Not long ago, we discussed about the gap between strategy execution and alignment as well as ways to bridge the gap with the Balanced Scorecard. Technology plays an important role in facilitating strategic performance management. A scorecard-enabled solution must support a number of management processes. The critical processes outlined by the Cranfield School of Business (2003) are:
Performing these processes requires a system that supports the enterprise-wide development of operational plans that are clearly linked to high-level organisational goals.
Clarifying and translating the vision and strategy
To support this process, a strategic performance management system should firstly support the detailed analysis of activities and results in the initial performance review, which comes before devising a strategic plan. If a company chooses the Balanced Scorecard methodology, the system should also support the cause-and-effect linkage between different themes, KPIs, initiatives and assumptions.
Communicating and linking the strategic objectives and measures
Accountability should be ensured with performance target assignment depending on each department/region’s ability to contribute to the overall goal. Measures are linked to each unit, theme, objective, and key performance indicator, allowing the organisation to monitor the implementation and success of its strategic plan. To ensure concentration, operational managers should see only their part of the strategic plan, from which they can add their own initiatives to achieve the outlined strategic goals.
Setting targets and aligning strategic initiatives
This is the step where senior management reviews the entire plan, including the operational initiatives. They should be able to enter targets into the plan, which can be manually or electronically linked to other modules of a strategic performance system, such as budgeting and reporting. In this way, the organisation can assign budgets to initiatives, verify that costs and revenues are within plan, and confirm that outcomes are aligned with corporate goals.
Enhancing strategic feedback and learning
A strategic performance management system should be able to import results directly from supporting systems such as existing transactional/data warehouses. A range of reports should then be automatically available, helping the organisation determine whether its strategic plan is working. These reports are flexible in that they can be tailored by end users and allow measures to be reported across the Balanced Scorecard perspectives as well as by responsibility. Ideally, a strategic performance management system should be able to generate:
Finally, a strategic performance management system should be flexible in that it allows organisations to approach the Balanced Scorecard from a number of directions.
Previous blogs have discussed the important role of accounts payable management to the financial benefits of retail industry and the many advantages of accounts payable automation. Accounts payable automation, workflow, and e-invoicing have been in place for a long time as a remedy for common AP problems due to manual entry. Althought, AP automation can enhance accounts payable management and financial management greatly. However, many companies are still sticking with their manual processes. Why is this? There are certain barriers for AP automation; understanding these obstacles is an important step in overcoming them.Reluctance to adopt AP automation and obstacles in the way of implementing it
A 2012 survey found that the main reason organisations are reluctant to adopt AP automation is that they lack a budget for the system. They think AP automation is not a worthy investment due to the time and effort it would take to build a comprehensive system, and it would take too long for the automation to become profitable. A lack of cooperation between vendors and companies with various standards and rules for billing and interpreting data might hinder the successful implementation of AP automation as well. Not to mention organisational change resistance when it comes to adopt the new system.
Even once a company decides to adopt automation, a lack of understanding about the current solution—its functions, system requirements—is often the reason automation is not carried out smoothly. Because of this, it is argued that accounts payable automation needs to be implemented step-by-step, from basic foundations to the most advanced solutions, but often, companies are too eager and jump directly to a certain phase/level of AP automation, skipping proper preceding steps, which can lead to even more mistakes and errors in AP.Effectively adopting AP automation
Knowing your current AP: Companies need to be able to define and assess their current AP before developing a new vision of their desired AP. Investigating existing systems, studying the cost of the current AP, and analysing the problems inherent in the AP process are necessary steps before setting goals for the new system. Companies should also pay attention to their policies on accounts payable workflow.
Step-by-step implementation: Take a closer look at each component of the AP process—for example, the way the company receives, processes, and pays an invoice. Upon receiving an invoice, companies can take control of their invoice process by adopting invoice scanning, enabling e-invoicing, and capturing information from invoice digital image. This improvement is considered simple, as no heavy training or changes are required. The next steps would be to enable accounts payable workflow automation from invoice validation to approval, which should permit managers to track payment status, manage travel and entertainment expenses more easily, and improve financial transparency and visibility of liabilities. Companies should be aware of the various types of electronic payment options.
Monitoring the transfer to AP automation: Establish key performance indicators (KPIs) and use them regularly to monitor, measure, and improve performance within AP. Comparing your company with other organisations that are in the process of automating or that have automated already may offer insight on what your company can be doing better, or what it is already doing right.
Change management: It is important to know who is being impacted by the change and provide adequate training for them. Furthermore, identify and involve key stakeholders from other departments and suppliers in this process.
Knowing the long-term value of your AP automation system: Make sure that your AP automation is flexible enough to adapt over time and can be integrated easily into other ERP and financial systems while still being able to meet regulatory requirements.
Choosing the right AP system for your company: There are many choices for AP automation; choosing the one suitable for your organisation requires initial research, which can be done by reading related reports, benchmarking, and attending conferences. Too often companies are not aware of or do not understand AP systems, invoice processing, and payment tools. Knowledge of the AP area is critical to best utilise AP automation technologies.
This is the last blog article of our series about accounts payable issues. Get the whitepaper for a comprehensive overview on this concerning matter.
CIMA member DF is not sure whether her situation is classed as an ethical conflict or not. She worked for eight years as a finance manager in a large public sector organisation, including a stint as a manager in the department responsible for procurement, contracts and bids.
