Business Management From measurement to management Survey of Russia s leading CEOs and CFOs

Transcription

1 Business Management From measurement to management Survey of Russia s leading CEOs and CFOs

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3 Contents Enterprise Performance Management EPM in numbers About the survey and participants Strategy to Plan Measure to Forecast Recognise to Reward Information Technologies Contact details

4 Enterprise Performance Management Enterprise performance management (EPM) can be used to measure and manage companies performance. Enterprise performance management (EPM) can be used to measure and manage companies performance. In business, other terms such as Corporate performance management and Business performance management are also used to describe this process. EPM is a holistic concept, combining processes, methods, indicators and systems that can help estimate and manage performance indicators. EPM, as an integrated function, comprises a set of on-going processes: Business Management. From measurement to management 2012

5 Strategy to Plan This involves first defining the strategy, key performance indicators (KPIs) and risks, and then cascading these indicators across all levels of company management, as well as long-term planning and the short-term allocation of resources through functionally integrated budgeting. Measure to Forecast Companies use this process to control and manage their long-term strategy. Performance is evaluated by measuring, consolidating and analysing financial and non-financial indicators defined at the Strategy to Plan stage. The goal is to timely identify any deviations in order to take corrective action to improve business performance. Recognise to Reward This process takes the employee remuneration, development and learning systems the company uses, and relates them to the achievement of strategic goals and objectives on individual employee and company-wide levels, thus providing motivation to attain strategic goals at all levels of the organisation. Figure 1. PwC EPM methodology Recognise to Reward VALUE Strategy to Plan Risk planning and managment Measure to Forecast EPM is a holistic concept combining processes, methods, indicators and systems that help assess and manage performance indicators. EPM helps company management to promptly evaluate the current situation, and to timely and flexibly respond to change. In this context, the closely interlinked nature of the various EPM processes, their continuity and implementation quality of each of them, becomes vital.

6 EPM in numbers Strategy to Plan 80% of companies recognise the importance of and need to formulate strategies 80% of companies clearly communicate company strategy across all levels of their organisation 80% of companies believe that using KPIs that are based on strategy and key value drivers is key to assessing strategic goal feasibility 6 Business Management. From measurement to management 2012

7 Strategy to Plan 0% of companies view the integration of their strategic planning and budgeting processes as full or almost full 0% of companies employ principles that are close to IFRS in budgeting and management reporting Measure to Forecast 80% of companies recognise the importance of automating information gathering/processing and integrating IT systems 0% of companies have, over the last 2 years, made changes that help improve quality and timeliness of the information Recognise to Reward 6% of companies have short-term remuneration programmes in place 60% of companies annual performance appraisals of their staff based on their achievement of KPIs

8 About the survey and participants The respondents represent a broad sample of companies by industry, headcount and annual revenue. 3/ of those surveyed are C-executives. Our EPM survey of Russian companies is gaining popularity: this year we saw double the number of participants compared to the last year. % of those surveyed hold CEO or CFO positions. This year, the most active participants were financial services (% of respondents), and retail and consumer goods companies (20%). The highest response rate was seen in companies with to employees, indicating that these companies leadership is very interested in learning about the current market situation. 8 Business Management. From measurement to management 2012

9 Chart 1. Respondents position in the company Chief Executive Officer 2 Chief Financial Officer Chief Accountant 2 Other 0% 10% 20% 30% 0% 0% 60% Chart 2. Respondents - by headcount > < % 10% 20% 30% 0% 0%

10 Chart 3. Respondents - by industry (%) 22 Financial services Retail and consumer Chemicals and pharmaceuticals 20 Energy, utilities and mining Industrial production Healthcare and sport Technology, media and telecommunications Construction/construction materials Other Chart. Respondents - by revenue (million USD) > < Business Management. From measurement to management 2012

11 Strategy to Plan Not only can a culture of strategic goal-setting and the management processes that follow from that now be said to have formed in Russia s business environment, they have sufficiently strengthened. CEOs and CFOs remain the key figures. Not only can a culture of strategic goal-setting, and the management processes that follow from that, now be said to have formed in Russia s business environment, they have sufficiently strengthened. In addition to CEOs, CFOs and strategy directors bear significant responsibility regarding EPM, as mentioned by 36% and 28% of our respondents respectively. The role of strategy director has increased relative to last year, which testifies to the fact that our respondents have a better understanding of the basic role of strategic planning under EPM approach.

