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Corporate Planning and Performance ManagementMAKING FINANCIAL ANALYSIS MORE EFFECTIVE

2010 APQC. ALL RIGHTS RESERVED.

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EXCERPTED VERSION, PREPARED EXCLUSIVELY FOR

BUSINESS FINANCE MAGAZINE

ContentsParticipant Information 4

Executive Summary 5

Study Focus 8

Study Methodology 10

Key Findings 14

Effective Methodologies and Processes 14

Developing and Understanding the Skills Requirement 15

Leveraging the Most Appropriate Technology Solutions 19

Outcomes 21

A Final Word 22

Acknowledgments 23

About APQC 23

Contact Information 23

Giant Eagle Case Study 24

John Wiley & Sons Case Study 30
http://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-reporthttp://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-report


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Project Personnel

STUDY TEAM

Angelica Wurth, senior project manager

Alex Hawkins, project manager

SUBJECT MATTER EXPERTS

Mary Driscoll, senior research fellow, APQC

Jack Alexander, founder, Jack Alexander and Associates LLC

EDITOR

Paige Leavitt


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MEMBERSHIP INFORMATIONFor information about how to become a member of APQC, and to receive

publications and other benefits, call 800-776-9676 or +1-713-681-4020, or visit ourweb site at www.apqc.org.

COPYRIGHT2010 APQC, 123 North Post Oak Lane, Third Floor, Houston, Texas 77024-7797USA

All terms such as company and product names appearing in this work may betrademarks or registered trademarks of their respective owners. This report cannotby reproduced or transmitted in any form or by any means electronic or mechanical,including photocopying, faxing, recording, or information storage and retrieval.

ISBN-10: 1-60197-152-4ISBN-13: 978-1-60197-152-4

STATEMENT OF PURPOSEThe purpose of publishing this report is to provide a reference point for and insightinto the processes and practices associated with certain issues. It should be used asan educational learning tool and is not a recipe or step-by-step procedure to becopied or duplicated in any way. This report may not represent currentorganizational processes, policies, or practices because changes may have occurredsince the completion of the study.


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Sponsor OrganizationsAlyeska Pipeline Service Co.

Aramco Services Co.

Baylor College of Medicine

General Electric Co.

General Dynamics Corp.

Sterling Commerce

Partner OrganizationsBank of Canada

Giant Eagle Inc.

John Wiley & Sons Inc.

Research ChampionIBM Corp.


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Executive SummaryAll too often, performance management systems are geared to replace, or at leastconstrain, front-line managers in their ability to offer intuition, judgment, andexperience as performance plans are set in place by senior managers. This is amistake. In fact, there is no better way to shut down performance improvement.

The key to success lies in the ability to link vital operating decisions and activitiesdirectly to shareholder value creation. Senior management can do this by providingthe methods and tools to capture valuable perspectives from the front lines. At thesame time, senior management can systematically guide managers to investmentchoices that represent the most efficient use of shareholder capital. The point is toequip front-line managers with reliable facts and analyses they can use to ensure that

strategic aims are achieved.

How can CFOs make financial planning and analysis processesand the peoplewho run themmore relevant to the strategic goals of their organizations? It is noteasy. The typical finance function at a large, complex organization does not excel

when it comes to advising business decision makers on how to optimize resourcesand create sustainable, profitable growth (Figure 1). As this pie chart shows, thetypical financial analyst spends much more time on data cleaning and processmanagement than on producing sophisticated analytical work.

Figure 1


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How did this situation arise? The cost of financial management operations hassubstantially dropped at most large organizations since 2000, thanks to business

process redesign, automation, shared services centers, and so on. However, thosecosts savings were rarely channelled back into efforts to upgrade analyticalcapabilities. The pursuit of efficiency gains was the top priority for many CFOs formany yearsand that made sense, until the recession of 200809 darkened theskies. That event made long-held financial planning assumptions obsolete. Suddenly,robust financial analyses were needed to reassess choices for growing the top andbottom lines.

A closer look at the implications of the recent recession further illustrates the valueof upgrading financial planning and analysis processes. In December 2007, theofficial start of the economic contraction in the United States, CFOs who hadneglected to improve financial analysis capabilities found themselves in a precarious

position. Demand for goods and services seemed to dry up overnight. Consumer-based businesses, in particluar, were caught with large amounts of unsold inventory.In the business-to-business arena, customers began ordering in shorter bursts, andthen they delayed payments to their vendors for months beyond invoice due dates.Conservation of cash became the paramount concern for buyers and sellers.

