No Budgeting

Performance Management without Traditional Budgeting

Digitization and management control - an overview of the current state of the discussion

by Wolf-Gerrit Benkendorff

Every day there are new publications about digitization and management control: narrower or broader studies and publications from the scientific community, presentations, articles or blogs from management consultancies and software providers.

In the last few weeks I have read a large number of such publications and summarize my findings on the current state of the discussion in the following 5 points (of course, these 5 points are not conclusive):

  1. There is a consensus that digital technologies will increase the efficiency, quality and speed of transactional and repetitive controlling processes. In this context, the processes Management Reporting, Forecasting and Planning/Budgeting are most frequently mentioned. To achieve these improvements, companies must create the necessary prerequisites (especially in data management and integrated system-supported processes) on the one hand, and successively introduce new technologies (Big Data Technologies, AI applications, etc.) on the other hand. Technological improvements will also change the organization of controlling (Shared Service Center, Center of Expertise, etc.). In the future, significantly fewer controlling resources will be required than today to carry out transaction-related and repetitive controlling processes.
  2. There is also consensus that the use of Big Data (e.g. for data science) will be of great importance for management control. There is no common opinion on whether the management of this big data will be organized centralized or decentralized in the future and what role is assigned to the management control organization. As data is increasingly becoming a critical resource for success, I understand the argumentation that the management of this resource will be centrally organized and coordinated in the future (analogous to human resources). Since this management is of a strong (data)technical nature, the management control organization (like other operational functions) will participate in this process but is unlikely to lead it: the management control organization will receive data that it needs to fulfil its own tasks (e. g. to parameterize driver models) and in return supply (predominantly) financial or financially enriched data.
  3. Not only the efficiency, quality and speed of the controlling processes will change, but also their application. Many publications point out that the relevant time horizon for business steering will change in the course of digitalization. The classic annual control cycle will become less relevant and rapid, intra-year actions based on current forecasts will become increasingly important. Forecasting and operative planning will merge into an integrated process. The frequency of the feedback loops will increase up to real-time response.
  4. The reduced ability to plan the business will lead to the use of new methods in management control. It is often mentioned that planning of exact numbers will be replaced by bandwidths and probabilities. Simulations based on driver models will increasingly take the place of planning under presumed security. The reduced ability to plan the business will also increase the importance of risk management. Since risks can be systematically incorporated into financial simulations, risk management will play a greater role in management control.

    In accordance with the IGC's controller mission statement, "Controllers design and accompany the management process of defining goals, planning and management control". While the issues of planning and control are given a great deal of attention in the publications, the process of defining goals is hardly mentioned. If the predictability of the business is reduced, then in my opinion new methods will also be used in the goal-setting process, e. g. in the form of peer comparisons.
  5. The modification of the future role of the controller is discussed in all publications. However, there is no consensus on which roles the controller will assume in the future. Two directions of development can be distinguished here. The controller as a business partner with a deep understanding of business and good communication skills and the controller as a data scientist with extended knowledge of statistics and programming or at least as an interface to the data scientist in the role of a business translator.

Irrespective of the specific role, it can be stated with certainty that the quality demands on controllers will increase in the future. The reduction of simple transactional activities and the need to use new methods and technologies will make the work of the controller more interesting and varied, but also more demanding.

Most publications about digitization and management control focus on the expected changes in management control. It is rarely explicitly mentioned, what will not change. In my opinion, the IGC's controller mission statement remains valid in the course of digitalization. Controlling is faced with the challenge of supporting management in digital transformation by means of suitable processes, methods and systems. New requirements will arise for the integrated and cross-functional financial management and control of a company. However, there is currently no broad consensus on the essential characteristics of digital business steering and which processes, methods and systems are ultimately "suitable".