12 Chart. Who, besides the CEO, do you think should play a key role in enterprise performance management? 0% 3% % 2% % 1% 10% % 0% CFO Strategy director IT director HR director About 80% of respondents understand the importance of and need to develop company strategy. 62% of those surveyed use specialised tools and methods to formalise strategy (e.g. SWOT analysis, scenario modelling), and % are planning to start using them in the future. The number of respondents who emphasise the role of clear strategy communication at all levels within an organisation is 6%, an increase on 0% last year. Chart 6. Rate the aspects of performance management listed below by the level of their significance Clear communication of strategy to all levels of the organisation 6 22 Use of strategy development tools and techniques (e.g. SWOT, scenario modeling) 2 2 Use of systematically derived KPIs from strategy and key value drivers Use of value drivers directly derived from strategy Use of strategy maps based on key value drivers % 0% 100% Very high Low High Very low 12 Business Management. From measurement to management 2012

13 There remains potential for a more consistent and complete strategy migration to a context of measurable dimensions of goals and objectives. About 80% of respondents believe that using KPIs that are developed based on strategy and key value drivers is both significant and critical in evaluating performance. Only 0% of companies apply KPIs in practice as a working tool, and just 20% have full-fledged strategic maps. This might also signify potential isolation and insufficient consistency in KPIs, which in turn may have an impact on how well and how fully the extent to which goals are attained is measured. The positive trend is that over 30% of our respondents are planning to implement both strategic maps and KPIs. There remains potential for a more consistent and complete strategy migration to a context of measurable dimensions of goals and objectives. Chart. To what degree are the following aspects of enterprise performance management implemented in your company? Use of strategy development tools and techniques (e.g. SWOT, scenario modeling) Clear communication of strategy to all levels of the organisation 62 8 Use of systematically derived KPIs from strategy and key value drivers Use of value drivers directly derived from strategy Use of strategy maps based on key value drivers % 0% 100% Implemented Planned Not planned

14 It is noteworthy that over 0% of those surveyed believe that, in the current business environment, changes are planned and implemented in full compliance with corporate strategic goals, indicating the vital role increasingly played by strategic planning in business development. Chart 8. Select your preferred answer to estimate the effectiveness of implementing change/ projects related to your enterprise performance management. Changes are clearly formulated. Change implementation stages are planned and agreed with business units 31 The company's staff are timely trained in connection with the changes implemented 33 2 Changes implemented are fully aligned with the company's strategic goals. Changes are planned in advance and implemented as part of project related activities 20 The company's managers are involved in the change implementation process and provide necessary assistance to staff The effect of changes on the current business situation is evaluated on a timely basis. The effect of changes is monitored The company's staff positively perceive changes and take part in implementing thereof Changes are communicated efficiently: information is reliable, prompt, clear/ understandable and sufficient 2 2 0% 0% 100% Completely agree Agree Don't know Disagree Completely disagree Evaluations of the degree of efficiency with which changes in EPM project implementation are communicated to employees ranges from low (3%) to high (2%). This suggests that there is insufficient internal communication of decisions and implementation plans at all levels. At the same time, change does not always involve middle management (2%) and staff training is not always timely (33%). Overall, this may suggest a lack of efficiency in how the company manages change, and, as a result, a lack of active support for change among employees. Companies consistently deploy a variety of different approaches to planning: strategic, mid-term and operational planning. Market participants evaluate the synchronisation of strategic planning and budgeting processes as full or almost full (68% of respondents). 1 Business Management. From measurement to management 2012

