© Matthaeus, UnsplashSuccessful Corporate Performance Management in Times of Crisis Through Driver-Based Scenario Simulation
The business environment is more complex than ever, with increasing uncertainty and growing pressure for change. Despite these challenges, successful corporate performance management is still achievable. Companies are facing a new reality where exceptional circumstances have become the norm. Business leaders must navigate through ambiguous developments that require rapid response.
In this context, successful corporate performance management needs to adapt to the changing landscape to ensure sustainable success. Traditional financial planning cycles and methods are no longer sufficient to cope with the new reality. Many companies today are turning to scenario simulation and driver-based planning to meet the demanding requirements.
State-of-the-art corporate performance management must prioritize flexibility and provide real-time reliable decision-making foundations. A key success factor is to make connections transparent, enabling a quicker understanding to effectively steer the company. Given significant changes with global implications affecting sales markets, supply chains, procurement costs, currency exchange rates, or working environments, financial executives in the area of corporate performance management need to remain flexible and capable of reacting quickly. Flexible corporate performance management can be achieved through suitable software and related methodologies and approaches, such as scenario simulation and driver-based planning.
New Crises and Challenges Continuously Emerging for Companies
Companies are constantly facing new crises and challenges and are therefore under enormous pressure to adapt and change, which also has an impact on the area of controlling, as shorter decision-making and reaction times are required not least from the management.
What explicit challenges does corporate controlling currently have to face? New problems such as global pandemics, energy crises, climate change, cyber attacks and geopolitical conflicts have come to the fore and increase the need to be able to react ad hoc to unpredictable events. Added to this is a current rapid rise in prices. In a world of crises, inflation and upheavals with complex consequences, waiting is not an option. Companies need to act quickly and be prepared for risks and changes even before they occur.
Crises to which controlling teams must react:
- Inflation
- Energy crisis
- Pandemics and epidemics
- Cyber attacks
- Geopolitical conflicts
- Supply chain disruptions
- Exchange rate fluctuations
- Natural disasters
- Terrorism
Agility in Controlling as a Response to Crises
Companies are confronted with new challenges that have increasingly become the norm. This also means that conventional methods, approaches and cycles of corporate performance management need to be rethought and adapted. In order to meet the requirements of the changing VUCA world, a new, contemporary approach to corporate performance management is needed. VUCA stands for Volatility, Uncertainty, Complexity and Ambiguity and describes the complex market environment to which companies must currently adapt. Agility is the decisive keyword that must be taken into account when dealing with the conditions of the VUCA world and when restructuring the processes of controlling. In order to achieve and implement agility in controlling, the following factors must be taken into account:
- Reduce the detail and complexity of processes
- use new methods, tools and software
- move away from pure bottom-up planning
- Establish a stronger measure orientation
Nowadays, corporate performance management must be fast and flexible – this is the only way to react to unforeseen events and constant change at short notice – in other words: in time. Traditional corporate performance management cannot keep up with the demands of the modern market.
Spreadsheet-based processes are time-consuming, non-transparent and really reliable results are difficult to derive, even if they appear accurate at first. In reality, however, they are inaccurate and do not provide much guidance for action.
One solution to adequately respond to the fast-paced and demanding world is scenario thinking. Implementing scenario simulations within planning and controlling allows for greater accuracy, speed, and agility in modeling potential strategies. Companies can quickly explore multiple scenarios to determine the best course of action. Integrating scenario simulations into organization-wide planning and analysis processes empowers executives and decision-makers to define strategies to navigate the uncertainties of the current market.
That's exactly what Valsight has been developed for: Valsight allows you to simulate various situations with different conditions at the push of a button, enabling you to make key management decisions based on that. Working with our Software means thinking in scenarios. This way, you can anticipate what might happen tomorrow.
At the current time and also in the future, the management expects progress from the controlling department, especially in two areas: in the improved ability to conduct simulations and in the more intensive and better utilization of data.
Agile Corporate Performance Management Through Driver-Based Planning and Scenario Simulation
Driver-based planning and scenario simulation are important measures for agile corporate performance management. In driver-based planning, the key drivers of business success are identified, and based on this, value driver models are created to transparently represent these drivers for the respective company or business unit.
Requisite transparency of relationships is provided by suitable software tools through integrated analysis and visualization options. Financial key figures can be presented and shared with other users using chart and table formats. The effects of measures can be analyzed at the push of a button to understand the differences between different scenarios. Based on these driver models, various assumptions are made, and financial scenarios are simulated. Driver-based simulation can efficiently help implement corporate strategy effectively and respond promptly and adequately to upcoming crises.
Particularly in challenging and uncertain times, the planning process becomes more difficult and complex. Traditional financial planning, which is very static and detailed, should be reevaluated and optimized. Different logics need to be followed nowadays. Planning is still important, and at present, strategic planning in the form of strategic top-down planning is particularly crucial, with the time horizons varying from company to company. It is essential to set realistic goals and thoroughly evaluate them before operationalizing them in a concrete future-oriented form. For example, if a company aims to increase revenue, questions such as: Is there a growing market for this increase? How much growth is specifically targeted? And lastly: What specific measures can be taken to achieve revenue growth? For subsequent operational control, whether monthly or quarterly, it is not necessarily required to have operational planning. In this case, other solutions, such as AI-powered systems and rolling forecasts, can add more value.
By reducing business models and associated goals to a few key drivers in agile corporate performance management, there is enough room for long-term planning while still being able to react to changes and pursue set goals. Driver-based planning helps companies concentrate on the essential influencing factors and be better prepared to respond.
This approach enables companies to find comprehensive and more reliable answers faster to questions about future changes. For instance, what will we do if inflation continues to rise over the next two to three years? What if parts of the supply chains collapse completely? Or if the energy crisis worsens, causing purchasing power and sales to decrease while production costs rise? These questions can be discussed live using simple, tool-supported scenario modeling and directly answered in planning sessions with management.
Success Factors for Successful Corporate Management in Times of Crisis
To establish a modern approach in corporate performance management, a mental and cultural shift must take place within companies. Employees, especially during the implementation of new methods and tools, need to be involved. This change management must be demonstrated and extensively communicated by the company's leadership. When employees understand the purpose and benefits of changes, it becomes easier to convince them of the transformation and bring about a cultural redesign. Additionally, the following aspects should be considered when changing processes, methods, and tools in the field of corporate performance management:
- Clearly communicate the business value of new methods and tools.
- Make a realistic assessment of the need for change management, communication, and training.
- Involve employees early and regularly in the process.
- Set defined priorities and be willing to be flexible in implementing changes.
Conclusion – Dealing With a World Where the Future is Unpredictable
In a world where decision-makers must react increasingly faster and companies need to allocate the right resources in the right place and at the right time, appropriate tools and methods enable making adequate real-time decisions. The adoption of agile strategies, methods, and instruments is essential for corporate performance management, enabling controllers to assume a more advisory role ("business partner") within the company and thus help ensure business success.
To respond effectively to crises and challenges, the controlling organization must be agile – driver-based planning and scenario simulation are crucial for this purpose. Additionally, a shift in fundamental work practices must be accompanied by the necessity of mental and cultural changes within the company and among employees. Tools and methods of corporate performance management are continuously evolving to meet the ever-emerging crises and challenges. Furthermore, efficient collaboration between management, finance, IT, and software providers is essential for business success. In the future, controlling should be more closely connected to operational activities and provide even better guidance to management during critical decisions and the implementation of new tools and methods.
