Firing On All Cylinders

In this era of heightened concern about compliance and cost controls, it's easy for investment management executives to monitor some parts of their organization. They can put in cost controls to oversee accounting and budgets or add technology that monitors trading compliance. But what about the overall operation? How do they know when the enterprise engine is firing on all cylinders? Corporate performance management (CPM) is a growing trend among financial services firms looking to improve their bottom lines and ensure that they don't run afoul of the ever-increasing regulatory environment in which they operate. "It's absolutely on people's radar screens," says Lee Geishecker, VP and research area lead for cross-enterprise operations at Stamford, Conn.-based Gartner. "Investment is starting to happen, and compliance is starting to have an impact."

Gartner estimates that spending on technology and services to assist firms in managing the performance of their companies is in the $350 million to $500 million range and will grow to more than $1 billion in about four years. One of the driving factors will be Section 404 of Sarbanes-Oxley, which requires publicly traded companies to put in place and maintain an adequate internal control structure and procedures for financial reporting, according to Geishecker. "You don't buy a CPM application and suddenly you're in compliance with [Section] 404," he says. "It comes down to getting a much better handle, in a faster time frame, of accurate, consistent financial data. You don't have the luxury anymore of taking 28 days to close your books."

Warning: Slippery Road Ahead

Most companies are extremely aware of the need to ensure the accuracy of their financial records and the soundness of their infrastructure, says Robert Coghlan, head of corporate governance at PNB Paribas in New York City. What's lacking is "the overall hierarchy of reviewing the entire organization," he says.

That means comparing what goes on across the entire organization and using a team approach to pinpoint deficiencies and ensure that steps are taken to improve weaknesses. And it means building an infrastructure comprising technology, policies and procedures, and standards for everything from human resources to accounting, and then ensuring that those policies and standards are the rule and not simply the exception. Coghlan says good governance stems from four factors: instilling a culture of integrity; integrating governance into business processes; creating measurement tools and metrics; and leveraging technology to make it all happen.Tracking what's going on at any given time in the organization is not easy, but Coghlan has built a dashboard that tells him if the wheels are falling off in any area of the business. "It's a real-time dashboard that tells me if something or some things are failing," Coghlan says. He calls it RPM, short for Reporting Project Management. "It's a way for us to measure the performance across the entire corporation."

The dashboard draws on feeds from multiple systems and centralizes information into a database, which rates performance within pre-set ranges as green, yellow, orange or red. "I can see if an area is deteriorating - it stands out on my computer so that I need to take a look," he says. The system covers a wide swath of activity in the company and drills down into different divisions, covering activities including finance and compliance.

To make sure policies and procedures are current, PNB Paribas conducts annual department reviews. The monitoring can range from ensuring job appraisals and training standards are up to date to monitoring ongoing group performance on elements such as travel budgets. "If you're traveling and the only flight you can get is 40 percent over what your policy says, we don't hinder an account officer from traveling," Coghlan says. "However, we track it because it should be the exception and not the norm." Think PNB Paribas is sweating the small stuff? "You look at $3,000 here and $3,000 there, and before you know it, with 2,000 employees, you're [over] budget," he says.

Standards and Metrics

At ING Financial Services, CPM is all about building good processes and establishing standards and metrics to monitor them, says Catherine Smith, chief operating officer of ING U.S. Financial Services, an Atlanta-based company that provides retail and institutional clients with products and services in retirement services, such as mutual funds and financial planning. "One of the areas we are spending more and more time on is our performance management," Smith says.For the past two years, ING has used the Balanced Scorecard methodology. That's a management system developed by Robert Kaplan and David Norton that measures around four categories: business processes, employee learning, customer satisfaction and financials.

CPM is about the "end-to-end process" and tying together strategic objectives across the organization, says Smith, whose COO role puts her in charge of IT as well. Technology, she adds, is "critical for pulling information together from across various platforms," and one of the key capabilities for the company to work on is developing a common database through which information can flow. The trick, she says, is getting that information from various legacy environments and producing the information in real time.

Pete Johnson, senior vice president of strategic technology at Pittsburgh-based Mellon Financial Corp., is also a proponent of the Balanced Scorecard approach, and it is used in different parts of the Mellon organization, such as the technology division. The department produces a monthly report that scores how well it is doing when it comes to sticking to its game plan. For example, Johnson says, the metrics examine how closely the firm is adhering to IT architectural standards, versus exceptions to those standards. It also tracks strategic objectives, such as attempts to consolidate servers and whether or not the department is using emerging technology to gain efficiencies.

It also uses measurements to track whether its HR is on track. "We employ a fairly rigorous discipline supported by software," Johnson says. It tracks the skill sets of its IT employees versus the jobs under way and the types of skills and experiences the firm expects it will need over time. That includes not just IT skills, but management and business experience. So if a new technology or application starts to emerge or gain popularity, the firm knows in advance whether it has the right skills and can either engage in retraining or take steps to fill the void.

Johnson says that by examining the department and tracking it against the strategic objectives, "We have a clear perspective on whether or not we're getting closer to our goal - not just financial goals, but all goals. We have the ability to adjust our strategy and redirect resources."BNP's Coghlan says that CPM requires a team effort, and considerable time and patience. For example, BNP had to invest time and money to build the infrastructure that pulls the needed information from the various departments. "We have put a lot of effort into our infrastructure. You have to devote a team to this process," he says. "You've got to make the time."

As well, there has to be incentives and penalties in place to get people to participate in the process. That means building into budgets incentives for achieving desired goals, encouraging transparency and getting people to admit when there are weaknesses. "If audit finds something you haven't disclosed, you're going to be penalized for it," Coghlan says. "We don't take things lightly any more - because you can't."