Driving the Enterprise
Enterprise performance management (EPM) is a slippery term that is difficult to define. It has a few aliases, such as corporate performance management (CPM) and business performance management (BPM), but what is it?
Simply put, EPM is a strategic approach to improving business performance.Gartner Inc., a research and analyst firm, defines EPM as “an umbrella term that describes the methodologies, metrics, processes, and systems used to monitor and manage the business performance of an enterprise. CPM is an important concept: It represents the strategic deployment of business intelligence solutions.”1 EPM has three fundamental ingredients:
- Metrics: Up-to-the-minute snapshots of your key performance indicators (KPIs) in a personalized, Web-based dashboard to enable fast, proactive decisions and organizational agility.
- Business intelligence (BI): Enterprise software designed to track, understand, and manage information. BI enables decision-makers to manage by exception, stay informed with alerts, and drill into data to examine the root cause of business conditions.
- Methodology: A systematic and sustainable means of tracking,measuring, and improving business performance, applied top-down throughout the enterprise.
Metrics
You wouldn’t pull weeds in the back yard while your house burns down. Prioritization is a key to success in any endeavor. But how do you determine what’s important to your organization and what’s not?
Simplicity is fundamental to EPM. It begins with the most basic questions: How is our organization doing today? Is everything running according to plan? If not, how do we get back on track? EPM can intelligently sort through the vast amount of data in your enterprise to provide simple answers to each of these questions.
To answer these questions and benefit from EPM, you need a Web-enabled dashboard or scorecard to present highly visual, easily understood metrics and KPIs. EPM dashboards are configured to zero in on the metrics that matter most to an executive or manager. Problem areas are red-flagged for the user’s immediate attention.The dashboard serves as a realtime barometer and benchmark platform of business conditions and helps put the decision-maker in control. Dashboards and scorecards are the first step in making proactive and predictive business management a reality.
Business Intelligence
Metrics and key performance indicators are critical, but sometimes don’t provide enough information. A manager will often want to know more about the business dynamics behind those data points:Why are sales up? What’s our fastest growing product? Why are inventory costs rising?
To answer those questions, the EPM dashboard lets you drill through to underlying data for analysis, comparisons, and answers. Today’s BI tools make it simple for non-technical users to run queries and generate reports that are easily shared with colleagues. You can explore details of who, what,when, where,why, and how for the insights you need to finetune processes for maximum performance. The devil is in the details, as they say, and BI provides a surefire means of flushing him out.
Critical to any EPM solution is an integrated, enterprise-wide view of data drawn from various sources –finance, sales, supply chain, and more – that would otherwise have to be cherry-picked by hand. Concealed from the user is a powerful back-end data access and integration platform that taps into those disparate systems.
Methodology
EPM typically applies a systematic methodology across management and business processes. The objective of the methodology is to monitor, measure, and improve performance in a structured environment that is common across all business units.
A methodology gives management a collaborative, top-down framework by which to align planning and execution, strategy and tactics, and business unit and enterprise objectives. Common methodologies include six sigma, balanced scorecard, activity-based costing, total quality management, economic value-add, and integrated strategic measurement (developed by EDS subsidiary A.T. Kearney).The methodology used to decide how to track and measure performance can help an organization determine which metrics are most important and define how these metrics should be measured. The use of standard definitions promotes consistency and an improved decision-making process throughout an organization.
Process Drives Performance
Before the days of sonar, GPS, and mobile phones, traveling by sea was a risky business. Transoceanic voyages could take several months and were often plagued by freak storms and weak currents. For a ship to arrive at its destination on time and with few casualties, it was imperative that those on board follow an established process. Before setting sail, sailors would chart a course based on the stars. During the journey, the course would be checked regularly and adjusted as needed.And each crewmember, from the captain to the cabin boy, played a key role and understood what his day-to-day responsibilities were.
Today, organizations are run using a similar process. The captains of the
industry, the board of directors, the executive team, and managers at all
levels plan a course and set goals. Those goals and objectives – central-region
target of 15 percent sales increase over the prior year, line efficiency
of 85 percent, 97 percent on-time delivery, 2 percent improvement in customer
satisfaction – spread throughout the entire
organization and cascade down to individual
employees in each department. Every employee
has goals and targets that drive his or her
daily activity. And the organizational course is
re-evaluated on a regular basis and adjusted as
needed.