15 Chart. How would you evaluate the degree of integration between strategic planning and budgeting processes in your company? (%) Fully aligned/ linked Almost fully aligned/ linked Partially aligned/ linked Separate/ not linked The strategic planning horizon is up from 1-3 years to 3- years: companies view the external environment as more predictable and are aware of the need to set their development parameters for a longer term. The cycle of strategic, mid-term and operational planning is applied primarily on an annual basis, with liquidity planning normally conducted on a monthly basis. The strategic planning horizon, that most companies use, has increased to 3- years. This indicates that companies view the external environment as more predictable and are aware of the need to set their development parameters for a longer term. This higher planning horizon means that more time needs to go into planning: for example, on average, this year respondents spent just over 3 months on planning. It is more than they did the last year. The dominating horizon of the other planning categories remains unchanged: from 1 to 3 years. Time spent on budgeting fell to 1. months. 1

16 Chart 10. For each of the following types of planning, indicate the time horizon and frequency. Investment planning Strategic planning Liquidity planning Mid-term/ tactical planning years 3 3- years 2-10 years 2 2 Other years years years 1 Other years 0 3- years years 0 Other Less than 1 year years 0 Other 3 0 0% 10% 20% 30% 0% 0% 60% 0% 80% Chart. How much time does your company spend on planning and forecasting (months)?* Strategic planning Mid-term/ tactical planning Operational planning/ budgeting Forecasting Liquidity planning *Average estimates Business Management. From measurement to management 2012

17 In general, those surveyed are satisfied with the amount of time spent on planning and the number of iterations during planning. Chart 12. How satisfied are you with the time your company spends on planning and forecasting? Strategic planning 38 2 Liquidity planning 2 Forecasting 36 3 Mid-term/ tactical planning 31 Operational planning/ budgeting 3 0% 10% 20% 30% 0% 0% 60% 0% 80% 0% 100% Completely satisfied Satisfied Not satisfied Completely unsatisfied Chart. How satisfied are you with the number of iterations during planning and forecasting? Strategic planning Forecasting 36 2 Liquidity planning 18 Mid-term/ tactical planning 38 2 Operational planning/ budgeting % 10% 20% 30% 0% 0% 60% 0% 80% 0% 100% Completely satisfied Satisfied Not satisfied Completely unsatisfied 1

18 Planning staff and information end users recognise the importance of increasing the automation level and user-friendliness of IT tools for planning work. More than % of our respondents expressed dissatisfaction with the automation level and usability of IT tools for all planning categories. Compared to the last year, the level of satisfaction with IT tools has fallen. Over 0% are dissatisfied with the degree to which structural units are engaged in the planning processes. This indicates that the entire organisation needs planning, and that planning is not restricted to financial function requirements. Chart 1. With respect to each of the following factors, how satisfied are you with the current planning and forecasting processes?* Level of detail Clear breakdown of responsibilities Operational units level of involvement Quality of information Level of automation and user-friendliness of IT tools % 0% 100% Completely satisfied Satisfied Not satisfied Completely unsatisfied * Level of satisfaction by factors is summarised for all types of planning except for liquidity planning 18 Business Management. From measurement to management 2012

19 More than 0% of respondents take an approach to budgeting based on principles that are closer to IFRS : % of respondents use the direct method of budgeting and management reporting based on principles closer to IFRS and another 28% of respondents use RAS with a subsequent IFRS transformation. Russian companies made progress in ensuring transparency and openness in business for potential investors by significantly strengthening IFRS expertise. The direct budgeting and management reporting method based on principles that are closer to IFRS is applied by % of respondents (against 2% last year) and another 28% respondents use Russian Accounting Standards with a subsequent IFRS transformation. Chart 1. When forming a budget and conducting a plan vs. actual analysis of management reports, which standards are used, and do you plan to change your approach in the next few years? 0% % 0% 3% 30% 30 2% 2 20% % % 10 % 0% RAS; no changes are planned RAS; our approach will change in the next 1-2 years IFRS; no changes are planned RAS followed by transformation to IFRS; no changes are planned RAS followed by transformation to IFRS; we plan to change our approach within the next 1-2 years Others (US GAAP, transformation from US GAAP to IFRS and others) 1

