Driving the Enterprise by Chris Trayhorn, Publisher of mThink Blue Book, March 11, 2004 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 that prefers to call it CPM, defines it 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.” But why is EPM important to energy and utility organizations? First, increasing volatility and competitiveness in the industry means that energy and utility executives are adapting their corporate plans more frequently; they constantly shift their strategies to meet market, regulatory, and environmental pressures. Making rapid changes to corporate strategy is one thing but getting a large organization behind these changes is another. In this shifting environment, EPM processes and tools can ensure that operational activities are rapidly brought in line to support new strategies. This is achieved through effective translation of strategies into operational targets and metrics followed by timely reporting of operational performance against key strategies. EPM also plays a key role in achieving profitability in this industry. As commodity businesses, energy and utility companies must focus on asset optimization and operational costs and risks in order to control profit margins. EPM can provide visibility into supply chain and inventory levels for just-in-time management and to minimize costs. Performance management is also vital to those energy and utility companies that are expanding into nontraditional markets. When shaping their products and services to new and existing customers these organizations must differentiate themselves by adding customer value and achieving service excellence. This requires effective tracking of customer behavior and service issues and the monitoring of service delivery. EPM has three fundamental ingredients: Three Key Factors Metrics: Up-to-the-minute snapshots of your key performance indicators (KPIs) in a personalized, Web-based dashboard or scorecard 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 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 the most important metrics and indicators from the vast amount of data in your organization to provide focus, insight, and answers that translate to fast action. 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 real-time 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 service or 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 fine-tune processes for maximum performance. The devil is in the details, 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, and economic value-add. 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 crew member, 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. Monitor 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 scorecards and 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 down to the detail level. This allows executives, managers, and owners to receive alerts in time to take action (e.g., sales in Europe 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., economic changes, 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. Proactive. Predictive. Precise. EPM solutions put you in the driver’s seat, with the ability to be: Proactive: Speed is the critical factor. EPM solutions are easily configured to alert you to problems in mission-critical areas as they happen. You find out immediately. It’s red-flagged on top of your EPM scorecard. Predictive: Knowing what’s up and what’s down in business requires you to examine all of the elements: EPM 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. 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. It builds on your existing technology resources and infrastructure (enterprise resource planning, finance, and numerous other databases). EPM 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. 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 and product planning are informed by inventory and sales. Service development takes advantage of customer behavior and historical service information. As a result, you can: Optimize the supply chain by providing data access to suppliers, distributors, and customers to enhance performance and responsiveness (all while reducing costs); Improve capacity control by providing visibility across the organization and supply chain to enhance just-in-time management and reduce excess inventory; Minimize procurement inefficiencies by analyzing supplier performance, and driving negotiations and pricing structures; Respond quickly to market opportunities by tracking and analyzing operational data from inventory, financial, point-of-sale, and marketing; Differentiate and refine product offering by analyzing historical information and assessing product profitability on a geographic basis; Strengthen customer relationships and increase their value by tracking customer behavior and service issues, better targeting promotions, and improving service delivery; and Drive cost out of the business while increasing financial and organizational transparency. Conclusion Gradually, energy and utility organizations are building EPM systems based on the strategic deployment of business intelligence solutions across the enterprise. As systems mature and companies synchronize among sales, supply chain, finance, and other systems, business performance as a whole will improve. 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. Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.