EPM brings this process to life and closes the performance loop between the high-level strategies and daily execution.Annual plans can be mapped back to daily to-do lists.The executive-level goals can now be translated to department and functional area metrics and measures to keep the organization in alignment and drive consistency between annual plans and daily activity.
Manage Metrics
You can’t manage what you can’t measure. In order to achieve a goal, you need to measure daily activity in support of goals and track progress toward results. In order to improve performance, you need to focus on key metrics to ensure accountability and consistency. EPM allows managers to drive a process that connects metrics to goals to people.With dashboards, each employee and department can view the metrics that are important to them and manage to individual targets (i.e., sales by region, cost of sales, margin, etc.). Those targets can then be rolled up across functional areas, departments, and business lines to provide high-level views of your organization’s performance.
Dashboards provide a consistent way to track actual activity and results with benchmarks and thresholds to measure against. They also provide a quick way for each person to see how they are doing so they can improve performance, speed, and effectiveness.
Analyze
Where there is smoke, there is fire.Getting a heads-up alert that something is off track is often the difference between a minor disruption and a major problem. However, it is also critical to not only know that something is happening, but also to understand why. A successful EPM approach involves more than monitoring metrics; it also requires deeper analytic capability to perform root-cause analysis. This allows executives, managers, and owners to receive alerts in time to take action (e.g., sales in the central region are 10 percent below target).
At the same time, their teams can start to dig into the details to gain insight into the business drivers, causes, and long-term implications (e.g., salesperson performance, product and service mix, promotional effectiveness). EPM gives employees at all levels and roles the analytic capability they need to help them better understand the impact that various alerts have on business, and to allow them to act quickly to correct potential problems before they happen.
Decide
Connecting goals to metrics to people in order to monitor day-to-day activity results in business transparency and smart decisions at all levels.All employees will be armed with the information they need to drive activity and actions in support of high-level goals (e.g., launch a marketing campaign to support central region; focus on products A, B, and F).Daily execution can be tied back to top-line objectives to ensure alignment across the organization.
At the same time, new decisions can be made that drive incremental change to steer the organizational ship back on course.Most importantly, everyone can keep track of how they are doing. Closing this loop with an EPM strategy means your entire organization can make informed decisions, drive immediate action, and stay focused on what is most important.
Take Charge
EPM is both harder and easier – and more important than ever. EPM is fast emerging as a potent weapon for business in today’s take-no-prisoners environment. Only 10 percent of large enterprises had implemented solutions for corporate performance management by the end of 2002, according to Gartner. But by 2005,Gartner estimates that adoption will increase to 40 percent.2
The reasons are legion. For many companies, revenue is down and profit margins are threatened. Competition for customers is increasingly fierce. Spending needs to be reduced, and business cycles need to be tightened. In the wake of the dot-com crash, as well as Enron and other high-profile accounting scandals, companies are under more pressure than ever to satisfy discriminating investors and regulators. Companies need to make better decisions, faster.
Proactive. Predictive. Precise.
EPM solutions put you in the driver’s seat,with the ability to be:
- Proactive: Speed is the critical factor.You’re in trouble if it takes
two weeks for news of manufacturing problems at a key supplier to bubble up
and demand your attention. By then, you face the risk of a costly slowdown
in your own procurement, manufacturing, and fulfillment processes.You have
to scramble to purchase from a rival supplier – but that supplier needs
two weeks’ notice to fulfill an order. Net result: trouble.
EPM solutions are easily configured to alert you to problems in mission-critical areas as they happen. If a key supplier is hit with a labor strike, or a problem with a new product has triggered a surge in customer complaints to your support center, you don’t find out about it at a dinnertime call to your cell phone on the second Tuesday of next month.You find out immediately. It’s redflagged on top of your EPM dashboard.
- Predictive: Business is nothing if not dynamic.
Knowing what’s up and what’s down requires you to examine all of its elements: Time of year.Graphic region. Color of merchandise. Price of product. Customer demographics. R&D costs. Return rates. Labor costs. EPM minimizes the element of chance. It enables managers to easily collate, analyze, and drill into historical and external data to ascertain optimum pricing, spending, delivery, and service.Those insights are essential to predicting conditions and adapting accordingly.
- Precise: The margin for error has diminished.
A fast-paced economy captained by fickle consumers magnifies missteps. Precise execution requires precise data – quality information that is consistent across the enterprise. More than ever, one accurate, integrated view is a prerequisite for success.
EPM helps provide quality assurance for your information. Because it’s tied to standardization on one BI tool, a common enterprise data model, and a common methodology, it ensures that executives and managers throughout the enterprise work from a single version of the truth.
