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.