She recently moved on to become head of finance at a private supplier of catering services, Gruelco. Gruelco mainly provides catering services to the public sector and one of its major contracts is with DF’s former organisation. This contract is now up for renewal, and the company is required to put together a competitive bid to have the contract renewed. DF’s team will be responsible for putting together a significant proportion of the bid, and she has been asked to project manage and sign off this element. At Gruelco, management salaries are subject to a performance-related bonus.
Having worked until fairly recently for the public sector organisation’s department that will be assessing the bid, DF is concerned that she will be breaching confidentiality if she carries out her duties. She is sure that part of the reason she was hired for her current job was because of her knowledge and experience with the public sector organisation. But section 140.1 in part A of the Code of Ethics states:
The principle of confidentiality imposes an obligation on professional accountants to refrain from:
(a) Disclosing outside the firm or employing organisation confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and
(b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.
She does not want to let her new employer down and risk losing a major contract. What should DF do next? What would you do?
You should follow CIMA code of ethics for professional accountants, which comprises of the following aspects:
1. Integrity: You should be honest to yourself. The only way to free you mind from your suspicions is be straightforward and faithful with the management.
2. Objectivity: You should collect all the facts before making the decisions in order not to compromise you objectivity.
3. Professional competence and due care: All you actions and decisions should comply with relevant legislation and professional standards of a CIMA professional accountant.
4. Confidentiality. If you are unable to resolve the issue internally you may need to consult externally, particularly if legal requirements are being breached.
5. Professional behaviour. You will need to bring to the attention of the management the risks and also the need to act within the law and fairly with employees.
To effectively bridge the gap between strategy and execution, it is vital that companies address 4 areas: corporate goal clarification, process alignment, measuring and monitoring, integration and communication. The Balanced Scorecard, created by Robert Kaplan and David Norton, has emerged to be a powerful strategy management tool as it makes strategy become “everyone’s everyday job”.
It is a framework that:
The Balanced Scorecard methodology typically addresses strategy management across the four perspectives:
Corporate objectives are communicated as a set of cause-and-effect linkages known as “strategy maps.” These linkages define initiatives (or action plans), assign responsibilities, and define the targets that must be achieved to attain corporate goals. In this way, everyone understands their priorities and how they impact overall performance.
According to Gartner, the concept of strategy maps—accounting for cause-and-effect linkages—is even more critical than the methodology’s four perspectives, which are what people tend to concentrate on. The linkages are critical because they in turn help the organisation determine which metrics are most important in strategy management.
The trouble is that most organisations implement a scorecard of measures and fail to make or communicate the cause-and-effect linkages together with the actions that are required of individuals. The result often is a scorecard that is nothing more than another traditional report. Although many people dismiss strategy maps as too conceptual, it is this cause-and-effect linkage that makes it practical to determine the right metrics in the first place.
In their follow-up book to The Balanced Scorecard, Kaplan and Norton made the point that:
“Organisations need a new kind of management system one explicitly designed to manage strategy, not tactics…Organisations today need a language for communicating strategy as well as processes and systems that help them implement strategy and gain feedback about their strategy. Success comes from having strategy become everyone’s everyday job.”
Systems implemented to support the Balanced Scorecard in strategy management must do just that: they must explicitly manage, communicate, help implement, and gain feedback on strategy at both the corporate and employee level.
In the next blog article, we will go deeper into the role of technology in helping companies align strategy with execution.
In the meantime, download the third part of the white paper “Addressing strategy management and the balanced scorecard” and share it with the people you know.
Many companies, especially ones in the retail industry—where accounts payable (AP) activities and transactions with vendors and suppliers are a critical part of the business’s operation—have been investing in e-invoicing and accounts payable automation as a solution to those AP problems caused by traditional manual entry.
Thanks to AP automation, the invoice payment process is simplified, thus improving the financial transparency and visibility of AP and the company’s cash flow. Accounts payable automation brings huge benefits to invoice management since it makes retrieving an item’s billing and vendor information much easier. Automation supports retailers by improving vendor relationship management and optimising vendor payment terms. Furthermore, it helps integrate AP into financial management, which offers a better chance for complete, accurate reporting, better financial management and analysis, and better decision making.
As a result, accounts payable automation increases employee productivity by cutting back on the time it takes to process information, reducing the risk and cost of processing invoices, and eliminating errors due to manual entry. AP automation strengthens internal control and eliminates fraud due to fake invoices and expenses created by dishonest employees. Since AP automation accelerates the payment process, liabilities can be recognised on time, thus timing difference can be prevented. Timeliness and accuracy are critical for companies to ensure financial reports satisfy requirements imposed by regulators and ensure compliance.
AP automation enables managers and invested parties to check for payment statuses more easily, enhancing financial transparency and control over a business’s finances, which gives managers and financial executives the ability to better forecast, plan, and budget.
Once automated, AP functions should allow invoices and information to be documented automatically and electronically, even from vendors/suppliers who do not use e-invoice. Moreover, it should have features for handling not only routine invoices but also exceptional cases.
Effective financial management should allow an insightful view into AP and make information about vendors, payments due, and discounts readily available so that payments can be scheduled and arranged in a way that maximizes a company’s benefits. For example, in the case of a shortage of cash, considering which invoices should be paid first to minimize penalties on late payments would be useful. Along the same lines, deciding to take early payment discounts or to keep cash on hand until a due date or later are decisions that must be based on the organisation’s current and predicted financial conditions. Hence, accounts payable management is not just about invoice management or accessing real-time information but also about analysing valuable information for cash flow management.
Furthermore, the AP tool should allow managers to analyse spending trends, identify key suppliers and vendors, and better support the relationship with them.
Effective accounts payable management does not only positively impact the financial status of the company but also improves productivity by saving managerial time for other important strategic decision making. AP automation is the key in acquiring these benefits. Read the next blog to find out how to start implementing AP automation.