Strategic Synchronization
EPM is not so much a revolution as an evolution. Your organization is chock-full of data management systems.You’ve got applications for enterprise resource planning, finance, online commerce, and databases full of supplier, customer, and product information. And manufacturing, logistics, human resources (HR), and others each have their own application infrastructure.
EPM builds on those existing resources. It does not require you to rip out and replace financial budgeting, planning, and other systems that run your organization. Rather, it complements them with powerful tools for prioritization, monitoring, navigation, and analysis.EPM allows you to leverage your existing infrastructure to support enterprise-wide goal tracking and metrics management.
An EPM solution is configured to draw from various data sources and present timely information in a personalized dashboard. It gives the CEO, for instance, a one-stop shop for tracking key indicators in sales, finance, supply chain, marketing, HR, product management, and others. The intuitive dashboard resting on the BI system invites ad hoc exploration of more detailed data underlying high-level information.
Alignment, Visibility, and Collaboration
EPM enables strategic synchronization of different parts and new
visibility into the business as a whole.Marketing is aligned with
CRM analysis.
Procurement is in step with the revenue cycle.
Demand planning and manufacturing are informed by inventory and sales. Product development takes advantage
of intelligence from customer support.As a result, you can:
- Monitor and measure performance against goals across sales, finance, budgeting, planning, supply chain, customer and product management, and marketing;
- Align and optimize technologies and business processes, tactics and strategies, resources and objectives, business unit, and corporate goals;
- Focus and execute on bottom-line business drivers across divisions to enhance enterprise-wide performance;
- Collaborate and communicate atop a scalable Web-based BI framework for faster, smarter decision-making; and
- Analyze and anticipate revenue cycles, supply chain and product performance, customer behavior, and more.
Finance and HR
Budgeting and planning are crucial processes for any organization. But these days, as cash flow crests and dips like a Nasdaq chart and business grows more complex, it’s more difficult to budget and plan accurately.To boot, heightened attention to accounting practices has upped the ante for rigorous financial management. And human resources presents challenges of its own. With widely dispersed workforces and high turnover, organizations recognize a need to improve HR management, from recruitment to retirement.With its rich metrics and analytic drillthrough, EPM enables HR decision-makers to contain costs, structure compensation packages, select third-party benefit providers, optimize recruitment, and retain and develop employees.
With its methodological foundation and reach across the enterprise, EPM bolsters the ability to budget and plan with spot-on accuracy. As analyst firm IDC puts it,“Budgeting and planning should be linked to a foundational analytic approach to build the models for consistently deriving measures of cost, profit, and value. The future of budgeting and planning applications is to become part of a broader financial and business performance management suite.”3
With EPM for finance, departments and functional areas across an organization can monitor and better understand the financial impact of daily business activity.Managers can:
- Track key financial indicators from units across the business;
- Improve budgeting, planning, and forecasting through structured methodologies and common analytic framework;
- Increase revenue-cycle efficiency and optimize quote-to-payment processes;
- Build flexible what-if models through proactive, predictive analytics; and
- Connect to salesforce automation systems (SFA), CRM, and other applications for a comprehensive view of all business operations.
Conclusion
Gradually, organizations are building EPM systems based on a strategic deployment of business intelligence across the enterprise.As systems mature and companies synchronize among sales, supply chain, finance, and other systems, business performance as a whole will improve.
Customers will expect better service, operations will continue to be more streamlined, and investors will reap greater dividends from businesses across all industries.And all of this is the result of an improved process to connect top-line goals to day-to-day activity across the organization.
But a rising tide does not necessarily lift all ships.As time goes by, organizations that neglect the sound principles of EPM inevitably forsake opportunities to enhance revenue, reduce spending, build customer loyalty, and achieve competitive advantage.
As Gartner notes,“Enterprises that measure,monitor, and manage performance in a piecemeal fashion via a myriad of disparate business applications will more often than not fail to meet their strategic goals. In today’s economy, the need to address business challenges, including the transformation into an agile enterprise able to meet global business requirements,will compel many enterprises to abandon their siloed approach of the past for the more strategic and holistic corporate performance management approach."4
The integrated cross-functional discipline of EPM, connecting goals, metrics, and people in a closed-loop process, drives improved productivity, transparency, and alignment for improved performance across the enterprise. EPM is a big step toward prosperity, today and in the future.
Endnotes
