Governance As Catalyst: The New Management System - InformationWeek

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3/31/2004
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Governance As Catalyst: The New Management System

The Sarbanes-Oxley Act and other corporate governance regulations are pushing businesses to do something serious about how they manage business processes for both financial and operational objectives. A process-based management system is what's needed - and could be the focus of innovative technology to come.

The Sarbanes-Oxley Act (SOX) is perhaps today's biggest management and IT imperative, pushing organizations toward significant investment in capabilities that will enable them to comply with its provisions. At the same time, there's great interest in upgrading planning, budgeting, reporting, balanced scorecard, and analytic software as a means to improve performance.

Progressive organizations are seeking ways to create higher value from these investments. Can this renewed focus on corporate governance become a catalyst for establishing more effective forms of financial and operational management? What kinds of tools and approaches will enable something greater than just narrow, albeit critical objective of compliance?

The Current State

New management tools, approaches, and technologies have been the focus of investment for a decade or more. The level of understanding about what these can provide is maturing. With this maturity come the following insights:

Budgeting. Tools have improved accuracy and efficiency, but organizations haven't seen the quality of budgets improve substantially. The budgeting process still isn't effectively integrated with strategic measurement systems, such as Balanced Scorecard.

Planning & Analytics. While new tools have improved financially based analysis, they've given little insight into potential performance and capacity issues because they aren't supported by robust business models.

Balanced Scorecard (BSC). While tools and implementation efforts improve strategic focus, they don't always improve the ability to execute strategy or drive performance improvement.

Activity-Based Costing (ABC). While providing insight into cost/profitability issues, functionally focused performance measurement systems limit the ability to capitalize on such insights. Unprofitable products, services, and customers remain.

Business Intelligence (BI) and Data Warehouse (DW). Improving access to transaction-based data doesn't necessarily improve decision-making. In fact, some believe that organizations are "drowning in data" and are unable to effectively use it to create value.

Acknowledging the need for greater integration, the search is on for how organizations can evolve beyond single, best-of-breed implementation of tools and methodology approaches. However, no universally accepted approaches or solutions exist for doing so. We do not even have an acknowledged term, such as "management systems," to define and describe what organizations seek.

Management Systems

What are management systems? They are the processes, frameworks, economic models, tools, and governance structures that enable organizations to define, adapt, deploy, and execute strategy. Ultimately, their purpose is to optimize value for all stakeholders by maintaining strategic alignment; that is, a state where people make the decisions and exhibit behaviors that are consistent with the organization's strategy and stated values and beliefs.

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