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Summary
Ventana Research recently completed a benchmark research study covering a variety of topics in financial performance management (FPM). One important finding is that companies have made considerable progress in addressing their basic information needs (which we call 20th century reporting requirements) but are a long way from providing information that can improve performance (their 21st century requirements). Since it took a lot of trial and effort to reach the current state of reporting capabilities, reluctance to change may be one reason why organizations have failed to take management reporting to the next level. Another reason is that many are unaware of the possibilities. Ventana Research believes there are three areas on which organizations must focus to become more mature in their management reporting: personal performance management metrics, leading indicators and information about the world outside the organization.

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Being able to deliver basic, accurate accounting and operating data efficiently has been a key objective of much of IT investment and deployment effort, particularly in finance departments. Organizations have spent much time, money and effort over the years to assemble IT systems that have made it easier to collect information in a coherent, consistent fashion and then to use it. This benchmark research demonstrates that this mission has been accomplished. Yet it also confirms that a majority of companies are not providing to their people the richer information that will help improve performance. Companies continue to spend too much time and effort refining their approach to addressing basic reporting needs that are already well-served – or served well enough – and have not taken steps to provide the next level of information.

One area is performance management. Participants in our research (sponsored by Teradata and media partners Business finance magazine and the Institute of Management Accountants) expressed satisfaction with the high-level information they receive about how well their business unit and their company are performing, but they are less satisfied about feedback on how well they personally are performing relative to their objectives. Companies have made some progress in the past five years in using scorecards to align individual objectives, business goals and company strategy, but we conclude that much more must be done in this area. One component of any performance improvement strategy is reporting systems that convey this type of information to employees.

Moreover, it is important for companies to cast their nets wider to get a wider set of data. Although they have made strides in incorporating a broader range of operating data into their management reports, their continuing reliance on accounting information for management reports produces information mostly about the past. Only 20 percent of research participants said they get enough information about leading indicators that will help them anticipate business issues or opportunities, while 60 percent complained they do not get enough and 20 percent said they are not getting any at all. Creating leading indicators usually requires a combination of operating and accounting information.

A third area that needs attention is the external world. Almost all management reports concentrate year-over-year or actual-to-budget performance. But business obviously is not just an us-vs.-us proposition – it’s us vs. them. If sales are up 5 percent and we were expecting a 10 percent increase, is that bad? Not if our major competitors are experiencing flat sales. Yet only 15 percent of our participants said they have adequate information about their competitors’ performance, while more than one-third (36 percent) said they receive no information at all.

Until relatively recently, it was hard for companies to systematically collect information about their own business and far more difficult to acquire information about markets and competitors. Moreover, since the budgeting, forecasting and review process in most companies sets an us-vs.-us context, it is no surprise that people do not compare their performance in a context that really matters. Today, it is far more practical to centrally collect this type of information and disseminate it to managers to provide them with the proper context of their business performance.

Assessment
Addressing 21st century reporting requirements starts with understanding that you need to do more but that fixing the situation is possible. We find that most companies have many of the elements in place to mature their management reporting. In larger companies, though, the complexity of the IT infrastructure creates a barrier to bringing together the range of data sets needed to provide this next level of information. But neither the people dimension (that is, awareness of the issue and a desire to change) nor the IT dimension (technological complexity) is especially difficult to address. That is why we believe achieving a 21st century level of management reporting should be at the top of the list of initiatives for Finance, business and IT for 2008.

Related Research Notes
Midsize Companies Need Better and More Visible Information
Research shows considerable gap between what they have and what they need

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