Governance As Catalyst: The New Management System - InformationWeek

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3/31/2004
04:23 PM
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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.

Organizations typically employ different types of management systems. Financial systems are the most dominant; these include planning, budgeting, forecasting, and reporting. Other systems address strategy, customer, performance, IT, knowledge, quality, and process management. Historically, these "traditional" management systems have never been well integrated. The typical result is fragmented and financially dominated management systems that reinforce functional silos and perpetuate parochial decision-making. Organizations can't deploy strategy into their business processes, and thereby integrate strategy and tactics. They can't execute strategy and exploit synergies across functions and business units. In sum, the current state of management systems undermines any effort to deal with complexity and maintain strategic alignment.

From a SOX perspective, the current state doesn't offer an optimal control environment. Thus, it isn't an overstatement to say that management system integration is one of the single most important challenges facing organizations today.

Process Foundation

Figure 1, Process-Based Management System Framework

Overcoming this integration challenge requires a fundamentally different and holistic approach. A Process-Based Management System (PBMS) uses business processes as the structure for building an integrated management system (see Figure 1). Integration at the business process level creates two key capabilities:

  • Predictive Planning that provides forward visibility (of resource requirements and potential performance issues) through a single and universally accepted business model.
  • The ability to manage trade-offs — a capability that most organizations do not enjoy.


Figure 2, Trade-off objectives

"Trade-off management" is an approach for integrating BSC with ABC and budgeting. As Figure 2 shows, this provides the means to express measures in terms of "trade-off metrics." Bringing these systems together fundamentally changes the process of cascading performance targets — and the role of budgeting in reaching those targets. This new "translation" process focuses on establishing the right balance between conflicting cost and service objectives, which affect virtually every aspect of an organization's performance. Why is such a balance essential? Because it provides something that most organizations lack: a formal mechanism for optimizing value. A good balance between cost and service objectives enables such key objectives as:

  • Translation of strategy into executable objectives that are realistic and adequately funded
  • Maintenance of competitive cost structures
  • Management of both internal and external customer expectations.

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