Performance management: 3 practical shifts we observed in 2024
CFOs are the guardians of performance management, and their role is evolving rapidly. Driven by technological advancements, shifting economic conditions, and increasing demands for actionable insights from C-levels and sponsors, CFOs of PE-backed companies face growing pressures to deliver value quickly. They must align financial and operational goals while ensuring consistent performance across their organizations.
Here are three trends in performance management we observed while working closely with CFOs. These shifts are here to stay.
1. Integrated financial and operational KPIs
The Trend: PE-backed companies are now expected to align operational metrics—like customer churn, utilization rates, and project margins—with financial indicators such as EBITDA and cash flow. This integration ensures alignment across the organization and eliminates silos.
The Challenge: Many organizations struggle with fragmented data systems, inconsistent KPI definitions, and a lack of communication between finance and operational teams.
Practical Steps for CFOs:
Standardize KPI Definitions: Develop a single catalog of KPIs with clear, consistent definitions and calculation methods.
Invest in Data Integration: Use tools like Power BI or Tableau to centralize data from finance, operations, and sales into a unified dashboard.
Reconcile Data Sources: Regularly audit and reconcile operational metrics with financial outcomes to ensure accuracy and trust in the data.
2. Emphasis on forward-looking insights
The Trend: Private equity sponsors demand forward-looking insights to anticipate risks and opportunities. Static reporting is no longer sufficient—CFOs need dynamic tools that predict outcomes and enable scenario planning.
The Challenge: Many companies rely heavily on historical data, which limits their ability to proactively address challenges or seize new opportunities.
Practical Steps for CFOs:
Implement Predictive Analytics: Leverage data science to forecast revenue, cash flow, and customer behavior based on historical trends and external variables.
Adopt Rolling Forecasts: Shift from annual budgeting to rolling 12- or 18-month forecasts that allow for real-time adjustments.
Engage Cross-Functional Teams: Collaborate with sales, marketing, and operations to ensure that forward-looking insights reflect all aspects of the business.
3. Automation in reporting and analysis
The Trend: Automation has been a growing priority for years, yet there’s still significant room for improvement. CFOs are increasingly using automation to streamline reporting, reduce manual errors, and focus their teams on high-value activities like strategic analysis.
The Challenge: Implementing automation can be resource-intensive and requires careful planning to ensure tools are scalable and aligned with business needs.
Practical Steps for CFOs:
Audit Current Processes: Identify manual tasks in reporting and analysis that can be automated, such as variance analysis or data aggregation.
Choose Scalable Tools Aligned to Your IT/Data Maturity: Cloud-based platforms like Azure, Google Cloud, or AWS can handle growth, but sometimes good integrations with Excel and SharePoint are sufficient.
Prioritize User Adoption: Train finance teams on new tools and involve them early in the implementation process. Avoid top-down dashboard automation made solely by external providers; ensure tools are practical and widely adopted.
The shift isn’t just about adopting new tools; it’s about changing the mindset of the finance function. The focus must be on creating a culture of data-driven decision-making that aligns with the strategic goals of both the company and its PE sponsors.