Performance Management Revolution : Business Results Through Insight and Action

THE PERFORMANCE

MANAGEMENT REVOLUTION

Business Results ThroughInsight and Action

HOWARD DRESNER

JOHN WILEY amp SONS INC

THE PERFORMANCE MANAGEMENT

REVOLUTION

THE PERFORMANCE

HOWARD DRESNER

This book is printed on acid-free paper

Published by John Wiley amp Sons Inc Hoboken New Jersey

Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data

Dresner Howard 1957-The performance management revolution business results through insight and action

Howard Dresnerp cm

Includes indexISBN 978-0-470-12483-3 (cloth)

1 Management information systems 2 Information technologymdashManagement3 PerformancemdashManagement I Title

HD30213D74 20086584prime038011mdashdc22 2007023152

Printed in the United States of America10 9 8 7 6 5 4 3 2 1

To my wife PattyAnd to my childrenmdashSarah Joshua and Ethan

ContentsForeword xiPreface xiiiAcknowledgments xxi

PART ONE A CALL TO ARMS 1Chapter 1 The Need for Change 3Whatrsquos Wrong with this Picture 5A Simple Model for a Simple Business 7

Chapter 2 A Model for a Modern ManagementSystem 9

Connecting the Cycle 10Rationalization 10Commitment 11Tracking 11Perspective 12

Problems with the Status Quo 12Toward Better Processes EPM and anEPM System 14The Management System at GreenCo 17Vision and Strategy 17Goals and Objectives 18Execution 19Evaluation 20

Chapter 3 The Role of EPM 21EPM and Planning 25Unified Planning 26Dynamic Real-Time Updates 26Multitiered Aggregation and Granularity 27Integration with Enterprise Application

and Data Sources 27Translation between Financial and

Operational Metrics 28Enhanced Creation and Management ofldquoWhat-If rdquo Models 28

viii CONTENTS

Planning as a Driver of Process Change 29EPM and Compliance 33Leveraging Compliance to Improve Performance 36How EPM Works from a Userrsquos Perspective 38Drivers of EPM Adoption 41Modeling as the Key to a SuccessfulGrowth Strategy 42

A Broad Range of Motivations 45Toward Greater Accountability 48

Chapter 4 Barriers to EPM Adoption 53A Multitude of EPM Approaches 53One Size Fits All 54A Thousand Flowers Bloom 54The Middle Ages 55Other Bad Behaviors 55Utopia 56

Current State of EPM Tools and Technologies 57

PART TWO PREPARING FOR BATTLE 61Chapter 5 Draw an Accountability Map 63Using an Accountability Map as a Consensus-Building Tool 66

Chapter 6 Achieve Information Democracy 73Chapter 7 Build an EPM Center of Excellence 78Why You Need a Center of Excellence 78First Steps 81Roles and Responsibilities 82Reporting Structure 83Required Skills 84Funding 85Tasks 86Sustaining a Center 87Relating to Other Initiatives 87Itrsquos Worth It 88

Chapter 8 Standardize and Consolidate EPM Tools 93Standardization 94Consolidation 95

Chapter 9 Deploy a EPM System 98EPM System Components 99EPM Applications 101

CONTENTS ix

Financial Management 101Planning 103Modeling 106Dashboards and Scorecards 108Reporting and Analysis 119

BI Platform 128EPM Environment 132Common Services 133The Power of Master Data Management 134The Future of EPM Systems 138

Chapter 10 Comprehensive View ofPerformance Management 141

Tenet 1 Finds Truth in Numbers 141Tenet 2 Sets Accurate Expectations 143Tenet 3 Anticipates Results 144Tenet 4 Plans with Impact 145Tenet 5 Achieves On-Demand Visibility 147Tenet 6 Delivers Continuous PerformanceImprovement 148Tenet 7 Reports with Confidence 149Tenet 8 Execute with Conviction 150Tenet 9 Stands up to Scrutiny 151

PART THREE LET THE REVOLUTIONBEGIN 157Chapter 11 Determine Your Immediate Priorities 159Chapter 12 A Model EPM Methodology 177

Follow a Structured Methodology 179Envision an EPM Solution 180Implementation 181Analyze and Plan 182EPM Solution Selection 184Design 186Build 186Test 187Rollout 188Review 190Make Changes 190

Education 191Change Management 191

x CONTENTS

Ensure a Supportive Organizational Environment 192Ensure Sufficient Funding and Resources 192Obtain Employee Buy-In 193Advice from the Trenches 194Prepare for Some (Pleasant) Surprises 195

Chapter 13 Measuring Outcomes 198Provide Feedback 200Align Personal and Corporate Objectives 200Combine EPM and Enterprise Risk Management 201Anticipate Behaviors 202Reward the Right Behaviors 202Define Metrics that Drive the Right Behaviors 203

Afterword 204Appendix 209Glossary 211

Foreword

Some revolutionsmdashlike the American Revolutionmdasharebloody noisy and everyone nearby knows about themOthersmdashlike the Industrial Revolutionmdashare quieterslower and many people at the time may not even real-ize theyrsquore happening In the long run though both kindsof revolutions lead to profound change

Today I believe we are in the early stages of one ofthe quiet revolutions At the heart of this revolution is anincrease in human freedom in business

Key enablers for this revolution are the increasing avail-ability of information and new technology that helps peopleact on it When people have access to more informationthey can make more sensible decisions They donrsquot have towait for orders from someone above them in a hierarchywho supposedly knows more than they do And when theyhave the freedom to make decisions and the ability to takeaction for themselves they are often more highly motivatedmore creative and more flexible

In our increasingly knowledge-based and innovation-driven economy these benefits of decentralized decisionmakingmdashmotivation creativity and flexibilitymdashare oftenthe critical factors in business success And thatrsquos why I be-lieve this increase in human freedom in business will spreadthroughout many parts of our economy In the long run

xii FOREWORD

I think it will be as important a change for business as thechange to democracies was for governments

But what does this really mean for youOf all the businesspeople I know Howard Dresner has

some of the deepest insights into the practical implicationsof this revolution In the eloquently written book yoursquoreabout to read yoursquoll see how Dresnerrsquos concept of Infor-mation Democracy has profound implications for the wayyour company can operate Yoursquoll see how a new generationof performance management software enables InformationDemocracy And yoursquoll see how all this leads to a new wayof managing companies in the first place empowered in-dividuals at all levels working collaboratively toward sharedobjectives with full knowledge of how their own actionsaffect performance

Will everything be different after this revolution Noof course not When a country changes from a kingdom toa democracy many aspects of daily life donrsquot change at allBut there are profound changes in some aspects of politicallife where power comes from how it is exercised and whatthe countryrsquos leaders try to do

In the same way many aspects of daily life in businesswonrsquot change in the business revolution wersquore now enter-ing But there will be profound changes in how we useinformation how decisions are made and in some of ourbasic assumptions about management

This book provides a compelling and insightful de-scription of what these changes will really mean for youand how you can take advantage of them to improve yourbusiness performance

Thomas W MalonePatrick J McGovern Professor of ManagementDirector Center for Collective IntelligenceSloan School of ManagementMassachusetts Institute of Technology

Preface

This book is about the coming revolution in performancemanagement in global enterprises

Throughout human history revolutions have led to rad-ical changes in the governments economic systems so-cial structures and even the cultural values of nation statesThe American Revolution of the late 1700s for exampleachieved the political separation of the 13 colonies in NorthAmerica from the British Empire and led to a new form ofdemocracy with respect for individual rights and propertyat its center

The ancient Greeks took a rather dim view of revolu-tion believing it to be the result of an undesirable break-down in social values and structures It wasnrsquot until the Re-naissance that revolution acquired a more positive imagecoming to be viewed as a sometimes necessary means ofachieving freedom or advancing a cause

Regardless of whether their outcomes are positive ornegative successful revolutions always result in fundamentaland often irreversible changes in the established orderThe coming revolution in performance managementwill be no different resulting in fundamental and verylikely irreversible changes in how organizations approachorganizing and providing access to information planning

xiv PREFACE

and implementing performance management initiativesand using technology to support these activities

Perhaps the most dramatic outcome of the performancemanagement revolution will be the ascendancy of a newmanagement system for the global enterprise in the 21st

century This modern management system will consist ofpeople processes and technologies unified and optimizedto achieve higher levels of performance and accountabilityIt will empower individuals to make decisions and take ac-tion on their own define management processes to supportincreasingly decentralized organizational structures and in-clude technology that supports people and processes dayto day while providing a platform for long-term businessgrowth

Central to this modern management system is a way oforganizing and providing access to information I call Infor-mation Democracy Information Democracy is a principleof equality that demands actionable insight for all When itis achieved everyone in even the largest organizations has allthe information they need to make decisions without hav-ing to rely on someone from Information Technology (IT)to give it to them and without being filtered or censoredby management At the heart of Information Democracyis the ability of everyone to access data turn it into knowl-edge and insight through analysis and share that insightwith others

Anyone who has ever worked in a large organizationwill recognize what Irsquove just described as a radical departurefrom how information is usedmdashand sometimes abusedmdashinorganizations today Too often information is locked awayin complex systems accessible only to experts and reservedfor an elite few making it hard for the people who are pri-marily responsible for managing performance in a businessday to day to get their jobs done

Revolutions are typically sparked by prolonged and deepdissatisfaction with the status quo As I travel the world

PREFACE xv

talking with executives and managers in organizations aboutperformance management this is often what I hear aboutthe state of information in organizations today

ldquoIrsquom sick and tired of not having the right informationto do my job and having to guess at what it isrdquo

ldquoIrsquom sick and tired of multiple inconsistent answers toa single questionrdquo

ldquoIrsquom sick and tired of people hoarding informationrdquoldquoIrsquom sick and tired of our inability to act quickly and

decisively when business conditions changerdquoldquoIrsquom sick and tired of complex systems and tools that

are virtually impossible to userdquoldquoIrsquom sick and tired of spending more time in meetings

arguing over the data than deciding what to do about itrdquoThese and similar complaints amount to nothing less

than an indictment of the way organizations treat informa-tion And as a student of historymdashand a long-time tech-nology revolutionarymdashI am convinced that we are on thebrink of a long-overdue revolution

As for the desired outcome of this revolution I wouldput it this way We seek common business truth and un-derstanding across the entire organization and for all userswith the objective of aligning everyone with the mission ofthe enterprise in a meaningful way

Irsquove addressed the questions of ldquowhyrdquo and ldquowhatrdquo butthere remains the question of ldquowhy nowrdquo What is it aboutthe current business climate that has created a sense of ur-gency about solving problems that have existed for decades

Here is what I believe Just a few years into the 21st cen-tury the world already seems a very different place US andglobal populations are growingmdashand growing increasinglydiverse dynamic and interdependent Technology and theInternet are permanently blurringmdashand often dissolvingmdashgeographic economic and cultural borders And globalgeopolitical tensions are raising the stakes for all nationsto live together peacefully and productively

xvi PREFACE

While these extraordinary factors have profound impli-cations for our daily lives their impact on business is equallyprofound Globalization and the hypercompetition it fos-ters technology with all its promises and challenges andgeopolitical uncertainties that keep us in a permanent stateof anxiety about external forces over which we have nocontrol combine to create a harsh and unforgiving businessclimate And thanks to the ethical lapses of a few high-profile corporations and executives in the early 2000s reg-ulatory scrutiny of financial and accounting practices is atan all-time high

In this new century many organizations struggle tomeetmdashlet alone anticipatemdashtheir stakeholdersrsquo objectivesAt the same time they are under increasing pressure tomaintain strong corporate controls and offer greater degreesof transparency Misaligned strategies outdated plans andunreliable forecasts inhibit success Many businesses dependon performance measures that lack consistency and do notreflect structural business drivers Most cannot reliably un-derstand the past in time to make decisions about the future

As a result executives and managers are being asked toassimilate vast amounts of information and adopt new man-agement techniques such as Economic Value Added (EVA)Balanced Scorecard virtual close event-driven planningSix Sigma and rolling forecasts to name just a few Theyare being asked to incorporate evolving legal reporting anddisclosure regulations constantly revise plans participatein extended business models that include partners in otherorganizations and leverage investments in existing businesssystems

The situation is further compounded by the presence ofmultiple stand-alone systems in most organizationsmdashoftendistributed across different countries of operationmdashthat failto present a unified picture of the business support collab-oration between teams or drive the execution of frequentlyrevised plans

PREFACE xvii

How can organizations reconcile the enormous pres-sures they face with the increasingly difficult task of gener-ating the growth in stakeholder value that these same marketconditions offer A large part of the answer lies in adoptingthe right tools for the job And among the right tools isEnterprise Performance Management (EPM)

EPM is a relatively new category of enterprise soft-ware that replaces the tools organizations use today to man-age performancemdashoften spreadsheets and static reportsmdashwith more flexible scalable and dynamic tools EPM goesbeyond the specific functions automated by transactionalsystemsmdashaccounting billings bookings supply chain salesforce automation and call centers Consisting of a consol-idation planning and analytics platform and financial andbusiness applications EPM uses data from the transactionalsystems to increase visibility drive forecasts predict resultsmanage financial and operational performance and reporton outcomes both internally and externally

Especially as part of a modern management system forthe global enterprisemdashadding the technology piece to thepeople processes and technology triadmdashEPM gives exec-utives managers and knowledge workers deep insight intotheir businesses today and tools for improving performancetomorrow With EPM companies can actively manage theirsuccess

And while the desire for better solutions to activelymanage performance is the primary driver of EPM it turnsout that EPM has other benefits as well

For example better access to better qualityinformationmdasha hallmark of EPMmdashenables organiza-tions to move away from using purely financial metrics forgauging performance to a broader range of value-based andbalanced indicator approaches These broader measure-ments are especially effective at linking strategic objectivesto operational drivers and managing the discrepancybetween the market and book value of businesses Many

xviii PREFACE

organizations are having success using these techniquesespecially as they mature and build a critical mass ofexperiences and well-trained talent

EPM also adds value to organizationsrsquo existing transac-tional systems by unlocking information trapped in themand making it available to decision makers Transactionalsystems increase efficiency by streamlining operational pro-cesses and generating large quantities of valuable data butmany organizations find themselves with multiple systemsdue to acquisitions mergers or the autonomous nature oftheir business units or geographies Often these systems arenot integrated with one another which makes it difficultto gain access and share valuable data

Support for increasingly decentralized organizationalstructures is another added value of EPM More organiza-tions today are adopting strategies that involve using sharedservices outsourcing or a network of business partners toextend their capabilities These strategies require more flex-ible ways of organizing and managing processes that canadapt to an open and fluid organizational model

As it becomes clear that EPM can address these andmany other issues challenging organizations interest in thecategory has expanded But organizations can be slow tochange That is why a revolution in performance manage-ment is brewing and why in my view it is necessary It isbrewing in finance departments business units and execu-tive suites It is brewing in businesses in all industries It isbrewing in geographies all over the world And it canrsquot bestopped

Still revolution is hard work I know this from expe-rience I spent 13 years at Gartner the worldrsquos largest ITadvisory company and have been Chief Strategy Officerat Hyperion As a research fellow and a lead analyst forBusiness Intelligence (BI) while at Gartner and even beforethen I had a chance to be part ofmdashand even instigatemdashsome exciting technology revolutions of my own

PREFACE xix

In 1989 for example I startedmdashsome might sayincitedmdashthe BI revolution with the premise that all usershave a fundamental right to access information without thehelp of IT Just a few years later in 1993 I expanded thatpremise into the concept of Information Democracy Sincethen the industry has made modest progress toward achiev-ing Information Democracy but wersquore not there yet andfrankly we have a long way to go

And so in this book I offer executives and managers in-sight into what my fellow revolutionaries and I have learnedin our push for Information Democracy and other essentialcomponents of more effective performance managementMy hope is that if you havenrsquot already joined the perfor-mance management revolution you will after reading thisbook

Remember though revolution is not the endgameInformation Democracy isnrsquot even the endgame Both aremeans to an endmdashthe realization of a new managementsystem for global enterprises in the 21st centurymdashone thatempowers individuals and puts organizations on a path tobetter performance through insight and action

Let the revolution begin

Howard DresnerMay 2007

Acknowledgments

I am grateful to many colleagues and friends who con-tributed ideas information and facts to this book

I especially want to acknowledge my colleagues at Hy-perion whose knowledge and expertise were invaluable inwriting this book Ron Dimon deserves special thanks forhis tireless work in getting this project off the ground andhis many contributions along the way I would also like tothank John Kopcke Rick Cadman John OrsquoRourke FrankBuytendijk and Phyllis Davidson for their ideas and contri-butions Kathy Horton Toby Hatch and the other DomainLeads for their contribution to the chapter that includes anEPM self-assessment and Godfrey Sullivan for his leader-ship

My gratitude goes to Dr Raef Lawson for his researchand content on creating Centers of Excellence

I benefited from the project management writing andediting skills of Susan Thomas Her participation madewriting this book easier and more fun than I could haveimagined

I owe a debt to Tom Malone certainly for the forewordto this book but also for his keen insights and groundbreak-ing work in demonstrating how technology can make ourwork and personal lives richer and more productive

xxii ACKNOWLEDGMENTS

I want to thank my agent Susan Barry for her instinctsabout how to package my ideas and whose efforts quicklyled to a publishing contract My editor Tim Burgard of-fered valuable feedback and encouragement along the way

All the companies mentioned in this book have helpedbring its concepts to life Named and unnamed their par-ticipation was critical I especially want to thank DanielM Morales of Bank of America Spencer Taft and NeilJohnston of Cox Enterprises and Michael Benjamin ofPearson

To my wife Patty my daughter Sarah and my sonsJoshua and Ethan thank you for your love and unwaveringsupport They mean everything to me

REVOLUTION

Part One|

A CALL TO ARMS

The Need for Change

In his 2004 book The Future of Work Thomas W Malonethe Patrick J McGovern professor of management at theMIT Sloan School of Management and the author of theforeword to this book wrote about a dramatic shift that isoccurring in how businesses are organized According toMalone the first and second stages of the shift are alreadymostly complete as large centralized corporate hierarchieshave come to replace small informally organized businessesover the last 200 years

There is a third stage howevermdashone in which cor-porate hierarchies evolve to more decentralized businessnetworksmdashand itrsquos just beginning In this stage enabled bytechnologies that drive down the cost of communicationslarge corporations actually shrink in size through a combi-nation of outsourcing and vertical disintegration Throughoutsourcing and vertical disintegration big companies off-load work to contractors and create networks of separatebut interrelated businesses These business networks per-form much of the work that previously has been done insidelarge organizations

Malone often cites eBay as a prime example of a com-pany that operates as a business network Today several hun-dred thousand eBay sellers around the world make theirfull-time living on eBay If these people were employees

4 THE NEED FOR CHANGE

of eBay the company would be one of the largest globalemployers and retailers in the world But eBay sellers areindependent business people

This way of organizing delivers huge benefits to eBaywhich can grow bigger and faster with fewer resources thantraditionally organized companies But it also creates newand interesting challenges Because eBay has less controlover its direct business activity than many other compa-nies it must take into account opinions from both sellersand buyers in the eBay network before making many of itsdecisions

This increase in what Malone calls human freedom inbusinessmdashwhere employees suppliers partners contrac-tors and even customers get to have a say in how organi-zations are runmdashis just one of the many changes that resultas businesses decentralize

But even before the emergence of radical new businessstructures such as the one exemplified by eBay the trend to-ward decentralization in business gave rise to changes in theroles employees play in organizationsmdashespecially employ-ees whose main contributions depend on the productiveuse of information instead of manual labor

Nearly 50 years ago Peter Drucker coined the termldquoknowledge workerrdquo to describe this category of employeeBack then Drucker predicted that knowledge workerswould grow as a proportion of the total workforce becom-ing its ldquocenter of gravityrdquo and forever changing the natureof organizations management and work

Drucker was right Today knowledge workers are anincreasingly large percentage of the global workforce espe-cially in developed countries Across all industries knowl-edge workers represent at least 25 percent of the workforceand in financial services health care high tech and mediathe percentage is even higher

And today knowledge workers perform many of the keyfrontline activities in organizations In so doing they have

Whatrsquos Wrong with This Picture 5

become primarily responsible for driving day-to-day per-formance in businessmdashfulfilling another Drucker prophecyIn his 1966 book The Effective Executive Drucker wroteldquoEvery knowledge worker in modern organization is anlsquoexecutiversquo if by virtue of his position or knowledge he isresponsible for a contribution that materially affects the ca-pacity of the organization to perform and to obtain resultsrdquo

WHATrsquoS WRONG WITH THIS PICTURE

You would think that with more than 50 years to thinkabout itmdasha time span in which knowledge workers evolvedinto the key managers of day-to-day performance in orga-nizations and technology has enabled access to informationand better faster cheaper communicationmdashorganizationswould have figured out how to provide their people withthe information and tools they need to do their jobs

Yet in most organizations today people waste countlesshours searching for the data they needmdasheven when it residesin their own companies Countless more hours are wastedtrying to coordinate their work with others The fact thatthe volume of corporate emailmdashthe communication toolof choice in businessmdashhas risen to 35 billion a day from just10 billion a day five years ago is testimony to the difficultyof this task And just imagine how many of those emailsinclude spreadsheet attachments

There is something wrong with a picture of modernbusiness that shows people in critical positions strugglingto get the information they need to do their jobs Butthere is an explanation for it Many organizations todayare still coming to terms with the changes in their busi-nesses so eloquently described by experts such as ThomasMalone Peter Drucker and others And they are still us-ing models of management designed for large central-ized organizations and using management systemsmdashpeople

processes and technologymdashthat support these outdatedmodels

Organizationsrsquo technology investments reflect this dis-connect between modern organizational structures and out-dated management models Here is one example

Over the past two decades companies have poured hun-dreds of millions of dollars into transactional systems espe-cially enterprise resource management (ERP) systems Asa result most businesses today can take orders fill ordersgenerate invoices populate a general ledger and so on withgreat efficiencymdashall of which are critical to running a largebusiness

But managing a large business is an entirely different en-deavor While it may start with the same data at the samelevel of granularity as running a business managing a busi-ness requires access to value-added informationmdashraw datathat has been transformed analyzed and presented to in-dividuals who use a variety of management processes ap-propriate to their organizations to make decisions and takeactions from a variety of perspectives Managing a businessis by definition a dynamic activity requiring flexible pro-cesses and tools that are different for every organization andthat can adapt to change over time

But because the purpose of ERP systems is to performand store vast amounts of mission-critical transactions theyare inflexiblemdashby design And ERP systems automate pro-cesses that are inflexiblemdashby design In fact once thesesystems are in place and working well organizations willdo just about anythingmdashincluding changing the way peo-ple workmdashnot to have to change them And while theygenerate large amounts of valuable data most organizationshave many ERP systemsmdasha dozen or moremdashthat are notintegrated

To cite just one example A multibillion dollar Euro-pean provider of retail and wholesale services with 120business units across seven divisions and operations in seven

A Simple Model for a Simple Business 7

countries has more than 20 ERP or accounting systemsIn companies such as thismdashtypical of businesses its size andscopemdashreconciling so many different views of reality is achallengemdasha challenge by the way the company has mas-tered

Viewed this way itrsquos clear that whatrsquos needed for or-ganizations to manage performance is the mirror oppositeof what transactional systems deliver flexibility They needflexible processes and technologies because managing per-formance today is a dynamic activity full of complexity andnuance

Bottom line ERP systems help organizations run theirbusiness by standardizing and automating high-volumetransactional business processes across an organization Butthey do little or nothing to help them manage their business

A SIMPLE MODEL FOR ASIMPLE BUSINESS

To gain greater insight into what is needed to manage abusiness letrsquos consider the example of a single-proprietorcandy store

In a single-proprietor candy store the owner likely doeseverything associated with managing the business includ-ing front room and back office functions For example heobserves firsthand the makeup of his customer base and theirbuying patterns He knows which customers prefer whichproducts and how often they buy them He knows whenhe is serving a repeat customer or a new one He knowswhich of his products are more popular with his customersthan others are And he knows when customers are askingfor products he doesnrsquot carry

Because itrsquos a business managed by one person infor-mation can be quickly analyzed and incorporated back into

strategy and decision making He may decide that he needsto increase his inventory of some products and decreaseothers He may decide to start carrying new products forwhich there is demand And after having made decisionslike these he can evaluate whether they were good or badones and make midcourse corrections if necessary in a veryshort period of time The activities and processes requiredto run his business are simple and straightforward and sincethe owner is the only person who uses them they donrsquotneed to be documented

But what happens if the owner hires a counter clerk ora bookkeeper so he can spend less time in the store Ordecides to open another candy store in the next town

As soon as more than one person works in his busi-ness the owner must formally define possibly modify anddefinitely document critical management activities and pro-cesses He must do this because he can no longer person-ally observe and take part in everything that goes on in hisbusiness He must do this because he wants to make surehis business is managed in the right way even when he isnot around For all its elegance and simplicity the single-proprietor candy store model just doesnrsquot scale

However there are lessons to be learned here that applyto all businesses of all sizes And regardless of scale we mustall strive to attain the customer intimacy and business agilityof the single-proprietor candy store

A Model for a ModernManagement System

In theory there is no difference in the activities requiredto manage a single-proprietor candy store and those re-quired to manage a business of 100 1000 or even 100000employees Regardless of the size of the business man-aging it requires four basic activities coming together inwhat I call the management cycle vision and strategygoal and objective setting execution and evaluation (seeExhibit 21)

Ideally the activities in this management cycle shouldsupport the purpose of the organization the means ofachieving it and its ability to adapt But in actual practicemdashand especially as businesses grow in sizemdashthese activitiescan quickly become unsynchronized and end up in con-flict with one another For example in many large orga-nizations functional departments and geographic regionsdisregard corporate strategy in favor of local and parochialconsiderations And oftentimes strategy becomes discon-nected from reality as those who create the strategy areremoved from the customers and markets they supposedlyserve

10 A MODERN MANAGEMENT SYSTEM

EXHIBIT 21 The Management Cycle

CONNECTING THE CYCLE

Ideally these activities would not exist in isolation from eachother and would not occur sequentially Instead they wouldhave well-defined processes to connect them and supportthe flow of work between them And they would unfold it-eratively creating cycles within the cycle The ldquoconnectiverdquoprocesses necessary to make this possible are rationalizationcommitment tracking and perspective (see Exhibit 22)

Rationalization

Once vision and strategy have been established an orga-nization should go through a process of rationalization toensure that the strategy is attainable and realistic before set-ting goals Managers might ask ldquoDoes the organization haveample resources (capital expertise and so on) to achieve thestrategy Is the market nascent supply driven or demanddriven Can the organization develop the market or over-come current perceptions to compete successfullyrdquo Therewill be a healthy amount of debate and negotiation in thisenterprisewide conversation Once a rationalization process

Connecting the Cycle 11

EXHIBIT 22 The Management Cycle and Connective Processes

is complete an organization can set goals and objectiveswith confidence knowing that they are achievable and sup-port the organizationrsquos vision and strategy

Commitment

Before an organization executes a strategy it should col-lectively commit to specific areas of focus and deliverablesThe commitment process documents the investments an or-ganization will make (capital people materials programsand so on) and the expected outcomes including revenueexpenses profit and market share Once the commitmentprocess is complete an organization can begin executing

Tracking

Tracking is a process that should be used during executionto provide an operational feedback loop Tracking progressagainst stated goals and objectives enables an organizationto constantly fine tune to ensure optimal performance

Perspective

Perspective is a process an organization should adopt duringthe evaluation activity to ensure it has the most completeview possible of what worked and what didnrsquot and whatmust be changed in the future to improve performance Toborrow a phrase from Italian filmmaker Sergio Leone per-spective provides insight into ldquothe good the bad and theuglyrdquo Managers might ask ldquoWhat synergies in our businesshelped us achieve success Were there areas of misalign-ment that caused problems Are there best practices thatworked in one area of our business that we should repli-cate across the entire organizationrdquo An organization canuse conclusions drawn during this phase to modify strat-egy to better map to market customer and organizationalrealities

The four management cycle activitiesmdashvision and strat-egy goal and objective setting execution and evaluationmdashcombined with these connective processes form the basis ofa modern management system

PROBLEMS WITH THE STATUS QUO

All organizations have a management system it would beimpossible to function without one However many or-ganizationsrsquo management systems are deeply flawed andthe problem often is that the connective processes betweenmanagement activities are weak inconsistent unsynchro-nized or in some cases completely absent

The problem usually begins with vision and strategyIn many organizations senior management defines a strat-egy to support its vision based on past experience or gutfeelingmdashor even just a strong desire to do things a certainwaymdashwithout rationalizing or fully vetting it When therationalization process is flawed or nonexistent every other