In such times, a CFO needs to be able to advise senior managers on what coursecorrections make sense. The CFO needs to be armed with strong evidence thatoutlines significant financial risks, along with various scenarios for confrontingthose risks. A well-equipped and well-trained financial planning and analysis teamcan adroitly examine:

risks in the revenue streamviability of customers customers, volatility indemand for products/services, and channel disruption (e.g., a primary reseller

goes bankrupt);

risks in the cost structuresuppliers going bankrupt and prices skyrocketing,increasing cost of capital and commodities, staff redundancy in the wake of

decreased demand for products/services, and state and local taxes increasing as

municipalities come under financial pressure; and

risks to the cash conversion cyclelimited access to external capital to financeinventory and operations, suppliers tightening terms, higher incidences of trade

credit default, and customers slowing down payments.

Ideally, a financial analysis team can outline such risks and offer carefully modelledsolutions. A senior management team can then move with confidence to protectprofits. When demand starts to rebound, key resourcescash, capital, people, andknowledgecan be allocated in ways that align with the overal strategic plan andactually drive shareholder and stakeholder value.


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That is the ideal state. Unfortunately, APQC research shows that the majority oflarge organizations have a lot of work to do before they reach that state.

In late 2008 APQC surveyed 290 large organizations and discovered that theirfinancial analysts are severly hampered in their ability to outline and address suchrisks. As shown in Figure 1 on page 5, 47 percent of their time is spent collectingand cleaning data. And 30 percent is spent running the process. The typical analystspends just 23 percent of his or her time creating the detailed analytical modelsorganizations need to understand performance risks and opportunities and shapeappropriate responses.

Many large organizations still struggle to gather and analyze fast-changinginformation from operating and transaction systems and use it to navigate aroundhidden obstacles or capture unexpected opportunities. Those organizations most in

need of improvement identify with at least four of the following statements:

1. The budget is used as the primary performance management tool.2. Re-forecasts occur to show variances from annual plan targets.3. Forecasts lack focus on underlying business drivers.4. It is difficult to obtain manageable and/or fresh transaction data for

profitability analyses.

5. Too much time is spent gathering, reconciling, and cleaning data.6. Presenting or analyzing data from different perspectives is difficult.7. Spreadsheets are the main tool used to plan/measure performance.8. Not enough dedicated and skilled staff members are available for financial

analysis.

9. It is difficult to integrate growth initiatives into annual planning andmonitoring systems.

10. It takes 10 days or more to produce a reliable financial forecast.

THE PATH TO PROGRESS IN CORPORATE PLANNING ANDPERFORMANCE MANAGEMENT (CPPM)

APQCs research also indicates that organizations committed to improvingcorporate planning and performance management processes envison a path toprogress that traverses the states from left to right in Figure 2 on page 8.


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Improving Corporate Planning and Performance

Management Processes

Figure 2

Progress through these three states involves an evolution from low-impact toolssuch as spreadsheets to high-impact tools and capabilities meant to improveorganizational performance. As a financial planning and analysis team matures, itdiscards obsolete tools and takes on the task of enabling fast, reliable, and

comprehensive collaboration and negotiation over growth targets and resourcerequirements. Such progress implies a deliberate and deep commitment that spans anumber of years.

The detailed case studies in this report demonstrate that making such a commitmentto improving corporate planning and performance management processesandmaking the financial analyst more relevant to the strategic aims of theorganizationwill protect organizations in downturns and help them excel whengrowth opportunities present themselves.

Study FocusIn August 2009 APQC launched a consortium learning project to discover how

corporate planning and performance management practices are evolving.Specifically, APQC documented how large organizations use relatively advancedmanagerial concepts and software applications to perform complex and data-intensive analyses of the operating drivers of enterprise financial performance.

APQC also examined how these organizations inform plan targets with strategy andvice versa.


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The APQC project teams hypothesis was: To thrive in an increasingly volatileenvironment, organizations need their financial analysts to identify, analyze, and

educate managers on the granular drivers of sustainable, profitable growth. Implicitin this statement is the assumption that the favored analytical tool of yesterday, thespreadsheet, is no longer up to the task.

Consequently, the studys scope focused on effective methodologies and processes,developing and understanding the skills requirements, leveraging the mostappropriate technology solutions, and understanding results. APQC developed amodel to illustrate the areas of accountability for the CFO of a typical large,complex organization (Figure 3). This study focuses on the second level from thebottom: that is, turning information into insights that decision makers can use tooptimize scarce resources. This is the analysis that provides crucial financialperspectives to senior managers on business risks, operating constraints, and

options for leveraging resources to compete effectively and profitably.

CFO Accountability

Figure 3

APQCs project team selected three best-practice organizations that demonstratesignificant progress in improving the planning and performance managementcapabilities within their finance functions. They also have moved beyond the

boundary of finance to help key decision makers across their organizations.

