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PUBLISHED OCTOBER 22, 2020

The Need for a Common Language in Performance Management

By Max Persson 

Managing Director Sweden, B-eye Solutions

After many years in the corporate world, in various roles as a Group Controller, Software Implementations, and advisory, I must say that very little has changed since I started my career 25 years ago. What was done with Lotus Symphony and Grand Computers were as equally good as with modern tools today. To create successful performance management, the way you communicate is key. There should never be any doubt about what we mean in terms of numbers, measures, and definitions in an organization. Not having a common language is a waste of time. It only opens for irrelevant discussions not in favor of profitability.

Let me tell you a saga. At one time in biblical history, all people who wandered the earth were a united human race. After the Great Flood, they migrated eastward and came to Shinar's land. There, they agreed to build a city and a tower tall enough to reach heaven. Since all spoke the same language, they could communicate, and the construction proceeded without any problems. Observing their city and tower, God was upset with the humans' ideas and did not want the plan to be successful. Therefore, he mixed-up their speech so they could no longer understand each other and could not communicate. The construction of the city and tower failed, and the humans were  spread across the earth.

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This story could also be applied to an organization. If one does not communicate in a unified and effective manner, we will fail and will not be able to build the prosperous and profitable company that we could do.  When I say communication, I do not mean the corporate language we speak in the organization. Equally important is that we use a common "Financial Language" where definitions of metadata, such as CoA, Products, Cost Center, KPIs, and accounting rules are set. Without doing so, we cannot measure the organization's performance better than using a Grand Computer and Lotus Symphony.

 

I am repeatedly stricken by the fact that many of the people working in large enterprises that I meet, are still not working more effectively than 20+ years ago, even though they are using the latest and most advanced tools. They use Spreadsheets and struggle to get their numbers right, putting many resources into normalizing numbers derived from different data sources, just driven by the fact that they do not use uniform naming and definitions.

 

One time in my career, I worked for a very successful German multinational company who adopted this thinking. Except for choosing German as the corporate language, they had an extremely clear view of how they should be organized - all from the organization chart to how KPIs should be calculated. The obvious benefits 25 years ago were oddly more impressive than many companies I see today. In those days, I observed that there were operational transparency on product profitability, full control of operating capital employed on a detailed level, and monthly closing of the books were done in two days with all details on fiscal and operational levels. More importantly, the finance resources' available time could be spent supporting the business instead of shuffling numbers around.  We have two things to gain from this: first, the retention of resources in the finance function due to higher intellectual work and secondly, time-released to a true partner to the operational side of the organization.

It is a very cumbersome and time-consuming task. But still, to be effective in running a successful company, you need to make this happen. The tools are present, but the organization must invest time and effort to get the "Financial Language" right. But opposed to the story I just told, the initiative must come from the top management.

 

The benefit of doing this mind-shift is endless and could help build a solid and strong organization that can reach the sky….

- Max

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