Problems with the Status Quo 13

activity in the management cycle is doomed to failure as theimpact of a poorly thought-out strategy ripples throughoutthe organization

For example if the strategy is flawed goals and objec-tives may not be attainable If goals and objectives arenrsquotattainable those attempting to achieve them either aban-don them for fear of failure or execute against a differentstrategy they believe will yield better results

Another area where disconnects are common is betweenstrategy execution and tracking The strategy may be soundand execution crisp but if the organization does not haveaccess to meaningful information in the tracking process itmay be impossible to determine whether actions are result-ing in the desired outcomes and if not what must be doneto correct the problems Even the best information withoutcontext is useless

This kind of disconnect is common in companies thatrely on Business Intelligence (BI) alone to manage per-formance BI is knowledge gained through the access andanalysis of business information BI tools and technologiesinclude query and reporting OLAP (online analytical pro-cessing) data mining and advanced analytics end-user toolsfor ad hoc query and analysis enterprise-class query analysisand reporting including dashboards for performance mon-itoring and production reporting against enterprise datasources

BI is of great value in managing performance but haslimitations in that its main purpose is to provide informationabout what happened and not much else And too oftenthat information lacks context

As an analogy think of a soccer game and the role of ascoreboard A scoreboard simply keeps track of the scoreIt doesnrsquot tell spectators anything about the play action thatled to the teams achieving that score It doesnrsquot provide anyinformation to the coach of the trailing team that wouldhelp it catch up and overtake its opponent It doesnrsquot tell

individual players what they can do to play better for theremainder of the game

BI is the scoreboard of the enterprise and nothing moreIt doesnrsquot facilitate the business or improve it in any way Itdoes not provide context It simply tells the score

Not only is this partially useful without the proper con-text it might be telling the score of something that has noth-ing at all to do with the ability of a business to achieve itsgoals And even so organizations need more than the scoreof the game to figure out what to do next

For example they need to know what they can do toimprove their business This requires more than reportingand analysis it also takes management and managementrequires planning which is beyond the scope of BI

Organizations also need to establish repeatability bymoving from focusing on analytic processes to focusing onbusiness processes This requires an understanding of all thecomplexities of the business which is also beyond the scopeof BI

Organizations also must foster accountability which canonly be achieved if they and the individuals who workin them know how to measure performance Account-ability requires documenting assumptions about the busi-ness understanding what drives it and making investmentsaccordinglymdashanother capability beyond the scope of BI

TOWARD BETTER PROCESSES EPMAND AN EPM SYSTEM

Whatrsquos needed beyond transactional systems and BI aremore capable tools and technologies that are part of andsupport a modern management system for the global en-terprise in the 21st century The tools and technologies mustempower individuals in organizations through Information

Toward Better Processes EPM and an EPM System 15

Democracy enable processes that support increasingly de-centralized organizational structures and provide a platformfor growth

This is where Enterprise Performance Management(EPM) technology comes in EPM technology is enterprisesoftware with applications and tools that drive managementactivities and processes forward with the agility to supporttheir inherently dynamic nature

EPM does this by fortifying the management cy-cle through support of the connective processesmdashratio-nalization commitment tracking and perspectivemdashwithenterprise-class modeling planning BI and analyticsmdashfully integrated into a single system (see Exhibit 23)

Having these capabilities integrated into an EPM systemis important even though a number of EPM solutions todayare packaged as integrated suites The distinction is an all-important detail Herersquos why

A suite is a collection of programsmdashtypically ap-plications and some programming software of relatedfunctionalitymdashthat share a more or less common user

EXHIBIT 23 Activities and Connective Processes Supported by anEPM System

interface and have some capability to share data The ap-plications in most suites start out as stand-alone productsand are often integrated and placed under a common userinterface at a later date

In contrast a system is a group of interacting inter-related and interdependent elements that together form aunified whole

As an analogy consider music before iPod Music loverslikely had a number of incompatible devices for listeningto music each of which had its own interface The musicthey purchased came in different formats and even if itwas downloadable was probably obtained from a variety ofsites

With iPod music lovers can obtain everything they needto listen to whatever audio programmingmdashand more re-cently also movies and television programmingmdashthey de-sire by purchasing iPod and some accessories and by down-loading from the iTunes store In the iPod ldquosystemrdquo iTunescan become the single source for programming and iPodthe single device for accessing programming With a com-puter music lovers can even create their own programmingstore it on iTunes and access it using their iPod One en-vironment one interface fully integrated for ease ofuse and deployment

Organizations gain similar advantages when EPM is in-tegrated into a system They gain actionable insight andthe ability to link strategies to plans continuously monitorexecution against goals and drive higher levels of perfor-mance They can share goals and progress with individualsresponsible for achieving them And individuals can shareinsight and information with management and their peersto ensure alignment All through one environment oneinterface fully integrated for ease of use and deployment

An EPM system is a logical next step for organiza-tions seeking more advanced and effective performancemanagement tools This is because applications and tools

The Management System at GreenCo 17

that help people perform management activities and sup-port management processes are good but they are not goodenough All of these processes generate data that must beshared and all of these processes are iterative and so theymust be linked Therefore EPM must be integrated into aunified system that includes a user environment throughwhich people access applications tools and the infor-mation they generate and common services to ensure acommon repository integration and data sharing and userprovisioning

In addition to tools for business users the system mustinclude tools for IT people who deploy and manage it

To sum up the role of an EPM system in a modernmanagement system is to help automate the managerial ac-tivities and processes to function as the connective fabricand to make the complete cycle more effective consistentand reliable in supporting business performance

THE MANAGEMENT SYSTEMAT GREENCO

For a model view of a modern management system sup-ported by an EPM system letrsquos look at how the activitiesand processes that define the system play out at a hypothet-ical company GreenCo

Vision and Strategy

In the vision and strategy stage top management literallydetermines the purpose of the enterprise and the high-levelstrategies the organization will adopt to realize its vision Inour example the top management of GreenCo wants tochange the way people live in the 21st century by helpingthem be more environmentally responsible

To realize this vision GreenCo intends to build a lineof ldquogreenrdquo products for homeowners such as alternativeelectricity generation devices including photovoltaic panelsand wind-driven power generators

Rationalization with ModelingBefore GreenCo can reasonably set goals and objectives forthis line of products it must create models to test whetherit is even feasible to do so

Models are the rules of business and if GreenCo is goingto build and sell something it needs rules for funding de-signing manufacturing marketing selling delivering andsupporting it and so on Models will tell GreenCo howit must do all of that to be successful And in the case ofGreenCo politics play a rolemdashwhat if GreenCo doesnrsquotconsider the impact of various environmental legislative ini-tiatives on its business How would these various initiativesaffect the companyrsquos ability to sell products

Once finalized rules determined through modelingneed to be documented And if they change the new rulesneed to be propagated throughout the organization so ev-eryone knows theyrsquove changed

Goals and Objectives

Once GreenCo is satisfied that its strategy is feasible it mustorganize and task its employees to deliver on the strategyGreenCo might start by setting a goal of 10 percent penetra-tion of the addressable market with a series of efficient low-cost units for the average homeowner Specific goals andobjectives will touch multiple functions including RampDmanufacturing sales and marketing

Commitment with PlanningPlanning is the process that connects goals and objec-tives to execution by operationalizing them and setting

specific numerical goals for each functions For exampleGreenCorsquos sales and marketing must develop campaigns tocreate awareness and generate sales leads Based on resourcesand channel capacity specific sales targets must be set andexpense revenue and profit plans developed Once thisdemand planning has been completed manufacturing andsupply chain planning must be accomplishedmdashwith specificmaterials and production and distribution plans developedAnd finally RampD must plan to deliver a series of increas-ingly advanced devices to satisfy changing or growing mar-ket demands should all the other plans prove out

Put another way plans are what an organization commitsto do in support of its objectives Plans are the system ofrecord of assumptions about its business and of what it hasdecided it is actually going to do Without plans there areno commitments And without commitments there is noaccountability

Execution

This is the phase where GreenCo will test and realize itsgoals and objectives This is also where key learnings takeplace and where GreenCo can test its assumptions aboutthe market its own abilities and competition and so on

Tracking with Reporting and MonitoringIn between execution and evaluation activities are the mea-surement monitoring and reporting processes that will tellGreenCo whether it is attaining the expected outcomesbased on the plan of record for the business If GreenCodiscovers that something is not working the company canmake decisions to reallocate resources and alter tactics tobetter execute the plan

These processes sit on top of the operational datawhether the data is in a data warehouse or not and are

a formal way of observing a business Remember the candystore analogy In the single-proprietor candy store all of thisobservation is done by one person with his own eyes In thelarge modern organization these observations are made bymany people and many systems including transactional sys-tems such as ERP When made by transactional systems theobservations consist of data locked away in those systemsReporting applications tap into this data in a useful way

Evaluation

Here we take stock and determine whether we haveachieved our goals Were GreenCorsquos strategy and abilityto execute up to par Which aspects of GreenCorsquos strategyworked and which did not Where did the company ex-perience operational issues Which processes were most orleast efficient

Perspective with AnalyticsOnce GreenCo has evaluated its performance and deter-mined where it was successful and unsuccessful it mustbegin an analytical process to study the results in a more in-depth fashion to determine causal factors changes to theenvironment that were not expected and possible futureoutcomes Based on the outcome of this process GreenComust feed its new understanding of the market and its ca-pabilities back into the vision and strategy activity to betteroptimize it and align it with the real world

All of these management activities and processes oc-cur simultaneously and not necessarily in this order Eachpiece informs the next iteration is ongoing and many sub-processes support each step But this simplified model isuseful in clarifying the key components of a managementsystem no matter the size or focus of an organization

The Role of EPM

Enterprise Performance Management is a relatively newterm that refers to a processcentric holistic approach toimproving the capability of a business to gain insight andmanage its performance at all levels

The seeds of EPM were present 20 years ago in Deci-sion Support Systems (DSS) which consisted of businessanalytics presented in a format appropriate for use by exec-utives in making decisions The strengths of DSS were alsoits weaknessesmdashthese tools were created by highly trainedusers for use primarily by a select group of elite users andlimited to large enterprises

DSS solutions also were limited to expensive and com-plex statistical analysis or standard reporting packagesmdashtypically on 132-column green-bar paper Spreadsheetswere becoming more popular but were not connected tocorporate data To analyze corporate data users had to re-enter that data from hardcopy reports into spreadsheetsmdashatime-consuming and error-prone process Executive Infor-mation systems (EIS) were on the horizon promising todeliver ldquohigh touchrdquo applications for executives to analyzedata

Since the days when ldquocut-and-pasterdquo was cutting edgebusiness analytics have made huge strides evolving intowhat we now know as BI Today BI tools and technologies

22 THE ROLE OF EPM

have become more usable functional and scalable Standar-dization around Web interfaces and Data ManipulationLanguages (DML) have simplified their implementation anduse

However in spite of this the overall penetration of BIremains relatively low Even in well-established markets likeNorth America and Western Europe less than one quarterof potential users have been automated with BI solutionsWhy is this There are several answers including the compl-exity lack of skills of average users and the overall cost of BI

In addition often when BI is established it has beenpurchased by an isolated department or is being used ina tactical fashion It may also be driven by IT which nomatter how visionary or well intentioned will never replacethe business as the driver of business initiatives

To illustrate my point consider that much of the IT buy-ing behavior in large enterprises is focused on ad hoc queryand reporting tools This has generated some very largeenterprisewide BI purchases Often the intent is to moveusers to self-service This is a response to the myriad re-quests for custom reports which has created huge backlogswithin IT While this may reduce IT costs and backlogs inthe near term and initially increase user penetration it willnot deliver actionable insight to an organization Thereforeincreases in usage gradually decline as the toolsrsquo shortcom-ings come into focus

Although ad hoc query and reporting may be in thespotlight today the future focus of BI is elsewhere An in-creasing number of organizations are approaching BI as partof EPM The integration of BI with EPM gives BI real pur-pose and makes it infinitely more actionable It also givesquery and reporting toolsmdashused in conjunctionmdashmore ofa context for detailed analysis

The reason this transformation is important is that thegoal of BI is to provide insight while the goal of EPM is tolink the insight provided by BI to the planning and control

The Role of EPM 23

cycles of the enterprise which deliver tangible action andconsequently business value This difference in the way in-formation is used to drive business change is defining thenext generation of business innovators and leaders

To further illustrate the importance of this transforma-tion consider that with BI there is no direct link betweena report or a dashboard that identifies an emerging issueand the systems a decision maker would use to carry out anappropriate response For example if a report reveals that agiven hotel within a global chain is experiencing low occu-pancy rates someone has to view the report recognize theimportance of that data point and notify another individualwho is empowered to act on that information That personthen must create and execute a suitable response using theappropriate financial andor operational systems

These multiple steps introduce latency and potential hu-man error into what should be a fast-response process Evenworse as the players move from system to system the in-tegrity of the underlying data may be compromised result-ing in the very real risk of losing sight of the essential dataanalysis or trend

In contrast with EPM the insights coming out of BIand the responses to it are tightly linked In our example of aglobal hotel chain if a BI system indicates that hot weathercauses low occupancy rates in Montana then the responseof seasonally adjusting prices to rebalance occupancy can beautomatically initiated and flagged for approval by the ap-propriate manager This automated process accelerates re-sponse and virtually eliminates the risk of a missed handoffIt also allows the connection between information discov-ery and the corresponding action to be automatically andelectronically documented so that the entire informationchain becomes fully auditable This takes transparency to anentirely new level

Similar examples are easy to envision A supply chainmight have inherent inefficiencies Using BI one might

24 THE ROLE OF EPM

discover that a key supplier is unable to deliver a certaincomponent as quickly as the marketplace demands EPMtells us the overall impact and allows us to model alternativesand select the best options

Similarly a customer database might hold great insightsinto purchasing patterns BI can establish that a particularproduct is underperforming in a given region But EPMcan deliver the distribution pricing and packaging changesnecessary to optimize revenue and profitability

As organizations have become much more aware of thepower of timely relevant and actionable insight EPM isfast becoming a topic of discussion in conference rooms allover the worldmdashin concept if not in name For example itis not difficult today to have a discussion with most exec-utives and managers about planning Balanced Scorecardsdashboards or predictive modelingmdashsomething that couldnot have happened 20 years ago

Much of the appeal of EPM exists because it offers away to strategically improve the quality of management in-formation and process and therefore grow an organizationfrom a collection of loosely coupled business units into thehighly coordinated and agile enterprise that is necessary tosucceed in todayrsquos global markets

For example EPM closes what I call ldquothe fact gaprdquowhich is a lack of factual information or real understandingof an organizationrsquos performance during decision makingIn a fact gap organizations make decisions using outdatedinformation borrowed perspectives and sometimes evenpure guesswork

There are two categories of fact gapsmdashoperationalwhich affects the measurement of efficiency and market-focused which affects customer leverage and market op-portunities Left unchecked fact gaps have the potential tocause business initiatives or even entire businesses to fail

EPM also delivers management information in a timelyway and hosts management processes in a single interactive

EPM and Planning 25

and collaborative environment This allows teams of man-agers across the enterprise and the extended enterprise tocollectively plan measure performance anticipate resultsand drive profitability

And EPM can play a crucial role in helping an organi-zation manage its relationships in a decentralized businessnetwork Using EPM organizations can plan and measuretogether with its partners and adjust accordingly This canbe done daily weekly monthly or in whatever timeframesmake sense It can also help foster collaboration and trustby facilitating shared goal setting and providing access toinformation that helps all parties monitor and confirm mu-tual success In a decentralized business network objectivedata is often the best arbitrator

EPM AND PLANNING

Perhaps nowhere is the impact of EPM felt more dramat-ically than in the enterprise planning process This is be-cause advances in planning practices are largely dependenton advances in planning technology EPM can transformplanning from an annual exercise that adds little value to anorganization to one that ensures the continuous optimiza-tion of resource allocation decisions and consistent effectiveexecution of business strategy across an enterprise

As is the case with all important management pro-cesses enterprise planning and the tools that support it havecontinually evolved together over time Before computerscompanies performed planning tasks with paper spread-sheets and calculators The introduction of PCs and desktopspreadsheets made planning faster offered opportunities forgreat flexibility and made it easier to share and update plan-ning documents

Spreadsheet programs were later enhanced with spe-cialized budgeting applications and then more recently

26 THE ROLE OF EPM

the Internet and Web-based applications provided browser-based access to shared planning databases and documentsThis meant that planning documents could be maintainedon central servers rather than being stored on multiple in-dividual usersrsquo desktops

Both of these innovationsmdashspecialized applications andWeb-enabled applicationsmdashmade enormous contributionsto the effectiveness of the enterprise planning process Spe-cialized programs enabled businesses to more quickly andreliably build planning documents based on more sophis-ticated models And Web-enabled applications solved theproblems of version control and auditing because planningdocuments could then be stored centrally But neither ad-vance did muchmdashif anythingmdashto introduce dynamism andcollaboration into what was still largely a static top-downprocess The advance that was required to make that happenwas EPM

Among the improvements EPM can make to the enter-prise planning process

Unified Planning

There are a multitude of financial and operational plansbudgets and forecasts in any organization including strate-gic and operating plans outlooks and scenarios revenueexpense and cash flow forecasts capital expenditure andworkforce plans and marketing sales and administrativebudgets

EPM brings these separate planning processes together

Dynamic Real-Time Updates

Business today moves too quickly for organizations to relyon annual or quarterly numbers alone Allocation decisionsand forecast revisions have to be made based on conditionsthat can change at any time

EPM and Planning 27

EPM facilitates the ability to adjust more frequentlymdashoreven continuouslymdashby providing automated Web-basedlinks to planning drivers across the enterprise As a resultevents or initiatives in one part of the organization can driverapid responses in other parts of the organization This dy-namic approach eliminates the lag times and disconnectsassociated with conventional planning tools and the annualor quarterly planning process

Multitiered Aggregation and Granularity

Planning takes place on many levels from the boardroomto the front lines But if each level uses a separate plan-ning system aggregating plans becomes a difficult andtime-consuming process Even worse it can be virtuallyimpossible for top management to drill down from anaggregated document to discover underlying issues at thedesired level of granularity In addition the manual aggre-gation of multiple spreadsheets introduces the possibility oferror

EPM solves these issues by unifying all planning systemsinto a single planning environment in which all data is ap-propriately linked vertically across all organizational levelsand horizontally across all departments and functions

Integration with Enterprise Applicationand Data Sources

Planning and budgeting are affected by a diverse range ofenvironmental factors sales pipelines burdened labor ratescost of materials interest rates currency exchange ratesand so on This data is typically stored in ERP systems HRapplications external information services and other inter-nal sources It makes good sense to tap into these sourcesto dynamically adjust planning variables to reflect changingconditions

28 THE ROLE OF EPM

EPM provides the integration interfaces and variableadjustment functions necessary to do this And becauseplanners often want to work with such data with familiartools EPM also provides interfaces to such familiar tools asMicrosoft Office

Translation between Financial andOperational Metrics

One of the keys to good planning is collaboration of allappropriate people across the enterprise A Web-based ap-plication fosters collaboration by facilitating the distribu-tion of functionality anywhere and everywhere itrsquos neededHowever itrsquos just as important to facilitate collaboration be-tween business usersmdashwho think and act primarily in termsof business operationsmdashand finance usersmdashwho typicallydrive planning processes using budgets

EPM facilitates collaboration between finance and oper-ations by providing automated translations between finan-cial and nonfinancial metrics such as headcount materialsand product units

Enhanced Creation and Management oflsquolsquoWhat-Ifrsquorsquo Models

A big part of planning is the modeling and assessing ofmultiple divergent scenarios What if we add more regionalfacilities What if interest rates rise dramatically What ifsales misses its quarterly goal by 10 percent Managers mustcontinually ask these types of questions and accurately gaugetheir implications Spreadsheets make it difficult to workwith multiple theoretical scenariosmdashespecially since theylack tools for linking related scenarios to one another inmeaningful ways

EPM allows multiple alternative scenarios to be man-aged in a common manner allowing decision makers across

Planning as a Driver of Process Change 29

an organization to freely experiment with various hypo-thetical conditions without creating document chaos in theprocess or undermining the integrity of the core planningdocuments

Of course technology alone has little value it requiresthat organizations apply it in the right way by using it tosupport best practices In the case of the enterprise planningprocess using EPM to support best practices in planningresults in the following benefits

Faster more appropriate response to change by reduc-ing planning cycle times

Actionable insight at usersrsquo fingertips by making allplanning data across the enterprise available in a singleeasy-to-use application

Predictable performance by enabling continual assess-ment of real performance versus projected results andmaintaining alignment between projections and exe-cution

Optimal allocation of resources by linking planningacross the enterprise based on logical dependencies

Full enfranchisement and unity of direction across theenterprise by ensuring that everyone at every levelworks together to achieve common goals

Clearer vision greater creativity and stronger leader-ship by enabling an organization to examine multiplewhat-if scenarios

More confidence in planning and forecasting by usinga disciplined approach

PLANNING AS A DRIVER OFPROCESS CHANGE

As an example of an organization using EPM to implementplanning best practices consider this major US university

30 THE ROLE OF EPM

An early adopter of EPM for operational analysis the uni-versity decided in 2007 to extend its use of EPM to planningand budgeting functions The goal is to gain more accurateinsight into both its financial and operational data enablingmore reliable plans and forecasts and more insightful analysisof ongoing operations

Specifically this university wants to give its financial an-alysts access to a centralized performance management sys-tem that provides an in-depth look at university operationsand their related impact on financials by tightly integratingfinancial and operational planning models Once in placethe new system will enable the universityrsquos fiscal managersin central university offices individual schools and busi-ness units to generate reports to keep university administra-tors current on the status of key business processes affectingevery member of the community

To accomplish this the system will tap into the univer-sityrsquos data warehouse which contains information directlyfrom the universityrsquos student information system and var-ious financial systems With the systemrsquos reporting toolsuniversity staff members can then access an intuitive andhighly interactive interface to design their own dashboardsfor monitoring status and drilling down on relevant infor-mation

By integrating management planning and modelingfor various financial and business applications into a singlesystem the university will have reports that are drawn fromthe same consistent set of information and a unified viewof its financial and operational data whenever its needs it

Another example of an organization using EPM to driveprocess changemdashspecifically to unify its planning and fore-casting processesmdashis a US-based leader in security soft-ware The company has operations in more than dozens ofcountries and employs more than 15000 people

The challenge of unifying planning and forecasting atthe company was made more complex by the companyrsquos fast

growth through a series of acquisitions Each new acquisi-tion brought new systems for functions such as reportingplanning and financial consolidation Because each depart-ment had one or more of its own systems for managing thesefunctions the business planning process involved financialanalysts interviewing each budget manager individually toobtain forecast and budget data The analysts would thenrekey this data into a homegrown tool or spreadsheet Asthe company grew to more than 6000 cost centers com-pleting a forecast cycle typically took each analyst a solidmonthrsquos work

In addition discrepancies in how product data was cap-tured by different business units made it difficult to produceaccurate rollup information to analyze product sales consis-tently

In implementing EPM the companyrsquos top priority wasto find an integrated platform that would be accessibleto all employees In addition to automating the planningprocess the company wanted to add more accountabil-ity to the process by having business unit managers beresponsible for entering their own information into thesystem

After selecting its EPM solution in 2003 the planningprocess took about four weeks for system design and an-other month for testing and refining Training sessions wereheld in stages for the 800 users of the system Deploymentsof subsequent components of the system were completedwithin an average time of three months

With EPM the company has streamlined its planningprocess and enabled more people to actively participatewhile reducing the time it takes to gather and analyze theunderlying data As a result even though the company hasdoubled in size in the past few years it has increased its abil-ity to react to business change by having a more accurateand accessible view of business conditions available to morepeople in the organization

32 THE ROLE OF EPM

One more example is a US firm that provides homesfor nearly 10000 seniors and uses EPM to streamline itsplanning processes and plan for future growth With seniorcampuses in six states the firm plans aggressive expansionover the next five years One of the biggest challenges asso-ciated with its expansion plans was budgetingmdasha problemthat no longer exists since the company implemented EPM

Prior to EPM the company was unable to give its 300business managers in various locations direct access to itsERP system to create their own budgets Therefore thefirm identified as its primary need the ability to keep stan-dardized forms and reports in a centralized location yet beable to distribute them on the Web to a large number ofusers The company also needed the ability to modify andretrieve collected data and create a standard package of re-ports Since implementing EPM budgeting at the firm hasin the words of one executive gone from ldquoa nightmare toa nonissuerdquo

The firm also will use EPM to forecast labor and con-struction costs for new campuses Its goal is to have 30communities within the next five years a growth of sixtimes its current size and so careful planning is essential toensure this growth is profitable Each campus is built one ata time and construction takes about three to five years

Forecasting labor and construction costs will consist ofentering the expenses from every phase of a jobmdashfrom thecost of dry wall to on-site labormdashinto a general ledger sys-tem With this information the company will be able tofind variances within the budget compare one job to an-other and create standards for future jobs

Today EPM also simplifies the firmrsquos entire financialmanagement process helping managers focus their effortson budget analysis planning modeling and forecasting in-stead of the data entry and collection mechanics

This company demonstrates how EPM takes financeto a new levelmdashhelping managers create accurate financial

EPM and Compliance 33

plans to achieve company goals while cutting costs andtherefore increasing profits

EPM AND COMPLIANCE

Another area in which EPM has had an enormous impactis in compliance with financial and other regulations thataffect businesses and business reporting While many of theheadlines have been reserved for new financial regulationsother laws such as the Health Insurance Portability and Ac-countability Act (HIPAA) designed to improve health careaccess and prevent health care fraud and abuse in the UnitedStates and the Patriot Act which gives the US govern-ment access to business information previously consideredconfidential have raised the bar on compliance as well

In particular stringent new corporate accounting andreporting rules have surfaced in recent years as govern-ments all over the world have responded to the crisis ofconfidence in business that arose in the wake of Enron andother high-profile corporate cases in the early 2000s Inthe United States for example based on recommendationsfrom the Securities amp Exchange Commission (SEC) andpublic pressure a massive corporate reform measure knownas the Sarbanes-Oxley Act became law in 2002

The Sarbanes-Oxley Act demands more auditing in-sight and requires CEOs and CFOs to personally certifytheir companiesrsquo financial results or suffer severe civil andcriminal penalties

Similarly the European Union (EU) parliament en-dorsed a proposal that requires all EU companies listedon a regulated market to prepare and publish their con-solidated accounts in accordance with a single set of In-ternational Accounting Standards (IAS) also known asInternational Financial Reporting Standards (IFRS) Theaim of standardizing the reporting of results was to make

34 THE ROLE OF EPM

financial results more comparable thereby making theEuropean capital market more efficient Without standard-ized reportingmdasheven if all other barriers to efficiency areremovedmdashinvestors likely will remain skeptical and demanda premium for their capital

By any yardstick regulations such as the Sarbanes-OxleyAct of 2002 and IASIFRS 2005 are extraordinary measuresthat pose extraordinary challenges for companies affectedby them In the United States adequate integrated finan-cial management systems and internal controls are no longernice to have they are the law under Sarbanes-Oxley In ad-dition credibility is paramount and must be demonstratedby faster reporting cycles full disclosure and no restate-ments

These regulationsmdashand the very real personal liabilitythey createdmdashhave caused changes from the boardroom tothe mailroom as boards of directors and management teamshad to rethink how their companies plan measure andreport performance The goal was to find and implementsolutions that would enable them to report openly and com-prehensively on their performance with confidence

Purposeful violations aside many companies legiti-mately struggle to gather understand and report financialinformation Because financial information is often siloedin transactional systems or locked in spreadsheets it canbe extremely difficult if not impossible to create a singlereliable accurate and complete view of a companyrsquos per-formance The problem is compounded in large companieswith numerous individual geographically dispersed oper-ating units many of which likely use transactional systemsfrom different vendors

Specifically when it comes to reporting howeveranother problem is that many companies lack a singlereporting infrastructure that enables managers to createcomprehensive management-oriented reports for internaluse and to generate reports for external use that comply

with statutory reporting requirements and other needs ofexternal stakeholders This disconnect between reports forinternal and external use adds to the difficulty of creatinga single version of the truth about a companyrsquos financialperformance

As companies that have implemented EPM are discover-ing EPM can play a crucial role in addressing this disconnectby providing a single view of the companyrsquos performancethat includes both financial and operational information in-tegrated into a single reporting structure This ideamdashthatcompliance and performance are linkedmdashis very much inthe spirit of Sarbanes-Oxley IASIFRS 2005 and otherregulatory reforms Whatever their merits or shortcomingsthese reforms are intended to restore public trust in corpo-rationsrsquo ability to produce shareholder value That spirit isas much about performance and accountability as it is aboutcompliance

