dashboards, balanced scorecards, planning and budgeting methodologies, management reporting dashboards, product and service costing methodologies among others.
When these tools are implemented in a fragmented manner without a cohesive approach and strong integration across the organisation – in terms of strategy, people, processes and systems – they do not create a strong link between employees’ performance and shareholder’s wealth, nor do they lead to transparency throughout the organisation.
The implementation of these tools is costly, and if they do not lead to the desired alignment, the capital invested can be futile, which often requires additional funds for integration. The pathway of successful companies indicates that when there is a clear strategy to effectively integrate performance management tools across the organisational elements of strategy, people, processes and systems, an enhanced alignment is achieved between shareholder’s interest and employees’ actions. Alongside this, the integration of different tools leads to cost savings and implementation of cost-efficient solutions.
Companies often adopt business management and improvement methodologies in fragmented ways. Frequently following a need to set a direction, businesses develop a corporate strategy with their internal resources or with the involvement of a professional consultancy firm. Once the strategy is in place, the consultants leave and the strategy team is disbanded with limited follow up on the strategic implementation at a later stage. Often, planning, budgeting and forecasting is implemented using standard IT solutions available in the market.
Later, planning, budgeting and forecasting are managed by a business planning unit under the CFO’s supervision. Individuals involved in strategic planning do not necessarily play a pivotal role in the planning, budgeting and forecasting cycle. Balanced-scorecard methodology is introduced to cascade the strategic objectives at both a departmental and individual level. This can also be supported by the introduction of career plans for employees. The initiative can be driven by the HR unit of an organisation.
And again, the individuals dealing with the strategy development and planning, budgeting and forecasting cycle do not always play a pivotal role in this process. As a result, businesses fall into a natural trap – disintegrated business management methodologies, which result in disjointedness at key interfaces, which may erode shareholder value in an organisation.
With the successful introduction and implementation of integrated performance management tools, strategic plans are strongly integrated with budgets and forecasts. There will be support from all functions and commitment will be strong and sustainable. Alongside this, the frameworks for corporate strategy, resource allocation and planning, performance management, and consolidation will be strongly integrated.
What’s more, there will be an alignment of the strategic thought process with the operational thought process. This shapes and influences business outcomes, improves decision-making, responds to shifting market dynamics, intelligently allocates and utilises critical resources, and consistently meets shareholder expectations.
No matter how sound the strategy or advanced the technology, solutions that do not prioritise integration often fail to meet expectations. With a plummet in oil prices, overhaul in public finances, impending taxation in the region, reduction in the liquidity of banks and a risk of possible hikes in the interest rate, spending smart and being cost-aware is more important than ever before. Integrated performance management will ensure that costs are well controlled, given any costs are traced with the value they bring. In turn, this will ensure that investments within the organisation deliver value and that businesses continue to retain and enhance their competitive advantage in the market over a prolonged period.