CONFIDENTIALAnewapproachforFinancialPerformanceManagementofCustomerFocused,Corporate,NetworkandOtherSharedResourceTelcoUnitsJonathanBlum-CAPedrodeBoeck-BLCristinaVogeler-CADaveWenner-MIApril,1998ThisreportcontainsinformationthatisconfidentialandproprietarytoMcKinsey&CompanyandissolelyfortheuseofMcKinsey&Companypersonnel.Nopartofitmaybeused,circulated,quoted,orreproducedfordistributionoutsideMcKinsey&Company.Ifyouarenottheintendedrecipientofthisreport,youareherebynotifiedthattheuse,circulation,quoting,orreproducingofthisreportisstrictlyprohibitedandmaybeunlawful.ConfidentialINTRODUCTIONTheultimatepurposeofeverycustomerorientedTelcoistosustainandimproveitsfinancialperformance.Inordertoachievethispurpose,thecompanyisdividedintounitsthataremoreaccountableforthecompany’sperformance:¶1Customer-FacingUnits1(CFUs),profitcentersthatareresponsibleformaximizingbottom-lineperformanceoftheirbusinessbyconcentratingonimprovingsales,profitsandcustomersatisfactionwithinaspecificmarketsegment.Therefore,CFUHeadsshouldunderstandeveryrevenueandcostdriverundertheircontrol,andtheirperformancemeasurementshouldbebasedonthecontributionoftheirUnittotheTelcooverallprofitability.¶2SharedResourcesandCorporateUnits2,costcentersthatareresponsibleforminimizingcostsatagreedlevelsofservice(qualityandtimeliness).Theyshouldbeevaluatedonwhethertheymeetservicerequirementsandontheirproductivity,efficiencyandcosteffectiveness.UnitFinancialReporting(UFR)isconceivedasamanagerialtool,forallUnits,reflectingunitfinancialperformanceevolutiononallfinancialbusinessdriversundertheUnitHeads’control,toenablemanagerstomakeappropriatedecisionsandtoenabletheCEOtoevaluatethosemanagersontheirfinancialperformanceforcompensationpurposes.Thatis,¶3ThegenerationofdifferenttypesofreportsdependingonthenatureandresponsibilitiesoftheUnit(CFUsvs.NetworkandotherSharedResourceUnitsorCorporateUnits)¶4Alevelofdisaggregationofcostsandrevenuesthatwillallowmanagerstounderstandthespecificdriversaffectingthebusinessandmaketargeteddecisionsforimprovement¶5Theidentificationofcontrollableversusnon-controllableitemsinordertofocusmanagers’attentiononthosedriverstheycantakeactiononandtoallowtheCEOtousethisasatoolforevaluatingfinancialperformanceanddeterminecompensation¶6Theuseofthereportsasthebasisforbudgetconstructionanditsfollow-upprocess¶7Thebreakingdownofrealcostsintoannualunitcostsbasedonthebudget,andvariances,inordertocompensateforforecastingaccuracies1CFUsare,forexample:LargeClients,Government,Business,Residential,PublicTelephony,Interconnection.2SharedResourcesUnitsincludeIT,PurchasingandLogistics,Fleet,RealEstate,AdministrationandSecurity.CorporateUnitsincludeExternal/InternalCommunications,Finance,Legal,Planning,HumanResources,RegulatoryandCorporateMarketing.¶8Identificationofthebestdriversforrevenueandcostattribution¶9Theincorporationofbenchmarksandmarketreferencesinordertopromotecosteffectiveness¶10TheimplementationofUFRshouldbecarriedoutinstagesorgenerations,determinedmainlybythesequenceofauthoritydelegationtotheUnits,inadditiontoavailabilityandqualityofthenecessarydetailedinformation.FollowingisadescriptionoftheultimatepictureofUFRcontent(Sections1-3),andtherequirementstoimplementafirstgenerationofreports(Section4).Thedocumentisdividedintothefollowingsections:1.WhatshouldbeincludedinUnitFinancialReports?2.Whichcriteriashoul...
