PostFinance might be a government-owned operation, but it has used management methods familiar to publicly traded companies for the past few years. In 2004, the financial institute implemented value-oriented management. Since then, economic value added (EVA) and return on equity (RoE) have functioned as primary key figures. Other key figures and subordinate targets are grouped beneath them in a hierarchy as a functional chain. Value and cost-driver trees document the financial factors that affect EVA and RoE. The balanced scorecard of SAP SEM also documents the qualitative factors. All planning and control systems were set up to increase value, and employee goals were linked to the firm’s strategic goals. These methods have contributed to 2004 revenues of CHF 287 million, the highest earnings in the almost 100-year-long history of the company.
Strategic financial planning is a central element in this planning and controlling process. PostFinance plans for a period of five years and then adjusts the plan annually. Management defines the key figures for the next five years, and then controlling personnel break down the key figures to individual cost and value drivers. The operations staff then creates detailed plans, which are then consolidated. Plans are adjusted until the top-down and bottom-up numbers agree. Afterward, user departments can use strategic key figures as default and benchmark values. Such values enable the integration of strategic enterprise management and the daily operations of the company.
The customer as a driver of value
A changed perspective regarding financial value drivers required a thorough revision of financial planning and a new technological basis for it. Until 2003, the primary focus of profitability was on the Yellow Account, mortgages, or funds. To analyze value and cost drivers, PostFinance determined three levels of contribution margin for each product. The three levels were also defined in strategic financial planning for the next five years.
In 2004, PostFinance shifted its focus on profitability to customers and began to develop an integrated perspective on customers and finance. Analyses and tasks related to customers in the areas marketing, sales, service, and distribution were to be viewed in the immediate context of financial parameters. This approach enables the financial services provider to expand the analysis instruments available to improve profitability. Up to this point, tasks to increase revenue or lower costs could be measured only in terms of product profitability; PostFinance now has a cross-product perspective. Today, it’s easier for the business controlling group to calculate the effects of cross-selling or a combination of distribution channels on overall profitability. The business plans of customer segments solidify the integrated perspective. These plans cover strategies for sales and distribution, sales quantities, and contribution margins.
Planning multidimensional contribution margins
To implement the new concept, PostFinance divided its customers into two market segments: private customers and commercial customers. Each segment was then grouped by parameters, such as amount of capital, number of transactions, and products into various customer segments.
The goal was to enhance the existing perspective on products with a perspective on customers. Previously, only product managers examined the contribution margins of their products. In the future, market managers will be able to plan the contribution margins for each customer segment.
For example: the marketing manager plans sales quantities and contribution margins for products sold to a given customer segment. The total is made up of the revenues and costs of the customer segment. PostFinance wanted to examine profitability in two dimensions:
- The profitability of customer segments as the total profitability of the products of the customer segment
- The profitability of products as the total profitability of the customer segments that use a given product
Coordination problems with Excel
The goal was to map both perspectives in an integrated model, but the existing software tools and planning processes could not accomplish this and PostFinance did not have real planning software. Managers used Microsoft Excel workbooks for planning, populating them with information from upstream systems, such as commissioning software, service provider software, and securities software. But because these systems all calculated revenues and costs according to different procedures, it was extremely difficult to generate a homogenous data model from the data. Consolidating the various Excel workbooks led to inconsistencies.
Management of the planning process was another problem. The Excel workbooks were stored on local PCs and sent by e-mail to business controlling personnel for consolidation. Individual product and market segment managers had no voice in each other’s planning. The situation often led to differences between the product and customer view – differences that became apparent only during consolidation. Planning had to be repeated to resolve the inconsistencies.
Defining flows independently of software
That’s why PostFinance decided to implement true planning software that was able to:
- Enable integrated, multidimensional planning from the data model
- Offer each planner an individual view of a given planning dimension
- Include workflow and central monitoring functions to control the planning process
To meet its needs, PostFinance decided to implement the business planning and simulation capabilities of SAP Strategic Enterprise Management (SAP SEM). The software fulfilled all functional requirements and fit best into the company’s existing SAP environment. Together with SAP Enterprise Portal (SAP EP is now called SAP NetWeaver Portal), PostFinance was also able to give users role-based access to the business planning and simulation functions and data of SAP SEM in their Web browsers.
During the implementation, PostFinance worked with a consulting team consisting of BearingPoint and SAP consultants. Both firms had already handled similar projects at banks. In the PostFinance project, BearingPoint was responsible for subject-matter consulting, and SAP was responsible for technical consulting and for mapping the processes in the software. The division of labor was possible because the software leaves users a great deal of room to implement individual structures and processes.
SAP SEM includes a number of predefined planning models (for balance sheet, profit, and personnel cost planning, for example), but allows users to map their planning dimensions individually. PostFinance was essentially able to define the processes in terms of subject-matter requirements, without having to consider the characteristics of the software. Users could also model the workflow functions of SAP EP freely.
PostFinance and BearingPoint defined the new processes between January and the end of May 2003. Individual planning flows and parameters were developed for each product group and customer segment. Revenues and costs were integrated, depending upon the relevant interest rates and developments in securities markets.