To illustrate this point think of a company that has dif-ficulty putting together its income statement and balancesheet each quarter or knowing within 48 hours when amaterial event has happened Is this really a company thatcan consistently produce a profit quarter after quarter yearafter year How would the executives know for sure thatthe company did in fact operate profitably over the longhaul if it has a hard time arriving at its numbers today

Conversely think of a well-run company that under-stands and tracks its key performance indicators (KPIs)mdashwhatever they may bemdasha company that knows whichproducts customers regions and production plants aremost profitable and does a good job of monitoring cashflow This company will find it much easier to becomecompliant

With an understanding that more substantial benefitscome from greater visibility into your business and withit the ability to make mid-course corrections to improveperformancemdashcutting costs in difficult times and investing

36 THE ROLE OF EPM

in more robust timesmdashthe question is how can you moveyour organization beyond compliance to breakthrough per-formance

The answer of course is EPM

LEVERAGING COMPLIANCE TOIMPROVE PERFORMANCE

A European financial services provider is an example of acompany that uses EPM to achieve both compliance andbetter performance As a fully licensed bank the company issubject to the changing solvency requirements in the bank-ing industry

Specifically banks are currently required to reserve 8percent of issued loans to absorb losses but from 2007 on-ward they will be allowed to diversify their risks to a greatextent These arrangements were agreed to in new regula-tions known in banking circles as Basel II

This particular companyrsquos response to Basel II IFRSand other changing international regulation was to leverageits short-term requirement of compliance into a long-term commitment to more sophisticated techniques formonitoring and improving performance These includeeconomic capital (EC) modeling risk adjusted return oncapital (RAROC) modelingmdashfor which IFRS providesthe required calculation methodsmdashand value-based man-agement (VBM) which is a comprehensive set of activitiesthat maximize value

The company had earlier implemented EPM for bud-geting which enabled it to more easily produce reportsrequired under Basel II and RAROC requirements Thecompany is currently implementing an EPM system thatwill further enable it to establish links that will let its var-ious EPM applications share data and metadata This willyield data and knowledge that will determine the desired

Leveraging Compliance to Improve Performance 37

shareholdersrsquo equity on every deal the company does Theseand other changes are bringing the company closer toVBM a major change from a strategy geared more towardfinancial control and book profits to one that is more fo-cused on strategic control and value

One of the largest electronics retailers in the UnitedStates is another example of a company that leveragedcompliance into performance management Its primarymotivation in adopting EPM was to solve the problem ofa frustrating disconnect between information required bymanagement to run the company and information neededfor external reporting

As recently as 2002 the firm suffered from a decentral-ized budgeting and reporting process and inconsistency inhow each company group did its budgeting and reportingSimilar to other large decentralized companies the firmhad some groups with a manufacturing focus others witha retail focus and no alignment between how groups re-ported performance internally and how it needed to reportexternally

The companyrsquos issues were heightened by its use of aspreadsheet-based budgeting system This meant that head-quarters was routinely receiving budgets from 12 differ-ent entities without much visibility into how those budgetswere being created In addition to a lack of visibility andcommon processes the company lacked a clear company-wide goal in its budgeting process

When the firm decided to tackle the problem the com-pany included in its defined requirements a need for top-level visibility into all budget details better communicationat all levels regarding current budget numbers and issues auniform income statement hierarchy for all reporting unitseasy-to-use reporting tools and a means to incorporate cur-rent financial reporting data into budgeting systems

To meet these requirements the firm combined EPMplanning and reporting software to pull company financial

38 THE ROLE OF EPM

data from existing applications and to enable collaborativebudgeting and forecasting throughout the company Groupsnow prepare a standard set of monthly financial reports andare free to create their own ad hoc reports Most importantall reportsmdashwhether corporatewide or ad hoc for a groupwhether internal or externalmdashare all driven by a single ver-sion of the truth about the companyrsquos performance

HOW EPM WORKS FROM AUSERrsquoS PERSPECTIVE

Up to now the real-world examples of EPM I have citedhave focused on process changes and benefits to organiza-tions But to understand how EPM improves the workingstyles of individual users consider this before-and-after sce-nario

Before EPM a manager might get a report or spread-sheet indicating a variance from plan To better understanddetailscausal factors he or she would have to access mul-tiple application or reporting systemsmdashall with differentviews and perspectives on the data These different per-spectives then would have to be manually reconciled (usingspreadsheets and cut-and-paste) and then compared to theplan of recordmdashanother spreadsheet typically held by thefinance department Any changes to the plans would haveto be authorized and made by finance The new plan ofrecord would then be emailed to all of management withan explanation for the changes

Multiply this process by the number of managers in anyorganization and it becomes clear how problematic it is

In contrast with a modern EPM system a manager ispresented with a scorecard or dashboard displaying met-rics that are relevant to his or her performance Variancescan easily be seen and explained by examining the infor-mation from all perspectives to fully comprehend what

How EPM Works from a Userrsquos Perspective 39

occurred and why Any required changes to plan are madeby the manager and approved in the same system and with-out having to populate and email spreadsheets Annotationsare made to the plan so other managers can understand therationale for the changes

Here is an even more specific scenario Suppose youwere a regional vice president of a bank and when view-ing your dashboard you noticed an unfavorable variance innet income for one of your branches Using conventionaltools yoursquod have to jump through an endless web of hyper-linked reports or drill through multiple layers of data orsift through reports in a repository More likely yoursquod callsomeone and have him or her do it for you

But imagine if you could just type in a few key wordsin a search bar and be immediately presented with a set ofrelevant business topics related to net income and driversof profitability And for any one of those topicsmdashproductprofitability for examplemdashthe system presented you withpredefined questions in your native language And then gaveyou the ability to refine the question to get the specificanswer you wanted

And if you then wanted to change the time period foryour inquiry from a quarterly view to a year-to-date viewmaking that change would just be a matter of clicking onthe time period and selecting your alternative

But what if you were interested in understanding whatrsquosbehind those numbers Where would you start

EPM would help guide you along that path For ex-ample you could mouse over the gross profit metric for aparticular product and be presented with a menu of relevantmetrics that relate to or drive gross profit such as market-ing expenses growth rate or plan variance for that productarea

Another way in which EPM would help you is throughadaptive visualization If yoursquove used Amazon yoursquore famil-iar with how the system remembers your past experiences

40 THE ROLE OF EPM

on the site and adapts that historical memory to your cur-rent interactions presenting information and suggestionsthat are of direct relevance to you at that moment in timeAdaptive visualization is one capability required to makethis work

The fact is that people like to view information in differ-ent ways depending on individual preferences the type ofinformation and its business context Using adaptive visual-ization EPM would automatically select the most optimalviews of information based on your history preferencesand the nature of the data

For example if you were to add additional KPIs tothe report described earlier the tables presenting the datawould become much more complex So wouldnrsquot it be niceif upon selecting those additional performance indicatorsEPM automatically changed your view from a table to abubble chart that used color size spatial placement andannotations to make it easier to immediately understand

Another area of emerging focus for EPM is decisionmanagement Have you ever encountered a situation inbusiness where a decision was made acted upon and thenafter the fact (either because it turned out to be a great de-cision or a horrible decision) no one could remember howthe decision was made in the first place EPM should be ableto record the decision-making process making it easier toaudit how and why business decisions are made ultimatelyso that best practices can be captured and embedded intofuture behavior

Much of what Irsquove discussed in this example focuses onthe business user but the burden of making EPM successfulultimately rests on the shoulders of IT Itrsquos hard especiallywhen things change on a daily basis Reports change ap-plications change source systems change processes changeand organizational structures change And at the end ofthe day guess who has to implement those changes in thesystem Thatrsquos why EPM must also focus on liberating IT

Drivers of EPM Adoption 41

from the complexities of development deployment andmanagement

One example of a EPM capability for IT would be anenvironment for authoring and application developmentthat provides a layer of abstraction that presents technicalinformation in business terms This would insulate reportauthors and application developers from having to under-stand source system data models structures and query lan-guages Such an environment would also make it easier tocreate and manage applications in a way that recognizes re-lationships between entities and manage the flow of bothdata and metadata between applications

For instance if you were an application developer fora bank you could develop a branch-level budget modelthat contains a much greater level of granularity than thatwhich is used at the regional or corporate level You couldstart with an aerial view of all applications and models thatshare common dimensions hierarchies metadata and mas-ter data You could model the flow of data and metadatabetween applications When new applications or revisionsare put in production you could ensure that everything issynchronized within the applications and that all changesto master data are propagated to external systems that sharedimensions and hierarchies

At its core EPM is the quintessential planning tool forthe business ultimately enabling individuals to determinewhat they do next It exposes issues that will influence per-formance ensures process and exploration that supportscollective decision making and allows for mistakes andcourse correction

DRIVERS OF EPM ADOPTION

As the powerful capabilities of EPM become better knownmany organizations are implementing EPM initiatives that

42 THE ROLE OF EPM

target certain aspects of performance management or aredepartmental in scope as a way of preparing for enter-prisewide EPM initiatives These organizations typically aremotivated by a combination of external and internal pres-sures many of which I have already discussed

Regardless of their motivation businesses today recog-nize that the keys to success go beyond the ability to trackand understand past performance Businesses today mustunderstand performance drivers well enough to plan andexecute against future goals

EPM initiatives today take many forms Here is an exam-ple of one company and its motivation for adopting EPM

Modeling as the Key to a SuccessfulGrowth Strategy

A diversified industrial technology and services companybased in Europe is using EPM and especially strategic mod-eling to support a divestment and growth strategy The com-pany was already using EPM for planning and reporting butearly on the company also decided it wanted to put in placeprocesses and systems that would enable it to do a better jobof understanding the impact of its strategic corporate deci-sions before they are made

As with other businesses with operations all over theworld the company now has new regulatory requirementsto meet Not only must it report its results under Gen-eral Acceptable Accounting Principles (GAAP) it must alsomeet new and more stringent reporting requirements dic-tated by the EU including IFRS

The company decided to first tackle the challenges itwas facing in the area of financial consolidations whichwere very similar to many other large companies withoperating units around the world As financial consolida-tions became more difficult they had begun to affect the

companyrsquos planning and budgeting processes making themless efficient too

The company was using a specialized application for fi-nancial consolidations at its headquarters but its 60 operat-ing companies submitted their data using spreadsheets and itwas taking six weeks to consolidate that many different ver-sions of the ldquotruthrdquo By optimizing processes the companymanaged to cut its reporting cycle to two weeks Howeverthe company wanted to further streamline the consolida-tion process and be able to access one central source of dataThat would take technology

To unite its far-flung strategic units and further reducereporting cycles the company implemented an EPM fi-nancial management application at its headquarters whichtook about three months Within a few more months allof the companyrsquos operating companies were using the sameapplication An important feature of the application wasthat it allowed the companyrsquos regional business units to in-put their data according to local accounting practices andstandards which were then easily translated into corporatestandards

One important result was one version of the truth acrossall areas of the company which enabled the company tomake better operational decisions and improve efficienciesand profitability

Equally important the company shortened its reportingtime by another week and decreased its throughput timesfrom weeks to hours A typical closing process now unfoldssomething like this Operating companies have their datain by 1 PM on the appointed day The company has itsresults to the board of directors by 4 PM By the end of theday management has full visibility into current and historicfinancial results

With these process and systems improvements the com-pany was able to reduce the number of people required toperform financial consolidations from 14 to 3 This enabled

44 THE ROLE OF EPM

the company to redeploy nine people to higher value addedtasks such as analysis

With consolidation and reporting well in hand thecompany turned its attention to understanding its KPIs asa precursor to improving performance

Before EPM the companyrsquos business units were unableto access financial data used at headquarters As a resultmeetings often started with lengthy discussions about thedata leaving less time for discussions about important strate-gic decisions The company needed a way for all local re-gional and strategic unit controllers to see the data approvethe data and send it to higher levels in the company It alsoneeded a database that would contain all management in-formation so that in discussions with the board of directorseveryone could start with the same data

To meet this challenge the company created key per-formance indicator sheets with specific financial and oper-ational performance metrics delivered via dashboards andaccessible over the Web to board members and executivesThis provided an up-to-date overview of the companyrsquosperformance and enabled everyone at the company to workwith the same data and easily analyze the data from variousperspectives

The next step for the company was to look for a solutionto the problem of accurately forecasting the financial im-pact of potential acquisitions and other corporate decisionsThis involved analyzing the consolidated income statementbalance sheet and cash flow impact of critical business deci-sions and running scenarios to evaluate the financial impactof corporate restructuring or other portfolio strategies

To accomplish this the company implemented an EPMstrategic modeling application that could measure the po-tential effects of potential acquisitions on earnings accretionor dilution debt covenants and other key metrics

The application had a significant impact on the com-panyrsquos understanding of the way financial decisions might

A Broad Range of Motivations 45

affect the company For example it now is able to exam-ine both financial and nonfinancial economic drivers of itsbusiness and align the entire company behind the strategicplan It also can simultaneously evaluate financing and op-erating alternatives such as predicting synthetic debt ratingsover time when evaluating various operating scenarios andassumptions

A BROAD RANGE OF MOTIVATIONS

Here are some additional examples of the many reasons whyorganizations today are implementing EPM

A large US bank used EPM to bring common processesand systems to its business and consumer divisions whichwere using similar data but different systems and method-ologies for measuring performance The differences madeit difficult for senior management to gain actionable insightinto companywide productivity and other KPIs

To resolve these differences the bank decided to createa performance scorecarding application that would enable itto measure performance for both businesses in a meaning-ful yet comparable way The application also needed to beflexible enough to allow quarterly changes to performancemetrics if necessary and a robust reporting and analysis ca-pability that would enable senior management to drill downfor a better understanding of performance drivers

The first step toward building such an application was tomodify the corporate data warehouse to provide 95 percentof all data needed for the creation of scorecards Then thebank chose a BI platform solution to store business rulesand historical data for its scorecards and to provide analyt-ical drill-down capabilities A reporting application helpsanalysts create PDF reports that are distributed over theWeb Today performance scorecards applications are usedby thousands of people at the bank

46 THE ROLE OF EPM

The US subsidiary of a large semiconductor manu-facturer implemented EPM to track and quantify customerprofitability so it could do a better job of allocating resourcesto more profitable customers Using existing applications ithad developed using a BI platform and development toolsthe company built an application for top management salesand finance that gives them insight into the current prof-itability and the ability to forecast the future profitabilityof each customer It also enables users to perform sensi-tive ldquowhat-if rdquo analyses of customers to determine potentialoutcomes of changes in resource allocations

A leading financial services company turned to EPMout of a desire to deploy an enterprisewide profitability re-porting solution The overarching goal was to answer thebasic question ldquoHow are our various products really con-tributing to the bottom linerdquo

The firm decided that creating such a solution wouldrequire a streamlined standardized and centralized systemcapable of measuring the profitability of product teams in-vestment teams and distribution channels The firm formeda project team to define requirements and make recom-mendations to top management and then to develop andautomate new processes New processes included commoncost allocation methods drivers and hierarchies across busi-ness units The firm chose an allocation consolidation andreporting engine upon which to base its firmwide solutionand then built and implemented a system that emphasizeduser control so it could be used with a minimum of ITinvolvement

The system today delivers detailed PampLs across all prod-uct lines with a significantly reduced cycle time implementsnightly iteration cycles has improved productivity by re-ducing 75 percent of nonvalue added process steps createsdetailed audit trails and has flattened learning curves foranalysts throughout the firm

A leading technology consulting firm implementedEPMmdashand specifically an online management performancereporting toolmdashto reduce the time it was taking to dis-tribute performance management reports to its partnersThe firm reached this conclusion after a firmwide surveyof partners and principals revealed that 80 percent believedonline access to performance reports would improve theirability to manage the business The firm also wanted to puta stop to a fragmented yet growing rogue effort in the firmthat resulted in 60 to 80 analysts working full-time on gen-erating ad hoc performance reports that varied from analystto analyst and lacked a single version of the truth

To create such a system which the firm calls an ldquoEPMportalrdquo the firm used a BI platform and EPM applicationsfor reporting and planning The system took about ninemonths to build and reduced the time it takes to distributeperformance reports from 15 days to less than 5 days fol-lowing the close of books

A large US retailer in an extremely competitive businesshas implemented several EPM projects to date starting withthe goal of making better financial decisions but quicklymoving to performance management as a key to opera-tional excellence Early on the company decided that thekey to operational excellence is to have accurate timelyand detailed information about the performance of eachindividual store the factors that influence its performanceand how the performance of that store affects the companyoverall The company was especially interested in the KPIsthat drive gross margin including inventory levels acrossthe country which products have the highest margins andwhether inventory is sufficient to meet customer demand

The company also wanted to focus on key indicators thatimprove productivity and efficiency such as which productsare selling best in which region and the effectiveness ofspecific marketing and advertising campaigns

48 THE ROLE OF EPM

Having this kind of detailed operational information ona daily basis provides insight that allows the company tomake daily decisions about how to improve performancemdashat the store level at the regional level or companywideAnd that depends on two things technology and processesthat support sophisticated planning forecasting and deci-sion making

To meet this challenge the company turned to a BI plat-form that combined data integration OLAP query and re-porting ad hoc analysis and application development toolsto support informed and proactive decision making

The company now provides Web-based daily sales andother important financial information by major segmentsand stores to each of its district locations Each district re-views its business daily and compares it to previous levelsand to forecasts and goals More important districts canmake immediate midcourse corrections or improvementsusing best practices learned from their peersmdashinformationabout operational successes and failure pointsmdashmaking itsanalytics actionable

TOWARD GREATER ACCOUNTABILITY

As these examples illustrate EPM today is well equipped totackle many of the day-to-day barriers to effective perfor-mance management But it also has the capability to achievea more fundamental and lasting benefit EPM can help or-ganizations achieve greater accountability a state in whichindividuals at all levels work collaboratively toward sharedobjectives striving for breakthrough performance and ac-countability in all their actions Organizations also beginto manage beyond isolated functions and can understandimpact across the enterprise

A key success factor in building a performance-accountable organization is a commitment to increasing

Toward Greater Accountability 49

each personrsquos knowledge and understanding of what drivesperformance in that organization What is the potential im-pact of a planned acquisition on the balance sheet Can ex-isting inventory cover the forecast How do current salescompare to forecasts and forecasts to plans How will achange in marketing programs affect sales and productionand vice versa Insight into these questions and others isnecessary for individuals to see the big picture and un-derstand the impact of their actions on the rest of theorganization

Only top management that embraces the concept oftransparency can deliver these kinds of insights broadlyto people throughout their organizations In their 2003book The Naked Corporation Don Tapscott and DavidTicoll wrote that we are in an age of transparency that willrevolutionize business They defined transparency as goingbeyond the obligation to disclose financial informationto offering all stakeholders who interact with a companyunprecedented visibility into the performance operationsbehavior and values of the company Because stakeholdershave at their fingertips the most powerful tools ever forfinding out informing others and self-organizing thecorporation is becoming naked

Tapscott and Ticoll argue that becoming naked is not abad thing but itrsquos not necessarily an easy state in which tolive For example if yoursquore going to be naked fitness is nolonger an option because nothing is hidden from view Youmust be buff An organization that says it offers the bestvalue had better do so An organization offering a com-modity product had better have the best price and one notin a commodity market had better have differentiated value

Equally important organizations need to have valuesand live up to them because without integrity there is notrust The smart organizations understand that rather thansomething to be feared transparency is a force that can beharnessed for growth success and sustainability

50 THE ROLE OF EPM

An important note Tapscott and Ticoll believe that ev-ery company needs a transparency strategy and say theywere amazed when they were doing their research for thebook that few companies have one and that most are justldquowinging itrdquo The danger of winging it is that someone inone department releases some information and someone inanother department may release contradictory informationThis type of conflict can result in all kinds of unintendedconsequences

The authors recommend that organizations stand backand look at how their various stakeholders use or couldbenefit from information What are the risks and vulnera-bilities What are the potential payoffs and benefits Afterthis kind of evaluation organizations can develop a com-prehensive approach to transparency

Another success factor is a commitment to developingthe connective management processes that support the fourcore activities of a management cycle discussed in a previ-ous chapter vision and strategy supported by rationaliza-tion goal and objective setting supported by commitmentexecution supported by tracking and evaluation supportedby perspective

How each of these four core activities is done will varydepending on where the activity takes place in an organi-zation For example every business produces strategic andoperational plans But a strategic business unit may plan inquite a different way from a manufacturing business unitOne unit might use metrics based on the core strategic ob-jectives while another might focus on metrics of volumecost and quality

It is important to note that everything within an enter-prise is related directly or indirectly to everything else Thesame is true with metrics Understanding these relationshipsand how to reconcile them is the key to strategic EPM

Each core activity also has a number of subactivities andtasks which also will vary by industry and business unit

Regardless of the exact circumstances of their use the coreactivities are designed to provide feedback In this way theentire performance management cycle can improve overtime and become more effective

Combined these core activities enable organizationsto set financial and nonfinancial goals to improve bothfinancial and operational performance model underlyingbusiness drivers plan based on the drivers establish met-rics for monitoring progress and then monitor and reportperformancemdashin other words establish performance ac-countability

An important starting place in the journey to achieveperformance accountability is to understand the NineTenets of a Performance-Accountable Organization andhow they map to core management processes

THE NINE TENETS

A performance-accountable organization1 Finds truth in numbers A single version of the truth

guides performance at all levels of the organization2 Sets accurate expectations Every part of the busi-

ness is directed by a shared commitment to strategic goals3 Anticipates results A thorough understanding of

business drivers and key performance indicators leads to an abil-ity to anticipate results

4 Plans with impact Insight and dynamic processesproduce actionable plans that continually guide the organizationto success in changing conditions

5 Achieves on-demand visibility A system that com-bines data from existing transactional systems across the en-terprise gives managers transparent access to performanceinformation anytime anywhere

52 THE ROLE OF EPM

6 Delivers continuous improvement A commitmentto knowledge and understanding produces insight that drivescontinuous performance improvement

7 Reports with confidence Detailed integrated andaccessible financial and operational information enables execu-tives to personally certify business results

8 Executes with conviction Truth clarity and con-fidence forge a powerful link between strategy plans and exe-cution

9 Stands up to scrutiny A comprehensive approachmeets the highest standards of accountability and confidence

I will revisit these Nine Tenets in more detail inChapter 10

Barriers to EPM Adoption

Despite the demonstrated benefits and appealing promisesof EPM as with any new technology adoption barriersabound Irsquod like to focus on two of the most commonineffective approaches to implementing EPM initiativesand the current state of EPM tools and technologies

A MULTITUDE OF EPM APPROACHES

The way an organization approaches implementing EPMspeaks volumes about its readiness to succeed at perfor-mance management The organizations most ready arethose that have achieved a balance in terms of the matu-rity of their business users and IT Organizations with ahigh level of IT maturity and a low level of business usermaturity tend to use an approach I call ldquoOne Size Fits AllrdquoOrganizations with high business user maturity and lowIT maturity use an approach I call ldquoA Thousand FlowersBloomrdquo

In my view organizations with both low business userand IT maturity are stuck in a kind of EPM ldquoMiddle AgesrdquoAnd finallymdashand of course these are the shining starsmdashorganizations with a high level of both IT and business usermaturity enjoy a kind of EPM ldquoUtopiardquo

54 BARRIERS TO EPM ADOPTION

One Size Fits All

In this approach IT calls the shots when it comes to EPMAnd typically in its desire to achieve stability picks one toolthat is easy to manage and one centralized data warehousewith little concern for the variety of user needs and for thecomprehensiveness and integration of EPM initiatives acrossthe business It is my strong belief that an EPM initiativedriven by ITmdashno matter how visionary or well intentionedthe IT team ismdashwill never replace the business as the driver

To illustrate this point much of the IT buying behaviorin large enterprises is focused on ad hoc query and reportingtools This has generated some very large enterprisewidepurchases And while this approach may reduce IT costs andbacklog in the near term and increase user penetration ini-tially it will not result in substantial improvements in overallbusiness performance because it is not comprehensive andintegrated Therefore any increase in user penetration willbe offset by a gradual decline in usage as the toolsrsquo short-comings come into focus

My advice to organizations in which IT believes thatone size fits all is to proceed with extreme caution

A Thousand Flowers Bloom

In contrast in this approach users rule Every line of busi-ness or even every department is allowed to pursue its owncourse for EPM including selecting its own projects toolsand methodologies In these organizations EPM is frag-mented solutions are siloed with little or no coordinationacross departments or lines of businesses and implementa-tions are tactical Data marts abound and planning fore-casting and budgeting are typically done using disjointedspreadsheets resulting in a kind of ldquospreadsheet hellrdquo

I know of a bank with multiple fairly autonomous busi-nesses in various geographies that uses more than 6000

A Multitude of EPM Approaches 55

different spreadsheets in different parts of the company formonitoring and management of performance and report-ing Imagine how time consuming (costly) and error prone(risky) any exercise that required the bank to roll up data orinformation in those spreadsheets into a consolidated en-terprisewide view would be

Also in these organizations IT resources tend to existwithin lines of businesses and departments and central ITis viewed simply as a utility and consequently given little orno input into EPM decisions

In addition there is little input from top managementinto EPM initiatives in these organizations so links to cor-porate goals and strategies are practically nonexistent

My advice to organizations in which a thousand flowersbloom is also to proceed with extreme caution

The Middle Ages

In organizations that are in the Middle Ages of EPM usersolutions tend to be limited to inflexible reporting and dataaccess andmdashas in organizations in which a thousand flow-ers bloommdashspreadsheets are the performance managementtools of choice Use of BI toolsmdashlet alone EPM toolsmdashis sporadic and inconsistent In fact there are no initia-tives around EPM per se Intuition and experience of topmanagement drives decision making and planning and thebudgeting process is limited to a finance exercise at best andoften haphazard

To organizations in the Middle Ages of EPM my adviceis not to bother Your chances of success are miniscule

Other Bad Behaviors

There are a handful of other bad behaviors that may exist inorganizations that donrsquot qualify as approaches but nonethe-less reflect a lack of EPM maturity

ldquoMisguided Self Servicerdquo When IT doesnrsquot compre-hend user needs it often simply throws a tool over thewall with a data warehouse

ldquoInsight Elitismrdquo Only top management has access toinformation and insight and uses it to second guess andbully managers

ldquoDashboard Myopiardquo IT gives users dashboards with-out any rationale to the metrics that are presented

In some organizations all these behaviors are presentsimultaneously

Utopia

And finally there is EPM Utopia In organizations at thisadvanced stage of EPM maturity the business owns EPMinitiatives has a strong partnership with IT and technologyand IT exists to support business initiatives and processesThere is very likely an EPM Center of Excellence1 thatexists outside of IT and is championed by either the CFOor a line of business executive An EPM Center of Excel-lence is an organization that defines refines documentsand promotes best practices an organization will use to de-ploy EPM

The organization has probably standardized on the rightnumber and type of EPM tools and technologies In bud-geting planning and other aspects of performance man-agement processes are enterprisewide

Organizations that exist in a state of EPM Utopia proba-bly donrsquot need any advice from me they are already movingahead and enjoying great success

In these organizations EPM initiatives are driven bythe business and by a vision the business had for EPM and

1EPM Centers of Excellence are sometimes known as EPMCompetency Centers

One Size Fits All

Business Maturity

Utopia

Middle Ages Thousand Flowers Bloom

uarrminus

EXHIBIT 41 EPM Readiness Based on IT and Business Maturity

the role it can play in empowering individuals to improveperformance (see Exhibit 41)

CURRENT STATE OF EPM TOOLSAND TECHNOLOGIES

The second barrier to EPM adoption Irsquod like to discuss isthe current state of EPM tools and technologies They havecome a long way since the inception of EPM in the early2000s but challenges remain

For example many organizations still struggle to gainaccess to accurate and reliable performance informationThis is a result of the situation I have already describedwith many organizations scattering performance informa-tion across 10 or 12 or more unconnected transactionalsystems and data warehouses And despite investments ofmany millions of dollars in these systems many organiza-tions are still unable to create a single version of the truthabout their performance with data integrity

Another challenge is that business users still must relyon IT experts to gain access to management reports andanalyze customers products revenues expenses and otherelements necessary to make decisions about how to usescarce and valuable resources in the best way This is becausethere are too many different and unconnected tools re-quired to create and analyze reports and most of themare tuned to the needs of report creators instead of reportconsumers

Another is that deploying and managing comprehen-sive EPM solutionsmdashwhich include transactional systemsdata warehouses and BI tools in addition to EPM appli-cations and servicesmdashare still too difficult and expensiveThis is because these solutions have evolved in a haphazardway as vendors have delivered separate products to meet thevarying needs of different lines of business and functions incompanies Multiple vendors delivering unconnected prod-ucts that nevertheless must work together leads to instabilityand higher total cost of ownership

