CHAPTER 5 DISCUSSION
5.2 I MPACT ON I NNOVATION C APABILITY
Contrary to Company Y, CPM is a brand new practice to project managers at Company X.
Prior to introducing CPM, the bottom-up budget planning process is only up to cost centre. The cost centre planner planned budget of projects in lump-sum numbers by level of chart of accounts at the cost centre level. For adapting new project costing process, each project manager must plan each project budget before cost centre planner can consolidate all project budget numbers to the level of cost centre against the top-down target that was set by executives in prior strategy planning cycle.
In the actual revenue and expense collection cycle, Company Y seems to rely on seamless process streamline and system integration among IPD to the Complete Performance Management framework. The automation eliminates overheads caused by potential manual effort when employees claim expenses and register actual time spent on projects. The process has been deployed for a decade and is one key process in the performance management framework. Similar to project budget planning process, IPD has been incorporated into Company Y’s enterprise culture.
At Company X, automation has dramatically simplified the front-end expense claiming system by requiring the entry of project codes when employees file for expense reimbursement, so the expenses can be correctly assigned to their respective project. A certain degree of resistance occurred when associating project code with every project expense transaction became compulsory. Employees showed their reluctance spending effort to associate the project code to their claiming expense until policy announced.
5.2 Impact on Innovation Capability
Based on the theories outlined in previously sections of this research, innovation capability of R&D is the key to growth in the knowledge industry, especially for software houses.
However, there is a trade-off between innovation and business performance. Knowledge industry typically avoids over-control of innovation in organization for fear of discouraging it.
In the case study of Company X, earmarking a funded budget for its specified purpose only became constraint to R&D. In order to prove some innovative concepts never commercialized before, software R&D engineers usually utilize in-hand resources in a flexible manner. Outstanding budget of completed projects is often utilized by other experimental
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projects freely. Due to the unpredictability of innovative projects, resource utilization need to be flexible by R&D to encourage for exploration and examination of every possibility. Any successful product is produced by series trial-and-error. Strictly regulating R&D engineers to comply with budget as planned without flexibility to swap, change, or utilise remaining budget of completed projects is seen as impediments of innovation. Earmarking any actual expense has to be against planned budget for its specified purpose only would be difficult to gain supports from R&D function, which is seen as the kernel to grow at most software companies.
In order to measure engineers’ productivity and monitor human resource utilisation effectively, timesheet to record R&D engineers’ daily operation was proposed. The design of timesheet aimed to provide detailed operational data at granular level. Consolidation of detailed operational data is able to link to planned projects and support management overview about the execution, and to have visibility of resource utilization and productivity. However, innovative concept might be proved by series of trial-and-error experiments without any deliverable.
Innovation performance might be difficult to measure by any quantified methodology, such as timesheet. It also creates overheads to R&D engineers to log their operation. Engineers see it as a tedious routine to fragmentise their thoughts without adding any extra value. It is certainly difficult to gain supports from R&D engineers.
But Company Y took the other approach to minimise the potential trade-off of innovation and control – EBO. A newly established performance management framework and special taskforce set to the new emerging ideas instead of constraining by sophisticated one running for operational business. The matrices to assess performance and budget of EBO is totally different from the ones for operational business. New emerging ideas, market, opportunities, or technologies will be incubated by independent budget and managed by separated performance monitoring and controlling system. It effectively increases success rate of new emerging business.
Company X does not separate the other system to manage new innovative initiatives.
Innovative initiatives trigger new projects that are still managed by CPM as operating business.
It requires these incubated initiatives bearing the same matrices of performance and spending similar to the degree of operational overheads under one same CPM framework. According to direct feedbacks from R&D respondents, CPM was seen as a controlling tool for management objectives with less help to stimulate any innovative idea to support company growth.
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The following table is the summary of dimensions analysed based on the research of two case corporation in software industry.
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Company X CPM Company Y Budget Planning
Top Management Support Strong at the beginning, but vague at the later stage Has been throughout entire program implementation in persistent manner
Linking with Strategy planning
Strategic Planning is separated from performance management process; there is no explicit connection between these two processes.
Performance Management process is based on corporate strategy planning; there is strong connection between these two processes
Identification of Key Business Drivers
With implementation of CPM, key business drivers to influence corporate planning were identified, such as number of head counts and exchange rate.