20 Measure to Forecast Сompared to previous periods, the KPI system now has two clear accents: on the one hand, the financial KPI list has grown; on the other hand, companies have started using internal efficiency indicators such as cost and process implementation speed. KPIs reflect priorities to be achieved by the company, as defined by management. In the Finance category, the critical indicators are traditional indicators of revenue and income, the list of which has expanded, but the focus remains on the reliability, accuracy and timeliness of financial information. This indicates toughened internal standards of financial reporting. Since last year the Clients category has expanded to include indicators of a diversified client base, testifying to companies desire to ensure sustainability. For the first time compared to previous periods, market participants have included among their indicators such KPIs as cost, speed, the formalisation of processes being implemented in the companies and labour productivity. This clearly indicates that the participants seek to improve efficiency and effectiveness of internal resources. Therefore, compared to previous periods, the KPI system now has two clear accents: on the one hand, the financial KPI list has grown; on the other hand, companies have started using internal efficiency indicators. 20 Business Management. From measurement to management 2012

21 Table 1. In each of the following categories, please specify the most important KPIs in your company? Category KPI type Main KPIs Finance Clients Processes Personnel Quantitative Qualitative Quantitative Qualitative Quantitative Qualitative Quantitative Qualitative Revenue EBITDA Profit margin Profit Return on equity Profitability by activities Reporting quality Meeting deadlines for filing data Meeting deadlines for established procedures Market share Customer base Backlog of orders Sales volume per (one) client Client satisfaction index Client base diversification Meeting deadlines for established procedures Process cost Process speed Production costs Selling costs IT systems action speed Number of IT system failures Existence of guideline documents Compliance with guideline documents Implementing information systems Headcount Labour productivity Operational income per (one) employee Turnover of staff Percentage of salaries and compensations in expenses/ income Personnel Employee competencies Meeting deadlines for recruiting staff Understanding common strategy and their role in it 21

22 The preparation of management reports remains complex in terms of data collection, calculation, reconciliation and structuring: on average, the companies spend 6% of their allocated time on these activities. Data analysis and interpretation on average takes 2% of their time, an increase on last year (%). Although today, more time is spent on analytical work, the survey results indicate that respondents are keen to continue to shift their focus to analytical tasks and achieve the target 0/0 allocation of time between data collection/ processing and data analysis/ interpretation. Although the preparation of management reports is a complex process, companies are paying more attention to data analysis and interpretation: up to 2% of their time on average against % the last year. Chart. Average distribution of time spent on the processes of management data preparation and analysis* 80% 0% 60% 0% 0% 30% 20% % 3 0% Data collection, calculation, reconciliation, and structuring Data analysis and interpretation Other Estimated current allocation 20 Estimated current allocation 2012 Desired allocation 2012 *Average estimates 22 Business Management. From measurement to management 2012

23 To make management reporting process easier, 80% of respondents believe that it is important to automate data collection and processing and integrate IT systems, and 6% of those surveyed are not satisfied with current levels of automation and integration in their companies. Further confirmation of the fact that preparing management reports is a complex process, and of the intention to reduce time input, can be found in the fact that approximately 80% of respondents view the automation of data collection and processing processes and IT system integration as either important or very important factors, and that 6% of them are not satisfied with current levels of systems automation and integration in their companies. Chart 1. What is the importance level of each of the following factors in producing management reports? Timeliness of information Accuracy and reliability of information Integration of IT systems (e.g., planning and reporting) Automation of information collection and processing Systematic analysis of information needs Cost of report generation % 0% 100% Very high High Low Very low Chart 18. How satisfied are you with the situation in your company in terms of: Accuracy and reliability of information Timeliness of information 2 2 Cost of report generation 31 2 Systematic analysis of information needs 31 Automation of information collection and processing 22 Integration of IT systems (e.g., planning and reporting) 0 0% 0% 100% Comletely satisfied Satisfied Not satisfied Comletely unsatisfied 23