To address these challenges EPM must provide anefficient and effective way for companies to achieve a sin-gle version of the truth about their performance withdata integrity In addition to enabling an accurate view ofperformance data integrity provides a foundation for com-panies to establish performance metrics that are meaningfuland consistent across the enterprise making it easier forsenior management to track progress Data integrity andconsistent metrics in turn make it possible for individualsto commit to achieving certain goals and being held ac-countable with confidence

EPM must also simplify and significantly improve theexperience of using performance management solutionsfor business users so that performing desired tasks is fasteasy and intuitive and does not require assistance from ITEase of use encourages greater participation in performancemanagement activities across the enterprise and transforms

performance management solutions into everyday businesstools

And EPM suppliers must integrate their products sothat solutions are simpler to deploy and manage lessexpensive and more reliable Lower total cost of owner-ship makes it possible for companies to more widely adoptenterprisewide performance management solutions

With the problems of data integrity ease of use andlower total cost of ownership solved organizations wouldbe able to turn their attention to the activities that are theheart of performance management

To better understand the state of EPM tools and techno-logies today itrsquos valuable to look at how they have evolved

As previously discussed prior to the introduction ofEPM BI was the primary tool for performance manage-ment Over the past 20 years BI has become invaluable foraccessing analyzing and sharing performance informationand more recently has become even more important as partof an EPM solution

However because lines of business and functions inorganizations have historically had different informationneeds access requirements and report preferences BI ven-dors have delivered different tools to satisfy them one setof tools for production reporting another for ad-hoc queryand analysis another for multidimensional analysis and yetanother for data mining and statistical analysis Even todaymost BI vendors offer a set of point products and few aretying them together as part of an integrated solution

As EPM takes over as the primary performance man-agement solutionmdashwith BI as an essential elementmdashintegration becomes even more important

The need for EPM solutions to work better togetherextends beyond any single supplierrsquos products Organiza-tions implementing EPM initiatives want to simplify theirperformance management solutionsmdashapplications and ser-vices BI tools transactional systems data warehouses and

so onmdashto get fewer moving parts The goal is to lowertotal cost of ownership At the same time they recognizethat they will continue to live in a multivendor world andare looking for help in pulling it all together

Evolving EPM to become the mission-critical gluein multivendor enterprisewide performance managementinitiatives is hard workmdasha combination of inspirationand executionmdashand involves solving tough problems theindustry has been working on for years

Joe Corn a social and cultural historian at StanfordUniversity uses the automobile as a model for how tech-nology must evolve to ensure adoption In my view hisanalogy is apt given the current state of EPM Here is aparaphrasing of what he says

Driving the first cars required skill in lubricating vari-ous moving parts sending oil manually to the transmissionadjusting spark plugs setting the choke opening the throt-tle wielding the crank and knowing what to do when thecar broke down

A driver today simply turns the ignition key puts his footon the accelerator brakes and steers The complexity ofmodern carsmdashwhich are in fact sophisticated computersmdashis shielded from the driver abstracted away and hidden bya greatly simplified and standardized user interface

The evolution of the automobile suggests a guidingprinciple for future EPM development Make it simple butmake it better

The principle of ldquomake it simple but make it betterrdquohas led to the emergence of a critical next step in EPMan EPM system An EPM system consists of business andfinancial applications a BI platform common services suchas data and application integration and master data manage-ment and a role-based environment that simplifies accesscommunication and collaborationmdashall integrated into asingle unified system that can be easily and cost-effectivelydeployed managed and maintained

Part Two|

PREPARING FOR BATTLE

Draw an Accountability Map

The key to extracting tangible and sustainable value fromEPM going forward lies in focusing on five key activi-ties drawing an accountability map of your organizationachieving Information Democracy building an EPM Cen-ter of Excellence standardizing and consolidating EPMtools and deploying an EPM system Over the next fivechapters I will focus on each of these activities in detailFirst up is drawing an accountability map

Most executives and managers agree that defining theflow of information in their organizations and eliminatingbottlenecks is a vital corporate discipline that can improvedecision-making efficiency and performance by ensuring acommon understanding of goals and accountability Manyhowever admit to falling short of that goalmdashand thatrsquos notsurprising It is one of the most complex tasks in modernmanagement

Itrsquos complex because in many organizations today thedistance from the executive suite to the front lines can belayers deep and thousands of miles long Goals defined bytop management can quickly become blurred diluted oreven lost on their way leaving tactical managers entirely inthe dark A sales organization for example may continueto focus on increasing penetration into existing accountslong after corporate strategy has shifted to expanding the

64 DRAW AN ACCOUNTABILITY MAP

customer base The strategy may be excellent but may failbecause it has not been effectively communicated

The challenge is compounded when the separate strandsof information come from weakly linked uncoordinatedreporting systems rendering it incompatible or even con-tradictory Passed from system to system or hand to handinformation that might have been initially accurate can be-come distorted Even if it is accurate the ability to drilldown for detail might not exist And regardless of its accu-racy information that is delayed in processing or generatedon an arbitrary schedule can be out of date and as a resultuseless or even misleading

It is also clear that there is a critical need for informationsharing among functional areas Coordination of sales andmarketing for example can make both operations more ef-fective Accurate sales forecasts allow manufacturing to planproduction and finance to allocate resources Informationfrom manufacturing has an obvious impact on purchasingand human resources and itrsquos equally clear that poor syn-chronization of activities wastes resources and opportunity

When organizations fail to define the flow of infor-mation it is not for lack of awareness More than everorganizations today know they need to think and act enter-prisewide And yet operations remain fragmented Herersquoswhy

Organizations and living organisms have much in com-mon Each interacts with its environment draws sustenancefrom its surroundings pursues goals grows and changesEach competes with other entities for success and survivalAnd each is made up of mutually dependent parts that mustfunction in perfect accord to survive

The processes by which the parts of a living organ-ism communicate and collaboratemdashturning stimulus intoresponse or thought into actionmdashare inborn They aremapped in DNA and passed from generation to genera-tion

Draw an Accountability Map 65

An organization on the other hand has no inher-ited mechanisms Communication among its parts mustbe deliberately designed and implemented Ironically con-sidering how critical communication is to a modernorganization it often takes a back seat to the daily tasksof building a business meeting customer needs and deal-ing with competitive threats And once established mech-anisms for communication are often allowed to fall behindas the organization grows and changes

One reason for this is that functional areas within or-ganizations still use different information-sharing tools andtechnologies These tools are purchased based on parochialneeds and preferences and do not include mechanisms fordirectly linking tactical implementation with the strategythey supposedly serve The task of linking them falls toan already overworked IT department which means thatoften information-sharing is handled manually or left un-done And the organization pays the price

In an ideal world information-sharing tools andtechnologies would enable information sharing and col-laboration Many organizations are in fact moving tostandardize and consolidate their information sharing andperformance-management tools But most organizationsare still a long way from that and must seek other solutionsto the problem

What is needed is a practical way to link strategy with athorough overview of an organization and its interdepen-dent functions If that can be done it is relatively simple tofind technical and organizational solutions that effectivelyaddress strategic goals

A technique I recommend is to engage in a processthat lets top management create a top-to-bottom map ofthe entire organization with the goal of identifying all theplaces where specific functions at specific organizationallevels intersect Once the intersections have been iden-tified top management can add key insights about the

intersectionsmdashsuch as the degree to which they drive thebusinessmdashand relate them upstream to corporate strategyand downstream to tactical execution

Once this discovery process is complete it becomes pos-sible to identify the links that must be created to ensure thatinformation goes where it is needed within the organiza-tion and that it flows unhindered from strategy creators totactical implementers in key areas of the business I call theoutput of this exercise an ldquoaccountability maprdquo because itmakes clear who needs to know what information in an or-ganization and who needs to be held accountable for actingon it (see Exhibit 51)

The purpose of an accountability map is not to solveproblems but rather to thoroughly and comprehensivelyidentify the areas in which solutions are required And it isprecisely this critical identification step that is missing whenorganizations take a piecemeal tactical approach to select-ing information sharing and performance management so-lutions Once a map has been created it becomes mucheasier to find technicalmdashand organizationalmdashsolutions thateffectively address strategy goals

USING AN ACCOUNTABILITY MAP AS ACONSENSUS-BUILDING TOOL

To illustrate how an accountability map works considerthe case of a multibillion supplier of a commodity agri-cultural product that created an accountability map for itsbusiness like the one I just described The purpose wasto gain input from top management on what to mea-sure and how to improve the companyrsquos performance aspart of a comprehensive EPM initiative The mappingprocess was also used as a strategic consensus buildingtool to facilitate interaction and communication throughthe building of a common business language support the

STRATEGICMANAGEMENT

OPERATIONALMANAGEMENT

ETICALEUTION

alignment of strategic objectives and deliver a roadmap forEPM

Aided by a consultant over the course of 30 days thecompany conducted meetings with key executives in eachof its functional areas and top management The mappingprocess covered management practices and realities in allphases of the management cyclemdashvision and strategy goalsand objectives execution and evaluation For purposes ofthis example Irsquoll focus on the companyrsquos goal and objectivesetting activities and processes Going through the mappingprocess revealed the following

The primary goal at the company is to maximize mar-gin and the mapping meetings confirmed that every groupclearly understood this However executives also realizethat setting a margin goal is difficult since the companyrsquosprimary product is a commodity whose price is dictated bythe marketplace

Consequently the company focused on the parts of thebusiness that management can control These included

Growth and diversification Distribution and logistics Operational improvements Portfolio scrutiny Risk profile

Within these areas management would set goals basedon reducing production distribution and operations costsand minimizing risk Communicating these prioritieswithin the company was not an issue as most of thegroups know how these goals relate to maximizing margin

However the mapping process showed that two criti-cal elements were missing that would enable the companyto more effectively set attainable goals for the organiza-tion The first was the absence of effective ways to measure

Using an Accountability Map as a Consensus-Building Tool 69

whether the goals have been achieved The second was lackof a process for giving responsibility to the functional areasthat can control or contribute to achieving these goals

In addition the mapping process showed that thecompanyrsquos decision makers were mired in too muchdisconnected information with no way to easily identifyand eliminate activities that donrsquot add value no easy way tomeasure and track strategic KPIs and no effective methodto communicate goals and objectives

The company understood that strategy implementationis the most important factor shaping management and cor-porate valuations And the company did a great job definingstrategy The problem was that the strategy stopped at thedoors to the executive suite The company did a poor job ofassigning responsibility for executing the strategy and pro-viding effective ways to measure and monitor progress Andof course if no one is responsible no one is accountable

Here are some of the specific challenges in executingstrategy identified by key executives in interviews duringthe mapping process

Lack of accountability No method of communicating the strategy to all levelsin the organization

No clear link between strategy planning and fore-casting

No process for updating the strategy on a regular basis Difficulty in making decisionsmdashtracking too manymeasures that are not strategic (mostly financial)

Strategy and objectives are too abstract for most people Company does not communicate strategy to themasses simply and clearly

No alignment of employee behavior with strategicobjectives

No way to measure strategic performance at differentlevels in the company

No way to systemize existing scorecard processes andprovide data more frequently

The mapping process showed that the company ischallenged by the lack of a comprehensive organizationalmeasurement system designed to affect the behavior of themanagers and employees As a starting point for solvingthis problem the company had to determine which smallnumber out of the hundreds of financial and nonfinancialmeasures it could track would have the most powerfuleffect on long-term economic performance and whoshould be held accountable for them (see Exhibit 52)

The mapping process further showed that the companyneeded to identify and assign accountability to KPIs acrossall businesses and define the ones most critical to the successof the companyrsquos overall strategy The agreed-upon mea-sures could then be used to provide top-level managers witha fast but comprehensive view of the business

The process zeroed in on the key metricsmdashamong hun-dreds of possibilities identifiedmdashthat could be used to drivethe business

Margin By product By customer (previously unavailable) By location (previously unavailable)

Margin risk Variable margin and variable cost Headcount Daily cash and weekly cash forecast Raw materials storage Raw materials prices

Daily shipments Stock price

At the close of the process the consultant recommendedthat the company use an interactive performance dashboardand a Balanced Scorecard-certified scorecarding applica-tion to address these issues With these tools the companycould gain a clear understanding of corporate strategy ob-jectives and accountability while proactively monitoring itsactions and performance against company targets and in-dustry benchmarks This would help the company bridgethe gap between strategy and execution engage a broaderrange of employees in planning activities and respond moreproactively to changing business conditionsmdashfrom each en-terprise desktop to the CEO

The company found that the process of creating an ac-countability map paid enormous dividends First it allowedtop management to articulate some of the organizationrsquosbiggest issues with a minimum investment of time and noneof the cost or delay of other possible methods such as tra-ditional process reengineering

Second it provided a clear implementation map forthose who were designing a management system to meetstrategic goalsmdasheliminating risky guesswork and reducingthe likelihood of extensive rework after implementation

Best of all building an accountability map requiredno leap of faith on the part of the participants Unlikemany performance management initiatives which cannotbe judged until they succeed or fail an accountability mapmakes immediate intuitive sense It is one of those rare toolsthat can be evaluated in minutes but pays dividends for yearsto come

Achieve InformationDemocracy

Information Democracy is an admirable goal and some-thing it would seem almost everyone would aspire to Butthat is not the case If it were simply a matter of apply-ing technology to achieve Information Democracy I haveno doubt that many organizations would be enjoying itsbenefits today But technologymdashas is always true with im-portant changes in management philosophy and practicemdashis just one component of making Information Democracywork

One problem lies in misconceptions about what Infor-mation Democracy really means As I previously definedit Information Democracy is a principle of equality thatdemands actionable insight for all What may not be ob-vious from this definition is that Information Democracyis intended first and foremost to promote the good of theorganization It does this by empowering individuals andin this way it is similar to political democracy But there aresome conceptual differences that cause the analogy to breakdown rather quickly

Political democracy is intended to ensure equality forall citizens and in so doing promote the common goodof a nation In Information Democracy users have access

74 ACHIEVE INFORMATION DEMOCRACY

to all the information and capabilities they need to dotheir jobsmdashwhich promotes the common goodmdashbut notequal access to all the information and capabilities presentin the organization Confusion about this distinction maycause organizationsmdashand especially top managementmdashtobe wary of Information Democracy

Another problem is that there will always be people inan organization who will resist change of any sort includ-ing a shift to Information Democracy In the words of thatgreat philosopher Pogo ldquoWersquove met the enemy and heis usrdquo

Letrsquos take a look at a few of the biggest obstacles ldquowerdquo putin front of ldquousrdquo The first and most common one is inertiaEven people who donrsquot like the status quo very much be-lieve that big change is far too difficultmdashperhaps even im-possiblemdashto achieve

Another big obstacle is fear There will always be peoplewho fear change regardless of what it is Theyrsquore afraid thatchange will undermine their roles in the organization oreven threaten their job security

And finally perhaps the most dangerous obstacle of allis self-interest Unfortunately there will always be peoplewho alter the truth or mask it over for their own purposesSimilarly there will always be people who will actively try toundermine attempts to put anything in place that threatensa power base theyrsquove built

And within organizations of course ldquowerdquo arenrsquot justindividuals We also act as groups of people with commoninterests

For example IT often approaches providing access toinformation as a sort of narrowly focused one-size-fits-all exercise and although well-intentioned this approachusually leads to enterprise reportingmdashnot EPM

Another camp consists of the lines of business depart-ments and functions Often they behave as if the rest of

Achieve Information Democracy 75

the world doesnrsquot exist focusing exclusively on their ownparochial needs The result is typically multiple and discreteEPM products

Top management represents another camp Their ob-jective is to set strategy To do so they rely on many infor-mation sources some of them reliable but many of themunreliable

And there are the disparate work groups that share acommon trait they take advantage of the lack of a coherentstrategy for EPM in their organizations use whatever prod-ucts and tools they want and offer information and insightssubjectively to whomever they want

Despite these organizational and behavioral obstaclesInformation Democracy is critical to a comprehensiveperformance management initiative because informationstakeholders require it to do their jobs and fulfill their rolesFor example

Employees EPM tools today are still largely imple-mented at the departmental level and reserved for theinformation elite The good news is that more orga-nizations are beginning to standardize a smaller set oftools available to more people In addition as EPMreaches beyond finance and into operational areas ofan organization it reaches more user segments namelyworkers and team leaders in charge of operational ac-tivities such as marketing HR and so on

Regulators In the wake of high-profile examples ofcorporate misconduct organizations now face increas-ingly stringent requirements to make financial report-ing more transparent As a result most organizationshave been forced to restructure their financial re-porting to comply with these regulationsmdashan activitythat typically goes much deeper than just the reportsthemselves Forward-thinking organizations are taking

advantage of this necessity to restructure their manage-ment reporting as well

Suppliers and partners As businesses offload criticalfunctions to suppliers and others in their decentralizedbusiness networks success depends on extending ac-cess to information across the networks Sharing in-formation helps businesses work with their suppliersin concert to improve the overall performance of bothorganizations

Customers Many organizations are finding increasingbenefits to making information more available to cus-tomers as well For example car leasing companiesmdashunable to differentiate the cars they offermdashhave foundthat sharing information with the fleet managers oftheir corporate clients helps them differentiate throughservice And insurance companies increasingly are dis-tributing their products and services through a pow-erful channelmdashtheir clientsrsquo HR departments Andof course Web-based businesses are finding that giv-ing their consumer customers direct access to infor-mation about their buying or usage patterns can buildloyalty

In addition to stakeholder needs there is another reasonthat Information Democracy is important In most organi-zations EPM initiatives to date have focused on cleaning upspecific data sets and improving access to this data withincertain departments or for a limited number of need-to-know audiences

Information Democracy takes two critical steps beyondthis It integrates all relevant information into a single user-view and makes this data available across the enterprise Al-though not all information will be made available to everyemployee Information Democracy makes the right infor-mation available to the right people at the right time

To be sure Information Democracy requires process andchange management This mandates a visionary executivesuch as a CFO becoming a Chief Performance Officer aswell And unfortunately too often Information Democ-racy becomes most feasible when there is a ldquochanging ofthe guardrdquo at the highest levels of management for exam-ple at the CEO level

Nevertheless with the proper level of executive com-mitment Information Democracy can thrive and becomea cornerstone of an organizationrsquos EPM strategy

Build an EPM Centerof Excellence

In working to find business solutions IT and businessgroups within an organization share common goals yettheir approaches are often so independent of each otherthat they may be working at cross-purposes IT managersmight focus on architecture function and standards butlack any real understanding of what business users do Busi-ness managers and analysts might understand the businessneed but do not have the technical background to developsolutions that support it

Finding common ground for IT and business is theconcept behind an EPM Center of Excellence which isan organization that defines refines documents and pro-motes best practices an organization will use to deployEPM

WHY YOU NEED A CENTEROF EXCELLENCE

Centers of Excellence are frequently implemented in ITenvironments to help organizations implement a varietyof technologies including data warehousing BI and the

Why You Need a Center of Excellence 79

applications of assorted vendors What these implementa-tions have in common is the creation of a central repositoryof knowledge experience and best practices and a big pic-ture perspective that can assist others in an organization withsimilar deployments

In a similar way an EPM Center of Excellence canprovide these and other benefits to an organization for man-aging business performance It should be kept in mindhowever that some of these benefits take longer to real-ize than others This is because organizations typically havea burning issue that drives their need to implement EPMand this issue will drive the setting of the short-term goalsof the Center Over the long term however an organiza-tion can expect to achieve the following benefits from anEPM Center of Excellence

Build a centralized infrastructure and expertiseMany Centers feature a lab for research proof of con-cept prototyping and advanced training If so testlabs tools and best practices can be integrated andbe accessible to all project teams through one sourceeliminating the need to duplicate scarce and expensiveresources

Consolidate and leverage best practices A Centerprovides a vehicle that facilitates knowledge sharing ACenter also can create reusable assets and build compe-tencies leveraging an organizationrsquos investment in itsEPM efforts

Eliminate disparate tool usage A Center can stan-dardize toolsets and processes helping to ensure consis-tent cost-effective rapid implementation of optimizedprocesses

Centrally administer performance managementfor the entire organization This will create vis-ibility into critical performance parameters of the

80 BUILD AN EPM CENTER OF EXCELLENCE

delivered application keep everyone informed andkeep applications aligned with business objectives

Bring order and uniformity to data This is achievedby aligning different projects that use similar data andcontrolling costs by reducing redundancy in data andprocessing

Eliminate the problem of a fragmented data in-frastructure Fragmented data infrastructures whichare typical in larger organizations with multipledepartment-specific data warehouses or data marts canprevent organizations from obtaining a complete viewof customers including management of their supplychains and monitoring business performance

Provide a business focus A model Center measuresperformance from the perspective of business and endusers creating a more customercentric organization

Establish an enterprisewide framework deployingEPM applications The framework can be leveragedfor future development initiatives resulting in lowercosts improved delivery times and higher quality Itcan also ensure that critical delivery components aredelivered in place and help increase the quality andtimeliness of information from the EPM system to nearreal time

Enhance interactions with suppliers This can beachieved by sharing the latest capabilities in EPM tech-nology

Control costs By acting as a central source of EPMoptimization expertise a Center can help eliminateredundancy in EPM efforts Often the skills devel-oped and the processes created by individual projectteams are not shared within the IT department oracross lines of business Each team starts from scratchwith each new performance optimization projectmdash

First Steps 81

resulting in wasted time money and talent A Centercan help ensure that an organization receives the max-imum benefits from the resources invested in its EPMefforts

Achieving these benefits depends on the maturity ofthe Center and the resources available to it Organizationsshould initially focus on those objectives that promise todeliver the greatest benefit and address their areas of greatestneed and get maximum buy-in

FIRST STEPS

Creating an EPM Center of Excellence is both practicaland achievable An organization can start small leverage itsexisting resources and expand the Center as it proves itsvalue to the organization

In planning a Center it is necessary to establish a charterby defining its objectives in terms of the overall organiza-tional objectives A Centerrsquos objectives need to align withthe objectives of the business units the development teamsand the organization as a whole There also needs to bealignment among executives business users and IT staff intheir interest for EPM deployment

A critical first step in building an EPM Center of Excel-lence is defining a coherent strategy for the design of EPMwithin an organization that will serve as guiding principlesfor all EPM projects

The EPM design will then need to be broken out intological phases with each phase building on the previousphase and tying in to the overall EPM strategy which iscontinuously evolving As your companyrsquos EPM strategyand vision evolves over time your Center will be your ve-hicle for evolving that strategy

A Center should also define the services and deliverablesit will provide These should be based on stated objectivesthat will of course change over time as the Center maturesand as either additional resources are provided to the Cen-ter or resources are redeployed due to their more efficientutilization

A Center should also have a plan to develop a staff capa-ble of delivering services to its customers This may includetraining existing staff hiring new staff and procuring out-side consulting services

The Center should define and put in place metrics tomonitor its ongoing performance and progress and in sodoing adopt its own EPM strategy around execution

And a Center should develop a communications plan toinform the rest of the organization of the services offeredby the Center and the successes it has achieved

There are four additional necessary ingredients to cre-ating an EPM Center of Excellence defining the Centerrsquosroles and responsibilities establishing a reporting structureensuring that there are human resources in the Center withthe skills necessary to accomplish its objectives and provid-ing adequate funding

ROLES AND RESPONSIBILITIES

An EPM Center of Excellencersquos main responsibilities are to

Establish requirements for EPM projects and initiativesthat meet usersrsquo and the organizationrsquos needs

Train users on EPM tools including how to access andleverage the data provided by the EPM

Provide the analytical expertise of Center staff byperforming complex ad hoc analysis for businessunits

Reporting Structure 83

Ensure uniformity of analytical approaches used to addresscommon business issues across the organization

Coordinate the definition of master data and metadata inthe organization including the definition of commonbusiness terms

Establish standards for EPM tools used throughout theorganization

Develop prototypes of EPM applications as proofs ofconcepts

REPORTING STRUCTURE

There are two important considerations regarding the posi-tioning of a Center in an organization First a Center mustbe strategically or appropriately placed in the organizationin terms of level and ldquolocationrdquo For example a Centershould be positioned high enough in the organization tobe able to have an organization-level point of view and suf-ficient organizational clout Conversely it needs to be lowenough within the organization to be in touch with whatis actually going on in terms of day-to-day performancemanagement

The second issue deals with where in the reportingstructure to locate a Center Various business functions arepotential candidates for housing a Center but most com-monly a Center reports to the CFO or CIO and in somecases to the CEO Occasionally a Center reports to a cor-porate services executive independent of a specific func-tional area Experience thus far has shown that Centers aremost effective when they report to the CFO or a servicesgroup

Wherever a Center is located it is important that it berelated to the strategic mission of the organization and is ableto effectively engage in cross-functional activities If this not

the case a place on the organization chart independent ofany function may be necessary

REQUIRED SKILLS

For a Center to successfully carry out its mandate its staffmust possess a diverse set of skills Required abilities of aCenter staff include a strong mix of business analytical andinformation technology skills In addition be prepared tobring in outside experts as needed for example consultantsand vendor expertsmdashespecially for on-the-job training ofCenter personnel and for getting started on projects aftera charter and funding have been secured but before theCenter is fully staffed

Deployment of EPM systems must necessarily be basedon an understanding of an organizationrsquos business A Centertherefore must have a manager who has this understandingand can communicate the knowledge effectively to all con-stituents Required business skills include an understandingof the needs of the various functional departments and thebusiness issues faced by the organization and communica-tion skills that enable him to communicate effectively withsenior managers and IT regarding EPM needs potentialand strategy

The ability to derive deep insight from data is also anessential capability of the Center The use of sophisticatedstatistical analysis requires people with a background in op-erations research or data-mining scientists These resourcesare best suited to conduct in-depth analyses and build newmodels for less sophisticated users

Finally because IT will serve as the enabler that permitsEPM to be deployed a Center staff must understandhow to access and manage the data needed to support thebusiness and analysis requirements the various IT tools and

Funding 85

technologies the data-warehousing and data-administra-tion skills necessary to map EPM to business needs and theEPM infrastructure implications of business and analyticalrequirements

Ideally a Center will have staff members with at leasttwo of these three necessary skill sets Potential sources forthese experts include existing IT professionals who possessa strong understanding of the business and business userswho are technologically minded

FUNDING

Various models can be used to fund a Center It makessense to start with CFO-sponsored funding for three tofive quarters so the Center can operate at no cost to thebusiness units This gives the Center time to establish valueand credibility Following this period consider a charge-back or cost-recovery method Set the expectation well thatthis service is valuable and will therefore carry a cost onceit is established

By its very nature an EPM Center of Excellence is cross-functional and a way of allocating its cost to the variousareas benefited needs to be developed One method is tosimply allocate all cost to one department The downsideis that this can lead to inefficient utilization of a Center byother departments which use it as a ldquofree goodrdquo

An alternative way of funding is to set up a Center as anindependent profit center with departments billed for thecost of the Center based on utilization Care must be takento ensure that these charges do not discourage use of theCenter

A third possibility is to have some predetermined allo-cation of the cost of a Center to the user departments in afair manner Departments will then feel free to use a Center

as needed to improve their business performance This thirdapproach which focuses on cost recovery is preferred

Once established a Center will perform some or all of thefollowing specific tasks

EPM vision management EPM design ownership Dashboard and scorecard creation Report writing assistance Rule writing Data and metadata mapping Master data-management support Financial data-quality management Planning application development updates andchanges including Annual plan operating budget Revenue and expense forecast Workforce planning Capital expenditure planning

Profitability analysis Customer churn analysis Cross-sell and upsell analysis Visualization tools Corporate security Performance tuning and optimization On-the-job training for advanced or ldquopowerrdquo users Promoting the reuse of applications rules and re-ports

Relating to Other Initiatives 87

Promoting a ldquocommon business languagerdquo includingdefining terms such as customer and full-time equiv-alent employee

SUSTAINING A CENTER

Often organizations create an EPM Center of Excellenceto address issues that have arisen from various EPM initia-tives an organization has already begun to implement Thismeans a Center focuses immediately on addressing thoseissues This also means the Center must have short-rangegoals and strategies to address the organizationrsquos immediateldquopainrdquo and longer-range strategic goals to address futureprojects

Longer-term goals a Center may be called on to addressinclude reducing organizational costs providing directionfor the organizationrsquos EPM efforts or providing the orga-nization with a central platform for performance manage-ment

RELATING TO OTHER INITIATIVES

Another question that should be answered when buildingan EPM Center of Excellence is how will it relate to otherbusiness initiatives underway in the organization especiallywith regard to other IT-focused initiatives Establishing aCenter should be coordinated with the other initiatives anorganization is planning both in the formative stages of aCenter and on an ongoing basis

