New Markets Mean New Performance Management
It’s hardly news that western economies are stuck with anemic growth for the next decade and that emerging economies’ prospects look stellar by comparison. But that hasn’t stopped journalists piling paragraph upon paragraph of analysis of the economic woes of Europe and the U.S., and it hasn’t stopped firms hurrying into emerging markets (such as Pepsi with Russia, although we wouldn’t recommend less well-positioned firms make that particular move).
It comes as no surprise, then, that in our own conversations with managers and in firms’ public pronouncements, executives are keen to show how they expect a greater proportion of their revenues to come from emerging markets. This is borne out by recent results from France’s Sodhexo, the world’s largest catering company, and UK insurer RSA, and in a statement by GE’s CEO Jeff Immelt this week.
Time for a Change
This shift in focus towards more eastern and southerly parts of the world has meant changes to more than just firms’ marketing and office space plans. Global companies are still coming to terms with much more fundamental changes to the types of everyday decision that they have to make and the processes they use to make those decisions.
This is particularly true with performance management. Corporate controllers tell us that when 80% or 90% of their firm’s revenue came from western markets with predictable 3% or 4% growth rates, senior managers weren’t particularly concerned if managers of operations in less predictable markets made bad forecasts or missed their targets. But now that firms are relying on their, say, Vietnamese and Cambodian businesses to drive a significant level of growth, everyone is unsurprisingly much keener that forecasts, targets, and budget allocations are as certain as any being used for U.S. or UK businesses.
Helping the Line Deliver Better Forecasts and Better Results
Finance managers are obviously well placed to help the line with forecasting and resource allocation decisions in unfamiliar markets but they can also help business unit staff improve their overall performance by integrating strategic reviews into normal financial reviews. We’ve seen good approaches from South African bank First Rand on the first of these and UK engineering group Tomkins on the second:
- In 2008 , as First Rand began to expand across a broader range of markets, the CFO and his team realized it was becoming more difficult than it should be to compare operational spend or understand which business units were most likely to hit their targets. As Darrel Scott, the CFO of First Rand Bank at the time, said, “Instead of merely providing information regarding the resources that each business needs, our new budgets answer the question, ‘How is the business unit deploying resources to achieve growth goals?’ This is what you want to know and why you need budgets.” CFO Executive Board (CFO) members can learn more here, as can FLEX-Elite (FLEX-E), Controllers’ Leadership Roundtable (CTLR), and Finance Leadership Exchange (FLEX) members.
- In 2004, Tomkins was looking to up its performance and help business units hit tougher goals than they’d had before. The CFO and other finance managers would introduce “strategy refresh” sessions into the quarterly finance reviews of business units that were performing adequately, and would coach business units through “strategy recalibration” sessions if they weren’t hitting their goals. This more provocative stance from the finance team echoes what we see elsewhere, such as at U.S. retailer Lowes. Case studies for CFO members, CLTR members, and FLEX members give more detail, as does the case study in this research for FLEX-E members.
CEB members should feel free to contact me if they have any questions, or leave a comment below.