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In the last post, we outlined the alarming issue of a strategy gap in businesses nowadays and how it can be undesirably widened by failures in strategic planning and budgeting. To gain a competitive advantage and increase business resilience, companies need to bridge this gap between strategy and execution, the task that requires serious dedication from everyone in an organisation. There are four factors of an effective strategy and execution alignment, from conveying what corporate goals really mean to identifying how they should be achieved.
Corporate goal clarification
First and foremost, a successful organisation is the one that has everyone working towards the same objective. Therefore, leaders need to eliminate the chronic notion among employees that corporate strategy and goals are high-level ideas that do not affect their day-to-day operations. In other words, business leaders and executives need to make sure they communicate the corporate strategy in such a meaningful way that sticks in the people’s minds. They need to motivate their subordinates, by splitting the corporate vision into milestones and using a strategy map.
These are methods to help employees visualise business objectives as people tend to believe in their eyes. For instance, a company can divide its vision into a three major stages: launching a new product, becoming a partner with company X and opening a branch in a foreign country. This will come along with how resources are allocated and a timeline for action. Meanwhile, a strategy map helps guide people through each of the stage above with a more specific direction.
After high-level corporate goals are clarified and understood, it is vital to review operational processes, or detailed day-to-day operations, as misalignment between strategy and execution often occurs here. During this review, organisations should refer to the overall strategy to make sure processes are properly aligned. They should also examine business processes in terms of effectiveness (doing the right things) and efficiency (doing things right).
Measuring and monitoring
How do companies know they are on the right track? They need to establish metrics and measures that link directly to their corporate strategy. Key Performance Indicators (KPIs) are measures that facilitate this alignment. KPIs can be financial or non-financial and should be designed to drive future performance. Moreover, accountability should be strengthened through devising KPIs.
For monitoring purposes, companies can use scorecards or executive dashboards. Scorecards offer an overview of progress toward corporate goals, while executive dashboards provide a more quantitative look at specific measures. While scorecards can be used by casual users to see how operational and financial data are integrated with resource allocation information, executive dashboards are used by power users to slice and dice, view multi-dimensional data, drill down into an area of interest, devise and test assumptions, which is useful for identifying dysfunctional strategy execution.
Integration and communication
Effective and enterprise-wide communication is the springboard for effective strategy alignment. What is effective communication? It means communicating:
There should also be formalised processes to facilitate communication and collaboration among departments. Some companies deploy a communication portal with real-time feedback and file sharing capabilities. Moreover, organisations need to ensure data is synchronised and that everyone has access to a single version of truth.
To sum up, strategy and execution alignment requires a holistic approach, top-down and bottom-up. Corporate leaders need to do the hard work of translating their vision to relevant and relatable goals that employees can understand; ultimately, they will execute them more effectively. Stay tuned for the next blog post, where we will discuss one of the most powerful tools used to bridge the strategy gap – the Balanced Scorecard.
Previous article has emphasized the impacts of AP on vendor relationships, and a well-managed AP can enable companies to take advantage of vendor payments. Findings from an Aberdeen Group survey demonstrate that several other factors encourage companies to focus on their accounts payable, such as a lack of visibility into invoices and AP documents, the high cost of the invoice process, and cash management.Common accounts payable problems
Difficult to manage information in AP area: AP activities obviously involve lots of documents and information. As a business grows, so does the number of documents and the problems that come with it. For one, the cost to store these documents increases with every single paper invoice. All these documents are challenging to access, manage, and track, often causing duplicate information, duplicate payments and lower financial transparency.
Inefficient invoice process: An accounts payable process in which invoice information is delivered to different people, in different departments, or even in different business locations across the organisation for approval leads to higher costs in communication, slower payment process and information flow, and increased probability of missing or distorting information. Needless to say, inability to deliver the right information to the right person on time negatively impacts decision making.
Collating invoices from different suppliers: Because suppliers may use different formats, different channels (email v. fax, for example), and different currencies to issue invoices, collecting their invoices may be a challenge. This issue usually comes up for retail chains with multiple business locations. Matching invoices and purchase orders, assigning invoices to different cost centres and matching payment information with the accounting system are other tasks where problems usually arise.
Errors caused by manual entry: These may consume much time and resources to verify and correct, when there are more important tasks to do.
Exception handling: The dynamic and complex environment of AP poses the challenge of how to handle exceptions—whether they are non-standard invoices or documents with discrepancies.
Inaccurate and lengthy close: Simply because of an inability to make payment validation on some invoices, companies are sometimes unable to meet closing deadlines.
Lack of control and visibility: The above problems represent a lack of control and visibility into AP. Issues concerning compliance costs also force companies to focus on and increase their financial transparency in order to avoid fraud and ensure disclosure and audit requirements can be met.The changing role of the accounts payable function
Effective accounts payable management requires the capability to manage corresponding documents and information. Because of this, minimising the risk of losing documents, improving document search flexibility, and reducing the human resources needed for managing invoices and AP information are of interest to many organisations. AP is no longer considered an isolated part of the organisation, but instead, its integrated role with the financial and accounting areas is undeniable. AP functions are gaining more responsibilities, which include reporting and analysis rather than just recording and reviewing transactions.
In order to meet the changing expectations for AP, companies are starting to adopt technology to enhance accounts payable management and add more value to their organizations. The advantages of AP automation will be analysed in our next blog, making it clear why automated AP is a trend on the rise.
Interested in Accounts Payable management? Download our whitepaper now!