Key drivers were identified since performance management process implemented, including marketing drivers such as growth rate, competition, and new opportunities; And cost drivers such as exchange rate, price fluctuation of raw material, inventory cost, etc.
Streamlining to Projects Cost Planning
Project cost planning process was implemented with driver-based planning process at corporate level.
With implementation of project cost planning, corporate planning is able to drill down to detailed rationales because it was rolled up by granular level.
IPD defined sophisticate project planning process in Company Y. It ensures the
Not explicit at current stage. Budget planners at each level of management must simulate business scenarios by adjusting real numbers and running associated reports before submitting to finance department.
Sophisticated what-if simulation is provided in performance management process in every level of budget management. Budget planners can perform simulation functionalities to manipulate key drivers in different business scenarios and predict potential business
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properly to accommodate the best business scenario.Integration and interconnectivity among business applications
With support from information technology, every transactional business application was integrated through well-defined data exchange format and application interfaces (APIs). Budget owners are able to drill down to detailed transaction to understand the execution of business. Planning budget is also able to provide to executors to benchmark in timely manner.
Similar as Company X CPM: With these integration and interconnectivity to transactional business applications, such as ERP, CRM, etc., identified key drivers are linked with the detailed transactions of budget items. As long as adjust the key drivers caused by adapting external or internal economic challenges, whole corporate budget numbers should be refreshed accordingly.
Completed Performance Monitoring
Only partial actual expense data integrated back to CPM against budgeted baseline data due to resource limitation and maturity of regional planning process. It caused performance of execution to be monitored partially.
Completely integrated actual cost back to performance management system against planned budgeting numbers; Top management is thus able to have overview about execution and monitor performance of each BU.
Strategy can thus change based on feedback performance of execution.
Continuous Change Management
With appropriately designed change management and planning budget based on drivers at corporate level, project at granular unit level has been accepted. But collecting detailed actual spending in order to integrate back to against planning budget is viewed as overhead and reluctant to cooperate.
Continuous change management is necessary to minimize resistance.
Insufficient information to understand the adaption of performance management system, but the concept of performance management has been penetrating to company culture
Impact to innovation capability of Collecting actual expense in detailed level is viewed as additional overheads to waste engineers’ resource
Due to separate the other system to manage emerging innovative opportunity without
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R&D on such tedious work instead of innovating R&D.
Moreover, earmarking a funded budget for its specified purpose only becomes constraints to R&D due to elimination of such flexibility. Partial implementation of this process, such as only hardware expenditure has to be earmarked the planned budget, but general spending is not necessary, is compromising between flexibility and controlling.
utilising the same framework to operating business
Table 5-1 Comparison of CPM at two cases
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The objectives of this research were to diagnose the dilemma in order to throw some light on the matter through reflecting the deployment Company X ever experienced. It aims to generalize findings and summarize them to a practical reference to software companies, and balance between controlling and innovation may be therefore concluded as practical approach for any contemplator business not limit to software industry.
CPM is a strategic system to any enterprise involving not only transactional budget planning items, but also consolidation of business visibility at enterprise level. The investment of CPM was costly, and it did consume human resource heavily. The introduction of CPM did impact not only the business operation and process, but also influence business strategy and direction in the end. Well-planned initiation and development of CPM is thus critical to any enterprise. This study effectively analyses the key variables in different contexts of initiation, development, and adoption of CPM. The analysed result is able to be referenced for any software company, but may not limit on it, assess the introduction of CPM.
This research was developed through two cases studies. Selected cases are both well-known software companies in the industry – Company X and Company Y. The well-structured interview sessions were conducted to staff to involve the implementation CPM into organisation.
The feedback of interview was categorised into pre-defined context at every stage in order to develop the key variables to influence the success of CPM. Regarding the collection of end users’ perception after deployment, a structured questionnaire was conducted. The collected feedback was also classified into the context at the adoption stage to derive variables to make adoption successful. The impact to capability of innovation to R&D were also illustrated at the analysis of this stage. In the later sections, both of academic and managerial implication, and limitation and further work will be discussed.
Effective Performance Management Process Is the Extension of Strategy Planning
Strategy planning is precedence of CPM. A competent performance management framework must inherit pre-set targets were outcome in prior strategy planning cycle. Effective CPM is able to integrate these pre-set targets down to performance matrices for every functional