Controlling and Performance Management are essential building blocks for the implementation of a business strategy. An old management saying goes: „What gets measured, gets done“. And this pretty much means exactly that.
Here, at Limendo Business Consulting, we are convinced that this phrase is true and fully applies. Therefore, the Limendo Controlling and Performance Management Services support the implementation of the business strategy exactly like that.
Once you have developed your business strategy with the Limendo House of Strategy, we will also support you in the further development of essential controlling and leadership variables, which we will select with regards to the defined strategy.
1. What kind of essential indicator system should you know about?
2. What is a Controlling Management Cockpit and which elements does it contain?
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As part of a Project Management Office, or PMO in short, we will then ensure the implementation and notify the organization about any deviations from previously defined parameters. Although this might sound complicated, it is not. With the use of stringent controlling we will always be in charge of any situation, to be able to react to any changes or deviations accordingly.
A clean controlling implementation also helps you to discover new trends in your own company or in an external context. A strategy does not always have to be initiated from the top floor; it can also grow and develop from below. Such emergent strategies will be of great importance, especially since the extensive highlighting through management expert and professor Henry Mintzberg. The feedback from Implementation Controlling is always new input for adaptations or adaptations of the strategy.
If you for example chose a leader strategy as your strategy and you have defined that you want to achieve at least 20 percent market share in all business areas, it is important to actually measure your market share. This will ensure that you can take appropriate measures and adapt the strategy accordingly Because a strategy is never abstract. Strategy is always detailed in terms of applicable measures. You can ensure the implementation of these measures with the appropriate controlling and performance management solutions.
In Controlling, today two essential indicator systems are being used:
1. The Du-Pont Scheme
2. Balanced Scorecard
Whilst the Du-Pont Scheme mainly focusses on financial parameter, the Balanced Scorecard also recognizes quality parameters.
The Du-Pont Scheme is the oldest indicator system in the world and was developed by the American organization Du Pont de Nemours and Co. in the beginning of the past century. At the centre of the Du-Pont Scheme are financial parameters. The system highlights how the Return on Investment (ROI) is put together. The segregation into separate building blocks makes it possible to implement different measures for each of these individual blocks.
This means that the ROI can for example be separated into the Return on Sales (ROS), which is the capital profit of return percentage-wise, and the capital turnover turnover (calculated: turnover through total capital). Therefore, the management can utilize the 2 influential variables. This will either lead to higher profit per capita or the capital will be accelerated. The ROI will be increased with both measures. However, another subdivision can be useful and possibly bring further results to light.
The Balanced Scorecard goes all the way back to Nolan Norton and Robert Kaplan. Compared to just financial parameters, the Balanced Scorecard looks into multiple dimensions as the name suggests – a balanced scorecard. In this strategy, goals are being set for the financial perspectives, process perspectives, client perspectives as well as learning and development perspectives. Furthermore, the dimensions build up on each other.
The learning and development perspective is the lowest level. It is assumed that the human capital, which is made up of the employees within a company, is actually a decisive factor for the next level up, which is the internal processes. A parameter for the learning and development perspective can therefore be the number of training days within a business consultation.
On the next level, the parameter for essential processes, such as client complaints and reclamations and how to accelerate these, will be determined. Here, times can be recorded, and measures are implemented, which will result in faster response times. The level below this one can have a big impact on this level. Therefore, the response time can be lowered through targeted training on the level below.
The next level includes the customer level. At this level, parameters such as price, quality, service, availability, or brand play a major role.
Ultimately, success is measured in the financial level with various parameters.
These two presented systems show you the best playground for a possible controlling concept. With today’s possibilities of data processing and availability, Limendo Limendo will be able to develop unique controlling concepts for you. Limendo’s approach is always to combine the financial with operative and strategic parameters.
Not only do you want to know your sales figures (financial parameter), but you also want to know which customer segments and which products (operative key figure) have made this turnover possible and how the customer segments in the market develop overall (strategic parameter).
Limendo develops unique Controlling Management Cockpits just for you.
The assessment of the financial performance of companies is associated in particular with questions regarding their communication to internal and external users: so-called cockpit presentations can be used to ensure a user-focused communication. One of the basic ideas of performance cockpits is the integration of different key parameters to expose contexts and make them transparent.
On the basis of multi-periodical presentations, it is ensured that the focus is not on individual key parameters, but on the adoption of a broader, integrated view. . Additionally, there is the possibility of visualizing performance variables of different periods and the inclusion of targeted and budget parameters. Therefore, a dynamization of the presentation is obtained.
The analogy between corporate management and aircraft control has coined the term “cockpit”. Today, cockpits have become indispensable from the corporate world. With this word choice, the claim of the performance cockpit is revealed, as well as providing informational function, particularly communicative advantages. Due to the limited space, a targeted selection of parameters must be made, which leads to an evaluation of the contents.
The 10 advantages of Controlling Cockpits
- Clarity and focus on strategic leadership parameters
- Reduction of presentation scope
- Breaking down strategic target parameters into several company levels
- Improvement of financial leadership quality
- Superior information distribution
- Graphically appealing presentation of data material
- Compromising and hierarchization of different parameters
- Up-to-date information
- Focus on the essentials
- Merging of different information sources
A management cockpit should contain different areas. In addition to a strategic area, it is important to map operational and financial parameters.
A strategic area, for example, might focus on strategic competitive customer considerations. Priority could be given to calculating Customer Lifetime Value (CLV) for different customer segments, a calculation or an estimation of the generated Economic Value Added (EVA) for the different customer segments, as well as a competitive strategic analysis of future customer segment performance in terms of profitability and position of the company to the customers. Brand considerations can also find a place in such a strategic area.
Depending on the company, there will be very different areas that need to be listed. If you are a trader, it will be important to understand your client segments. If you are a manufacturer, it will be important to understand your production and the need as well as having the forecasting of your products under control.
In terms of its properties, the financial area is aimed at monitoring the most important financial variable. . In any case, the financial area should be divided into a profitability area, a cost area, an “impact area” on other financial indicators and a liquidity area.
The operative area should contain all essential operating parameters, such as:
1. All essential process information
2. All essential information regarding human resources
Here, the process information is very different. For sales, the number of leads (i.e. potential customers) is most important. For the production, the production lead time is very important. For the customer service, the already mentioned response time of complaints or the customer satisfaction is very important.
There is an endless number of possible parameters that belong in an operational cockpit – these cannot be enumerated at this point.
Most importantly, all information is interrelated, and an authorization management gives all those individuals access to the information they actually need. Whilst a top manager can see all the information, a purchaser can only see data about their suppliers, even if theoretically all the information is available.