FC is a CIMA member and has worked in the finance department of a medium-sized UK wholesaler for just under a year. A colleague has informed him that the head of sales has been unlawfully declaring fuel benefits. The value of the benefits is relatively high for the size of company, which is not in great financial shape. This has resulted in a National Insurance (NI) Contributions bill that would probably be large enough to push the company into insolvency. He is in a dilemma.
Disclosing the NI bill might mean the company ceases trading with obvious repercussions. But FC feels that he has a duty to report this to HM Revenue and Customs. He has spoken to the company directors and made them aware that there is a large bill, but they have refused to disclose it. What would you do if you were FC?
Not disclosing the NI bill is dishonest, and goes against the fundamental principle of integrity in CIMA’s Code of Ethics. As a professional management accountant and a CIMA member, FC has a duty to be truthful and straightforward.
If the company is so close to insolvency that the NI contributions owed on the fuel benefits could tip it over the edge, this could be a case of wrongful trading. FC has discussed the outstanding bill with the directors, so they are aware that there is an amount owing that could render the company insolvent. If the company goes into liquidation in the future and it is shown that the directors should have been aware that the company was not reasonably expected to avoid insolvency, then they could be held liable for losses.
If FC does not make absolutely clear the possible implications of this for the company’s finances, then the directors may not be aware that the company risks going insolvent. Even though FC is not a legal director, if the company became insolvent he could be liable. As a professional management accountant he is expected to have a higher level of knowledge and skill than other employees.
FC needs to consider all the potential implications for himself and the board of directors, as well as the consequences of insolvency for the rest of the employees. Although FC has discussed the bill with the directors, he should go back to them to ensure they understand the implications and to explain the potential consequences to them, as directors, of inaction. It is important that FC records these conversations so that he can defend his position if the company did go into liquidation. It is also advisable for him to get legal advice about his own potential liabilities, for example from CIMA’s legal advice line, see below.
FC was advised to seek the advice of an expert, such as a Licensed Insolvency Practitioner (LIP). While it can be difficult to persuade a board to call in an LIP, they can be reassured by reminding them of the LIP’s duty of confidentiality to their client.
What FC did next
FC checked his facts and wrote to the board setting out the situation. He included details of the estimated size of the NI contributions bill and the potential implications of this bill on the solvency of the company. He sought legal advice for himself concerning his liabilities and made clear to the board the possible consequences of their inaction, whether the company became insolvent or not.
Once they were aware of the potential seriousness of the situation and that they personally could be implicated, the board decided to disclose the bill. They were aware that this would have a significant impact on the company’s financial standing. Knowing this, they were able to make decisions that meant the company remained solvent and was able to continue trading.
Source: Compiled from CIMA
It is hard enough to come up with an effective corporate strategy. It is even harder to execute that strategy effectively to achieve desirable outcomes. A 2009 study on employees found that 70% of them were confused about what they needed to do to support their company’s strategy. The same study, published in Fake Work by Brent D. Peterson & Gaylan Nielson, Simon Schuste, “half of all the work people did had nothing to do with their company’s strategy”. For the last dose of alarm, 73% of surveyed workers did not think their company’s goals are translated into specific executable work.
This signals a gap between strategy and execution. “In too many companies there is a grand, and overly vague, long-term goal on one hand…and detailed short-term budgets and annual plans on the other hand…with nothing in between to link the two together…The long term doesn’t start at year five of the current strategic plan. It starts right now!” (Harvard Business School Press, 1994). As the quote suggests, the strategy gap is often caused by ineffective strategic planning and budgeting. So what are the “failure” factors of these two critical business processes?
Firstly, strategic planning can fail due to a number of reasons, some of the most notable including:
Secondly, many orgainsations nowadays rely on the budgeting process to bridge the strategy gap and fail. This could be due to:
In conclusion, the strategy gap is not an impossible one to bridge, yet not an easy one to close either. Find out about the key factors of a successful strategy and execution alignment in our next blog entry.
Amidst the fiercely competitive environment of an economic downturn, along with closely maintaining customer relationships and searching for ways to boost sales and profits, retailers must pay attention to cost cutting as a way to enhance their profit margins. One area that can bring significant material benefits to retailers is their accounts payable (AP).
For retailers, negotiating with suppliers can dramatically reduce costs, not only ones related to inventory—such as reordering costs, quantity discounts, and so forth—but also financing costs.
Aspects to consider when determining vendor payment terms
Negotiating vendor payment terms, tracking inventory from point of purchase to point of sale, and managing accounts payable can greatly improve financial management and cash flow management. Specifically, cost of capital, early payment discounts, payment due dates, and interest on late payments should all be taken into consideration and analysed carefully.
It should be noted that when negotiating terms, the lowest price might not bring the highest benefit; flexible payment terms might offer more advantage to a company’s cash flow. Sometimes, an early payment may be more beneficial than a payment made on the due date or a late payment with interest penalties, depending on the discount rate, interest, length of payment term, etc. For example, it is common for a company in a close relationship with suppliers to delay their payment till after the due date without incurring additional interest. In an economic downturn, many retailers find that they have more power in negotiating with vendors and suppliers. Some have taken advantage of this aspect and requested longer payment periods. Closely managing these advantages will help maximise financial benefits and foster better relationships with suppliers.
How to capture early payment discounts and optimise vendor payment terms
It is easy to see that accounts payable management has the closest link to these matters. In fact, many organisations have recognised that problems within their AP areas have been obstacles to maximising financial benefits from their payments. For instance, frequently, invoice processing takes too long from identification and verification to approval, which makes companies suffer penalties for late payments although they have enough cash on hand to pay on time. This may not only damage the vendor relationship, but may also mess up budgeting, forecasting, and financial control.