24 Most respondents also feel that the most significant factors impacting this process are the accurate and fair (reliable) presentation and timely provision of data (80% and 8% of respondents, respectively). Having understood these factors importance, companies are working to implement changes aimed at ensuring the fair presentation (1% of the surveyed) and timely provision of the information (1% of the respondents). However, their degree of satisfaction with how these matters currently stand in the company has not yet improved compared with the previous year. Chart 1. Over the past two years, has your company implemented any changes to address factors impeding efficiency in the decision making process? Provision of management reports of poor quality 1 36 Lack of quality information 1 36 Lateness of information 1 36 Poorly defined/ non-clear responsibilities 0 Complex decision-making hierarchy 38 Poorly defined issue escalation/ resolution process % 0% 100% Yes No Companies have taken a step forward towards transparency and manageability by ensuring that budgets and reports are prepared in accordance with principles close to IFRS (over 0%), implementing steps to ensure the fair presentation and timely provision of management information (over 0%) and by spending more time on data analytics. Organisational restructuring, simplifying the management system, optimising processes and implementing operating regulations are the most relevant of all measures respondents have implemented over the last two years in their work to improve decision-making efficiency. Therefore, these companies have taken a step forward towards transparency and manageability by ensuring that budgets and reports are prepared in accordance with principles close to IFRS (over 0%), implementing steps to ensure the fair presentation and timely provision of management information (over 0%) and by spending more time on data analytics. Business Management. From measurement to management 2012

25 Recognise to Reward Annual incentives based on KPIs remain the most popular and effective means of motivation. Although the strategic planning horizon has expanded to three to five years, respondents continue to prefer short-term incentive programmes. Incentive programmes constitute a key tool in attaining strategic goals. However, much like the last year, respondents proved very unwilling to answer questions concerning remuneration. This can be explained by low trasparency of the incentives system or insufficient awareness of how this system works for others. Most companies (6%) use annual bonuses and view them as the most effective incentive as compared to other types of remuneration. However they have decreased year-on-year (0% of respondents the last year). Deferred bonuses and long-term rewards are more popular than the last year (used by 36% and 3% of respondents, respectively). This indicates a visible shift to long-term incentive programmes. 2

26 Apart from monetary remuneration, Russian employees feel the need for the regular positive appraisal of their work by their line manager: this has a positive effect on their individual performance. Although long-term incentive programmes are used by only 1/3 of companies, around 0% of them describe these programmes effect as significant or very significant. Non-monetary recognition, i.e. management acknowledging an employee s performance, is a policy in use at 38% of those companies surveyed, which is less than the last year (%). On the one hand, non-monetary recognition has a weak effect on the company s overall performance (low and very low effects noted by % of respondents) % of respondents working in companies, where management actively use bonuses as success recognition, view non-monetary recognition as having a strong impact. This means that non-monetary recognition is important, and that Russian employees feel a need for the regular positive appraisal of their work by their line manager, especially where annual personnel assessments are based (fully or partially) on the personal subjective appraisal of an employee by his line manager (38% of respondents). Chart 20. Which of the following incentive systems does your company use/ plan to use? 100% 0% 0 80% 0% 60% 0% 0% 30% 20% 10% 0% yes no planned difficult to say yes no planned difficult to say yes no planned difficult to say yes no planned difficult to say Annual (short-term) incentives based on KPIs Deferred bonus Long-term Incentives (real shares or cash payment) Non-monetary reward Chart 21. What influence do the following incentive systems have on company performance?* Annual (short-term) incentives based on KPIs Deferred bonus Non-monetary reward Long-term Incentives (real shares or cash payment) 0% 10% 20% 30% 0% 0% 60% 0% 80% 0% 100% Very high High Low Very low *The impact of bonuses was only considered for those respondents who use these kinds of bonuses 26 Business Management. From measurement to management 2012

27 Most companies conduct annual appraisals of their staff based on KPI achievement (60%), and over 80% of the surveyed view the KPI-based evaluation system as having an influence that is strong or very strong. Therefore, as part of the EPM approach, the consistent translation of strategy into measurable goals and objectives through defining key value drivers, using strategy maps and implementing the KPI system, are of great importance. Chart 22. Which of the following annual personnel evaluation systems does your company use/ plan to use? 80% 0% 60% 0% 0% 30% 20% 10% 0% Yes No Planned Goals and KPIs Yes No Planned Competencies Yes No Planned Assigning grades/ ratings Discretion of a supervisor Chart 23. What influence does the following annual personnel evaluation systems have on company s performance?* Goals and KPIs Competencies Very high High Low Very low Assigning grades/ ratings Discretion of a supervisor % 20% 0% 60% 80% 100% * The personnel appraisal system s influence was evaluated only among those respondents who use these systems 2

