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Why thick monthly reports to management are going the way of the five-year plan.
Ben McLannahan, CFO Europe Magazine
August 31, 2005
When Frans Spaargaren arrived at Gemplus, an €865 million ($1.041 billion) Geneva-based maker of smart cards, it didn't take him long to realize that not everything about the company was smart. Internally, managers and executives were drowning in data. The finance team foisted reams of information on them every month, churning out huge reports stuffed with rows and columns of numbers. "It was a data dump," says Spaargaren, who took up the Gemplus CFO job in June 2004 after three years running joint ventures at Philips, the Dutch electronics giant. "We basically reported everything, giving them 40 PowerPoint slides full of tables — thousands of numbers in total — and expecting them to pick out key messages and key information. It was much too much to take on board."
Spaargaren spent the bulk of his early months overhauling the internal reporting process, stripping out "irrelevant" details to focus on "what really drives the business." A year later, his corporate analysis team produces a slim booklet, half the size of the former report. The data found inside is more focused, more graphical and more colorful, with major deviations against budgeted targets marked in green and red ink. He has also pumped up the non-financial data, and reports now include metrics on operational efficiency and customer satisfaction, along with progress updates on groupwide initiatives such as the implementation of customer relationship management (CRM) software and supply chain rationalization, among other things.
Given this more streamlined, targeted way of reporting, Spaargaren reckons management committee and board meetings at the Paris-listed firm are now more productive. "We can focus not only on understanding and highlighting the relevant issues, but can also discuss the action plan," he says.
But Spaargaren's not finished yet. His ultimate goal, he says, is to adopt a more "interactive" model of management reporting. He wants to move financial data out of the general ledger into a data warehouse, putting the onus on managers and executives themselves to sift the data and create their own customized reports and "what if" analyses. That way, all that's left to be circulated on a monthly basis is a standard top layer of information — "the bare essentials."
Plenty of finance executives around Europe share that vision. Many, in fact, have already spent time and money addressing it, investing in business intelligence or performance management software from the likes of Cognos, Hyperion, and SAS. "By giving managers the option of access to much more data on their own systems, you don't have to have such a voluminous package on a monthly basis," says Daniel Bednar, deputy CFO of Bureau Veritas, a €1.4 billion ($1.68 billion) inspection and testing agency based in Paris, which rolled out a SAS Information Delivery Portal in 2001.
Spaargaren, for his part, built himself a primitive performance management tool over ten years ago at Varta Batteries, a €145 million ($174 million) Hanover-based firm. Now that software vendors have caught up and begun offering more sophisticated alternatives, he's shopping around for a customizable product, and aims to have something in place by the end of next year. "The role of finance should not be simply to consolidate and report the numbers, but to help people understand what is going on in the business and make the right decisions," he says.
Of course, improving decision-making is the raison d'etre of management reporting. And as a core competence of the finance division, it's up there with matching costs against revenue and ensuring that taxes are paid.
But it's surprising how often the process goes awry. Once companies have gone though improvements such as standardizing data, for example, by agreeing simple definitions of operating profit throughout the group, many stop there and end up producing monthly reports that are mere "memorandums of data," says John McMahan, an Atlanta-based senior adviser at The Hackett Group, a business advisory firm.
And even with the recent proliferation of software tools that allow managers to do much of the number crunching themselves, management reports remain stubbornly thick and unwieldy. According to a survey of 400 large companies worldwide undertaken by Hackett last year , finance teams report an average of 132 metrics to senior management each month. That's far too many, notes McMahan. "Most management reporting is a function of the data that is available, rather than the information that is actually needed."
What's more, such reporting tends to put too much emphasis on historical financial performance: in Hackett's sample, 83 metrics were financial and 49 operational. The preponderance of financial measures is to be expected as it's what finance understands best and what it's most comfortable with, notes Anders Hägg, controller of Unilever BestFoods Nordic, a €400 million ($481 million) division of the Anglo-Dutch consumer goods giant. But that doesn't necessarily help managers who could use better insights into trends and exceptions within their businesses. In addition, the cost of preparing, analyzing and checking this information is often a major burden on finance. "It's a common issue among multinationals," says Hägg. "We basically spend too much time producing numbers, and too little time analyzing and taking action."