The study findings demonstrate how these best-practice organizations makefinancial analysis more effective, as well as how they use that analysis within a

volatile economy. This resulting report includes the managerial frameworks,methodologies, and leadership factors they use. The report also details how maturecorporate planning and performance management capabilities can enable anorganization to:


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focus on anticipating the future instead of just reporting past performance; more ably advise on the relationships between performance drivers and likely

financial outcomes;

reposition periodic business reviews to focus on trends, risks, and opportunities; shift gears quickly when conditions change; train business managers to analyze value-based trade-offs and risks when

reallocating resources;

standardize financial management information systems and data definitions; ensure sufficient skill-building and career development for analysts; and implement appropriate information management strategies, platforms, and

tools.

The primary theme of this report is that, as decision makers attempt to stabilizetheir organzations in the wake of severe economic turbulence, investments inrelatively advanced strategies, talent, IT platforms, and tools for planning andperformance management are imperative.

Study MethodologyThe Corporate Planning and Performance Management financial managementconsortium study was designed to provide a fast track to leading corporate planningand performance management practices that finance managers can apply in their

organizations. APQC employed its proven, four-phased benchmarkingmethodology (Figure 4, page 11) to gather data and discover leading practices forthe Corporate Planning and Performance Management study.

Step 1: PlanIn summer 2009 APQC conducted online and phone surveys andinterviews to understand the key issues and challenges that its members and

customers face, as well as their corresponding needs, regarding best practices in

financial management. As a result of this feedback, and with input from the

internal subject matter expert Mary Driscoll, APQC drafted the study scope.

During this phase, APQC began the process of identifying 78 potential best-

practice organizations. Each candidate was invited to participate in a screening

process. Based on the results of the screening process, as well as organizationcapacity or willingness to participate in the study, a final list of potential partner

candidates was developed. The planning phase of the project culminated in

September 2009 with a virtual kickoff call attended by APQC, the special

adviser, and the study sponsors.


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Step 2: CollectUsing feedback from the interviews, secondary research,subject matter experts, and the study sponsors, APQC drafted a site visit guide

that served as the agenda for each of the three virtual site visits conducted in

October and November 2009 to gather qualitative data. After each virtual site

visit, APQC drafted a case study that was subsequently approved by the best-

practice organization. These case studies are included as appendices to this

report. Pending partner approval, these case studies will also be available for

download on the APQC knowledge base.

Step 3: AnalyzeIn October and December 2009, APQC worked with internaland external subject matter experts to analyze the qualitative information

collected via the virtual site visits and generate key themes and leading practices

to communicate to participants at a knowledge transfer session.

Step 4: Report/AdaptThe presentation of key themes and leading practicestook place in December 2009 via a virtual knowledge transfer session. Study

participants can learn from these key themes, validate their own practices, and

adapt and apply the leading practices, where appropriate, to their own specific

circumstances and organizational cultures.

APQCs Four-Phased Benchmarking Methodology

Figure 4


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Best-Practice Partner IntroductionsAPQCs project team selected three organizations worthy of study. The selection

process focused on two main criteria:

1. That the selected company demonstrated significant progress in evolvingthe planning and performance management capabilities within the financefunction

2. That the selected company moved beyond the boundary of finance, havingclearly begun to raise analytical I.Q. of key decision makers across theenterprise

Each of these organizations shared its process-improvement narratives with studyparticipants over three separate virtual site visits. Case studies were prepared based

on each of these presentations; they can be found in the appendix of this report.These case studies show how finance can move into a value-adding role by investingin the right mix of high-quality talent, information management strategies, andanalytical tools and techniques. Please refer to the case studies for a more in-depthlook at individual practices.

The leading practices from the case studies as well as input from internal andexternal subject matter experts helped to shape the key findings of the study, whichare outlined in the next section of this report.

BANK OF CANADAThe Bank of Canada is Canada's central bank. Unlike a commercial bank offering a

wide range of banking services to the public, the nonprofit Bank of Canada isresponsible for Canada's monetary policy, bank notes, financial system, and fundsmanagement. A Crown Corporation belonging to the federal government, it is thesole issuer of bank notes in Canada. Its mandate, legislated in the Bank of Canada

Act, is to promote sound economic performance and higher living standards forCanadians by keeping inflation low, stable, and predictable. As the fiscal agent forthe Government of Canada, the Bank of Canada promotes the safe and efficientoperation of the countrys financial system and has regulatory oversight of thecountrys clearing and settlement systems. With 1,400 employees, the organizationscorporate administration unit is a main business line that supports its primaryfunctions, both in terms of technology and securing the human capital needed tomeet its responsibilities.

GIANT EAGLEWith more than 80 years of experience and $7.1 billion in sales, Giant Eagle Inc. is aleader in the U.S. grocery store industry. Headquartered in Pittsburgh, Giant Eaglehas 5 million unique customers annually visiting its 376 grocery stores and fuelstations spanning four states. Giant Eagle enjoys a dominant market share in bothPittsburgh and Cleveland. With 32,000 employees, the family-owned and operatedorganization ranks 40th on Forbes list of the largest private companies in 2009.


