The AFP FP&A Case Study series is designed to help you build up key FP&A capabilities and skills by sharing examples of how leading practitioners have tackled challenges in their work and the lessons learned. In this case study, a senior-level FP&A practitioner at a leading global provider of insurance shares how creating one source of truth for metrics, from one data source, using one platform, allows the company’s managers to compare themselves against their peers, making change management occur at a much faster rate.

Presented at an AFP FP&A roundtable, this case study contains elements that are anonymized to maintain privacy and encourage open discussion.

INSIGHT: A CONSISTENT, TRANSPARENT SET KPIs TIED TO EXTERNAL MEASURES PROVIDES A TRUE PICTURE OF THE COMPANY’S PERFORMANCE; MAINTAINING FOCUS AND ACHIEVING BUY-IN ARE A CHALLENGE.

Company Size:	Large
Industry:	Insurance
Geography:	Global
FP&A Maturity Model:	Performance Management

BACKGROUND: GENERAL INFORMATION ABOUT THE COMPANY IN QUESTION

The CEO of a global insurance and reinsurance company, with 80 offices located around the world, needed a way to measure performance on a standardized basis. The company is organized into two business units spread across four regions. The businesses each have a distinct strategy and set of objectives contributing to the overall mission and success. Fiscal strength is critical in insurance, especially in times of stress.

CHALLENGE: THE WORK OR DIFFICULTY THAT FP&A HAD TO ADDRESS

How do we measure performance consistently?

The CEO has to measure leaders on a standardized basis, but each of the company’s four regions would submit a different set of metrics for their year-end performance evaluation, as opposed to using one common data set. Over the past several years, management had made several attempts to standardize the metrics and methodologies.

Each change in leadership brought an adjustment to the reporting metrics as management ensured their priorities were reflected and their performance was shown in the best possible light. For example, the sales team wanted to focus on new business, as opposed to the overall performance of the existing business, because it felt it had better control over the former.

In addition, there’s been a much bigger push over the last four years to ensure that the company’s internal metrics and incentives align with what it’s putting to the market and really what helps its stockholders as well.

APPROACH: HOW FP&A ADDRESSED THE CHALLENGE

It was the FP&A team’s mission to apply deep knowledge, intelligent data and capital strength to anticipate and manage risk. The company was going through a general ledger upgrade to its core SAP system, so FP&A decided to pull in a couple of its different modules, one being a performance measurement module.

The effort took two years to develop and was introduced in 2021. There were calls to change some of the KPIs, but it has remained steadfast in its original form and the team intends to keep it as is into 2023. The only changes the team foresees at this point will come in 2024 when it switches to the International Financial Reporting Standards (IFRS) versus the U.S. GAAP. At that point, it will consider other changes and updates.

To ensure fairness and buy-in, the project was performed collaboratively with the CEO, senior leadership team, FP&A and finance. They then ensured they had consensus with all parties, plus the board of directors. The board was included to enable measurement of the CEO as well. They have gone through multiple iterations over the past year and a half. If the first version was an iPhone 1, now it is an iPhone 10 or 13. The team is constantly making updates for speed, formulaic and layout to make things quicker. The outline of the approach is as follows:

Agreed Upon Metrics	Common Data Source	Platform
Top-down approach	Create ‘one source of truth’ for metrics	SAP Platform (ties to ERP)
Senior Management buy-in and commitment	Finance data is key and commonality	Ease of use and tool speed
Global and Product measurement	Standardization of view and ‘storytelling’	Timing of data
Externally relevant

OUTCOME: WHAT CAME OF FP&A’S EFFORTS AND WHAT WAS LEARNED

The team found that by using a standardized view, it had one source of truth for metrics, as opposed to being able to “game the system” to make things look better. Because the team now focuses much more on externally relevant KPIs, it must be careful about distributing the results because it is considered material, non-public information. The team’s process now includes cascading the report out to the managing directors after issuing a public statement.