Identifying those problems and their causes and seeking solutions by revising and improving accounts payable management can increase financial visibility for better cash management and better vendor relationships.
Look out for the upcoming blog and find out the common accounts payable problems.
Put yourself in the shoes of CIMA member CM. CM recently took up the role of accountant at a small food production and processing company based in the UK. As she settled into her role she noticed some practices that did not seem right to her.
Some employees were not on the payroll and were being paid cash in hand, raising the possibility that National Insurance contributions and tax were not being paid. Because the employees were not native English speakers she was concerned that they might not even have the right to work in the UK.
The company was run by two owner/directors, who were fairly set in their ways. CM did not agree with paying people off the payroll, and was concerned that she could be implicated if this ever came to light publicly. However, it was clear that the business had always been run in this way. Other people within the business were aware that it was going on and she had only been at the company a short time so was reluctant to ‘rock the boat’.
What would you do if you were CM?
CM, a CIMA member, found out that employees in her new company were being paid off the payroll. She was sceptical that the directors would change the way they did business if she raised her concerns. She did not agree with these practices and did not want to be implicated.
The Code of Ethics would help her to think through which principles were at issue and her obligations as a CIMA member. The code also contains practical guidance on the steps that accountants should take in resolving an ethical conflict (section 100.16 – 100.21). Part of this advice is to consider all of the relevant facts and information. In this case CM knew that people were being paid cash in hand, but didn’t know for sure that they were working in the UK illegally.
When she called the helpline, CIMA advised her to raise the issue with the two owner/directors. If they did not take her concerns seriously, then we advised her to think of someone else who might be able to influence the situation. There were other company directors but they were not involved in running it, so CM felt it pointless to approach them. There were no external auditors of the company to call on for help.
CM had already decided that she would probably resign, as she did not want to work for a company that was run this way.
If, having spoken to the owners, CM had found them unwilling to rectify the problem, she would still have a responsibility to try and resolve the non-payment of tax, whether she remained at the company or not.
There was also a possibility that this was a money laundering offence, and so CM was advised to look at CIMA’s Anti-Money Laundering Guidelines to establish whether a report needed to be made to the Serious Organised Crime Agency (SOCA).
What CM did
CM went to the directors and told them why she was worried. They confirmed that employees were being paid off the payroll and that Pay As You Earn (PAYE) tax and National Insurance (NI) were not being paid for them but dismissed her concerns. They said that it was normal practice for the food processing industry and told her to ‘leave the running of the company to people who know what they’re talking about’. She followed this conversation up with an email and took a copy home with her. Since there was no company grievance procedure, and suspecting that this issue might be only the tip of the iceberg, she resigned.
She decided, to be on the safe side, that she would file a Suspicious Activities Report to SOCA, but did not tell the directors she had done so, as to do so could be regarded as ‘tipping off’. She did, however, tell the directors that it was her obligation and intention to inform the relevant authorities that the company was not paying PAYE or NI and served out her one week’s notice under the terms of her probationary employment.
Source: Compiled from CIMA
During the economic downturn, many families decided that the prudent thing was to downsize their lives by purchasing smaller homes and vehicles, but most importantly, by simplifying their lives. Similarly, hotel companies also downsized, frequently letting staff go, which created additional pressure on remaining staff to hold the company and its underlying technology together.
So, the question is: Is there a way to consolidate technology to reap full benefits without downsizing and eliminating valuable systems?
In most full-service hotels, you may find up to 20 systems on property that track multiple facets of the hotel’s operations, including PMS, POS, PBX, call accounting, door locking, video, sales and catering, accounting, revenue management, asset tracking, incident reporting, and internal Intranet. Then there are “above property” solutions such as central reservation systems, channel management solutions, online distribution Extranets, a brand.com proprietary booking engine, and often even more.
Managing so many disparate systems is a technological nightmare, as each system needs to communicate to another on different levels of complexity. These interface points are a source of much concern to hotels and hotel companies. The hospitality industry has made the technological landscape so incredibly complicated that productivity and go-forward technology strategies have been affected. Even worse, non-integrated systems can negatively affect customer satisfaction, because the staff has to focus on technology rather than the customer. And in hospitality, customer service is—and always will be—king.
A number of industry associations have tried to standardize the integration/interfacing of systems to simplify the technological landscape. While this is a step in the right direction, wouldn’t it be easier just to try and consolidate some of these solutions? The hotel technology community is beginning to grasp this idea, and run with it.
By having a large number of systems above property or in the cloud, hotel companies can stop focusing on technology and infrastructure, and focus instead on guests. The hotel property management system and central reservations system are converging into one system, helping to alleviate many of the technology challenges. We’re also seeing a number of other solutions deployed above property, most notably CRM and revenue management. These systems go hand-in-hand to ensure great customer satisfaction and maximize profitability.
Finally, another area of hotel technology will soon be deployed above property: the financial management system. It just makes sense that all pertinent financial data, along with guest data surrounding a hotel, be easily accessible via a web browser. This will reduce hotels’ technological footprint and allow management to interact with systems no matter where they are located.
The industry is well on its way to “downsizing,” but still has a number of challenges ahead. More to come…
Author: Alan E. Young Source: Infor Hospitality blog
Now that you have completed the initial stage of building a KPI template , it is time to evaluate their validity or ask the question “How well are they measuring performance?” You should also determine the methods of KPI reporting.