For example an organization may also be planning toestablish a data warehouse or implement master data man-agement The expertise contained in a Center may help inplanning these projects and ensuring they meet the organi-zationrsquos needs At the same time the Center might benefit

from the expertise and planning that goes into these otherprojects Either way careful consideration and integrationof an organizationrsquos initiatives are essential to ensure it lever-ages its IT investments and achieves the maximum possiblereturn on its investment

ITrsquoS WORTH IT

Building an EPM Center of Excellence is neither fast norinexpensive To ensure success and ongoing support for aCenter it is important for the Center to establish its valueearly on Centers that are serving the business rarely needto defend their costs

The beauty of an EPM Center of Excellence is that itmakes organizations smarter Drawing on the teamrsquos ex-perience and expertise for strategic deployments increasesefficiency and productivity It enables better decision mak-ing and makes the best use of the organizationrsquos resourcesUltimately all of those benefits translate into increased per-formance However it takes commitment from a forward-thinking organization to invest in the right people and theright processes

Sometimes of course this is easier said than done In theearly 2000s a major Asian manufacturer created an EPMCenter of Excellence to help drive a EPM project that wasenvisioned as the first of many The goal of the first projectwas to bring together disparate data from many divisionsinto a single data warehouse

While this initial goal was effectively achieved becauseof the technical competency delivered by the Center thecompanyrsquos approach to building and funding the Center re-sulted in a high cost structure The high cost of using theCenter alienated potential users within the company limit-ing the number of follow-on projects the Center was asked

Itrsquos Worth It 89

to undertake And in turn with so few projects the Centerrsquosimpact on the companyrsquos overall performance managementinitiative was limited

Where the approach took a wrong turn was actually atthe outset of the project when its organization and char-ter were determined The Center was planned organizedand staffed primarily by technical experts with little inputfrom the companyrsquos business users In addition the Cen-ter reported into a central IT service group and interactedprimarily with CIOs throughout the company

Generally speaking the Center had little contact withbusiness managers until a project had been identified Oncea project was completed the Center had very little contactwith business users except for providing technical supportand fielding requests to make changes to applications Be-cause there was no strong relationship between the Centerand business managers problem resolution was difficult Inaddition to determine user satisfaction the Center reliedon an annual IT survey that covered a broad range of ITissuesmdashnot just Center issuesmdashwhich meant that problemswith the Center went unresolved for extended periods oftime

The situation was further complicated by the fact thatthe company also supported a separate vendor-specific ERPcompetency center which often competed with the EPMCenter for projects This made it difficult for the companyto standardize tools and a methodology for EPM projectsand worked against the Centerrsquos efforts to establish bestpractices

Perhaps the biggest obstacle to the Centerrsquos successthough was its funding model By corporate mandate theCenter was funded by charging its costs plus a profit and feesfor use of the centralized data warehouse Together thesecosts placed a tremendous financial burden on the spon-soring business units causing complaints about how much

projects cost The Center responded to these complaintsby outsourcing work to India to reduce costs with mixedresults

What this example illustrates is that it takes more thantechnical competency to build and sustain a successful EPMCenter of Excellence A Center must also have a suitablecharter strong support and participation from the businessand a funding model that encourages rather than discour-ages its use

At the opposite end of the spectrum consider the EPMCenter of Excellence at Bank of America Bank of Americabased in Charlotte North Carolina is one of the worldrsquoslargest financial institutions serving individual consumerssmall and middle market businesses and large corporationswith a full range of banking investing asset managementand other products and services The company has morethan 5700 retail banking offices more than 17000 ATMsand serves nearly 22 million active users through its onlinebanking operation

Bank of America began its EPM journey in 2003 withan initiative driven by finance to transform the companyrsquosfinance organization into one that would be considered bestin class in its industry At the time the finance organizationwas using legacy software and outdated hardware and thecompanyrsquos financial analysts were spending 60 percent oftheir time gathering data needed for reporting and 40 per-cent of their time analyzing and reporting on it

The companyrsquos long-term goal was to flip those per-centages by rethinking the processes and automating themwith advanced software and hardware systems The ben-efit would be a finance organization with more time foractivities that could add value to the business

Already committed to both Lean and Six Sigma man-agement philosophiesmdashthe former stressing waste reduc-tion as exemplified by the Toyota Production System andthe latter focusing on qualitymdashthe bank naturally applied

both to its EPM planning One Six Sigma technique inparticularmdashVoice of the Customer (VOC)mdashguides Bankof America in all its critical initiatives including EPMVOC is a formal process of engaging with customers to gettheir requirements and feedback over time to ensure betterquality

Finance thought at first that it would implement its EPMreporting and analysis project using a Big Bang approachmdashdesigning and implementing one standard approach and sys-tem for all the companyrsquos lines of business Early VOC con-versations quickly convinced finance that the requirementsof the various lines of business were so different that eachwould have to be tackled individually

When it became obvious that this one large-scale EPMproject was more realistically a series of smaller EPMprojects the question became how to ensure an infrastruc-ture consistent methodology and best practices that couldbe leveraged across all projects while meeting the specificneeds of each line of business in each individual projectThe answer was to establish an EPM Center of Excellencewhich the company did in early 2004

Unlike the Asian manufacturer previously discussedBank of America staffed its Center from the outset withboth technology and business experts This and its com-mitment to the VOC process ensured that the views of thebusiness were constantly represented in each phase of plan-ning designing and implementing each project for eachline of business

Also unlike the Asian manufacturer whose EPM Cen-ter suffered from competition from a vendor-specific ERPcompetency center once the bankrsquos Center was establishedand on firm footing it was moved outside of finance andinto a shared services organization within corporate thatmanaged a number of different competency centers Whileeach competency center within the bank is run by its ownmanager all centers report to a single executive ensuring

that potential conflicts are more quickly and easily resolvedand that centers are not working at cross-purposes

Because the bankrsquos Center is now staffed and run by anunbiased corporate teammdashas opposed to a finance teammdashmore functional areas within the bank are using it for theirown EPM initiatives This has enabled it to fulfill its charteras an organization designed to establish standards and bestpractices for all the bankrsquos EPM projects

Also unlike the Asian manufacturer which adopted aflawed funding model that placed a heavy financial bur-den on potential users that discouraged its use the bankwas more thoughtful in designing its funding model TheCenter operates as profit center on the belief that it mustgenerate funds of its own to ensure continued investmentin advanced technologies but sets pricing fairly and trans-parently so users always know what they are being chargedand why The Center also focuses on delivering the highestpossible value while keeping costs low

One way the Center keeps costs low is to outsourcesome of its work to India just as the Asian manufacturer haddone The difference is that the bank treats its outsourcingpartners as extended team membersmdashvisiting frequentlyoffering training and applying the same standards of qualityto them as it does to its internal employees

Today the bank is successfully implementing its initialautomated reporting and analysis projects throughout eachof its lines of business and hosting other projects throughoutthe bank through its Center of Excellence This is in sharpcontrast to the Asian manufacturer who had success withone project but struggled with subsequent projects

Standardize and ConsolidateEPM Tools

While we often reflect on the lack of penetration of EPMsolutions it turns out that a lack of technology or tools isnrsquotthe cause In fact in most enterprises there are far too manytools

For years EPM tools have been purchased predomi-nately on a departmental basis by line-of-business or func-tional management Sometimes IT has been involved inthe process and sometimes not In other instances IT hasprocured its own solutions adding to the disarray Over theyears (and in most enterprises) this has led to myriad siloedimplementations Each department has its own tool withunique user paradigms proprietary formats and metadatadifferent data extracts and transformations and business se-mantics

The costs associated with this sort of fragmentation areextreme There are the direct costs such as software licensesand maintenance And then there are the indirect costs as-sociated with supporting multiple products more complexand time-consuming internal support change control andthe training and cross training of users

Finally there is the less tangiblemdashbut far more criticalmdasheffect the impact on the business which includes operating

94 STANDARDIZE AND CONSOLIDATE EPM TOOLS

inefficiencies inconsistent treatment and leverage of com-mon customers competing internal strategies and mis-alignment with corporate direction

Part of the answer to this problem is the standardizationand consolidation of EPM tools and technology

STANDARDIZATION

Standardization in this context means choosing a tool ortools that will be used widely and consistently within anenterprise To do this you must first develop a set of crite-ria for selecting standards These criteria must be extensiveand balanced You must consider the technology and archi-tecture and the nature of the company that provides thetechnology For instance is the company financially sta-ble and growing Is it an easy company with which to dobusiness Does it have a global reach Are the companyrsquoscustomer references credible

Developing these criteria will involve establishing asmall team ideally within an EPM Center of Excellenceif you have one In addition business users must be activelyinvolved in the process You will want to identify and enlistpower users throughout your organization to help Whilethe users you select might already have a strong allegianceto a particular tool andor vendor there is an importanttwofold rationale for enlisting their help First they arethe most likely individuals to know the requirements forEPM tools Second they are also the most likely individ-uals to resist the adoption of new tools By engaging withthem early on you stand a better chance of neutralizing thatresistance

To avoid skewing the criteria in favor of an installedtool it is important to define some basic ground rules forinstance ldquoThe vendor must have x customers and revenuesof x dollarsrdquo or ldquoProduct functionality must extend beyond

Consolidation 95

simply query and reporting to include modeling scenariodevelopment OLAP and data miningrdquo

Establishing a standard for future purchases althoughcomplex is far easier than consolidating a whole host ofexisting tools which is the next step in the process

CONSOLIDATION

Consolidation means reducing the numbers of redundanttools used for EPM On average most enterprises have be-tween 7 and 12 redundant EPM tools

However this does not necessarily mean reducing thenumber of tools to one Instead the goal should be to have aset of consistent and integrated tools to support the majorityof EPM application opportunities that arise

Consolidation is difficult because users in general arereluctant to change and specifically might be reluctant togive up a tool they are comfortable using for an unknownEven if they are unhappy with their current tool they maybe reluctant to accept a new one To ease the process hereare some basic steps to follow

1 Make a strong case for consolidation Businessneeds change rapidly and EPM tools must keep paceThis argument alone makes a case for replacing out-dated tools or tools from vendors that have failed tostay competitive And of course it goes without say-ing that the best reason of all for eliminating a tool isif the vendor who offered it is out of business and nolonger making updates or offering technical support

A tougher sell because it has less of a direct impacton users is to make a case for achieving better returnon investment or reducing costs by eliminating re-dundant tools For example a smaller set of nonover-lapping tools means that companies can more easily

gain experience establish best practices and deploytools more rapidly because less training is requiredOn the cost-savings side having fewer tools meansfewer tools for IT to support less training lower li-censing costs and greater leverage

Still no matter how good your case expect theprocess of consolidation to take between 9 and 18months depending on the size of the user commu-nity and the number of established tools Create aproject plan with specific milestones and responsibleparties to gauge progress

2 Work with business management and purchas-ing Your goal is get these groups to formally sup-port the standard and to ensure that nonstandard toolscannot be purchased by end users

3 Pick the low-hanging fruit first Find those usersand departments that are willing and (perhaps) eveneager to embrace new tools Do everything possi-ble to ensure that their migration and training gosmoothly This will help to build confidence and apositive track record which will make future projectseasier

4 Engage some of the skeptics early on Once allof the willing users have been migrated to standardtools itrsquos time to ldquowin overrdquo the more skeptical andresistant users Usually by engaging some of thoseskeptics early on there will be fewer ldquoholdoutsrdquoHowever fear of the unknown and inertia are sub-stantial obstacles For most of those users who are re-luctant to migrate education will be the best weaponClassroom training tutorials and handholding willhelp

5 Discontinue technical support Finally for thosewho refuse to give up their old tool (there will bea few) you should strongly consider discontinuing

Consolidation 97

technical support even though you may have to al-low them to continue using the tool Hopefully theirnumbers will be small

While the standardization of tools and technology hasmany benefits standardization alone is insufficient to ad-dress the many business issues that arise from a fragmentedapproach to EPM I often ask businesspeople how many def-initions of ldquocustomerrdquo they have in their enterprise Thisis typically met with a knowing chuckle as every organi-zation has many definitions for customer (sometimes withgood cause) The same is true for definitions of other en-tities such as products employees suppliersmdashand businessprocesses (for example order processing)

As with tools standardization of business semantics isanother area in which an EPM Center of Excellence canhelp by taking the lead in driving toward common defini-tions for key entities and processes that need to be modeledanalyzed and measured

Deploy an EPM System

The last key to extracting tangible and sustainable valuefrom EPM is implementing EPM tools and technologies asa unified system Here are some points to consider whenselecting an EPM system

As previously discussed EPM is an accepted method-ology that enables organizations to improve their com-petitiveness and efficiency reduce business risk achievestrategic alignment improve agility and improve col-laboration between individuals and business units AnEPM system supports the pervasive adoption of the EPMmethodology by moving EPM toward greater value andefficiency enhancing its capabilities while making it simplerto use and significantly lowering total cost of ownership

For example an EPM system should solve the linger-ing problems of data integrity and ease of use making itpossible for everyone in an organization to access relevantperformance information and use connected performancemanagement tools as part of a complete performance man-agement cycle

An EPM system should also enable out-of-the boxperformance management solutions for specific functionalareas Examples include workforce planning for humanresources compliance for finance and customer profitabil-ity for salesmdashlogical extensions of the core capabilities of

EPM System Components 99

EPM in planning financial reporting business analyticsand management reporting

Done right an EPM system should include shared busi-ness information common processes and services It shouldseamlessly integrate all of the different elements of perfor-mance management solutions so that distinctions betweenapplications and services BI tools transactional systemsand other data sources are irrelevant to both business usersand IT experts It should create more interoperability be-tween stages in the performance management cycle And itshould bring a new level of consistency and alignment toperformance management activities across the organization

In summary an EPM system should enable organiza-tions to

Make aligned decisions across an enterprise based oninsights derived from one version of the truth

Understand the impact of changes across the enter-prise

Continuously reduce the latency between the occur-rence of a business event and the realignment com-munication and execution of strategy and plans

Create transparency and visibility across the enterprise Connect people processes and other systems in anoptimal manner in order to become a performancedriven enterprise

Minimize the total cost of ownership of EPM Scale and leverage data users and applications to allowfor faster future growth

EPM SYSTEM COMPONENTS

Just as ERP systems transformed the way organizations con-ducted and tracked day-to-day business activity an EPM

100 DEPLOY AN EPM SYSTEM

system must streamline the way organizations are being di-rected and managed Therefore the best type of EPM sys-tem is one that supports the management processes businessusers engage in to work collaboratively on shared informa-tion rules and logicmdashregardless of the specific task theyare undertaking at any point in time

For example before EPM systems it was not uncommonfor a user to move back and forth between a budgeting ap-plication and a sales forecasting application to complete aplanning update task With an EPM system when usersmove from one management task to another it should ap-pear that they are using the same system with the differentapplications they are using abstracted and invisible to themAnd it should be easy to share data between the tasks Forthis to happen an EPM system must support the following

Business users must have access to EPM applicationsthat are specific to their needs and not generic man-agement applications They should also be able todraw on domain knowledge and best practices fromsubject matter experts (internal or external to the or-ganization)

Business users sharing an EPM application should beable to continually refine the application to meet theirneeds If this is not the case business users will revertto their spreadsheets (or worse) Organizations needto make the EPM system as ldquouser friendlyrsquo as possibleto encourage adoption of the system

It must be possible to link individual EPM applicationsinto a network of applications that covers the entireorganization This network could eventually extendbeyond the organization to cover customers suppliersand partners in an extended supply-chain model

It must be possible to implement EPM incremen-tally driven by business users and focused on current

EPM Applications 101

business priorities rather than as a monolithic enter-prise application project Otherwise implementationbecomes an inhibiting factor in meeting its own goalsof agility

To meet these other requirements the components ofan ideal EPM system are best-of-breed EPM financial andbusiness applications a BI platform an EPM environmentand common services

The following sections describe the components of anEPM system and include real-world examples of companiesusing these components to solve performance managementissues (see Exhibit 91)

EPM APPLICATIONS

Financial Management

Financial management software should be a comprehensiveapplication that delivers global collection financial consol-idation reporting and analysis in a single highly scalablesolution Financial management should use todayrsquos most ad-vanced technology but it should be owned and maintainedby the finance team not IT

An example of a company that utilized EPM finan-cial management applications to speed data collection andfinancial consolidation is Global Hyatt a global enter-prise that operates more than 200 hotels and resorts inmore than 40 countries around the world Global Hyattspecifically uses financial management software to morequickly and efficiently consolidate its financial data andstreamline planning processes in its 200+ far-flung businessunits

The catalyst for change at Global Hyatt was the growingrealization that a manual process of aggregating financial

data which relied on spreadsheets had become far tootime consuming The process of consolidating operatingresults so management could gauge hotelsrsquo operating per-formance on a monthly basis was taking 15 days or moreconsolidating results from its legal entities into the corporatestructure was taking anywhere from 45 to 75 days and thecompanyrsquos budgeting process anywhere from three to fivemonths

In addition to the length of time needed to performthese activities Global Hyatt had issues with the accuracyof its data because using so many different spreadsheets wasboth time consuming and error-prone

Global Hyatt began its initial EPM implementation in2004 and was operational in less than six months at everyHyatt-managed hotel in the Americas Europe and AsiaAll hotels now use EPM financial management for financialconsolidation budgeting and forecasting

Since implementing the application Global Hyatt hasreduced individual property month-end closing time to twodays reduced the time it takes to complete its forecastingprocess and improved data accuracy and compliance

Beyond the time savings Hyatt top management be-lieves that the single most important benefit of EPM is thatpeople within Hyatt responsible for managing performancecan now track data directly to its source in a timely way Thismeans the right people are getting the right information atthe right time

Planning

Planning software should be a centralized Web-basedplanning budgeting and forecasting solution that drivescollaborative integrated event-based planning processesthroughout the enterprise for a wide range of financialand operational needs Planning should allow companies

to track and monitor business plans and forecasts translatingstrategic objectives into operational goals and targets andshould replace outdated spreadsheet systems with multidi-mensional driver-based forecasting processes

An international mining and exploration company is anexample of a company using an EPM planning applicationto manage its rapid growth In just three years the com-pany grew from a fledging operation to a global companywith three mining operations The company owns and op-erates gold and copper mines and a base and precious metalsoperation in the Pacific Rim

One way the company encourages growth and out-standing performance is by tying bonus compensation forits employees to specific KPIs But because its ERP sys-tem did not have an adequate planning functionmdashessentialto setting and tracking performance goalsmdashthe companydecided to implement an EPM planning application thatwould allow it to plan and track operational performanceacross the enterprise on a daily basis This would requirefull visibility into KPIs almost on demand which meantthat the planning application would have to be much morethan just a budgeting tool

Having successfully implemented an EPM planning ap-plication the company is now able to produce daily andweekly reports with one click and obtain and communicatea real-time view of how physical statistics from its mines willaffect financial performance These statistics include mea-sures such as tons of materials mined processed or truckedequipment availability and utilization safety statistics andtypes of drillings performed

In addition the planning application lets the companygraphically visualize a statisticmdashsuch as the amount of prod-uct it has availablemdashand see how it is trending day by dayto get a sense of performance for the month By compar-ing that to forecasted stockpiles for example its marketingdepartment can determine whether it will be able to meet

production targets and adjust shipment and truck schedulesaccordingly

Because much of the companyrsquos business operationsare in remote locations it keeps the information flowingthrough dashboards and automated report distribution viaemail on a daily basis rather than having to wait until theend of the week or month This allows the company tomanage operational and financial performance side by side

Another company using an EPM planning applicationsuccessfully is one of the worldrsquos largest mobile communi-cations companies Headquartered in Europe its decisionto implement an EPM planning application was driven bya reorganization that created a need to do planning and re-porting on new and previously unaligned activities Due todifferent management information structures and systemswithin its operating subsidiaries the company realized itneeded to adopt a very different approach from the oneit had been takingmdashan approach much more rigorous andstandardized

For example the company was having problems withinformation consistency because there were no detailedstructural guidelines for data collection in its subsidiariesData was being entered manually into a variety of differentgroup applications and reporting from groups to corporatewas based on verbal definitions of content

The first decision the company made was to develop acommon information warehouse for management report-ing and the first step in building that was to develop a wholenew conceptual management information model A majorrequirement of the new system would be to harmonize bothfinancial and operational information and provide stan-dardized approaches to planning and reporting Given thedisparate nature of the systems in use within the companythe new system would also have to be capable of providinga high degree of efficiency transparency and uniformityAnd this would require a single reporting language

Once the conceptual model had been agreed to a plan-ning application was chosen based on its capability to sup-port the model the single reporting language and the scaleand complexity of the companyrsquos information needs Withthe help of a consultant it implemented the new system

To understand how the new system works consider thecompanyrsquos requirements to understand and track two crit-ical KPIsmdashsubscriber segment profitability and sales chan-nel profitability This data is sourced from local operatingcompany finance systems and allocation drivers from oper-ational warehouses And even though the number of dataitems is largemdasharound 100000mdashthe company now has acommon view of these profitability KPIs and can drill downinto them to create new views of profitability based on neworganizational responsibilities

In fact the company can drill down into all of its KPIsmdasharound 700 of them with 24 dimensionsmdashin more detailthan it could before For example because the companycan now split revenues into six dimensions it can see howmuch revenue is generated by consumer customers throughits own shops in a given country based on type of paymentand service used

This deeper level of analysis requires large amounts ofdata behind the systemmdashnearly 50 times the data in theprevious system One of the key benefits of the system isthat it integrates data sources and different forms of infor-mation delivery which makes managing and using this largeamount of data easier

Modeling

Modeling software should let executives and managers un-derstand the full financial impact of alternative strategiesInstead of spending time on building maintaining andtraining finance employees to use cumbersome spreadsheet

modeling tools modeling software should deliver pre-packaged modeling and forecasting so finance experts canbetter spend their time testing alternative strategies build-ing contingency plans and understanding the impact ofthose strategies and plans on an organizationrsquos long-termperformance

A UK-based company improved its strategic commer-cial and financial decision-making capability through theuse of EPM modeling Based in London with operationsaround the world the company is an engineering and con-struction contractor for the oil and gas industry that designsand delivers complex projects in harsh and challenging en-vironments

Several years ago the company found itself in a weakfinancial position having suffered significant losses on severalmajor turnkey projects When a new management team wasbrought on board to effect a turnaround among its firstactions was to stabilize the business by selling off noncoreassets and raising equity finance to strengthen the balancesheet

With these survival steps behind it top managementinitiated a strategic review to develop a clear strategy forgrowth which involved a complete review of the busi-ness based on a bottom-up financial model Previously thecompany had used a spreadsheet-based solution for finan-cial modeling and planning However the solution was notintegrated with the balance sheet and provided no means ofgenerating information about shareholder value add It wasclear that management needed a modern more integratedtool for its strategic review

The company chose a modeling tool that was flexibleand had a high level of data integrity built in so the com-pany could produce financial models with integrity to min-imize risk and create efficiencies Because time was of theessence it hired a consultant to help with the developmentand implementation of the application

One of the first actions the company took whenthe modeling solution was up and running was to runthrough it a growth strategy that had been developedprior to the acquisition of the tool The exercise showedthat the strategymdashwhich had been modeled using the oldspreadsheet-based toolmdashwas not likely to deliver the lev-els of top-line revenue growth or bottom-line margins thecompany was expecting from it This resulted in significantand necessary debate among top management about howto refocus and refine the companyrsquos proposed strategy

The new modeling software also was critical in translat-ing the new strategy to highly accurate and detailed modelsthat showed potential outcomes These models gave topmanagement the confidence it needed to move forwardwith the new strategy

EPM modeling software did more than eliminate thecompanyrsquos reliance on spreadsheets for basic financial mod-eling It also allowed it to more efficiently perform moresophisticated analyses such as cash flow projections cap-ital structure alternatives rating agency and bank report-ing covenant and ratio analyses and liquidity analyseswith confidence These capabilities gave the company fargreater insight into its financial decisions before they weremade

Dashboards and Scorecards

Dashboards provide views into various key operational andfinancial metrics while scorecards help align corporatestrategies with individual goals so each performer is helpingthe organization achieve its strategic objectives

Preformatted reports have been the traditional face ofEPM to business users in the enterprise but they are rapidlybeing replaced by dashboards Dashboards are rising in im-portance because front-line staff managers and executives

donrsquot need more static data Instead they need true insightsthat help them make decisions react to exceptions and helpensure accountability The most effective dashboards applyappropriate analytics to source data and present the result-ing information in a way that makes actionable events ortrends immediately apparent to the user

Dashboards also play an important role in combiningfinancial information with operational information to pro-vide a more complete view of performance This morecomprehensive view is crucial because financial metricsalone do not tell the whole performance story

Dashboards are not a new tool in the enterprise but itrsquossafe to say theyrsquove undergone an extreme makeover in recentyears Dashboards of the past were created solely for exec-utive management to provide a visual snapshot of businessactivity In contrast todayrsquos dashboards are often extendedto all business users regardless of rank As such dashboardsplay an important role in moving enterprises closer to In-formation Democracy

Another difference between the dashboards of yesterdayand those of today is that dashboards used too little inter-operability and few linkages to root cause while root causeis a cornerstone of todayrsquos dashboards

While it may be easy to distinguish between dash-boards of the past and the present some confusion remainsconcerning the differences among dashboards portals andscorecards All can play important roles in EPM in theenterprisemdashespecially when used as parts of a complemen-tary strategymdashbut the differences matter

Portals bring structured and unstructured informationtogether into a common architecture and in so doing cansimplify access to multiple systems However portals gen-erally do not have intelligent linkages between systems andtherefore cannot integrate information business processesor workflows While they can be complementary to dash-boards by providing an interface for delivery to a broad

audience their limitations relegate them to a relatively mi-nor role in performance management

In the context of EPM the more relevant distinction isbetween dashboards and scorecards Scorecards enable thetracking of personal measures scores and actions by a per-son team or division in the context of how they relate tooverall corporate strategies Scorecards play a major role inaligning overall corporate strategies with individual goalsby providing each performer or performance unit a clearpicture of how they are helping the organization achieve itsstrategic objectives

Dashboards perform a different function Dashboardsleverage enterprise data resources to present business userswith clear actionable information about current and his-torical performance in the context of planned or expectedperformance They give users all the information theyneedmdashincluding financial and operational informationmdashina highly graphical intuitive format And they make it easyfor users to investigate and explore further if necessary toensure a smart timely business decision

In fact ldquotimelyrdquo is a key descriptor of dashboards Takethe example of a bank that is running a geographically dis-persed global network of ATMs Each machine in the net-work has variable status information that is time sensitiveincluding how much cash it has whether it is working andwhether there are any timed outages Either on demand orvia alerts banks should have answers to these types of ques-tion within minutesmdashnot in weekly or even daily reports

Simply put scorecards answer the questions How doesmy goal support the corporate strategy How am I doingDashboards answer the questions How did I miss my goalWhat should I do to get back on track

By enabling critical business decisions dashboards offersome of the best returns on investment (ROI) among per-formance management solutions today They allow man-agers to intervene quickly when things go awry They

highlight immediate and long-term opportunities They arepowerful tools for cost control All in all dashboards delivertremendous business valuemdashespecially in light of the factthat they leverage many of the IT investments an enterprisehas already made

Dashboards also offer dramatic productivity gains forbusiness users although most enterprises will go throughan initial discovery process to evaluate and understandthe impact dashboards will have on their users In addi-tion dashboards provide a means for keeping users in-formed and aligned so that everyone in departments andbusiness units everywhere in the enterprise is on thesame page And dashboards improve communication be-tween different departments and functions across the enter-prise empowering users to collaborate in solving problems(see Exhibit 92)

With the value of dashboards as a performance manage-ment tool firmly established interest has shifted from ldquowhyrdquobuild dashboards to ldquohow tordquo build effective dashboardsmore quickly and easily To address this need developmentefforts should focus primarily on more effective ways toidentify which KPIs should be tracked using dashboardsand how to empower users to create their own customizeddashboards and refine them over time without burden-ing IT

Creating and deploying KPIs throughout an enterprisecan be a time-consuming and expensive process Compa-nies need dashboards that centralize and simplify this processso that nontechnical business users can quickly get the in-formation they need and spend more time on higher valueactivities

Business users are looking for drillable decision flowsthat can quickly guide them from summary metrics to di-agnostic metrics to root causes so they can make decisionsin near real time using up-to-the minute information Fur-ther these dashboards should tap into all data sources in the

enterprise to provide a consistent and comprehensive viewof KPIs everywhere in the organization

