Is Now the Time for Driver Based Budgeting?

Although the publication of ‘Budgeting for the Agile Enterprise – a driver-based budgeting toolkit’ a couple for years ago was met with enthusiasm from the advocates of new ways of budgeting, it gently sank without trace. However the uncertainty of the last couple of years, during which many companies have been frustrated at their inability to re-forecast with the speed or frequency they would like, seems to have given new impetus to the search for a better way of budgeting.

So during this morning’s EPM breakfast meeting at SAP Sapphire here in Orlando, it was a plesaure delight to listen to Sandy Rogers, Director of Financial Systems at Qwest Communications talk on their adoption of driver-based planning and budgeting that consulting organization Column 5 Consulting helped them implement in SAP BusinessObjects Planning and Consolidations. Being a numbers business, telecoms is an ideal industry in which to implement a driver-based approach to planning and budgeting and Sandy shared some of the benefits of the approach as well of some of the change management issues in helping financial analysts and business folk move away from the ultimately false security that comes from a traditional approach to budgeting with its endless line item detail.

With Sandy and other like minded folk sharing their success, who knows, this common sense idea may finally gain the wider adoption it deserves.

Real Value Lies Beyond Numbers

One of SAP’s best kept secrets is its Value Engineering team, a group of specialists who work with customers to build business cases for investments in technology and software. Ultimately this hidden jewel seeks to demonstrate the value of an investment through the use of an extensive library of benchmark data and their experience of working with other SAP customers in similar verticals.

The fact that a group like this exists underlines the importance that prospective customers place on the business case for their project and ultimately their ability to demonstrate long term value and return on investment (ROI). In highly competitive and rapidly maturing solution areas, like the Enterprise Performance Management (EPM) market, this becomes even more important as customers seek not only to build a business case but lower perceived risk by understanding the value of a given solution by learning from peers who have already deployed the same solution.

Gartner highlighted this when in May of 2009 it published a report titled “Finding the Fast Path to Corporate Performance Management Value” which examined the sort of ROI and payback customers could expect from an investment in EPM solutions. While the report provides some very valuable data it struggles to provide real specific examples citing for example ROI in a range of 50-200% for one particular EPM domain. This highlights that there is no better alternative than talking to one’s peers and hearing about their experiences.

If there was ever an event which provided a forum for this then it’s SAPPHIRENOW which takes place this week in Orlando and Frankfurt. This event is the perfect venue for customers and prospective customers to come together and learn about SAP solutions, the value they create and how best to leverage them. By way of a few examples then SAP EPM team will be hosting approximately 100 customers for a special interest group breakfast on Enterprise Performance Management and organizations like the Campbell’s Soup Company will present on how they achieved better planning and budgeting processes using SAP BusinessObjects Planning and Consolidation version for SAP NetWeaver.

This is great if you’re one of the lucky people that were able to be in Orlando and Frankfurt but what if you’re not? Well to start with, SAP is making the event accessible online but it’s also committed to sharing customer experiences through as many channels as possible and making this accessible all year round with case studies, webcasts and customer videos. For example you can learn about customers like DWP, Tesoro, Swiss Post and Desjardin’s and how they use SAP’s EPM solutions directly on the SAP website.

It’s through customers stories like this and a forum like SAPPHIRENOW that real leadership is demonstrated. It’s not about broad sweeping statements about vague numbers of customers which are almost impossible to prove or and even harder to disprove but about providing real tangible stories of how customer use a given solution, their experiences and the value they were able to realize.

Lessons from 'Church Tower' Management

Last week over dinner with a group CFO’s from some of Sweden’s leading companies after SAP’s Butterfly Event, we got to discussing banking and the fact that Handelsbanken is rumoured to be increasing their presence in the UK by acquiring some of the branches that the UK government has asked the Royal Bank of Scotland to sell off as a condition of their refinancing.

Handelsbanken are frequently cited as best practice by the Beyond Budgeting Round Table for their practices of only rewarding staff for outperforming peers, driving continuous improvement rather than simply delivering against a pre-negotiated annual budget and for devolving responsibility and decision making to the front line. One executive at the dinner table related that all performance related pay is paid into the Handelsbanken pension scheme and that the bank’s time-served employees retire with an enviable pension – and we all sighed enviously.

But another executive quipped that “they manage with the church tower philosophy”. Probing for more insight, he explained that the bank preferred to do business only with those clients that branch managers can personally keep an eye on – meeting them face to face at local events; able to see comings and goings and presumably quickly picking up on any local rumours. This approach has certainly stood them in good stead for the past couple of decades; outperforming their peers on virtually any metric you care to choose. See the BBRT Newsletter for November 2009, which shows them top of the table yet again!

For me, their success clearly shows that no matter how pervasive your business intelligence platform or how integrated you performance management suite, you are less likely to deliver top quartile results unless you align your remuneration policies to produce the desired behaviour and devolve decision making to front line managers. Clearly the CFO and CHRO in other banks - and indeed most companies in other sectors - should be talking more.