For financial performance, usually the level of confidence is high because of established measurement tools. For more intangible aspects, perhaps the level of confidence is not so high. Therefore, it is useful to note down any comments or suggestions. There should also be an expiry date for each KPI, which marks the date for revision.
Another evaluation criterion is the cost-benefit test. Some indicators can be expensive to measure to ensure their validity and relevance, e.g. administrative, outsourcing, analysis and reporting costs.
Sometimes, employees get the wrong impressions about KPIs. Hence, KPI designers need to reflect on potential ways performance indicators can trigger wrong and dishonest behaviours, thereby taking appropriate measures to minimise them.
Here are some common dysfunctional behaviours and how to overcome them:
This may lead to an omission of valid qualitative data altogether. The solution is to incorporate qualitative data into the performance measurement system and remind people that there is more to it behind the numbers.
This signifies a wrong focus on KPIs instead of strategic objectives, which could eventually lead to a lack of strategic direction. The inclusion of mission statement and strategic objectives into performance tracking systems/reports, as well as in KPI review sessions should help remind people of the bigger picture focus.
Non-financial data may be skewed and therefore represent an inaccurate picture of actual performance. To prevent anomalies going unnoticed, there should be a strong understanding of operational activities and statistics.
KPIs for each Balanced Scorecard perspective may not point towards the same value proposition. In this case, a more holistic approach is required as well as coordination from different KPI owners to ensure consistency with the overall strategy.
This is the final step where KPI designers determine the way KPIs are communicated, whether internally or externally.
It is important to identify beforehand who will receive KPI information and categorise them to allocate access accordingly. Primary audience: people who are directly involved in managing and making decisions based on the KPI given. Secondary audience: people in other departments who may benefit from knowing the data. Tertiary audience are external stakeholders.
Depending on the purpose of KPIs to each audience group, they are reported at different frequencies. For instance, if a KPI is to serve a decision making purpose, it should be provided more often, whereas if it is to be included in an annual report, it only needs to be communicated once.
These are outlets that are used to communicate KPIs. For example, monthly performance report, organisational internal newsletter, corporate website, quarterly report to stakeholders etc.
These are ways to present performance: numerical, graphical and narrative. Usually, to achieve maximum effectivess, you can mix different formats together. Visual presentation tends to make information easier to understand and digest, e.g. charts, graphs, traffic lights, speedometer dials.
This is the last blog article of our series of 5 on KPIs. We have compiled everything into a full white paper for your reference. Also included are KPI design template and KPQ examples. Get it now!
After considering how Key Performance Indicators link to corporate objectives, now we come to the process of writing down KPIs in a KPI template.
For each KPI, there should be:
This unique identification number helps keep track of indicators and facilitate automation systems
This is a short name which explain clearly the gist of the indicator
This identifies the person/department responsible for delivering the performance against this indicator.
This is a more technical aspect of designing KPIs. Organisations need to carefully evaluate the strengths and weaknesses of different measurement instruments and pick the most suitable one. The following aspects need to be considered:
Depending on the nature of the value driver for which you are determining KPIs, you may use methods that yield more qualitative data than others. Although quantitative data is easier to quantify, rich and qualitative data can generate invaluable insights and contexts.
Some popular methods are: data tracking and collection systems, surveys, questionnaires, in-depth interviews, focus groups, external assessments, observations, peer-to-peer evaluation.
Organisations need to identify if data is readily available for collection and if the source is reliable. In case there are barriers that may challenge the validity of data, you may consider an alternative method or combine different methods together.
This dictates how performance levels are determined or how data is captured. For quantitative data, it is possible to apply formulae (e.g. net profit margin, ROI) or scales; while for qualitative data, you need to identify the assessment criteria.
Some popular scales being used include Nominal, Ordinal, Internal and Ratio. In addition, the Likert scale which measures the extent to which respondents agree or disagree with statements, is also common.
You need to think about how often KPIs are collected and this depends on the nature of each KPI. For instance, internal KPIs are often measured more frequently while external KPIs (e.g. brand ranking) may only be available once or twice a year. It is also important to consider what frequency yields enough data to answer the outlined Key Performance Questions (KPQs).
The most important rationale behind KPIs is that they lead organisations towards the set goals. Therefore, you cannot simply identify what and how you want to measure, how the performance indicator is captured without saying where you want it to go. This is the step in which you state the desired level of performance in a set time period. A good target is:
Targets can be set as absolute (e.g. increase by 100), proportional (e.g. increase by 20%), relative to benchmarks (e.g. in the top 100 in the sector), relative to costs/budgets (e.g. reduce by 10% same level of budget).
Some advice for setting targets:
When certain KPIs hit or miss the set targets, there are colours, known as “traffic lighting” to indicate the levels of performance. Hence, KPI designers also specify the thresholds for underperformance (Red), medium performance (Yellow), good performance (Green) and even over performance (Blue).
In the last blog article of our series of 5 on KPIs, we will discuss some final considerations before implementing KPIs.
Click to read the previous articles:
In our last two blog entries on top hotel industry trends (part 1, part 2), we outlined a number of factors that are shaping how the hospitality sector operates. Hoteliers in Vietnam are advised to “be alert to new opportunities during tough economic times by changing their business strategies and researching the market” (*) . We believe four areas should be tackled to tremendously improve the Vietnamese hotel sector’s performance.
According to Grant Thornton (2012), for the 2012-13 period, an additional 5,000 rooms will be made available from three-, four-, and five-star hotels on the market in the northern, central, and southern regions. “However, far too many hotel developments are built in Vietnam with an expectation that tourists will come and occupancy levels will be 90% and above,” said Stephen Wyatt from real estate advisory firm Knight Frank Vietnam. Such days are far behind us now. An increasing oversupply exists in the luxury segment, prompting the need to shift the focus towards mid-market and budget products.