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Giant Eagles senior management is diversifying market districts and geographiccenters, as well as implementing customer loyalty programs. Giant Eagle also has

made it a priority since 2006 to integrate a strategic focus into its plannin`g andbudgeting capabilities.

The case study contained in this report details how the strategic planning team atGiant Eagle has made improving the corporate planning and performancemanagement function a top initiative across the organization and implemented amore mature model.

JOHN WILEY & SONSJohn Wiley & Sons Inc. is a publisher of nonfiction print and electronic products. Itspecializes in scientific, technical, medical, and scholarly journals; encyclopedias;books; online products and services; subscription products; training materials; online

applications and Web sites; and educational materials. Wiley operates in three corebusinesses: its scientific, technical, medical, and scholarly business known as Wiley-Blackwell; its professional/trade business; and Wiley Higher Education. With 4,900employees working across 15 countries, the global organization reported $1.7 billionin revenue in 2008.

The case study contained in this report details how Wileys global planning andanalysis capability standardizes data, processes, reporting definitions, formulas,assumptions, and tool sets. The organization also integrated global and localplanning models, enabled online contributions at all levels, and implemented aglobal data warehouse and business intelligence platform.

OUTCOMESAPQC contends that a number of positive outcomes arise from implementing moreadvanced planning and performance management systemsmost importantly,greater visibility, increased accountability, and a higher organizational IQ for betterdecision making.

Greater visibilityAdvanced planning and performance management helpsidentify and explain what drives the bottom line. A clearer understanding of

internal and external performance drivers allows planning and analysis teams to

better forecast in a volatile economy. And better systems and data give way tobetter analysis and decision making.

Increased accountabilityIn many organizations, accountability for meetingtargets and strategic goals is unevenly and unfairly distributed. Advanced

planning and performance management systems require involvement of all

levels of an organization. From the input provided by business line leaders to


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the analysis and goal setting performed by a planning team, each stakeholder in

the system shares greater ownership of the process, which creates more relevant

goals. By including more stakeholders in the planning process, organizations will

achieve greater buy-in, and all parties will be more motivated to achieve the

targets that they helped to create.

Higher organizational IQAs seen among the best-practice organizations,namely in Giant Eagles sales decomposition exercise, advanced planning and

performance management systems serve to increase the business intelligence of

the entire organization. In APQCs experience, systems that can clearly identify

the drivers of bottom-line performance help to educate functional staff on

strategic aims. Concepts such as cash flow and economic value added, which

may seem like business school jargon to some, can be easily communicated and

described to all stakeholders. Advanced systems educate all levels of staff about

the key drivers of margin; this creates a more strategically focused enterprise

with a greater ability to generate sustainable, profitable growth.

The heightened visibility achieved by improvements in planning and performancemanagement work in conjunction with a greater understanding of how highermargins are extracted from consumers to facilitate a work force better equipped tocompete in todays marketplace.

A FINAL WORDThe global markets for goods, services, and capital will remain volatile as North

American and western European economies enter a new growth cycle. Althoughthere are encouraging signs for consumer spending and employment in the UnitedStates, financial risks still loom large in a number of sectors because manybusinesses need to refinance loans in the coming months. Thanks to the recession,revenue levels in many cases are now lower in proportion to operating profit. Forsome organizations, that implies a deterioration in credit profile and the inability torefinance under any terms. More business failures, more divestiture ofunderperforming units, and more industry consolidation all point to ongoingeconomic turbulence. Global business trends will likely remain difficult to predictfor some time as rapidly growing markets such as China impactand are impactedbyrecovery in long-established economies such as the United States , Britain, andGermany.

Going forward, APQC expects to see strong interest in improving the relevance ofthe financial analyst and embracing best practices in planning and performancemanagement. Organizations based in fast-growing economies such as China have asmuch to gain as their counterparts in mature economies by enhancing planning andperformance management processes.


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In the months and years to come, large, complex organizations will see a steadilyaccelerating pace of change, both internally and externally. Consequently, predictive

analysis is taking center stage in planning and performance management. The mostadvanced financial analysts already focus to a great degree on modeling andpredicting options for resource allocation, growth investing, and risk management.

They are indeed already building, testing, and perfecting innovations such aspredictive analytics.

In a more predictable environment, regular demand-generation assessments fromthe sales and marketing functions form the basis for finances estimate of costs andnet contribution for the current reporting period. However, organizations facingextreme variability in demand will find that the traditional approach is no longerrelevant. As this report illustrates, finance executives need to embrace innovations inperformance management so they can better respond to operating conditions.

The document is an excerpt from APQCsCorporate Planning and Performance

Management (2010) best practices report.
http://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-reporthttp://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-reporthttp://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-reporthttp://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-reporthttp://www.apqc.org/knowledge-base/documents/corporate-planning-and-performance-management-best-practices-report


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