Top management should be able to communicate strat-egy set targets establish accountability and monitor KPIsusing recognized scorecarding methodologies and indus-try benchmarks Lines of business managers should be ableto personalize and monitor their own KPIs in one placemaking performance information meaningful and easy tounderstand Financial controllers should be able to quicklysee variances in spending while sales managers are trackingdeals as they close And call center supervisors should beempowered to explore why call times are increasing

In short because individuals in different lines of busi-ness and functions have different needs the ideal dashboardsoftware will provide a codefree wizard-driven process forall these dashboard creators so they can quickly design per-sonalized dashboards and deliver them in a secure mannermdasheven when users are traveling

A large US transportation company decided that dash-boards were the best way to achieve its goal of finding atool that would let top management take the pulse of afunctional grouprsquos performance in the moment For thatpurpose the companyrsquos tool of choice was a dashboard cre-ated as an interface to its existing BI system

The performance management challenge the companywanted to address was to provide its IT leadership teamwith a tool that would provide at-a-glance insight and drill-down capabilities into the key indicators of the organiza-tionrsquos health as it related to strategic initiatives Key indica-tors for the group included growth service levels efficiencypeople and ease of doing business The desire was to gaininsight that would enable management to identify problemsearly to avoid or minimize negative financial operationalor customer impact In addition management wanted tostore historical data to be leveraged as metrics for continu-ous improvement

The overriding goal however was to link IT perfor-mance to business results The company had a business strat-egy determined by executive management and the companywanted to demonstrate specifically how IT was supportingit to show alignment

The project team determined early on that it wantedto build a dashboard that would display timely informationat a summarized level and would include status indicatorsto reveal the health of any defined attribute The team alsoestablished as a requirement capabilities that would allowusers to drill down to uncover additional detail

To deal with the first challenge the project team es-tablished a real-time data warehousing approach based onexisting data warehouse technology that would feed a snap-shot of current and past IT operational performance to thedashboard By displaying data pulled from multiple sourcesin a coherent and meaningful format the dashboard wouldserve as a window into the grouprsquos performance Makingthis happen involved shifting from traditional mainframebatch processing to real-time file processing from UNIXgathering data from different platforms and allowing au-thorized users to update data to simplify the process andreduce maintenance

The second challenge was met by using the companyrsquosexisting BI tools to build a single application that could pulldata from multiple sources to produce a single version ofthe truth

Before going live with the application the project teamdid an enormous amount of user acceptance testing Theyheld weekly meetings with users to demonstrate progressand to ensure the application was meeting user expecta-tions They appointed a primary user in each individualsubject area to test and have final approval of the parts ofthe application dealing with that subject And they createdan IT dashboard mailbox to allow people to communicateany bugs or deficiencies during testing

Another example of a successful use of dashboards is aninitiative undertaken at one of the worldrsquos largest seafoodcompanies designed to give the firm at-a-glance perfor-mance snapshots of individual functional groups

Every company has a supply chain but for this companythat supply chain begins when the company collects andfertilizes eggs in a hatchery and ends when it sells fish toa supermarket As a result the company has a wide rangeof reporting needs For example its agriculture divisionis interested in fish growth rates while its processing staffneeds operational data

In addition some of its operations are in remote lo-cations and have limited telecommunications capabilitiesTherefore the company needed a way to make sure allfunctional groups got the information they needed with-out relying on high-speed communications

The company had implemented an ERP system anda basic reporting application in 2002 and was running itsreporting processes using a series of intricate spreadsheetsTo update information employees would have to rekey dataand email these spreadsheets around the company

It didnrsquot take long for the company to realize that thisreporting solution was inadequate In particular it neededa solution that would allow users to log on and find theirown information so the company would not have to providecentralized management and support

To meet these requirements the company implementedan analytics and reporting application and created a Webportal to store reports and to give users access to them Userscould run or refresh about 160 different reports and a smallgroup of power users could develop their own reports anddo sophisticated analysis drilling down to raw transactionaldata if they wanted to

But the real breakthrough from a user point of viewmdashespecially for nonexpert usersmdashcame when the companydecided to automate KPI information and display it via

dashboards This allowed the company to develop someKPIs that would have impossible to report on manually Forexample one of the companyrsquos most important KPIs showsthe company how much it earns for every kilo of raw mate-rials It is the KPI against which everything is measured andtoo complicated to track and report on using spreadsheets

In addition dashboards gave nonexpert decision mak-ers access to performance information that enabled themto continually guide the direction of the company For ex-ample having up-to-date sales information enabled salesand marketing staffs to more effectively plan promotionsand create and update budgets And accessing dashboardsturned out to be a good way for employees in remote lo-cations to easily access performance information

As a next step the company will automate the cre-ation of dashboards and deliver simplified report views fora greater proportion of its workforce

To further illustrate the distinction between dashboardsand scorecarding consider the travel company for whichscorecarding was a better choice than dashboards for meet-ing its objective which was to foster collaborative strategicplanning in its corporate travel accounts This scorecard-ing application delivers a single vision while meeting sev-eral operational business objectives including service levelmeasurement account management and operations Thesolution allows the company to communicate and discusscommon goals and objectives making it clear to employeeswhere they should be concentrating their efforts to helptheir company and travel programs meet strategic businessobjectives

This companyrsquos scorecarding solution arms managersand executives with drill-down access to accurate inte-grated data so they can measure performance against keycorporate objectives including cost containment customersatisfaction and high-quality customer support Becausethe solution inherently encourages bidirectional communi-cation employees can actively align their specific activities

with the overall corporate objectives In addition individualscorecards cascaded from corporate business objectives en-sure that each employee can track and measure his or herresults against those corporate objectives

Because performance scorecards are available on eachdesktop via the Web employees are now able to view real-time financial customer and reservation data previouslyunavailable to them This has enabled the company to trans-form the traditional role of travel counselor from order takerto business partner by supplying front-line managers withanalytical tools they need to gain real-time data that as-sists them in their daily decision making This has made itpossible for the company to change its customersrsquo view ofthe firm from simply a service delivery vendor to strategicpartner

One of the largest pharmaceutical companies in theworld is another example of a company that uses scorecard-ing to improve performance in its case to drive commonconsistent and optimized processes throughout the com-pany A primary strategy of the company is growth throughacquisition

One outgrowth of building the company through ac-quisition was that operational services and enabling func-tions were deployed in very different ways throughout thecompany This was particularly true within the companyrsquosResearch amp Development division where operations weremanaged in distinct silos with very different business mod-els internal processes decision-making processes and evenIT systems

In a pharmaceutical company RampD is the engine thatdrives future growth as it is responsible for discovering anddeveloping new and innovative medicines Consequentlythe operational areas within RampD were a logical first areaof focus for the firmrsquos EPM initiative

The companyrsquos primary goal was to optimize the pro-ductivity of researchers by integrating processes systemsand governance models minimize operational distractions

and drive a common way of doing things globally whilemaintaining the right degree of site individuality

Another goal was to establish a culture of continuous im-provement rather than a flavor-of-the-month initiative sothe long-term sustainability of the effort was of paramountimportance

The solution consisted of three distinct elements work-ing together a new strategic framework designed to en-sure global alignment with the companyrsquos objectives anew matrix operating model that encouraged and facili-tated cross-site collaboration and knowledge sharing and acomprehensive initiative that leveraged a scorecarding ap-plication and the Balanced Scorecard performance achieve-ment framework developed by Kaplan and Norton andother techniques such as Six Sigma to drive continuousimprovement

A new strategic framework had to come first becausehistorically every year during the business planning processvarious teams would establish a new set of strategic objec-tives for the year But they would fail to cascade throughoutthe organization in a timely way Kaplan and Norton stressmaking strategy everyonersquos day job but the company hadbeen previously unable to achieve this state By the timepeople began to understand and act on the companyrsquos strat-egy it had changed

To remedy this the firm made the decision to lock downits vision and high-level strategy for a three- to five-yearperiod and let a more dynamic annual goal-setting processaccommodate changing business conditions

With a new strategic framework in place the firmrsquosRampD division next developed a new operating model forcross-site collaboration and knowledge sharing The newmodel shifted from a geographic operating model to a ma-trix operating model in which cross-functional teams meetfor the sole purpose of driving best practices and optimizedprocesses

The initiativersquos scorecards support the new strategicframework and operating model measuring performanceand identifying improvement opportunities by comparingperformance across sites or in some cases against externalbenchmarks

Scorecards allow the company to measure performanceover time but also enable its divisions and groups to alignwith overall corporate objectives Scorecards initially werecreated using a top-down designmdashallowing certain exec-utives to drill down within functions or sitesmdashbut theynow are bidirectional giving functional or site managersthe ability to drill up to determine how the performanceof an individual unit affects the overall performance of adivision

Implementing the three-pronged approach first in itsRampD operations enabled the company to test the conceptand gain enough confidence to begin a more comprehen-sive rollout to other units within the company The initialRampD implementation also gave it the chance to prove itstangible benefits Within the first year using scorecards toincrease the visibility of improvement opportunities in itsRampD operations had already netted the company $12 mil-lion in process improvements

Reporting and Analysis

Collecting data from disparate systems operations and ge-ographic locations in order to accurately report to internaland external audiences remains one of the greatest chal-lenges financial managers face today Financial reportingapplications should satisfy the broadest range of financialreporting needs and generate formatted book-quality fi-nancial and management reports that comply with regu-lations and external requirements This helps control andincrease operational efficiencies

A large European telecommunications company wasable to literally reinvent its finance function with EPM re-porting and analysis software Driven by the pressures of pri-vatization this company changed in many waysmdashculturallyoperationally and financially Deregulation led to decentral-ization Autonomous business units were formed as a wayto speed up decision-making and to take advantage of mar-ket opportunities in the go-go 1990s However everythingchanged in 2000 when the company went public just as thedot-com bubble burst and the telecommunications marketplummeted

In 2001 the market slowdown drove the comapny tointroduce a companywide cost-cutting program At thesame time top management was naturally seeking moreinformation to help them make strategic decisions thatwould improve company performance As a result one ofthe six strategic areas of the company targeted for perfor-mance improvement was the finance organization By im-proving the efficiency and quality of information comingfrom the accounting departments the company had theopportunity to raise the level of performance across thecompany

Over the years decentralization had led to a prolif-eration of ERP and reporting systems Each companywithin the parent company had its own accounting staffand chart of accounts In one country alone the companyused almost all the ERP systems being marketed thereThe processes within various accounting departments wereminimally standardized so consolidation and reportingacross the company were cumbersome due to processdiversity and the lack of a common data model All thismade it time consuming and costly to roll up finances

As part of its renovation finance identified five majorinitiatives One was to consolidate its 36 accounting orga-nizations into one separate legal entity operating in threelocations This shared service now makes it possible for the

company to standardize and streamline its accounting pro-cesses and minimize duplication of effort

In tandem with the creation of this shared service thecompany standardized on one chart of accounts to makeshared accounting services efficient Without a commonchart of accounts accounting staffs must apply differentrules and definitions for different business units That makesit more difficult to combine divisional financial informationinto a companywide financial report and get all decisionmakers to agree on a single version of the truth

A third project is aimed at process automation and stan-dardization Finance is on a mission to find ways to useautomation and best practices to drive costs down evenfurther In fact the shared service is a perfect exampleof how following the upheaval of combining 36 groupsinto one the company can more easily refine and auto-mate the processes employed there to increase efficiencyand improve quality and accuracy And the company findsit easier to achieve return on investment in technology andprocess re-engineering when the investment occurs onlyone time in one location and in an operation of largerscale

One example is the cumbersome process of resolvinginternal trades in which goods and services traded amongbusiness units are tracked so that they are not double-counted as part of corporate revenues or costs Since theprocess automation initiative all business units process in-ternal trades using the same rules and procedures

The last two finance projects are related to informationsystems The company has standardized on one commonERP system down from the seven systems it had previouslyThe company is also implementing a single EPM systemto align critical corporate functions such as planning andreporting tie strategic plans with business unit executionand ensure companywide focus on key value drivers suchas customer satisfaction and technical innovation

Due to the companyrsquos fragmented structure it was cru-cial to have the support of top management in establishinga shared services model for accounting across business unitsand legal entities

Key to the successful implementation of the sharedservice the company introduced a market-based pric-ing modelmdashas opposed to cost-based pricing Prices varybased on factors such as quantity of invoices processed andwhether they are paper-based scanned or electronic copiesThis pricing model helps business unit CFOs better under-stand what drives their accounting costs It also makes theircosts more predictable and creates incentives for them toincrease their efficiency even further by using automatedservices that are more favorably priced

In addition service level agreements were establishedfor each of the companyrsquos five main business units to reg-ulate the relationship between the business units and theshared service Key performance indicators were introducedto measure performance at both the shared service unitand the business units The company felt it was neces-sary to formalize all these aspects of what is essentially anin-house relationship because it minimized the problemsinherent in a fragmented company with strong businessunits

The business case for common accounting and ERPsystems was not as compelling for some of the companyrsquossmaller business units and this presented a challenge forthe project team However with a clear mandate from topmanagement and a strong business case that these effortswould benefit the company as a whole the smaller unitswere convinced to cooperate In a standardization initiativesuch as this it is crucial for all groups to participate

Driven initially by cost concerns finance went shop-ping for software applications that would help it streamlineits business management processes such as planningbudgeting analytics scorecarding and reporting The

company expected to simply choose the best of breedand the most cost-effective tool in each category It soonbecame clear how strategically important it was to haveall these fit together into an integrated whole to driveperformance improvements In addition limiting thenumber of graphical user interfaces people need to adopt isimportant in making the most of a new analytical platform

The company uses an integrated business managementmodel that starts with strategy establishing goals valuedrivers plans budgets performance agreements and in-centives It moves through the implementation stages towhat it calls ldquofollow uprdquo which includes analyzing resultsissuing reports and using a balanced scorecard to moni-tor the value drivers and see if business areas and overallcorporate strategic objectives are met

By having all these functions work tightly together re-porting can be used for example to identify and explainsignificant deviations from plans and help determine cor-rective action

The companyrsquos integrated architecture supports betterfact-based decision making by balancing and organizingvalue drivers across enterprise functions It looks at fivemajor categories of value drivers customermarketsocietymeasures employee skill and learning internal processesinnovation and financial measures

One reason that the integrated approach is changing thecorporate culture is that it changes what people at the com-pany base their decisions on Integrating the managementcycle and focusing on value drivers helps quantify and in-stitutionalize intangibles or ldquosoftrdquo measures such as brandposition or customer satisfaction

In fact the companyrsquos customer focus has been strength-ened as part of its integrated management process as itcontinually and systematically elevates customer feedbackto higher levels of management thereby building betterknowledge and competence

Another example of how this new approach improveshow the company manages itself is in the business reviewprocess Traditionally business reviews of critical issues wereconducted using scorecards and results were manually com-piled in PowerPoint Many backup slides would be pro-duced in case a specific question was raised many of whichwere never used The company has now standardized itsbusiness review processes which will lead to greater collab-oration across functions in defining value drivers design-ing report structures and preparing and analyzing businessreviews In addition it has automated this process with ascorecarding application which eliminates the wasted ef-fort spent on slides that are never needed

At the end of the day however a successful performancemanagement system depends on good data to drive analysisand insight At this company linking high-level summarydata with the underlying detail helps managers understandwhat drives results in their groups

A common data model unifies the companyrsquos newfinance systems This streamlines the deployment of the ITsystems and makes it easier to identify further opportunitiesfor cost-saving process standardization because detailed andcomparable analysis enterprisewide is available at the touchof a button

In addition a common data model helps finance putreports together quickly and reduces the chance that exec-utives will misinterpret what the reports tell them

A common data model also makes it possible to linkhigh-level reports with the detailed information that feedsinto them This helps decision makers better understandthe dynamics that led to the results In todayrsquos post-Enronera having an explicit link between high-level and detailedinformation increases transparency and improves the audittrail

Common data also prevents managers in differ-ent groups from basing decisions on differentmdashpossiblyconflictingmdashinformation

And finally simplifying the information structure at acompany dramatically lowers the cost and time required forimplementing and maintaining IT systems

At this company common data populates an EPMsystem that performs budgeting analysis reporting andperformance scorecarding making the entire performancemanagement cycle more streamlined

Planning reports that used to take two days to producenow take half an hour and two-thirds of the finance staff rsquostime was taken up with transaction processing This hasbeen dramatically reduced so finance now spends moretime analyzing the information instead of just compiling it

By leveraging the analytic capabilities resident in thefinance function the company is locally tapping an efficientand centralized source of performance improvement anddecision information which has important organizationalrepercussions In fact the finance function has become adriver for change and that is something new

Another example of a company that uses EPM reportingand analysis software to satisfy its needs for both internaland external planning is Logitech the global provider ofpersonal interface products for the digital world Althoughin the case of Logitech performance came first

Logitech is a fast-growing business in which double-digit top-line growth has often been the norm not theexception The companyrsquos bottom-line growth can be evenfaster

Fueling the Logitech engine is accelerating worldwidedemand for Logitechrsquos array of productsmdashcomputer miceand keyboards webcams headsets and speakers gamingperipherals iPodMP3 accessories and remote controlsLogitech ships hundreds of millions of products in a sin-gle yearmdashone every few seconds

Staying on top of such a fast-moving global business is achallenge that puts continual pressure on Logitechrsquos internalbusiness systems and processes but one that Logitech hasaddressed through a combination of a progressive approach

to financial management and EPM At Logitech finance isviewed as a business partner to its operating counterpartsThe company has also invested in systems that largely au-tomate the fundamentals of financial management freeingup time in finance to add business value

Logitech was already an information-driven companywhen it first decided to explore EPM in 1999 Logitechrsquos ITgroup had successfully implemented a comprehensive ERPsystem and a sophisticated data warehouse And Logitechrsquosemployees around the world were diligent about keepingthe information in the companyrsquos data warehouse upto date

But the companyrsquos finance department was still prepar-ing management reports manually using spreadsheets Infact Logitech was suffering from a common malady Hav-ing invested so much in powerful transactional systemsand a data warehouse the company was spending con-siderable time and effort making sure the systems workedwell and data was current But the company hadnrsquot takenthe next step necessary to unlock the valuable informa-tion trapped in those systems It was all there but mostlyunavailable to operating executives and decision makerswho could use it to monitor performance and make betterdecisions

To tackle the problem Logitech looked first at the com-panyrsquos flagship management report the 3B report whichtracked billings bookings and backlog Members of thefinance team would prepare the 3B report manually us-ing spreadsheets and publish it every Monday morningThe 3B report was a static weekly summary of orders ship-ments and margins by region channel and product as com-pared to plan and was read avidly by the companyrsquos topexecutives

Not only was once a week too infrequent another at-tribute of the 3B report that frustrated executives and fi-nance alike was that it was static which meant that as soon

as it was published the finance team was flooded with re-quests for format changes and additional detail

Despite its shortcomings the 3B report was an im-portant and highly visible management report in thecompanymdashthe perfect place to start a far-ranging perfor-mance management initiative

In October 2001 Logitech deployed an advanced ana-lytics and reporting platform and began to develop a billingsbookings and backlog application that would include dash-boards specific to each set of users The application was de-signed to automatically extract relevant information fromthe companyrsquos data warehouse on a nightly basis and or-ganize it into standard reports that would be posted onLogitechrsquos intranet and available to each user from his orher desktop throughout the day The tailored dashboardswould facilitate easy viewing and analysis of complex data

Just two months later Logitech produced its first au-tomated 3B report Posted every night at midnight thereport was current presenting detailed information aboutsales by customer region product and channel over vari-ous time periods and the companyrsquos standard margin forthat day It was also dynamic Using tools accessed viadashboards executives could perform advanced queriesand analytics to see data not presented in the standardizedreport

The new and improved 3B report became so popular inthe company that many executives replaced their newspa-pers with the 3B report as the first thing they read in themorning

One obvious benefit of having automated the 3B reportwas that Logitechrsquos finance team was no longer consumedwith producing it manually In addition the 3B report im-proved data integrity throughout the company With exec-utives being able to access current information on demandfinance no longer had the luxury of correcting errors beforepublishing a final report Instead the company put greater

emphasis on ensuring that the data in its data warehousewas correct going in

Equally important the new way of preparing and de-livering the 3B report changed the mentality of the man-agement team at Logitech Instead of waiting to be toldwhat their numbers were executives were actively comingto finance with questions about variances they were seeingthemselves

On the strength of the 3B report supplemented by otherreports Logitech began holding biweekly refresh meetingsIn this meeting every executive would present an up-to-the minute analysis of what was happening in his or herarea This increased coordination on companywide goalsand made it easier for each business unit and person to beheld accountable for individual goals

With the 3B management report as a foundationLogitech then turned its attention to its financial consol-idation and reporting processes implementing an EPMfinancial management application At the time it wastaking Logitech more than three weeks to close its booksWith Sarbanes-Oxley looming on the horizon it wasimperative that Logitech close faster

After implementing the new application Logitech re-gions were closing within one week and the company wasable to complete its global consolidation a few days afterthat The entire process could be done routinely in twoweeks

BI PLATFORM

BI platforms are a collection of tools and technologies or-ganizations use to develop applications that enable them toaccess analyze and report business and financial informa-tion They should ideally include tools for query and report-ing OLAP (online analytical processing) data mining and

BI Platform 129

advanced analytics and end-user tools for ad hoc query andanalysis and enterprise-class query analysis and reportingIn addition BI platforms should include dashboards andscorecards for performance monitoring and production re-porting against all enterprise data sources

The importance of advanced analytics in a BI platformcannot be underestimated However many people mis-understand and misuse the term ldquoanalyticsrdquo equating itwith plain reporting Analytics is distinct from reportingin that it involves the aggregation calculation allocationand extrapolation of data And analytics is playing anincreasingly important role in performance managementin organizations today because business users work inan agile world Todayrsquos insight is tomorrowrsquos old newsOrganizational structures have become more fluid makingthe companyrsquos organizational chart look like a dancingoctopus and business hierarchies change on a daily basis

On the face of it ad hoc query tools might appear tobe a good solution to this issue of rapid change in busi-ness Ad hoc query tools offer business users the flexibilityof making every single combination of information possi-ble But they donrsquot tell business users anything about whichcombinations of information are the right ones to be look-ing at And different people performing ad hoc queries toget at data to solve the same problem will likely end upwith different answers because they have the flexibility togo about it in their own way Good management practicesargue for collaborative teams in problem solving yet col-laboration grinds to a halt when collaborators arrive at theirdifferent answers to the same question using the exact samedata

Viewed this way ad hoc queries may do as much to in-stitutionalize poor results and poor practices as using spread-sheets

Therersquos nothing wrong with ad hoc query technol-ogy but it needs controls in the form of standard static

reports checked double-checked and checked again Theproblem is that static reports may enable efficient datadelivery but they donrsquot meet the organizationrsquos need forflexibility

What organizations need instead is a system that letsbusiness users roam freely exploring information and anal-ysis yet secure in the knowledge that the data is alwaysright End-user empowerment is a beautiful thing as longas everyone is using the same set of lenses to view the dataand has a set of guardrails that prevents them from strayingoff the path And thatrsquos where analytics comes in Analyticsallows users to freely move through large sets of data allow-ing them to compare data and drill down into lower levelsof detail The predefined model within analytic engines en-sures that the outcome is guaranteed and certified correctUsers have flexibility and IT can ensure qualitymdashimpossiblewith ad hoc query tools or spreadsheets

Among the most important advanced analytics require-ments of a BI platform are

Multisource scalable reports The ability to providehighly formatted highly analytical reports against mul-tiple operational data sourcesmdashwith high throughputand scalable to thousands of reports and users

Adaptive visualization Capabilities that make this en-riched analytical insight easier to consume by automat-ically providing the most appropriate visualization fora given data set

Guided analytics Capabilities that make the accumu-lated best practices and patterns of analysis used byexpert users available to every user by automaticallysuggesting model relationships and navigation flowsthat would not be obvious to the novice user

For instance the expert user might know that the baddebt expense field becomes relevant to a user when the

BI Platform 131

accounts receivable field exceeds a certain threshold Whensuch a relationship is modeled the novice user is auto-matically guided along an analytic path that leads the userfrom accounts receivable to bad debt analytics when such athreshold is passed

The key benefits of such an approach to advanced ana-lytics are

The BI platform can address the data needs of usersand support the BI process end to end by enablingproduction of rich and compelling content

Businesses can rapidly understand the impact of oper-ational decisions on their financial bottom line withina single BI environment

Businesses gain management reporting that brings to-gether both external and internal reporting needs

Given this view of the importance of advanced analyticsa BI platform should have at a minimum the following

Complete management financial and operating re-porting

Self-service report creation Rich interactive performance dashboards and score-cards

Advanced analytics including advanced visualizationand guided analysis

A rich set of programming tools that enable developersto rapidly develop and deploy new applications

In addition the BI platform should be based on openstandards certified against existing ERP systems use thesame security and administration leverage the same meta-data and share the same look and feel

EPM ENVIRONMENT

To provide simplified access to integrated tools andactivities an EPM system must have a unified userenvironmentmdasha single intuitive easy point of entry to allthe capabilities of the EPM system An EPM environmentshould be the place where users conduct all their perfor-mance management activity It should link all tools andapplications enable quick and easy access to all relevantreports and information and provide advanced dashboardsand visualization techniques

A unified EPM user environment should also presentall relevant information by groups and users in a single userparadigm All objects should be accessed stored and in-teracted upon using a single set of actions Content withinobjects can then be combined to form new objects andusers can easily move from one activity to another whileretaining the context of the previous one Sharing and col-laboration can also be conducted within this environmentby simply selecting objects and adding properties to themor dragging them to the intended workflow

And an EPM environment should provide capabilitiesexecutives and managers need to better managemdashnot justrunmdashthe business These include

Creating dynamic models and plans based on a singleversion of the truth with data integrity and supportedby analysis with revisions easily captured and reportedacross the enterprise

Cascading goals and strategies across the enterpriseand linking operating plans and metrics to each otherat every level

Providing everyone in the enterprise with a viewof performance that links individual goals to corpo-rate goals with key metrics highlighting successes andproblems as they occur

Common Services 133

To function effectively an EPM environment must besupported by a technology foundation enabling the inte-gration that makes the entire system easier to deploy andmanage and lowers total cost of ownership

COMMON SERVICES

The final component of an EPM system is a collection ofcommon services that provide all the shared services dataintegration and data access required in an EPM systemThese should include

User services Data services Collaboration services Workflow services Abstraction services Calculation services

Ideally the common services should be based on aService Oriented Architecture (SOA) which despite allthe hype and confusion surrounding it is simply a setof software design principles that have existed since theearly 1990s SOA principles state that software componentsshould be designed as independent services with clear in-terface boundaries that do not rely on the state of otherservices Using SOA makes EPM more Web-friendly andmore deployable hence the buzz The bottom-line benefitof SOA is lower total cost of ownership

Other capabilities an EPM systemrsquos common servicesshould provide include

Common user provisioningmdashone place IT can con-trol all of an enterprisersquos EPM users without havingto jump around from product to product

A unified repository so all performance informationis in one place

Centralized licensing (management) which is goodfor customers worried about compliance

Support for other enterprise software systems Support for master data management (MDM) whichhelps ensure consistency of all master data across allenterprise systems such as ERP and other transactionalsystems and EPM applications This eliminates costlymanual processes MDM is so central to delivering asuccessful EPM solution that any solution without itis incomplete

THE POWER OF MASTER DATAMANAGEMENT

In meetings with enterprises seeking better ways to manageperformance it rarely takes me more than five minutes toidentify the people in the room responsible for managingmaster data They are the ones who look the most harriedand harassed Managing master data is one of the most dif-ficult time-consuming and expensive challenges facing ITprofessionals in enterprises today and there are few goodsolutions to the problem

Master data management is not a new problem Enter-prises have been struggling with it for some time Howevernew global regulations and the increased interest in EPMhave given it a new urgency compliance and performancemanagement both require consistent master data across anenterprise

For those unfamiliar with the term ldquomaster datardquo alsoknown as ldquoreferencerdquo data is data that is shared acrosssystems and used to classify transactional data For exam-ple John (Sales Representative) who works in California

The Power of Master Data Management 135

(Territory) sells 10000 (Quantity) of a new widget (Prod-uct) to a customer (Customer) based in New York (Ge-ography) for $50000 (Total Sale) on December 15 2005(Date) Taken together this information is about one trans-action but included in the transaction are individual el-ements of master datamdashSales Representative TerritoryQuantity Product Customer Geography Total Sale andDate These individual elements must be identified andchanges to them managed across the enterprise to ensuredata integrity Without data integrity transaction data can-not be analyzed or reported in a meaningful way