Specifically, hoteliers in Vietnam should pay more attention to:
Economic growth means an increase in the middle-class population, especially in emerging markets like Vietnam. Therefore, to ignore this growing sector would be a serious mistake. This also represents an opportunity for local hotel brands to thrive in providing lower-end products, taking advantage of their local know-how and flexibility.
Although the luxury segment has become increasingly saturated, the importance of brand identity within it will continue to grow by 2015 (Deloitte, 2010). To reinforce their brands, luxury hotels need to differentiate themselves more, avoid cliché messages, and deliver their branded experience consistently chainwide.
As customers are demanding more personalisation and valuing the emotional connection between their hotel experience and how it impacts their quality of life, developers are realising a potential in boutique hotel brands, also known as lifestyle brands, e.g., W hotels and Hyatt Place. These hotels:
Furthermore, the lesson for hoteliers in Vietnam is that whatever market segment they are in, it is important to create a brand identity that is:
As competition gets fiercer, only the best hotels will survive. One of the contributing factors to a hotel’s success is human resources, especially when employee turnover in the hotel sector continues to be high. Retaining engaged staff has become a critical task, as long-term employees are more likely to have a high brand loyalty and help better maintain brand consistency.
Thus, hotel executives need to:
The proliferation of social media platforms has made it easier for customers to share their hotel experiences, whether good or bad. Therefore, if hotel brands are to weather increasing scrutiny, they need to keep track of their online presence by:
Another aspect of technology to consider is in-room products, which are largely shaped by consumer demand. Thus, hoteliers need to keep their eyes and ears open.
Finally, hotel management systems, such as back office management, reservation management, and customer relationship management (CRM), are no longer optional for hoteliers, but rather are musts for operational excellence. Even with these in place, though, the assessment of predicted ROI will need to be more rigorous. “Technology is always noticed most when it fails and operators must aim for seamless, invisible systems and pre-emptive problem solving” (Deloitte, 2010).
(*) Views from experts at the 2nd annual Hospitality Management Conference held on Nov 15, 2012, in HCM City
We have come to the end of this series. Check back on this blog for future posts on the hospitality/hotel sector. Previous entries in the series:
(Ho Chi Minh) – TRG Event – 8:00am, 16 April, 2013 at New World Hotel, Ho Chi Minh City, Vietnam
“We are operating in an era of unprecedented change”, says Mr. Jerome Destors, Director, Hotel IT, Amadeus
The hospitality market is experiencing fiercer competition as ever. Over a ten-year period, the number of hotels in Vietnam has increased from 2,510 in 1998 to over 11,000 in 2010 (*). Therefore, CFOs and top-level managers in this industry are facing greater challenges and new responsibilities.
In order to maintain a competitive edge, CFOs and top-level managers need every advantage to:
In other words, hospitality CFOs and top-level managers need the ability to:
TRG proudly presents you a complimentary seminar “Office of the CFO for Hospitality: a new way of working to maximise profits”, in which you will have a chance to discuss about your problems and your key responsibilities in the volatile market as well as approach a new way of working to maximise your profits. Topics discussed in the seminar include:
This invitation-only seminar is invitation-only and is designed for Managers, Directors, Chief Financial Officers (CFOs), Chief Accountants, Chief Executive Officers (CEOs), Financial Controllers, Heads, Internal Auditors and Strategic Planners, and anyone who are involved in Hospitality management. Please register now as seats are filling up!
Tuesday, 16 April, 2013 | New World Hotel, 76 Le Lai, Ho Chi Minh City, Vietnam | 8:00am to 11:00am(*)Vietnam Hotel Association
In our previous blog article, we discussed some notable hotel industry trends regarding economic/financial factors and technology. Now, what is happening in terms of customers and hotel management techniques?
Hotel customers are increasingly segmented, and so are their demands. Traditional segmentation will not be enough to cover a broader spectrum of guest profiles. Nowadays, many more groupings exist than just business/leisure/groups. According to a survey by Amadeus and Fast Future on hotel industry trends expected by 2020, 71% of surveyed respondents stated that “traveller motivations will become increasingly fragmented and diverse and harder to segment into clearly definable customer groupings.’’
Along with that is a notable increase in travel’s personal value. Although the recession is not too far behind, cost-effective getaways are slowing down, giving rise to spending on quality experiences. That means people are placing more importance on personalisation and emotional connection between their holidays in order to improve their quality of life. The growth of the middle-class population can be linked to this trend. “By 2020 more than half the world’s middle class could be in Asia, and Asian consumers could account for over 40 per cent of global middle class consumption” (Amadeus and Fast Future, 2010).
In Vietnam, Grant Thornton (2012) reported a major drop of 7.9% in individual tourists, bringing their numbers down from 40.1% to 32.2% in 2011. However, now there are more inter-regional tour groups, preferring 3- and 4-star hotels. The number of visitors attending conferences also increased to 7.6%.
Given today’s increasingly complex and competitive business landscape, hotel management has become more of a science than an art. This is felt strongly in hotel revenue management. With the help of technology through automation and reports, hoteliers no longer simply adopt the “lower the price when demand is weak and raise it during peak seasons” technique. They now have more statistics and reports to look at before making a decision about pricing.
However, the proliferation of distribution channels adds to the headache of revenue management, challenging hoteliers to preserve rate similarity while minimising the costs of such distribution channels.