28 Information Technologies As the survey showed, respondents apply various IT solutions in areas such as strategic planning, KPI systems, planning, budgeting and forecasting, investment planning, consolidation and reporting. IT instruments and technologies are a significant supporting tool for all EPM system processes. As the survey showed, respondents apply various IT solutions in areas such as strategic planning, KPI systems, planning, budgeting and forecasting, investment planning, consolidation and reporting. MS Excel remains the most widely used tool. Electronic spreadsheets are often used as a key or ancilliary tool in all the areas of performance improvement management listed above. Of all the specialised IT instruments, 1C is the most frequently used, especially in financial and management reporting, planning/ budgeting processes, and SAP is used in KPI system implementation. Specialised IT tools are used more often (38% to 2% of respondents) than MS Excel (from % to % of respondents) in financial reporting/ consolidation, management accounting, planning/ budgeting and KPI system support. As compared to the last year, the ratio between the use of MS Excel and specialised IT tools to support the KPI system has significantly shifted towards the latter. No significant shift in the balance is observed in other areas. 28 Business Management. From measurement to management 2012

29 MS Excel remains the most widely used tool. 1C and SAP are the most frequently used specialised IT tools. Over half the respondents consider the difficulties related to IT system implementation to be either significant or very significant. Those surveyed specified that the most important factors were keeping costs within the budget for an IT system implementation project (8% of respondents), the need to customise processes, and the ability to embed all specific technical requirements within the IT system (6% and % of the respondents, respectively). Chart. Which IT tools/ technologies do you use? Financial reporting / consolidation Management reporting Planning/ budgeting 2 Investment planning 2 60 Strategic planning 1 KPI system (e.g., balanced scorecard) 20 0% 0% 100% MS Excel 1С SAP Other IT tools (Hyperion, Self-developed, Oracle etc.) No specific IT tools used On the whole, companies surveyed do not have plans to start using new IT products. It should be noted that questions about tools that are going to be integrated into financial management processes and systems over the next two years were deemed the most difficult to answer by over 0% of respondents. The majority (over 10%) of those who answered these questions (less than 30% of all those surveyed) said that they had no such plans. The most frequently mentioned tools that are planned to be used are: 1C, SAP and Navision. 2

30 The adoption and application of integrated IT solutions can help improve planning and management reporting processes, and also reduce the time and effort required for their implementation. Chart 2. How serious an obstacle do you consider each of the following factors to successfully implementing new software in your company? Level of process adoptation required Configuring all methodological requirements in the IT system Data integration Meeting budget on the IT system implementation project Corporate culture/ human factor Development of interfaces with other IT systems 36 0% 0% 100% Very serious Serious Low serious Absolutely not serious 30 Business Management. From measurement to management 2012

31 Contact details Ekaterina Serova Partner Consulting: Finance & accounting Tel: + () 28 3 ekaterina.serova@ru.pwc.com Елена Троян Senior Manager Consulting: Finance & accounting Tel: + () elena.troyan@ru.pwc.com 31

32 PwC Russia ( provides industry-focused assurance, advisory, tax and legal services. Over 2,000 people work in our offices in Moscow, St Petersburg, Yekaterinburg, Kazan, Yuzhno-Sakhalinsk and Vladikavkaz. We share our thinking, experience and solutions to develop fresh perspectives and practical advice. The global network of PwC firms brings together more than 1,000 people in 1 countries. * PricewaterhouseCoopers and PwC refer to PricewaterhouseCoopers Russia B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide services to clients. PwCIL is not responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgement or bind another member firm in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgement or bind another member firm or PwCIL in any way PricewaterhouseCoopers Russia B.V. All rights reserved. PwC and PricewaterhouseCoopers refer to PricewaterhouseCoopers Russia B.V. or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity.