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Trend Report – November 01, 2005
Juergen Daum’s Best and
Next Practice Service
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Strategy & Performance Management at
Siemens Belux and the role of the Management Cockpit War Room. An interview
with Guy Bourdon1, Chief Consultant, Siemens
Belux
News categories: The
New Economy Economics, Finance and Acounting, Performance Management and
Controlling
Since the fiscal year 2002,
Siemens Belux no longer operates on the basis of traditional financial
reporting and variance analysis, but instead based on a strategy-oriented,
KPI-based management process. The most visible embodiment of this process is
the Management Cockpit War Room in the basement of the Siemens Forum in
Brussels, the headquarters of Siemens Belux. Here, the management holds
quarterly controlling meetings with the different divisions, as well as ad-hoc
crisis meetings. The introduction of the new management process and the
Management Cockpit War Room has significantly changed the working methods of
management, which have become more efficient and more effective as a
consequence. In the following interview, conducted in March 2005, Guy Bourdon
(see picture), the initiator of the new management process and person
responsible for introducing the Management Cockpit War Room at Siemens Belux,
speaks to Juergen H. Daum about the motivation behind the new management process,
the use and introduction of the Management Cockpit War Room concept, and the
results that have been
achieved.
Portrait Siemens Belux (status as of March 2005): Siemens Belux is the Siemens group holding for the region of Belux (Belgium, Luxembourg) and West & Central Africa. The region generated revenue of €1.2 billion in the fiscal year 2004 (of which €377 million came from export) and on September 30, 2004, had 3,900 employees. The region is organized into six business divisions: Communications, IT Business Services, Power, Industry, Transportation, Building Technologies, and Medical Solutions. Added to this are six support functions, which are organized as Shared Services: Finance & Accounting, Communication, Human Resources, Information Technology, Procurement & Logistics, and Real Estate.
This
interview is a translated and shortened version of the original German version
of the interview, which has been published in Juergen H. Daum’s book: Beyond
Budgeting – Impulse zur grundlegenden Neugestaltung der Unternehmensführung und
–steuerung, München, 2005, p. 203-226. (see http://www.beyondbudgeting.de/bb_buch_d/bb_buch_d.htm
- German).
This shortened version has been published in German in the Austrian controller
magazine: ControllerNews, 4/2005, p. 129-132.
Juergen H. Daum: Mr. Bourdon, what was the motivation for remodeling the management process and implementing the Management Cockpit War Room at Siemens Belux?
Guy Bourdon: The
decision to rethink and remodel the processes and procedures by which we manage
and control our region was made in the middle of 2001. It had become clear that
our old management approach, despite serving the company successfully for
several decades, was way too tactically oriented compared with the demands of
today’s dynamic business environment shaped by high technology. We realized
that, in order to succeed, we needed to adopt a more strategic approach.
Due to the trend in our industry toward high-tech solutions and system solutions investments have risen and development times, and therefore time-to-market, have increased, which results in an increased risk. In order to be successful under such circumstances, you must have a clearly defined strategy: we need to know where we want to go strategically, which solutions we need to develop and how, how we want to market these solutions, and how we integrate internal and external partners. And for the successful execution of the strategy, which will take a longer period of time, we need a consistent company-wide cross-functional strategic control and management process. Because in each phase we must not only consider the technical, but many other aspects, in order to minimize the risk and increase the marketing chances and thus to secure the overall final result.
Consequently, the transformation from a tactical to a strategic approach became a necessity – and that was our starting point for the implementation of the new Policy & Strategy process.
Juergen H. Daum: What is the objective of the new Policy & Strategy process at Siemens Belux and how does work?
Guy Bourdon: The objective of the Policy & Strategy process is to maintain a permanent overview within the management team of the current fiscal year plus two years, from a business and a strategic perspective. In this corporate planning process we create, monitor, and adapt our strategic business plan.
The process begins with an analysis phase, in which we examine our internal and external situation. This is followed by the development or revision of the mission and vision and of our corporate values. We then adapt the strategic goals and the policies and strategies accordingly – using the technique of strategy maps. This means that in the management team, we discuss the cause-effect relationships between the various strategic objectives in order to arrive also at a detailed level at a common understanding of the strategy and of the inner logic of the strategy. We then check the indicator targets of the Balanced Scorecard, break these down according to the responsibility hierarchy, define or revise the action plans, and then define the key performance indicators and performance indicators of the Management Cockpit.
You could describe the Policy & Strategy process as our strategy management process. We run this process twice a year. Once at the start of the year. This is followed by a second cycle, which acts as a review after the second quarter, in July.
Juergen H. Daum: Let us now talk about the Management Cockpit War Room. Why do you need a Management Cockpit War Room?
Guy Bourdon: The first
and most important issue is to improve the quality of decisions and to
accelerate decision-making processes.
The CEO and CFO, along with others who are responsible for the business in our region, should be able to make upcoming decisions and arbitrations as soon and as proactively as possible, due to optimum provision of the necessary information, that is, the information is supplied and presented as it is required by management and from a strategic perspective – on a permanent basis. It enables us to gain an insight into the different and sometimes contrasting aspects at one glance in order to effectively and efficiently determine those areas where we have time, and areas in which no more time is available and immediate action is required.
Juergen H. Daum: What is the connection between the Management Cockpit and the Policy & Strategy process?
Guy Bourdon: The
Management Cockpit is our controlling tool for the Policy & Strategy
process. All indicators that are important for implementing the strategy – the
key performance indicators and performance indicators – can be found in the
Management Cockpit. That’s the connection.
Fig.
1: Photo of a Management Cockpit War Room (source: N.E.T. Research)
Juergen H. Daum: For which type of management meetings is the Management Cockpit War Room used?
Guy Bourdon: On the one
hand, we use the Management Cockpit War Room to manage ad-hoc crisis
situations. Whenever a situation occurs or anything is discovered that
endangers the strategy and requires an immediate reaction, a crisis meeting in
the Management Cockpit Room is initiated to discuss the issue and to take
action. This happens very quickly – we need approximately one day’s notice to
prepare and schedule this type of meeting.
Other meetings in the Management Cockpit War Room can
result from the monthly performance analysis that is carried out by the Cockpit
Officer, that role is executed by our head of controlling, and the Chief
Cockpit Officer, myself. In these meetings, we look at all the key performance
indicators and, if necessary, schedule specific meetings for specific topics.
On a quarterly basis we hold global reviews. These systematically cover all business divisions and support functions. These are known as Quarterly Controlling Meetings – QCM. Participants include the CEO, CFO, the entity managers and entity controllers, as well as the Chief Cockpit Officer and Cockpit Officer. The “entity” is the business division or shared service. The Cockpit Officer, as explained, comes from controlling. The Chief Cockpit Officer is me.
Juergen H. Daum: What do you discuss at the Quarterly Controlling Meetings and how are they organized?
Guy Bourdon: The
Quarterly Controlling Meetings take place in a set order: First, there is a
corporate overview for a smaller group of participants, including the CEO, the
CFO, the Chief Cockpit Officer, and the Cockpit Officer. The aim of this
meeting is to provide the CEO and the CFO with an overview of the current situation
as preparation for the subsequent review meetings with the entities. Once this
has taken place, the review meetings for all Shared Services and then for all
business divisions are held.
In each of the review meetings for the entities, we first analyze the status of the action items from the last meeting and the decisions made at the last QCM. We then analyze the current status of the key performance indicators of the Management Cockpit for the relevant entity. Here, only the so-called ‘red flags’ are handled and discussed; these are the indicators that are in a critical status or that threaten to reach a critical status within a short time. In addition, there are usually one or two further specific topics that are added to the agenda. These may be topics that affect the region or Siemens globally, or they may be topics from the entity itself.
I’m responsible for the agenda, I introduce all
topics and I am also caring for the contents of the walls in the Management
Cockpit War Room, which display the key performance indicators for Siemens
Belux as a whole.
The Cockpit Officer is responsible for operating the “flight deck” in the Management Cockpit War Room. This projects the information for the relevant entity online from the system onto the wall, and in response to questions that arise spontaneously in the meeting regarding the key performance indicators, drilldown techniques can be used to call and display additional detailed information.
Juergen H. Daum: There are also rules that must be followed during a Cockpit Meeting. Can you tell us something about those?
Guy Bourdon: One important rule is that only the standardized information available in the Management Cockpit is permitted in the review meeting. Other material, particularly individual PowerPoint presentations from the entities, is not permitted. This is intended to ensure that the same information is always used as a basis for the reviews, and to prevent the meeting from only focusing, depending where there is good news at a certain moment, on changing and very selective issues and thus distorting the bigger picture.
Another important rule is that for topics that are
placed on the agenda, known as the “red flag” issues, no “why” questions are
allowed. This aims to avoid any long and unproductive discussions on the
presumed cause of the problem, who’s cause it was – that means on the past, and
to steer the focus more toward the future and the actions that must be taken to
change an unsatisfactory situation into a positive one. If a topic of this nature
is discussed, the person responsible must first describe what they think should
be done to change the situation and to convert the red signal to a green one by
the next meeting.
A further important rule in this context is that all the cards are placed on the table. If, for whatever reason, you as the manager think it impossible to change the status to a positive one within the foreseeable future, in the meeting you are expected to state directly what can be achieved and what can’t. We don’t want to raise false hopes that cannot be fulfilled. Only this way, the CEO and the CFO are in a position to organize the required arbitration, that is, to arrange compensatory measures in other areas in time to ensure that the region can still achieve its overall targets.
Juergen H. Daum: In summary, what are the most important improvements that you have achieved through the new strategy and performance management approach at Siemens Belux?
Guy Bourdon: Clearly the most important improvement is that the new Policy & Strategy process and the Management Cockpit War Room have enabled us to master the transformation from tactical to strategic management. Without this, mastering the business environment, which has been tricky since 2002, would have become even more difficult. You can’t realize the full potential of a company or of an entity unless you have a complete and transparent view of opportunities, risks, possible synergies, and “How-To”.
Also, our controlling and controlling meetings have become much more efficient. Nowadays, the quarterly controlling meeting of a business divisions typically takes 60 minutes. It used to take two to four hours. Now we need less time and are more effective, as we have a broader and more proactive approach to the different issues. Our approach to strategy, which now extends to operational management and day-to-day controlling, together with the focus on the management of strategic programs, simply generates far better results – for the business itself, in form of lower costs, a reduced capital lockup, and the creation of important competencies of employees.
The Management Cockpit approach has also enabled us to make great progress in the area of Shared Services. Previously, Shared Services were only ever touched upon briefly in controlling meetings. Now, Shared Services are completely integrated and can therefore be more easily monitored. At the same time, they receive more information about the business of their internal customers and the development of the business, and so can proactively adjust their services accordingly. In the difficult business situation of the last few years, Shared Services were therefore in a situation to take the necessary steps themselves, in order to improve their efficiency and effectiveness. They have been able to reduce their overall costs by 35%.
Juergen H. Daum: What would you recommend to other companies, or your colleagues in other companies, who, like Siemens Belux, want to improve the strategic controlling capabilities of their company? Where should they begin? What should they be wary of?
Guy Bourdon: Start as simply as possible. Don’t make it too complicated. Every manager will quite quickly understand what it’s about. The Management Cockpit concept in itself is simple, and you have to handle it simply in the implementation process. This also means that in the first meeting, you should begin with only a few indicators and only with the black wall, that means with the main indicators. The management should first be able to get used to the new process in stages, before you add further indicators. At the next meeting, the blue wall is then added, which provides a detailed view of the internal processes; and the red wall – the detailed view of the market, competitors, and customers – is introduced in the following meeting. The flight deck is first introduced in the meeting after that.
Set a focus on the strategy and stick with it. This can be helped by the correct selection of indicators, strategically relevant indicators, and also by reducing the amount of information in reporting. For example, we have reduced the number of reporting elements in financials from its previous 140 to around 20 today, while we have included more leading indicators – about the market, from human resources, IT, and on the status of important initiative programs. When selecting the indicators, adopt a pragmatic approach. The indicator that is theoretically the best may not actually be the best – for example, if you do not find any data sources of a sufficiently high quality. When selecting indicators, you should therefore adopt a principle of trial and error. Be prepared to replace indicators that don’t work with other indicators.