Additionally, more hospitality businesses are deploying the science of experiment, with 81% of survey respondents (Amadeus and Fast Future, 2010) feeling “hotels will increasingly experiment with a range of business models.”
What do all of these hotel industry trends mean to hoteliers in Vietnam? What are the challenges and what steps should Vietnamese hospitality businesses take to meet them? Find out in our next blog entry.
In the meantime, read some key findings from Grant Thornton about Vietnam’s hotel sector.
In the last post, we have touched on KPI definition and examples , now we will show you how to design a KPI template.
Effective Key Performance Indicators are those that link directly to corporate strategies. Nowadays, many top performing companies have employed tools such as Strategy map or Value creation map to effectively map out a course of actions that help achieve the value proposition (output deliverables).
Figure 1 below shows how a strategy map can help organisations identify KPIs:
Value proposition (Operational excellence/Product leadership/Customer intimacy)
Internal perspective strategies
Learning and growth strategies
Internal process efficiency
Increasing revenue per customer
Reducing cost per customer
Customer management processes
Depending on the value proposition, each company can determine which level 3 item (value driver) is more important than the others. For instance, a company following an operational excellence value proposition must make internal operations a very high priority, therefore emphasising “Internal process efficiency” and having more KPIs for that aspect.
Key Performance Questions (KPQs)
In order to narrow the list of metrics down to the most meaningful and relevant ones, articulating KPQs is the solution. If there is no question that needs to be answered, there is no need for measurement.
Here are some tips when formulating KPQs:
Many companies make the mistake of replicating KPQs and ultimately KPIs from those of others. However, each business is unique and it is crucial to identify what matter the most in line with your corporate objectives.
By allowing employees as well as external stakeholders to have their inputs, organisations can ensure relevance and consistency. After all, KPQs and KPIs serve to steer people to the same direction, thus, the more people who understand and agree with the questions, the better.
For each value driver, there should be between one and three KPQs to avoid aimless measurement. The question itself needs to be short, clear and jargon-free.
Since KPQs provide the context for KPIs to answer, they should be formulated as open questions to trigger reflection, explanation and discussion. Sometimes people forget the purpose of measurement is to ultimately improve business performance. Hence, yes/no answers are not good enough.
KPQs should direct us towards the future so as to trigger improvement. It would be a dead end to ask questions such as “Have we done XYZ?” Instead, it should be questions such as “How well are we doing XYZ?”
Once KPQs are created, their answers could be used to evaluate the effectiveness of KPIs, in terms of answering those questions and helping people make better decisions. Organisations can always fine-tune KPQs to ensure relevance over time.
In our next blog article, we will go over the remaining steps in a KPI template. This is the third article in our series of 5 on KPIs.
Click to read the previous articles:
According to Vietnam National Administration of Tourism (VNAT), the total number of international tourists in 2012 reached 6,847,678, representing a 13.86% growth year on year. This year, the Vietnamese tourism industry “planned to welcome 7.2 million international visitors and 35 million domestic passengers, and is targeting a total revenue of VND190 trillion (equivalent to US$9.5 billion).” Not too long ago, we discussed some competitive criteria necessary for hospitality businesses to stay ahead in the game. Now we will zoom in on the hotel industry and take a closer look at trends in Vietnam and around the world.
Although the global recession has created numerous challenges for the sector, new opportunities are available. To take advantage of the (albeit slow) economic recovery, hotels around the world are investing in renovation projects. Moreover, “hotel sales will spur even more renovations since sale contracts always contain a provision requiring the new owner to upgrade the property” (Robert Rauch, 2012).
A somewhat similar hotel industry trend is noted in Vietnam, with more than 47% of hotels surveyed by Grant Thornton Vietnam in 2012 saying they planned to expand or improve facilities over the next two years. Despite recent pull-outs of some big investors from major projects, the investment volume in Vietnam’s hospitality sector, along with others in Asia, increased from 1% to 3% in 2012. Many experts have warned, however, that oversupply could pose great challenges, as competition is fiercer than ever.
Technology has largely revolutionised hotel experience and management in the 21st century. Some key hospitality trends are:
Stay tuned for the next blog entry, where we will discuss recent hotel industry trends in terms of customers and management techniques.
Key Performance Indicators (KPIs) have emerged to be the most significant source of business performance information that helps guide businesses to the right track. However, many companies trip right on the first step, which is understanding what KPIs really are.
First of all, businesses may be too eager to consider every measureable aspect a KPI. In fact, they may be looking at result indicators (RIs) or key result indicators (KRIs) instead. There are 4 types of performance measures:
As such, KPIs are more future-oriented, closely linked with strategic objectives and explicitly indicative of required actions. Another way to distinguish KPIs from other performance measures is by asking whether these metrics are strategic or operational. With KPIs, it is not a priority to get close to real time measurement as they are more strategically focused. Hence, while operational measures are monitored hour-by-hour, day-by-day or adjusted more frequently, KPIs do not change that often.
Secondly, KPIs are quantifiable but not necessarily expressed in monetary terms. That means, there are financial and non-financial KPIs. Recently, the integration of these two types of KPIs using the Balanced Scorecard framework has become more popular. “This approach combines the traditional backward-looking financial measures with information on what is currently happening in the business, generally using quantitative but non-monetary terms” (CGMA, 2012).
According to Kaplan and Norton’s balanced scorecard approach, there are 4 dimensions in a business where appropriate KPIs may be formed:
Wondering how to design effective KPIs? Don’t miss our next blog entry, as we show you the step-by-step guide. This is the second article in our series of 5 on KPIs.
Click to read the previous article “Why we measure business performance and caution points”.