But thatrsquos not all Individual elements represent masterdata and the way elements consolidate or aggregate for re-porting represent master data Even for something as simpleas geography there might be multiple ways an enterprisewould need to consolidate to meet all of its internal andexternal reporting needs

In addition there are typically attributes and propertiesassociated with individual elements and aggregations andthese represent master data One financial institution I knowof has more than 700 attributes per cost center

Itrsquos easy to see the importance of master data Master datadrives the execution of both enterprise back office systemssuch as ERP and EPM solutions

Itrsquos also easy to see why managing master data is diffi-cult There is a lot of master data and changes to masterdata are driven by changes in the businessmdashand for mostenterprises change is a constant Even in my simple exam-ple changes to master data would need to occur with theintroduction of a new product the addition of a new salesrep or new product pricing These are everyday events inmost enterprises I know of a bank that makes at least 10000master data changes every month

To complicate the situation even further many enter-prises maintain master data separately in multiple source sys-tems Imagine the enormity of the master data management

task in an enterprise with thousands of changes across adozen or more systems every month

With a problem of such importance and magnitude onewould think that enterprises would have long ago adoptedan elegant solution to master data management Not soMaster data management is one more of those expensivemanual processes that cry out for an automated solution

How do most enterprises manage master data todayRemarkably for something so important they do it throughhallway conversations telephone calls and email For ex-ample if a departmental manager wants to add another costcenter or management wants to move facilities from hu-man resources to finance the business decision must firstbe approved by all the relevant decision makers This takestime

Once the change is approved IT gets the request tomake the change and ensure that it ripples through allthe enterprisersquos transactional systems data warehouses andEPM solutions Because changes are made manually oftenthe result is a lot of people making a lot of mistakes with alot of mission-critical datamdashmistakes that go undiscoveredbecause of a lack of visibility or traceability in the process

Clearly master data management is a problem for bothbusiness users and IT professionals in the enterprise andthere must be a better way The ideal solution in fact isto manage master data across multiple systems from a cen-tralized point and automatically rather than from withinspecific systems and manually

To some enterprises their existing ERP systems seemlike a good candidate for driving such a solution But in-dividual ERP systems cannot provide a unified view of allthe data in the enterprise and cannot link all the trans-actional and performance management solutions at workin the typical enterprisemdashmany of which today have beenimplemented at the departmental level and are not linkedacross the enterprise

The ideal MDM solution is one that automaticallysynchronizes master data across all the systems in theenterprisemdashnot just across some solutionsmdashand is part ofan EPM system

To understand the power of such a solution think backto the departmental manager who wanted to add a newcost center Instead of starting a long process with a man-ual request the manager would get on an EPM system andmake the change himself The system would then auto-matically use a formal rule-driven process to make sure allapprovals for the change are obtained and that the changeis propagated throughout all enterprise systems

An example of a company that credits an MDM solutionwith allowing it to more aggressively pursue acquisitionsis a Fortune 500 company that has been delivering finan-cial products and services to its customers for nearly 150years

As any company that has acquired another companyknows acquisitions can wreak havoc on data consistencyFor example when this institution acquired a bank in 2001that was approximately one third its size it caused a massiveexplosion of data points in the general ledger At one pointthe company had more than 25 million data points and 30to 40 financial accounts being added each month With noone group responsible for the oversight of master data hier-archies and consistency across all systems monthly changesto master data hierarchy had to be done manuallymdasha costlyand time-consuming process

In addition the interdependencies and implications forindividual systems were vast considering the data environ-ment On the general ledger alone there were more than11000 cost centers and 2500 accounts that representedmore than 1 million open relationships and more than 100companies

Recognizing the seriousness of the master data man-agement problem the bankrsquos top management created a

new group to manage it The group developed a rigorousworkflow-based process of submission and review whichincluded a formal board of review with representatives fromthe regulatory tax general accounting finance and finan-cial systems groups to eliminate duplicate immaterial orinappropriate cost centers and accounts and to ensure theapproved ones were in the correct hierarchies This resultedin a 75-percent reduction in account additions

Still the actual ongoing process of managing changeacross all financial master data hierarchiesmdashincluding costcenters entities companies and their respective relation-ships attributes and propertiesmdashwas daunting To handlethese changes the bank implemented an MDM solutionthat automatically synchronizes master data across all thesystems in use in the bank

With these improvements in data quality and consis-tency the bank can pursue its aggressive growth strategiesmdashincluding acquisitionsmdashwith confidence

THE FUTURE OF EPM SYSTEMS

From the perspective of todayrsquos business users there is grow-ing demand for an EPM system that will address all their per-formance management requirements Adding to the chal-lenge most organizations cannot afford to replace their ex-isting infrastructure so an EPM system must work in con-junction with as many existing systems as possible

From the perspective of IT which is tasked with servingits customers while ensuring reliability and scalability anytechnology they deploys must be built on modern IT ar-chitecture standards As previously mentioned SOA is thearchitecture of choice because it enables all the componentsin a complex IT infrastructure to interoperate quite easilyand efficiently and significantly reduces the time and effortfor systems to be integrated

The Future of EPM Systems 139

Beyond this requirement IT organizations also are look-ing to maximize value from a smaller set of trusted ven-dor partners thereby lowering their total cost of owner-ship This value is magnified by addressing existing painsassociated with deploying multiple disparate reporting andanalysis tools and various packaged analytical applicationsAs these have proliferated throughout the enterprise withvaried degrees of planning and centralized control IT hasbeen left to manage multiple vendors installation processeshardware operating systems and user interfaces An EPMsystem must address all these issues in a significant way

For business users as EPM systems evolve they mustdeliver on the following requirements

An EPM system must provide the right informa-tion at the right time in the right format to thepeople who need it A modern management sys-tem must provide people who manage performancein organizations with access to timely accurate andmeaningful informationmdashnot just raw datamdashthey cantrust To be available in a timely way information mustreside as close to business users as possible To be accu-rate it must be based on consistent master data Andto be meaningful it must be made available to themin reports and formats that are relevant to their roles inthe organization

In addition people must have direct access to a setof tools for advanced analysis reporting and collabo-ration

And both information and tools must be ldquoalwaysonrdquomdashavailable to them on the Web on the go in theoffice on the desktopmdashwith the system actively deliv-ering the information and alerts they need

An EPM system must support and link manage-ment processes enabling people to connect pastresults and present plans into scenarios for the

future that predict outcomes and results Just likethe management activities it supports an EPM systemmust be flexible and fluid able to accommodate pro-cesses that are constantly changing

Consider the example of planning In organizationstoday most planning processes are disconnected andwhatrsquos needed to connect them are a shared assump-tion base and a common language so the organizationachieves greater forecasting accuracy a tighter under-standing of past performance and the ability to predictfuture outcomes

And ideally the processes that support planningwould be assembled by the people actually involved inthe planning processmdashthe business users and not IT

For business users to effectively assemble processesthey need workflow technologies and an analytical en-gine process controls built into the system alertingtools and a process design engine

An EPM system must support decision manage-ment An EPM system should be able to record thedecision-making process making it easier to audit howand why business decisions are made so best practicescan be captured and embedded into future behavior

An EPM system must facilitate collaboration andinformation sharing Collaboration and informa-tion sharing are essential to better decisions Thereforean EPM system must allow individuals within an orga-nization to communicate share insights and documentthe discussions that are part of the decision-makingprocess for knowledge management purposesmdashideallyas an anytime anywhere any device activity

Comprehensive View ofPerformance Management

With a clear understanding of how to overcome the barri-ers to EPM adoption we now can pull everything togetherinto a comprehensive view of performance managementThe view starts with the Nine Tenets of the Performance-Accountable Organization first mentioned in Chapter 3and how they map to the four core activities of a contin-uous performance management cycle discussed previouslyArmed with that knowledge we can move to the specificbusiness problems that can be solved by applying the coreprocesses of the management cycle And finally we can linkspecific elements of an EPM solution to specific businessproblems

TENET 1 FINDS TRUTHIN NUMBERS

A single version of the truth guides performance at all levelsof the organization

142 PERFORMANCE MANAGEMENT

Business Challenges

Fragmented financial and operational information is siloedin transactional systems or locked away in spreadsheets

Impact

Managers have poor insight into enterprisewide per-formance drivers

Organizations find it impossible to access relevant in-formation in a timely way

Managers find it difficult to create comprehensive andconsistent management reports

Decisions made on partial information are unreliabledecisions

Solution

Deploy an integrating BI platform to gather data from mul-tiple transactional systems and transform it into one insight-ful version of the truth about an organizationrsquos financial andoperational performance that is timely accurate relevantconsistent and controlled Use dashboards to deliver in-formation in formats that make sense and promote gooddecisions

Outcomes

Organizations close the gap between managementneeds and the limitations of transactional systems

All managers have the same facts and metrics withwhich to identify KPIs

Tenet 2 Sets Accurate Expectations 143

All managers have a common understanding of whatdrives overall business performance

Decisions are fact-based and reliable

TENET 2 SETS ACCURATEEXPECTATIONS

Every part of the business is directed by a shared commit-ment to strategic goals

Business Challenges

Business goals and strategies are confined to managementsuites and the boardroom and are not translated into mean-ingful performance metrics managers can be held account-able for

Impact

Wasted resources as different parts of the organizationpull in different directions

Managers optimize for the success of individual busi-ness units

Situations worsen when strategic plans are refined toreflect changing business conditions

Solution

Use scorecarding and dashboarding applications to commu-nicate realistic and obtainable goals (as established in plan-ning) and establish performance metrics and accountabilityBroadcast goals to drive strategic focus throughout the or-ganization Continually review and confirm for managers

that their local goals are in strategic alignment with corpo-rate objectives

Outcomes

Managers see the big picture and understand how theiractivities impact the strategic plan

Organizations plan dynamically without fear of creat-ing strategic misalignment

TENET 3 ANTICIPATES RESULTS

A thorough understanding of business drivers and KPIs leadsto an ability to anticipate results

Business Challenges

Goals are set using financial metrics only Existing busi-ness systems are not designed to support new managementtechniques based on value and balanced indicators whichrequire broader categories of metrics new processes andthe ability to integrate transactional data with contextualdata Tools typically enable managers to evaluate potentialimprovements only at the local level within their own busi-ness units

Impact

Historic financial metrics are the only form of perfor-mance feedback

Organizations are locked in to outmoded techniquesfor planning and measuring performance

Tenet 4 Plans with Impact 145

Performance improvements are isolated within busi-ness units and may favor one business unit at the ex-pense of another

Solution

Provide managers with strategic financial and businessmodeling applications that support valued-based manage-ment techniques such as EVA Balanced Scorecard SixSigma the virtual close and rolling forecasts Combinecontextual information such as industry benchmarks cus-tomer satisfaction surveys and call center reports withconcrete financial metrics such as revenue profits andcash flow Encourage collaborative modeling of potentialscenarios through the use of shared business models toachieve a detailed understanding of factors that drive futureperformance

Outcomes

Managers reduce risk by anticipating business out-comes before decisions are made

Managers innovate by finding ways to leverage op-portunities to the benefit of the entire organization

Organizations measure performance against metricsthat matter closing the gap between stakeholder ex-pectations and actual performance

TENET 4 PLANS WITH IMPACT

Insight and dynamic processes produce actionable plans thatcontinually guide the organization to success in changingconditions

Business Challenges

Static annual plans developed by individual business unitsworking alone are locked in spreadsheets

Impact

Plans may not factor in cross-functional interdepen-dencies

Managers may optimize their business units know-ingly or unknowingly at the expense of other businessunits

Plans cannot be adapted to changing conditions andquickly become obsolete

Organizations are unable to react quickly to changingconditions and become uncompetitive

Solution

Adopt a practice of continuous planning and deploy plan-ning budgeting and forecasting applications that supportcollaboration among all managers at all levels across the or-ganization Explicitly represent the relationships betweendifferent business units and their interactions within a dy-namic planning process that links goal setting and strategyto models plans and execution and aligns individual andcorporate goals This includes the operating plan and rollingforecasts and capital expenditure planning workforce plan-ning marketing planning and so on In other words en-terprise planning

Outcomes

Managers collaborate in centrally managed planningby modeling scenarios for the future setting new

Tenet 5 Achieves On-Demand Visibility 147

directions or making midcourse corrections andcommunicating changes throughout the organizationquickly and easily

Planning is an agile business process

TENET 5 ACHIEVES ON-DEMANDVISIBILITY

A system that combines data from existing transactional sys-tems across the enterprise gives managers transparent accessto performance information anytime anywhere

Business Challenges

Current tools for performance monitoring require man-agers to proactively locate information from multiplesources and compile it themselves

Impact

Organizations are unable to drive strategies into op-erational plans

Organizations find it difficult to evaluate performanceagainst plans

Organizations find it impossible to accurately antici-pate results in a continuous and timely fashion

Solution

Provide all managers at all levels throughout the or-ganization with defined dashboards and scorecards withautomatic flags enabling on-demand access to relevantactionable information

Outcomes

Managers review budgets and income statementstrack KPIs and flag variances and potential problemareas through alerts and triggers

Managers perform more detailed comparisons andanalyses of specific aspects of performance against in-ternal and external benchmarks through custom in-quiries

Managers make informed decisions and take actionmore quickly

TENET 6 DELIVERS CONTINUOUSPERFORMANCE IMPROVEMENT

A commitment to knowledge and understanding producesinsight that drives continuous performance improvement

Business Challenges

Actual business results often do not match planned resultsThe most common tools for understanding these variancesare BI tools BI tools provide managers with informationmdashhistoric simple analysis and statistical predictionsmdashthat en-ables them to understand how their business is performingat any moment in time However they lack support formanagement processes

Impact

Managers are left on their own to act on information Continuous performance improvement across the or-ganization is impossible

Tenet 7 Reports with Confidence 149

Solution

Provide managers with analytical tools that enable them toperform detailed analyses to determine the causes of vari-ances between actual and planned results The tools shouldoffer a holistic view of information from strategy to opera-tional details and link into applications that help managersreport and act on what they learn

Outcomes

Insight to manage and improve financial and opera-tional performance is continually generated and dis-tributed throughout the organization

Managers are supported with management processesand business systems as they make midcourse correc-tions or improvements to ensure reliable results

TENET 7 REPORTS WITHCONFIDENCE

Detailed integrated and accessible financial and opera-tional information enables executives to personally certifybusiness results

Business Challenges

Todayrsquos consolidation and reporting processes and tools areoften based on inconsistent metrics and lack a single report-ing infrastructure

Impact

Consolidating financials takes too long

Organizations find it impossible to demonstrate per-formance of key variables that significantly impactperformance

Managers cannot create comprehensive management-oriented reports for internal use and reports for exter-nal use that comply with statutory reporting require-ments

CEOs and CFOs are reluctant to personally certifytheir organizationrsquos financial results as required bySarbanes-Oxley

Solution

Deploy a single financial management application that en-ables global financial consolidation reporting and analy-sis Embrace the concept of a ldquovirtual closerdquo Documentand catalogue all forms of management information (struc-tured and unstructured) in a standard way at the level ofgranularity that reveals true performance drivers enablingend-to-end reporting

Outcomes

Organizations deliver timely accurate consistent andcomprehensive financial and operational reporting

Organizations trim days or weeks from their closecycles

Information about KPIs is transparent Organizations can report openly and comprehensivelyon business performance with confidence

TENET 8 EXECUTE WITHCONVICTION

Truth clarity and confidence forge a powerful link betweenstrategy plans and execution

Tenet 9 Stands up to Scrutiny 151

Business Challenges

Planning processes and tools lack mechanisms for clearlycommunicating required actions progress to date mid-course corrections and the best courses for future actionsto all managers at all levels across the enterprise

Impact

The link between planning and execution is broken Managers make unreliable decisions or optimize forthe performance of their individual business units

Solution

Create a closed loop system by synchronizing the planningprocess with information gathering and analysis perfor-mance monitoring and communication mechanisms

Outcomes

All managers understand required actions Potential challenges and performance issues are high-lighted and communicated at or near real time

Midcourse corrections are made immediately andmonitored on demand

Managers produce reliable results

TENET 9 STANDS UP TO SCRUTINY

A comprehensive approach to performance managementmeets the highest standards of accountability and confi-dence

Business Challenges

Organizations struggle with performance accountabilitybecause of poor insight into performance drivers staticplanning practices ineffective performance monitoringand limited reporting capabilities

Impact

The organizationrsquos drive for performance accountabil-ity is undermined at every turn

Solution

Building a performance-accountable organizationmdashandeven more important sustaining it over timemdashrequires acommitment to insight management processes and busi-ness systems that let managers link strategy to action plandynamically monitor performance on demand and ensurecompliance This is the work of EPM which enables orga-nizations to translate strategies into plans monitor execu-tion and provide insight to manage and improve financialand operational performance

Outcome

Organizations can understand model plan and man-age business success

A CULTURE OF ACCOUNTABILITY

One additional element remains in creating a performance-accountable organization and that involves creating aculture that supports one This is not a trivial undertakingand requires at least as much planning and effort as

A Culture of Accountability 153

determining requirements and selecting an approach toolsand technologies

As discussed in the opening chapter Thomas Malonebelieves that a democracy-like increase in participation isan inevitable outgrowth of decentralization In a decentral-ized business for example employees need more autonomyThey arenrsquot always close to headquarters or even to theirmanagers and therefore need to be able to make decisionsand solve problems without being told what to do Withthis new freedom comes more knowledge expertise andopinionsmdashwhich means theyrsquoll have more say in how theirorganizations are being run

Malone didnrsquot use these words but to be successful inthis new world organizations and the people who leadmanage and work in them must create a culture of ac-countability

A culture of accountability exists when everyone in anorganization takes responsibility for his or her own deci-sions actions and their outcomes For examples peoplewho work in organizations that have a culture of account-ability often do the following

Step out from behind their job titles to act on behalfof a customer or the company

Take responsibility for results rather than blame othersfor their own lack of performance

Proactively initiate projects ideas for improvementand working relationships

Face problems and challenges rather than hope theywill go away

People who embrace accountability do these things be-cause they are in the best interests of the business andmdashasemployees and participants in the success or failure of thebusinessmdashthemselves

They also do these things because they have the freedomtomdashfreedom that has been granted to them in an organi-zation that knows you canrsquot ask for accountability if you donot provide Information Democracy

And they do them because they know they are ulti-mately responsible for the success (or failure) of their busi-ness If they donrsquot do these things who else will

Studies show that people are more likely to embraceaccountability when they have a personal financial stake inthe outcomesmdashfor example when they hold meaningfulequity stakes own stock in the company or when theircompensation is tied to performance

But whatrsquos interesting is that studies also show that ac-countability is as much a state of mind as it is a state ofbeing This is because for many people money is a motiva-tor but not the primary motivator at work For manymdashandin truth for all of us a good bit of the timemdashour state ofmind influences our on-the-job behavior far more than thestate of reality

Howevermdashand make no mistake about thismdasha cultureof accountability is not for every organization or everyoneSome organizationsmdashand especially the leaders of someorganizationsmdashare very content with a centralized rigidlyhierarchical organizational structure and a command-and-control management style These organizations would findcreating a culture of accountability far too threatening totheir authority

And some people are quite fearful of the accountabil-ity Some people prefer fixed job descriptions little or noinfluence over the important decisions affecting their or-ganizations and little or no control over their jobs Somepeople prefer just putting in their time and going homeat the end of the day These people of course would notthrive in a culture of accountability

But assuming you want to how do you create a cultureof accountability

It starts with leadership at the top To build a cultureof accountability top leaders must believe that people reallyare critical business assets and not just costs to be minimized

And leaders must embrace new ways to empower peopleto achieve excellence without fear of unleashing the powerof people

This is an important and necessary foundation But thereis more Building a culture of accountability also dependson each person understanding his or her personal and teamresponsibilities

Letrsquos start with the personal and consider the followingquestions Are you a role model for taking responsibilityor do you pass the buck to the next person Do you seeyourself as a coach or a white knight self-appointed to saveyour direct reports Do you give your staff the authority tomake decisions and act independently of you or do yourown needs for control create dependency

How you perform as a team member is equally impor-tant For example how respectful are you of the differentroles played by each member of your team and the differentskills each brings to the team How open are you in sharinginformation that could help other members of your teamand the team as a whole perform better How willing areyou to have your own progressmdashor lack of itmdashmade visibleto other team members not to be humiliated but as a wayto enlist their help in solving problems

Finally success also depends on the entire organiza-tion adopting some basic practices that encourage peo-ple to take personal responsibility While there are manythings you could do in my view there are seven things youmust do

1 Communicate your goals and strategies clearto everyone Give people the information they needto understand where the organization is going andwhat role they play in getting it there

2 Make it clear that everyone contributes Set re-alistic goals communicate expectations and hold ev-eryone accountable

3 Make it personal Connect the success of the com-pany to that of each individual

4 Equip your people Give them the educationtraining and tools they need to perform

5 Have confidence in others Give decision-makingto the ldquoexpertsrdquo the people who are closest to thefront lines of the business and give them permissionto act without fear

6 Practice Information Democracy Without in-formation people cannot make responsible decisionsor be held accountable for them

7 Reward success Publicly acknowledge people whodemonstrate accountability

Part Three|

LET THEREVOLUTION BEGIN

Determine Your ImmediatePriorities

With the planning and foundational work behind you thefirst activity in a performance management revolution isdetermining what your first EPM project will be The fol-lowing assessment questions may be helpful in making thatdecision

Overall EPM Assessment

Question Your Evaluation

How does your organizationcurrently address performancemanagement

What tools or applications arecurrently used

ERP System

Point Applications

Integrated EPM Suite

BI Tools

Spreadsheets

Custom Tools

160 DETERMINE YOUR IMMEDIATE PRIORITIES

General Assessment

How well does this process work inyour organization

Are these processes integrated If sohow

Is the process integrated ordysfunctional

Is there a lot of rekeying ofinformation from one system toanother

How long is the financial closingand reporting cycle

When does information becomeavailable to internal management

Do people trustbelieve in themeasurement process

What is your vision for theorganization

What are some of your immediateneeds

Goal Setting

How does your organizationcurrently set and communicatecorporate strategies and goals acrossthe enterprise

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

Determine Your Immediate Priorities 161

General Goal Setting and Strategy

How satisfied are you with yourcurrent solution

How long has it been in use

Rate the efficiency of your currentgoal settingscorecarding process

Does your organization use anyformal performance measurementor scorecarding methodology Ifnot is there a defined strategic orbusiness planning process that getsrun before budgeting starts

How are the results of this processcommunicated

How are goals and objectivescommunicated down through theranks

How is performance againstcorporate goals tracked

What types of metrics do youmeasure (financial andnonfinancial)

How do you hold managersaccountable for achieving goals

How do you communicate andcollaborate with each other aboutgoals targets success and concerns

Is compensation linked to thesegoals

Does management have the abilityto ldquodrill downrdquo on scorecards

How long does management spenddiscussing performance each month

What degree of automation doesyour organization use

To what extent do yourscorecardsdashboards predictoutcomes or future performance

How can the process be improved

Modeling

How does your organizationcurrently handle strategic andbusiness (or operational) modeling

What tools or applications areused

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

Rate the efficiency of your currentbusiness modeling process

How do you model various businessscenarios and potential outcomes

What tools does the organizationuse to model organizationalchanges mergers acquisitionsdivestitures and so on

What are some of the constraints onyour business How do you testdifferent business scenarios againstthese resource constraints

If using spreadsheets how do youensure everyone is operating from aconsistent set of assumptions

How do you measure profitabilityand value throughout yourorganization Which products orservices are most profitable

How do you allocate costs tovarious products or services

Are you able to use these costdrivers in your budgeting process

Have you adopted EVA or othervalue-based approaches

Does your organization perform anyof the following cost quality orimprovement initiatives

Six Sigma

Baldrige Criteria

Do you link operational cost modelsto financial performance

Financial Planning

How does your organizationmanage the budgeting planningand forecasting process

What type of system is yourorganization currently using forbudgeting and planning

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

What types of planningbudgetingdoes your organization perform

Strategic Planning

Capital Planning

Project Planning

Financial Planning

HeadcountSalary Planning

Operational Budgeting

General Planning

Rate the efficiency of your currentbudgeting and planning process

Do you have a centralized ordecentralized planning process

Can your plans and forecasts reflectchanging business conditionsquickly and effectively

What could be changed about thecurrent process to make it moreefficient

Budgeting Process

How long does it take to completeyour budgeting process

How often does the process happenAre you updating budgets orforecasts on a regular basis

Do you have the ability to forecastand plan at the top but at the sametime empower your sites to create adetailed budget

Do you have to budget by projectsin some cases not just cost centers

How many people are involved

Are you involving all the rightpeople in the process both internallyand externally

Are you doing rolling forecasts Ifso how far out

How do you handle salary planning

Process Management

Are you satisfied with the securityand workflow management of yourcurrent system

How do you ensure the budgetingdata you collect is accurate

How much time is spent oncollecting spreadsheets rekeyingdata

How do you manage differentversions of the plansbudgets duringthe process

How do you know when everyonehas turned in his or herplansbudgets

How many operating systems doyou need to collect data from tofeed into your EPM applications

Are data-quality managementmethods employed What are they

Is the data-collection processintegrated with the organizationrsquoscompliance control procedures

Is the existing data-collection andtransformation process fullydocumented with adequatecontrols

Reporting and Variance Analysis

How happy are you with yourability to report on yourplansbudgets

Can you easily look at variances formultiple years

Do you budget at a higher or lowerdetail than you perform reporting

Do you spend more time on themechanics of budgeting andplanning or in-depth analysis

Are you able to create integratedfinancial statements in yourbudgeting process like cash flowstatements and balance sheetsWould that be a plus

Do your analysts internal auditorsor external auditors ever need toreconcile between EPM and thesource system from which the dataoriginated If so how efficient isthe process

Do you have confidence in thefinancial information generated byyour existing EPM solution If notwhat do you suspect is the sourcefor that lack of confidence

Do you feel you have 100 percenttransparency to the source data andany processes and individuals thatmay have ldquomanipulatedrdquo said data

Strategic Financial Planning

How is cash flow modeling doneespecially around debt restructuringand acquisition analysis

How can you reduce organizationdebt over the next 5 years

How can you increase market shareby 12 percent in the next 10 years

How can you improve how theorganization is viewed by others andsee that improvement reflected inthe stock price or the credit rating

If you refinance the organizationdebt to more favorable terms whatimpact will that have on long-termgoals

What if you acquire anotherorganization to increase marketshare

What if you improve the financialstrength of the organizationrsquosbalance sheet and cash flow

Monitoring

How do you monitor organizationperformance vs budgets plans andstated goals

What type of system is yourorganization currently using forperformance monitoring

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

How satisfied are you with yourcurrent solution How long has itbeen in use

How is performance against the planmeasured and how often Is there amethod in place for consistentperformance measurement

How do you find out if there aredeviations from plans duringexecution Are you able to makechanges to plans to ensure success

How often do you discoverchallenges with execution when it istoo late to make corrections

Where are budgets and actualscombined to enable variancereporting How often does thishappen Quarterly Monthly

Do you perform any ldquoflashrdquoreporting during the reportingperiod How

Who does the analysis How longdoes it take Do you wish you hadaccess to some information sooner

How is analysis on performanceperformed How do you drill downfrom high-level variances tounderlying causes

Do you have defined KPIs and keymetrics to measure successFinancial vs nonfinancial Leadingversus lagging indicators

Overall do you feel up to date onthe state of the business Howwould you like to improve it

Analysis

What type of system is yourorganization currently using foranalysis

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

What kinds of analysis do you needto perform

Financial

Product Profitability

Call Center Analysis

Supply Chain Analysis

Sales Analysis

HR Analysis

Marketing Analysis

How long has your current solutionbeen in use

Are these applications deployedwithin the same country multiplecountries same currency multiplecurrencies

Number of users accessing theseapplications

How frequent are most of your dataloads

What analytic functionality do youneed or wish you had

Do you understand variations anddeviations in information

Would you like to have more insightinto reported results

Do you wish you had more time toanalyze information prior toreporting to managers or externalanalysts

Do you use the Web for users toaccess data

Reporting and Financial Consolidation

What type of system is yourorganization currently using foryour reporting and consolidationapplication

ERP System

Point Applications

BI Tools

Spreadsheets

Custom Tools

General Reporting and Financial Consolidations

How satisfied are you with yourcurrent reportingconsolidationsolution

Rate the efficiency of your currentprocess

What is the length of the process toclose the books and publish thenumbers at your organization

Consolidation Process

How much of that time is spent onmanual processes like collectingdata rekeying data anddouble-checking numbers

Are you able to create integratedfinancial statements in yourreporting process like incomestatements balance sheets and cashflow statements

How many data sources do youneed to consolidate from Whatsystems

Can you easily access informationfrom your ERP system Is thereoften a bottleneck of requests