Under the new system, the team calculates and applies economic value management (EVM) figures across the company — this includes all of the products, regions and individual leaders — allowing it to see all the various sub-components. It can also look at the data by market and make peer-to-peer comparisons.

While there is the challenge to FP&A of having to update each of these items, management is getting used to the self-service model of seeing the results in a system. Using this new model, they are able to make peer-to-peer comparisons, which makes change management much faster.

DISCUSSION: A Q&A SESSION AMONG ROUNDTABLE ATTENDEES

Q: We've rolled out a similar standardized solution and it has been an interesting journey. Acceptance has been pretty good in some places, but in other places, people are refusing to use it because they want their own flavor of reporting. They say, "You're putting me in a box, and I don't have the slot I used to have. I don't have the KPI I like.” Did you come across that?

A: Change management has been key. Previously, everybody just wanted to talk about the things that were in their control, i.e., the revenue and their specific costs that they control, and they didn't want to focus on the overall profitability of the business. We are now using an economic value calculation, focused on the entire business, including fully loaded costs, so that your ultimate measurement is on the profitability of the company, getting to the point of view of the shareholder. It has been a journey. We had to get our CEO, as well as the overall SLT, on board first; otherwise, it would not have worked.

Q: How do you deal with requests for ad hoc reporting or something that differs from what you just showed?

A: In some cases, we push them right back to the self-service tool. And if the metric is not in the tool, we are not giving it to them; we just say no unless there's a specific business reason or product, such as a new business we're looking to grow. But in terms of KPI measurements, we're not giving them anything that's not within the tool. They may try to escalate, but that’s where we had to have the buy-in from the senior leadership team. People have tried to overturn it or run around the other side and maybe create a hidden factory somewhere, or just create their own measurement, and that's been shot down.

Q: Does the transparency promote unhealthy competition where you would want collaboration? Do managers sit around and say, "Well, how am I doing against my peer in this region?"

A: I get some like that. My team supports 10 different managing directors, and I've probably had two that go in and really try to measure themselves against others. But it's more the outliers until we get around bonus time, then it gets a little hairier.

Q: One of the things we talked about earlier was having multiple metrics in order to triangulate on the behavior you want. Do you feel that you have the breadth of metrics to get the performance you want?

A: Unequivocally, yes. These KPIs are the ones that are really driving our company and would drive our performance and align with the external view. And this is not all that we measure. We obviously have costs that are out there, such as direct expenses. Everybody has a direct expense budget, but it was not one of the KPIs on there because your direct expenses would be an input to the external metrics, so we don't necessarily break it out for the overall KPI.

Q. The team may manipulate operations to maximize a goal or incentive, “gaming the system”, but have negative externalities. How can you manage this?

A. Companies can manipulate operations to achieve a bonus, so managing based on external outcomes shifts the focus to a higher level, and out of certain people’s hands. For example, the profitability of new products is not entirely known until you have a few years of experience. Managers were manipulating their mix of new business to get to match their profitability goals, rather than selling the baskets of strategic products. Our solution was to correlate profitability to external markets instead of cash-cow products.

Related, many low-level “KPIs” invite confusion and conflict. For example, pursuing revenue or income in one part of the business could jeopardize outcomes in other parts of the business. Again, we raised the level KPIs, even though we tracked lower-level metrics.

Q: You said you have to wait until the end of the reporting cycle to be able to report out, which means that the earliest you can do that is the middle of the following month. It seems like that would be too late because then the posture is reactive; we can't influence the result at that point.

A: We get the same feedback. We have other tools we're utilizing that use the same data or use similar data that's building up to the final that we have more live metrics. We're using those to help influence the business.

Q: Are KPIs from other groups ever in conflict? If you have operational metrics or human capital metrics, are they ever in conflict with what you are reporting?

A: I wouldn't say conflict, but it's not the same exact number. And that's where there can be hang-ups in terms of how something's costed in a system. For example, something was coming up showing $5 million in profit in the costing system, but then it runs through the finance systems, and it's a million dollars. We've really whittled those down so they're much fewer and farther between.

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