You should also not underestimate the importance of a
good communication strategy for the success of the project. You need to develop
the appropriate communications program for each target group. Do not try to
reach everyone with the same communication campaign targeted at top management.
This would be pointless, as people in different areas don’t interpret certain
terms in the same way, or don’t think of the same problems as top management.
Create a standardized and uniform information technology platform for all entities – for all divisions as well as for all support areas or Shared Services. If an entity wants to use the platform for its own purposes and wants to insert other levels, such as sub-entities, then allow them to do this. This improves the integration of information and therefore the management communication in the company.
And finally: Do not underestimate the time factor.
You can get started relatively quickly using a simple version of a Management
Cockpit War Room. But a learning process is required for all involved to start
using it productively before you are ready for the next level. And above all,
the management must change its own value system and its own management
philosophy – moving away from the tactics with a focus on the next quarterly
results, and more toward strategy implementation and tackling the question of
how to influence results for the next quarter, the end of the year, and the
following year.
Managers in the company must learn to live with this increased transparency and with the fact that they are judged according to the implementation of the strategy, and not purely on the basis of financial results. And all this takes time.
Juergen H. Daum: Mr.
Bourdon, many thanks for the interesting interview.
1Guy Bourdon is Chief Consultant at Siemens s.a., Brussels, the Siemens group
holding for the region of Belux and West & Central Africa. He reports to
and advises both the CEO and the CFO of Siemens Belux. In this function, he is
responsible for strategic initiatives, M&A services, and the improvement of
management processes. He was the main initiator behind, and then project
manager for the implementation of the new Policy & Strategy process and the
Management Cockpit “War Room” at Siemens Belux.
2Juergen H. Daum is management adviser,
finance & enterprise management expert, and Chief Solution Architect of the
Business Solutions Architects Group EMEA at SAP in Walldorf, Germany. For CFOs
and controllers of numerous European companies he acts as a generator of ideas
and stimuli for the redesign and transformation of the finance organization and
enterprise management. Together with his colleagues, he has been running the
SAP Finance Best Practice Network since 2003. This serves as a platform for the
CFOs of European SAP customers and their finance architects to exchange
information about “finance best and next practice” and draw up together the
path toward the finance organization of the future. He regularly publishes
articles in journals, speaks at conferences, and is author of the books
“Intangible Assets and Value Creation” (English edition: John Wiley & Sons
2003, German: Galileo-Press
2002) and of “Beyond Budgeting (German edition:
Meidenbauer 2005). Before his time at SAP he was CFO of a German midsize
company. E-mail: jhd@juergendaum.com,
Web site: http://www.juergendaum.com/
This short version (see above)
or the original/long version
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Additional Resources:
N.E.T. Research – The Management Cockpit Company
Interview with David P. Norton, co-creator of the Balanced Scorecard
SAP’s White Paper, co-authored by David P. Norton and Juergen H. Daum: “Strategic Enterprise Management – Translating Strategy Into Action: The Balanced Scorecard” (May 1999)
Why a new Management System ? –article by Juergen H. Daum
Juergen
H. Daums book on: Beyond
Budgeting, Meidenbauer 2005
(German edition)
Juergen H. Daum's book: Intangible Assets and Value Creation, Wiley 2003
Interview
with Juergen H. Daum: Intangible Assets and the art to create value
J.D.’s Beyond Budgeting Info Center
J.D.’s Best Practice Channel – Finance
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Finance Transformation: How CFOs Prepare Their Finance Organization for the Challenges of the Future
Beyond Budgeting: Ideas for the Fundamental Redesign of the Management Control Model
Panel discussion: Beyond
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More about Enterprise Management Best Practice and related topics will be continued in Juergen Daum’ Trend Reports. To subscribe for Juergen Daum’s free-of-charge e-mail newsletter (a regular summary of the recent reports) click here.
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