The Numbers Game
That's why Hägg and the rest of the regional finance crew at Unilever are making efforts to cut down the volume of data produced, while putting more weight on forward-looking internal and external metrics such as regional sales forecasts, market share, competitor pricing and broader economic indicators.
Hägg has pioneered this new approach since returning to Sweden in 2003 after a stint in management accounting at Unilever's offices in Mexico. At that time, data was submitted through several reporting channels in Denmark, Finland, Norway, and Sweden, and consolidated into one Nordic package, but "actual usage was at best average. We wanted something to support our growth agenda while giving us interactive analysis capabilities, providing a common approach to financial analysis and also communication."
To get there, Hägg used a tool from U.K. vendor Metapraxis, Empower.NET. Now, each month the managing director and CFO of each country receive a simple, ten slide executive summary that doubles as an interactive dashboard, through which information can be filtered and personalized. What was once a thick, static batch of reports is now "lean and dynamic," he says. "It's a one-stop shop for information, a way for senior managers to find all relevant strategic and tactical information in a standardized format."
There have been other benefits too, not least in speed — consolidated Nordic data is now reported up to group level in four days, down from eight — and the information gathering burden on Hägg's regional finance staff is lighter. Meanwhile, Hägg says that making brand managers root around in financial data and generate their own reports has led to a "much better awareness of finance issues among non-financial people."
When it comes to the distillation of key performance data, however, few finance executives can match the record of Klaus Hartmann, CFO of Magyar Telekom, the HUF604 billion ($2.92 billion) Hungarian telecom firm formerly known as Matáv.
Like its parent, Deutsche Telekom, the company uses SAP's Business Information Warehouse, the data warehousing core of mySAP Business Intelligence, that enables managers to process large amounts of operational and historical data according to their own needs. But that wasn't installed until January of this year. When Hartmann arrived at the firm in November 2000, finance was going to town with a string of hefty, standardized reports. Complaints from the executive committee soon echoed in his ears. " 'We're being killed by too many reports,' they told me. 'It's hard to read them all and find which ones are essential.' "
So Hartmann set himself an ambitious target: to condense key monthly financial and non-financial data into a single sheet of double-sided A4 paper. For a while the experiment succeeded, but after a few complaints of strained eyes Hartmann relented, switching to a three-page summary using a larger type size. The document includes income statements for all four lines of business — fixed line, mobile services, data services and internet services — showing variance against forecasts; a group cash flow statement; a full capex breakdown; and key operational data such as tariffs and minutes of usage. In PowerPoint format, the presentation runs to around a dozen slides, but the three-page hard copy is still in use today, despite a groupwide move away from paper-based reporting. As Hartmann observes, "some people like to have something in their hands, a document they can leaf through."
More Power to You
Even with this push to pare down data and to give managers the ability to produce their own reports, monthly reporting won't become extinct. As Unilever's Hägg notes, there'll always be a need for actionable, summary-level information. "When people are confronted with this wealth of data, they often say, 'Yes, this is great, but I just wish that someone told me the message.' "
But as a centralized ritual, the days of the monthly "hoovering-up" and decanting of data are surely numbered. Says Bednar of Bureau Veritas: "People in the field are always telling us they want more control. Rather than having to be fed what head office is putting out there, they want to drill down and analyze their own data. They may even look at more information than in the past, but the point is it'll be their own, rather than what head office has decided on their behalf."
Spaargaren of Gemplus agrees. A CFO can't afford to be too possessive of the numbers, he says. "You should try to ensure that management itself can get the information and the reports they need, not the stuff they don't ask for. The data is not something that's owned by the CFO. That's not my view of finance."