Understanding your future performance has clear benefits. Management can plan and act early, forecasts are more likely to be hit, and stakeholders are at ease. In a strong and stable market many companies claim to have visibility, but this is often by chance and not design. Chance is exposed in times of market volatility.
Having a clearly defined corporate strategy with supporting business plan activities and an integrated financial model behind is critical to understanding where you are and defining what you should care about. It will give you clear external reference points and variables to factor into your forecasting, business planning, and management information, which will help you improve your visibility. Ensure your plans include actions across your business model to push your boundaries and improve Agility and Resilience and your future Cost base.
Relevant Management Information measures what matters, relates to a range of risks and opportunities across your business plan and operating model, and is available and understood. There should be a cascade of relevant Management Information – with Board seeing a slim view and different information arising between functions and through your organisational layers.
Optimising the relevance of what employees look at in the top three layers of your business will make a difference. Don't assume functions have '£-notes' attached to volumes, or that Management Information is available, visual and 'clickable', like the deferred requirements on an ERP programme or a forgotten Power BI roll-out programme promised. When these basics are present, consider long term foresight, embrace technology – be that through your EPM tool or readily available statistical packages, such as KNIME to explore lead indicators of performance (not lag indicators of what financial results have been), and the use of language sentiment tools to summarise what others think.
Then intentionally add anecdote – gather your team round, identify what you want affirmation of, create your question set and ensure your key people have their ear to the ground across your value chain to give you relevant, quality insight to cover your gaps. Improving visibility will require this combination of numerical data, qualitative sentiment and experience and for that combination to be applied across your business model and value chain. If Resilience is key then as well as looking at your access to capital, funding and headroom in different scenarios or sensitivities, also look at key suppliers and customers and their Resilience. With good visibility your decisions will be easier and you can improve Agility and Resilience.
Management Information, be that operational or financial, needs data. Ensure the data used is relevant, defined, controlled and as clean as it needs to be. Simple tools, such as a data dictionary to record data items, show where they're sourced and document what they are, help everyone understand what data is so it can be used correctly, and the right decisions can be made. Start with the most relevant data to your Strategy and related Management Information, as well as regulatory needs.
Control is also imperative – both the quality of that data but also considering that operational data is often shared before accounting is applied. Therefore, different stakeholders look at different information that purports to be the same thing and so may have a different opinion on progress. In this situation and particularly in times of hardship, having clarity of what data is and governance around what's shared is critical to having stakeholders on the same page. Furthermore, leadership should double down on cutting accounting noise – don't encourage teams to be seen to be hitting their budget through the clever application of accounting. Show the real position and likely performance and what could be done from an accounting stance, but let leadership see the real situation and decide what accounting to take. With the current volatility in commodities and high inflation and interest rates environment, costs, and sales can quickly move in opposing directions – so having visibility of the true financial situation is critical.
There's often an assumption that the Income Statement owners are financially literate, understand the underlying economics of their business, and so can make best-informed decisions. This is rare. Business leaders and managers are rarely accountants. To counteract this, you need to elevate the role of your finance business partners to understand the financial impact of proposed decisions, showing options, building scenarios, and giving visibility of what will happen.
Visibility of progress is important in good times and critical in bad. It's often only in the bad - when market instability arises that visibility and the quality of leadership, management and supporting business processes gets questioned. Improving your visibility is not a quick-fix. It requires many small changes and stakeholders to work together and then iterate as you evolve.
Here are four key actions you can take to integrate visibility across your organisation.
1 Hold up the mirror on your strategy and business plans – do they cover what matters and include aspects to enhance your Agility, Resilience and Cost base?
2 Assess your Management Information – are you looking at the right information?
3 Create a data dictionary to ensure managers can understand data used
4 Use your finance function to support the business decision makers
Ultimately, you'll be left with enhanced visibility, the ability to make better decisions and be a more agile and resilient business – and that will help you maximise your value.
For more insight and guidance, get in touch with Simon Davidson and Casper Kaars Sijpesteijn.
