Good news for corporate performance management

Andy Hayler, Founder and Chief Strategist of Kalido thinks that the Board’s "Frequently Unanswered Questions" could soon be a thing of the past.

A good friend of mine who manages a major global consumer drinks brand recently told me of a particularly embarrassing error he’d made. I want him to stay a good friend and so he’ll remain nameless.

His mistake was made during a presentation to his company’s Board about how his brand had outperformed the market to deliver exceptional global profits and close the gap on competitors. As you’d expect, the big chiefs were delighted with this news and they immediately briefed the press using this success as evidence of the wise business decisions they’d taken over the previous quarter. My friend sat back and waited for the bonus / offers of promotion to roll in.

The problem was that shortly afterwards he discovered that the figures he’d given them were wrong. His brand had actually lost ground and when the global performance reports were cross-checked in more detail a few weeks later he found himself in the unenviable position of having to go back to the Board to give them the bad news. The reaction they gave is not printable.

My friend felt pretty bad about what happened, and not just because it very nearly cost him his job. He’s an excellent marketer and thought he could rely on the information he received from his different reporting teams. In fact his mistake - to inaccurately aggregate performance information from across the globe - is one that is repeated on an alarmingly regular basis by people responsible for reporting on global products.

The problem stems from the fact that the top-level global view that Boards want requires information to be gathered and analyzed from across many different business units and geographies. When the Board barks a question, a small army of analysts typically drop what they are doing and, through spreadsheets and a lot of sweat, they work round the clock to try and get the figures they need.

For many large companies such top-level questions are either answered wrongly, as in the case of my unfortunate friend, or end up joining a list of “frequently unanswered questions”. What makes it so difficult to get a quick and accurate picture of corporate performance is that information is usually held in multiple incompatible reporting systems in different formats across the globe.

Depending on where it is sold, the same brand may have a different name, package size, classification etc and the local reporting systems have grown up to support this diversity. Similarly, different company operating units may allocate costs in different ways - e.g. distributing advertising costs down to transaction level in one business unit, but holding them at the corporate level in another. In one large multi-national company an internal study found twenty six subtly different definitions of "operating margin". All of this complexity makes it extremely difficult for companies to aggregate information into a coherent whole to answer global performance questions. Suddenly relatively simple questions like “how profitable was Brand X in quarter two?” become very tricky and it’s easy to see why errors creep in.

Times are changing and companies are realizing that this situation can’t continue. In order to find answers companies are turning to increasingly sophisticated enterprise data warehousing projects. The best of these not only provide a central store of information which analysts can “mine” to get the answers they need, but they also embrace the concept of master data management (MDM). MDM aims to provide a structure for holding the hallowed “golden copy of business definitions” - a pre-defined set of classifications of products, which ensure that analysts around the globe are comparing like with like.

The best data warehouse projects are also designed to insulate the underlying IT systems from major business change. Some global CPG companies, such as Unilever, buy or sell a company every week and this kind of wholesale change can wreak havoc with data warehouses which are too brittle. This then turns reporting processes upside down.

This move towards more sophisticated adaptive data warehouses is being given further impetus by the pressing need for companies to comply with stricter corporate governance regulations including Sarbanes-Oxley in the US and the EU Directive on Auditing in Europe. These require CEOs and CFOs of companies to ensure their performance information is 100 percent accurate, or they risk a jail sentence.

By elevating corporate performance management issues to the top of the agenda, such regulations should help also bring an end to the “frequently unanswered questions” lists that have plagued global organizations for so long. Perhaps then some senior brand mangers will avoid making embarrassing presentations too.

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