Do you trust the data beingsubmitted by remote operations

Do you sometimes get conflictinganswers

Do you have one version of thetruth

How do you handle currencyconversions

Do you have to handle complexintercompany accounting

Do you have any joint ventures orminority interests

How easy is it for you to integratean organization post acquisition ormerger

Considering the number of systemsyour organization is using to collectand manage financial information isit difficult to get pertinent andtimely answers

Would your organization benefitfrom a common place to unify thefinancial information and othermetrics

How satisfied are you with yourcurrent financial consolidationsolution

How and when do you distributereports within the organization

Once published how and when doyou distribute reports within theorganization (business unitsbranches )

Who do you report to externallyand how is this handled

How fast can you respond to enduser requests for new reports orviews of information

How satisfied are your users withthe timeliness and usefulness of thereporting and consolidationinformation they are receiving

Do you wish you had more time toanalyze information

Do you have a common point oftruth for your shared financialinformation If so how accessible isthe information

How would you potentially cut daysoff your monthly closing process

Data Integration

Is the quality of data a concern foryou

Do you spend time fixing errorsthat were caused by bad data input

Is the data-collection processconsistent complete and repeatablethroughout the organization

Do people follow a standard set ofrules

Do you have data-mapping issues

Do you have complete auditabilityand accountability

Whom do you want to manage thedata-collection reconciliation andentry process

What method(s) do you employ tocollect data

Does the current method providevisibility to the source data andtransformation process

How do you audit from aggregatednumbers in an analytical applicationdown to the source GL TrialBalance

How do you answer questions

How do you investigateproblems

How do you prove outbalances

If required to comply withSarbanes-Oxley regulation how doyou monitor your 302 and 404processes Are these processesintegrated with your financial closeprocess

Are end users who own theoperating data held accountable forthe data-submission and quality-validation process leaving corporateresources to focus on value-addedanalysis and reporting rather thandata collection and validation

New Pressures and Constraints

Are you feeling increased pressuresto publish your results faster

How is the shortened 10K + 10Qreporting cycle going to affect youHow will you adapt to it

How might you cut days off yourclosing process

Do you feel comfortable signing offon your financial statements

Do you feel that everyone on yourteam is being held accountable forthe completeness accuracy andintegrity of your financialstatements

Do you have the right level of detailto prevent or detect materialmisrepresentations in your financialstatements

What impact will theSarbanes-Oxley Act have on yourorganization

Following this self-assessment it should be clear whereyou believe you are excelling where you could stand toimprove and where you need immediate assistance Nowyou are ready to select your first EPM projects

A Model EPM Methodology

Most of the organizations that have had success with EPMstarted with a pilot or a relatively small project that couldbe implemented quickly and deliver substantial benefits tothe organization In selecting a pilot or a small project ithelps to focus on one or more of an organizationrsquos biggestpain points This path ensures that EPM demonstrates itsvalue quickly and achieves visibility with a large num-ber of people in an organization which helps garner earlysupport

Many organizations concentrate initially on the financefunction when deploying an EPM pilot This gives thewider corporate culture time to observe and adjust tothe philosophical shifts EPM entails

An example of a company that took this approach toEPM is Cox Enterprises one of the nationrsquos leading me-dia companies and providers of automotive services with2006 revenues of $132 billion and 80000 employees Aidedby an organization within Cox Enterprises that supportsEPM projects in its various divisions Cox Enterprisesrsquo firstforay into EPM was in its finance organization and focusedon financial consolidations With a handful of successfulEPM finance-related projects completed the group sooncaught the eye of the companyrsquos radio division Cox RadioInc

178 A MODEL EPM METHODOLOGY

Cox Radio is one of the largest radio broadcasting com-panies in the United States based on revenues Cox Radioowns operates or provides sales and marketing services to80 stations in 18 markets Its radio portfolio includes 67 FMstations and 13 AM stations and in 15 of its 18 markets CoxRadio operates three or more stations

In 2006 coming out of a five-year down period for theradio advertising industry Cox Radio saw that its challengewould be driving growth in a much more competitive en-vironment This realization was the origin of a strategicEPM initiative to create a modern management informa-tion system that would give the company an accurate his-torical view of performance and a forward-looking one aswell

One of the first projects the company tackled in im-plementing the new system was advertising inventory Inthe radio business there is a lot of variation in the numberof spots each company allows its stations to run By thatmeasure Cox Radio allows fewer spots than many of itscompetitors which makes managing advertising inventorya much more critical activity for Cox Radio than it mightbe for other companies The ideal would be to sell as closeto 100 percent of its advertising spots in any given periodwithout actually selling out and having to turn down ad-vertisers who wish to run ads

To effectively manage inventory in this way would re-quire that Cox Radio implement a system that would allowits sales team to plan forecast track and report ad salesvirtually on demand In addition to implementing a ro-bust unified platform for doing this Cox Radio deployedinteractive performance dashboards so its senior manage-ment team could add and get access to current infor-mation about advertising inventory virtually any time itwanted to

The biggest benefit of the new inventory system is animprovement in inventory utilization and pricing Sales

Follow a Structured Methodology 179

managers have their compensation tied to sales and arecompetitive by nature so the new system provides incen-tives to maximize revenue because it provides them with theinformation they need to walk the delicate line between al-ways being able to take an order and selling out

Accuracy of planning and forecasting has also improvedwith the forward-looking view of demand provided by thesystem In addition senior managers are able to make betterglobal decisions as they now have a consolidated view ofdemand across the company

FOLLOW A STRUCTUREDMETHODOLOGY

Regardless of whether you start with a pilot a small projector a sequence of projects another best practice of success-ful companies is to use a structured EPM methodologyA structured methodology will guide you as to how animplementation needs to be executed It also ensures thatcommunication is efficient and successful delivery becomesa repeatable process

A number of different methodologies can be used in-cluding classic ldquowaterfallrdquo rapid application design agileresearch and development and so on Regardless of whichmethodology you choose a successful EPM methodologyis highly structured and includes the following components(see Exhibit 121)

Project Management Management of the standardsacross the various EPM projects and project phases

Envision the EPM Solution Creation and manage-ment of the overall EPM vision and strategy

Implementation Delivery of the EPM solutionEducation Supporting the EPM solution in the field

EXHIBIT 121 A Model EPM Methodology

ENVISION AN EPM SOLUTION

This component of the methodology delivers the mostvalue in any EPM implementation Envisioning the EPMsolution is not a one-time effort or exercise but rather anongoing set of activities requiring executive support Theprocess becomes a cycle within itself as the EPM vision isdeveloped and refined and input from stakeholders is in-corporated into the solution

The first step is to define the EPM vision withinyour organization The discussion begins with top man-agement and key stakeholders creating and documentingbusiness drivers One method for doing this is to draw an

Implementation 181

accountability map as discussed in a previous chapterMapping out the interrelationships and dependencies ofkey business drivers across the organization will lead toan overall EPM vision and strategy If there are multiplegroups or divisions you will want to capture their visionas well and then map it back to an overall corporate visionidentifying gaps along the way

Once you have the overall EPM vision it can be brokendown into business processes subprocesses and down evenfurther into lower level requirements It is during this stepthat a scope and charter will start to form outlining thebreakdown of the EPM vision into manageable phases andthe requirements that need to addressed in each phase Thisscope and charter becomes your initial roadmap

The scope and charter will also dictate what you put intoyour EPM prototype The purpose of the prototype is toprovide top management with a ldquostoryboardrdquo on how theycan measure and manage the business using the providedtoolset and business processes Having a working proto-type will provide more pointed feedback if time and budgetallow

This same cycle repeats itself as feedback is collectedand user acceptance is achieved Once the implementationbegins this same cycle is used for previewing the solutionout in the field Each time a cycle is completed the EPMvision is revised and strengthened Top management needsto use this feedback loop to make sure the performancebeing measured by the solution is driving the behaviorssupporting the EPM vision

IMPLEMENTATION

When implementing EPM it is critical to follow a highlystructured process that leaves nothing to chance We can usethe classic waterfall approach to illustrate the delivery of theEPM vision consisting of an EPM solution with multiple

project phases In this example our methodology is to in-clude the following eight steps

1 Analyze Establish clear project success factors bydefining the business and technical goals for the EPMsolution including understanding the deploymentrequirements project scope and performance capac-ity and planning

2 Plan Define the steps necessary to achieve a com-plete implemented EPM solution

3 Design Determine detailed requirements for eachcomponent within the EPM solution making sureall components work together to achieve the overallsolution

4 Build Develop applications according to the estab-lished design

5 Test Ensure the built applications support the busi-ness processes and meet the stated performance ob-jectives making sure all components work togetherto achieve the overall EPM solution

6 Rollout Move the applications from a test or devel-opment environment to a production environmentin an orderly way

7 Review Ensure the solution continues to supportthe stated business objectives

8 Make changes Define a process for handlingchanges related to the implementation

Analyze and Plan

The analysis and planning phases of the EPM implementa-tion are necessary to prepare for delivering all componentswith the EPM solution Start by breaking out your EPMvision into smaller pieces or components and then divide

Implementation 183

those components into manageable phases Remember tostart with small wins but keep in mind the value of de-livering the entire solution and improving performanceBalance what you can reasonably deliver to gain supporttoward achieving the overall vision

The size and magnitude of the solution being deliv-ered will dictate the amount of time you spend planningyour roadmap for delivering each of the components andin which phase of the overall project Simply put the moretime spent on these phases the quicker and easier the de-ployment will be Factors to consider include the businessrsquosstrategy and vision its technical vision the user communityand how the EPM solution will be used

It is critical to begin your EPM implementation with theend goals in mind A clearly articulated strategy with ties tothe departmental goals and individual goals is the roadmapthat is required to enable a successful implementation Ifeach department is enabled to drive its own part of theimplementation without an overall tie to the corporatevision the departmental agendas may be achieved but theoverall achievement of strategy will likely fail Tying day-to-day operations to the organizationrsquos strategy is critical tothe success of the EPM initiative

Stakeholders and executive sponsors working with theEPM initiative leaders can help to ensure the vision andstrategy have been clearly articulated and visualized Thiswill enable the leaders to prioritize the phases of implemen-tation to ensure the largest payback and adoption rate andensure the most pressing business issues are addressed first

Know your systemsmdashapply technology with wisdomImplementing EPM is more than just buying technol-

ogy If the implementation is viewed as strictly a technologyexercise it will likely fail If the initiative leaders andor theirIT partners have not done their homework they might tryto take this path and simply call on their favorite vendorsto sell them the systems they donrsquot currently have

The importance of technology is not to be under-stated however A paper-based or nonintegrated EPM isalso likely to fail A better approach would be to assess yourexisting systems and match them to your EPM require-ments Where you lack the necessary technology to enable aperformance-accountable organization consider purchas-ing new technology

There are numerous technology companies out therewith many solutions to fit countless situations Rememberto research them thoroughly and ensure that they and theirsolutions are sound and proven

EPM Solution Selection

Integration versus ease of use and functionality is the classicbalancing act the business users and IT grapple with dailyFor EPM to be successful both sides must be taken intoaccount and implemented equally

Best-of-breed software typically has the best depth offunctionality and nice user interfaces but software suitestend to have tighter integration So what is the right choiceThere are EPM focused vendors that can provide bothmdashand provide them in balance These vendors also tend toempower the business users by enabling them to do morecomplex tasks through an end-user interface thus reducingdependency on IT for mundane and time-consuming tasksand freeing up IT for more strategically focused initiatives

To illustrate the nature of the choice consider the caseof a large European telecommunications company Thecompany had previously used individual applications fromvarious suppliers in its subsidiary companies to supportfinancial management tasks including budgeting analysisand reporting Then the company chose to implementEPM software as part of a cost-savings initiative thatincluded a reduction in the number of its technology

Implementation 185

vendors optimization of IT architecture and an improvedrate of return on technology investments

After assessing its options the company determined thatit needed a comprehensive solution to meet its holistic needsfor budgeting planning analysis and reporting and score-carding and monitoring This naturally led it to implementan integrated suite of EPM applications across the enterpriseinstead of disconnected applications in individual groupsand departments

Regardless of how you make the decision itrsquos critical toselect the right EPM tool An organization needs to makesure it considers both organizationalstrategic and technicalrequirements and follows a selection process to make sureit makes good vendor choices based on a broad view ofthe organization and its needs The tool(s) selected need tooffer the breadth depth and scalability necessary for theorganizationrsquos users to carry on its business For most or-ganizations the next-generation planning technology mustpossess the following attributes

Dynamicreal-time updates Multitiered aggregation and granularity Integration with enterprise applications and datasources

Translation between financial and nonfinancialmetrics

Enhanced creation and management of ldquowhat-if rdquomodels

Real-time display and communication of informa-tion

The rapid adoption of EPM is fueled by a drive toempower the masses with powerful planning reportingand analysis toolsmdashachieving Information Democracy TheEPM solution should leverage the Web to provide a scalablesecure and reliable EPM infrastructure

Design

In the design phase you should create design documentsthat summarize your organizationrsquos business and technicalvision and your deployment strategy Remember to tie thesedesign documents back to the overall delivery of the EPMsolution Ask how each design affects or leverages the oth-ers Make sure yoursquore consistent with the other componentson your delivery roadmap While you design each individ-ual component and start to generate test cases keep in mindthat the component needs to be tested as part of the overallEPM solution as well

Another element to keep in mind is that the peopleresponsible for building the application are usually differentfrom those responsible for designing the system Thereforeit is important that the documentation (including detaileddimension architecture detailed calculation design projectpath with time line and resources) be as comprehensive aspossible

The main components of the design phase include

An EPM component checkpoint Designing the plan and environment for testing Designing security Designing the migration plan Designing the training plan Establishing rollout criteria

After a complete design is discussed and documented thenext step is implementing the design This phase includes

EPM component checkpointmdashDesign the de-ployment while considering all solutions being im-plemented

Implementation 187

Implementing the applicationmdashImplement thedesign of the application detailed in the design phase

Developing a proof of concept (where it makessense)mdashCreate a proof of concept to validate cer-tain functionality and distribute to a subset of the usercommunity for testing and feedback The conceptualproof can also be used for preliminary performanceand scalability testing

Implementing securitymdashImplement the user setupand security assignments that were detailed in the de-sign phase

Developing support processesmdashDevelop supportprocesses to document the use of the application forend users and administrative processes that help updateand maintain the solution The main components ofthe support processes include application end useradministrator maintenance of hardware and mainte-nance of software

Creating testing scriptsmdashCreate the testing scriptsfor the various types of testing scenarios that will beperformed for functional system and performancetesting

Developing a training programmdashIdentify re-sources for training specifics for training and coordi-nate the training process

After building the application you can start validating thesolution to ensure it meets the needs of the business and thearchitecture of the environment can support the solutionYou can use different types of tests to validate the solutionThis phase must be completed so the rollout phase can beinitiated with full knowledge of the performance-testingresults The solution should also be tested against the EPM

vision to ensure the component works as defined in theAnalyze and Plan phase

The main components of the testing phase shouldinclude

EPM Communication CheckpointmdashDesigningthe deployment while considering all solutions beingimplemented

Functional TestingmdashEnsuring correct results areprovided when executing calculations data entry re-port retrieval consolidation and so on

System TestingmdashPerform an end-to-end processtest to ensure all the individual components are com-patible with each other

User Acceptance Testing (UAT)mdashEnsure the so-lution has met the needs of the end users from a func-tional and performance perspective

Performance TestingmdashDetermine if the solutionmeets the performance goals that were highlighted inthe design phase and ensure the appropriate hardwarearchitecture has been implemented to support thesolution

Rollout

After the system has been tested to validate sizing and per-formance it can be rolled out into production To maintainoptimal performance the following must be monitored

Training of end usersmdashRun the training scriptsidentified in the design and build phases

Implementation 189

Completing and communicating supportprocessesmdashImplement the support processes de-signed in the Build phase and communicate theseprocesses to end users and administrators

Go live

Here is a Production Environment checklist that maybe helpful to you

Production Environment Checklist

Task Status

Ensure UAT is completed

Review partial testing results ifavailable

Review application rollout plan andaccomplishments

Review outstanding issues

Verify the contingency plan (readiness)

Verify available backup system andprocesses

Process final historical data conversionsand updates to productionenvironment

Synchronize test environment toproduction

Assess production environmentreadiness

Send go-live recommendation toexecutive sponsor

Deploy business process andprocedures

Deploy internal support policy andprocedures

Communicate availability of solutionsto users

Review

After the application has been deployed review it to ensurethere is an evaluation of how the plan for the solution wasexecuted This review phase should include

EPM Communication CheckpointmdashDesign thedeployment while considering all solutions being im-plemented

Project reviewmdashReview the completed solutionagainst the initial goals and requirements

Future implementation phasemdashDiscuss whatthe future phases will encompass including goalsand objectives and what the proposed solutionwill be

Make Changes

You will also need a process in place to handle changesrelated to the EPM solution Changes can take differentforms and have various impacts on the solution Whenthe change is identified it is imperative that the changemanagement process be followed to ensure all the neces-sary phases are reviewed before a change is brought intoproduction This process is iterative and should be ex-ecuted in its entirety to ensure all potential impacts areaddressed

The main types of changes that might be made to theEPM solution can be categorized into three groups

Business process or user activity or configurationchange

Technical (hardware and software) Users

Change Management 191

It is important to document the details of the final andevolving system Whether you have a new implementationor are re-executing change management this practice isnecessary for sustaining a successful deployment

EDUCATION

Effective education is one of the best ways to ensure the suc-cessful implementation and utilization of your solutionmdashand to get greater business value and results from thetechnology faster Education provides comprehensive train-ing solutions that give the client workforce the knowl-edge and skills they need to optimize performance oftheir EPM solution and help speed ROI You should lookfor a mixture of the blended curriculum combining in-tensive hands-on instructor-led training with self-pacedcomputer-based training If budget allows you can go onestep further with a custom learning solution to help ensureall membersmdashadministrators developers managers powerusers end users and IT personnelmdashreceive the right train-ing at the right time

CHANGE MANAGEMENT

Implementing EPM means change An organization maychange the content or format of information provided toemployees its business processes andor the expected be-havior of employees and possibly change the metrics forevaluating employeesrsquo performance To successfully man-age these changes an organization needs to properly planfor coping with them By following the best practices listedin the next section companies can increase the likelihoodof success of their EPM implementation

Ensure a Supportive Organizational Environment

No matter how technically proficient an organization isan EPM implementation will not be successful without asupportive organizational environment To achieve this itis necessary to

Build a broad-based consensus in advance of the im-plementation for a change in both technology andculture

Align strategic goals with operational objectives Shift business paradigms based on EPM Align EPM with business strategy Have the business areas partner with IT departmentsin ownership and help guide the IT project teams

Communicate with and engage all relevant businessareas

Ensure Sufficient Funding and Resources

Implementing EPM requires an appropriate financial bud-get and human resources attributed to the project Oftenbacking is underestimated because in the eyes of some busi-nesspeople EPM is mistakenly seen as simply a different wayof reporting As such they expect the cost to be more inline with a new reporting tool rather than an enterprisewidesystem

To ensure success funds must be secured with anenterprise-based deployment in mindmdashwhich will includeenterprisewide software for enablement

If the EPM project is already underway and you arefacing the situation of inadequate funds to complete theproject successfully there are viable options Success is of-ten measured in terms of user adoption so you couldconsider focusing on specific functionality that will help

a larger number of users (say budgeting and planning func-tions) to solve a broad business pain (more accurate andtimely budgets) Once the pain is resolved and adoptionis successful you can use that success to garner additionalfunds to add more functionality to solve another businesspain

This type of phased approach breeds a loyal followingthat makes moving to the next phase easier This phasedapproach is sometimes referred to as the ldquostart anywhererdquoapproach

Obtain Employee Buy-In

Deployment of EPM is not successful until EPM is widelyused As part of its EPM implementation plan an organi-zation needs to consider and make specific plans to ensureuser acceptance

Getting users to accept and use EPM often requirescommitment and a culture change at the very highest levelsof the organization Therefore executive sponsorship andsupport is critical to success in defining and owning theoverall EPM vision and strategy

Other actions that will help ensure user adoption in-clude

Pegging compensation to successful use of EPM Aggressive marketing of the new EPM solution withinthe organization including promoting successes

Defining and promoting links between tactical exe-cution and strategic management

Providing appropriate user training and reinforcing iton an ongoing basis

Designing the implementation with ease of use forbusiness users as a top priority including the use ofdashboards and scorecards

You should expect resistance to a new EPM tool or per-formance methodology with the greatest resistance com-ing from individuals who have the most invested in theold tool or methodology Those most likely to feel thatinvestmentmdashand most likely to resist something newmdashare probably the people with the most valuable IT skillsand organizational knowledge Getting them on board firstwill make it easier to convince others of the value of thechanges

Advice from the Trenches

The majority of the organizations that have implementedEPM projects believe that success is as much about changemanagement as it is about processes and systems

For example the project manager at a technology con-sulting firm that built a EPM portal reported that it actuallytook more time to get management on board than to imple-ment the project And after that its partners and principalshad to become more comfortable accessing reports onlineversus a paper book

User involvement ranks high as a critical success factorOne Center of Excellence leader in a manufacturing com-pany recommends strong partnership with internal usersnoting that itrsquos important to learn their language sit withthem and learn their business to earn their respect andsupport

A project manager at a major airline suggests keepingproject requirements realistic and attainable and to keepthe 8020 rule in mind which is that 80 percent of thefunctionality can be produced for 20 percent of the costThis would suggest keeping it simple to get fast robustsystems that are relatively inexpensive to implement andmaintain

The project manager at the large transportation com-pany whose dashboard implementation I mentioned earlierrecommends that requirements be written into a formaldocument A formal charter scope and project require-ments tell your internal users what yoursquore going to buildfor them In addition many of your internal customersare going to try to tell you what they want you to do soitrsquos important to write and communicate a detailed projectplan

The project manager also recommends planning for thefuture from the very beginning noting that if you buildyour first application correctly test it thoroughly and storeit as a module you can reuse it for future projects

The project manager at the electronics retailer refer-enced in this book as a company that leveraged its compli-ance initiative into a performance management initiativeput user training at the top of the list of success factorsnoting that if users donrsquot like an application they wonrsquotuse it

Finally nearly all project leaders stress the need for com-munication The project manager of the pharmaceuticalcompany whose scorecarding application was mentionedin this book suggests that overcommunicating is just notpossible

Prepare for Some (Pleasant) Surprises

For all the challenges and the need to plan and imple-ment carefully some unexpected benefits usually come outof EPM projects Consider the case of Pearson an inter-national media company owner of highly regarded assetssuch as the Financial Times and Penguin and Pearson Ed-ucation the worldrsquos largest education company with op-erations all over the world more than 29000 employees

and dual listings in the United Kingdom and the UnitedStates

A highly decentralized and growing company with busi-ness units that prize their independence Pearsonrsquos assign-ment was to set conisistent criteria for managing financialperformance in line with world-class standards

In particular Pearson found that making changes inits existing financial-management system was disruptiveso the company had wait until its year-end close to makethem This meant devising elaborate workarounds duringthe course of the year to deal with new disclosure require-ments or management information changes Each changeand its workaround would cascade throughout the globalorganization based on local reporting requirements and sys-tems outside of those at corporate In this complex organi-zation headquarters required new tools for sustained accessand visibility

In implementing a new EPM financial-managementsystem Pearsonrsquos goals were to accelerate reporting stream-line processes and provide a single centralized source ofmanagement information that could cope with a broadrange of financial and operational KPIs The new systemdelivered on these goals and on some unexpected benefits aswell

For example individual reporting entitiesmdasheach withits own charts of accounts and local finance systemsmdashautomatically populate into a uniform companywide re-porting chart of accounts The local businesses can use thenew system for their own reporting needs while the com-pany uses it for companywide financial consolidations Thesmoothing of the data collection and reporting processesmeans that Pearson has been able to reduce its monthlyreporting cycle from 20 days to six days

Also maintaining the system has proven easier than firstanticipated With the new process it is possible to make

controlled approved changes anytime to security metadataor rules and all business units have the updates at the sametime A great example of this is the update in account-ing policies for GAAP reporting under IFRS as well asSarbanes-Oxley compliance

Measuring Outcomes

It is well known that metrics can tell you anything youwant For every event metrics can be developed that presentdifferentmdasheven opposingmdashconclusions Getting metricsright is one of the hardest things to achieve with EPMAnd underestimating the impact of metrics is the biggestreason why EPM initiatives fail or underdeliver

Most people tasked with EPM understand how impor-tant it is to design the right management processes Theyknow you canrsquot do this without adequate technology and aproper frameworkmdashbe that the Balanced Scorecard Value-Based Management or Six Sigma But often organizationsjust donrsquot pay enough attention to getting the metrics right

As the adage goes ldquoWhat gets measured gets donerdquoThe right metrics drive the right behavior and the wrongmetrics drive the wrong behavior In fact just putting mea-surements in place at all affects behavior This phenomenonis known as the Hawthorne Effect1

The Hawthorne Effect was developed based on expe-riences conducted at the Hawthorne Plant of the WesternElectric Company near Chicago between 1927 and 1932to measure productivity in relation to changes in working

1The study of workers at the Hawthorne Plant was conducted byHarvard Business School Professor Elton Mayo and his associatesF J Roethlisberger and William J Dickson

Measuring Outcomes 199

conditions Researchers found that when the lights in thefactory were brightened productivity increased When thelights were dimmed productivity also increased And whenthe lights were returned to normal levels productivity in-creased yet again Bottom line researchers concluded thatthe fact that workers knew measurements were taking placemade them work harder

Not understanding the impact of metrics on behavioroften leads people to ldquogame the numbersrdquo Here are a fewexamples

Unbalanced metrics ldquoLetrsquos do whatever we can toget customers to pay up immediately so we improveour Days Sales Outstandingmdasheven if it ruffles a fewfeathersrdquo

Rewarding wrong behavior ldquoLetrsquos spend surplus bud-get on a new project in December or the budget willbe lostrdquo

Artificial deadlines ldquoThe deadline for making my tar-get is the end of the year I still have five months towait for a miraclerdquo

Conflicting objectives ldquoFifty percent of my time isallocated to this project but if I spend 80 percent ofmy time working for my line manager I will still get agood reviewrdquo

Window dressing ldquoPeople are our most important as-set Letrsquos eliminate 10 percent of them after the secondbad quarterrdquo

The problem with these behaviors is not bad peoplethe problem is bad metrics Often the process is just tooclinical A management team reviews the business objectivesthat need to be met It comes up with a list of metrics thatdescribe the objectives and chooses a few based on availabledata or what they think they can most easily measure

200 MEASURING OUTCOMES

Designing the right metrics should be influenced bywhat behaviors you are trying to stimulate and which oneswe are trying to avoid Here are some examples of the rightway to set and enforce metrics

PROVIDE FEEDBACK

We all know from personal life that feedback drives behav-ior It is important to hear how we are doing and how weare perceived Organizations are no different

Letrsquos take an example A claims department of an insur-ance company each day sorted claims by US postal ZIPcode and distributed them to Group North East Westand South The most important performance indicator wasldquoaverage processing time per claimrdquo and this metric neededimprovement Senior management decided to publish aweekly graph of claims processing production by group onthe message board near the coffee machine No changemanagement program and no management by objectivesjust feedback through the graph

After just a few weeks the effects were visible GroupWestrsquos average time was sagging because two staff membersin Group West were ill so Group East offered to help bytaking over a load of claims At the same time Group Eastcounted on the help of the others for the next two weekswhile a few employees were on vacation The workloadbegan to balance itself automatically and the average pro-cessing time decreased Feedback clearly drove behavior

ALIGN PERSONAL ANDCORPORATE OBJECTIVES

Most salespeople are measured on revenue and indicatorslike customer retention and customer satisfaction Although

Combine EPM and Enterprise Risk Management 201

revenue is an important corporate objective profitabilityoften matters most Many CFOs complain that marginsare under pressure because salespeople offer too many dis-counts But this is caused by personal objectives that aremisaligned with corporate objectives

A much better sales target would be profitability orif profitability analysis on a per transaction basis is toocomplicated contribution margin Contribution marginconsists of revenue minus direct costs such as the costof goods sold or the cost of sales With this modelwhen a customer asks for a discount the salespersonhas a mindset that is in tune with the overall objec-tives and can therefore contribute more directly to overallprofitably

COMBINE EPM AND ENTERPRISERISK MANAGEMENT

In most organizations EPM and risk management areseen as separate disciplines But EPM and enterprise riskmanagement (ERM) are related EPM has KPIs ERMhas key risk indicators The Balanced Scorecardmdashthemost well-known EPM methodologymdashspeaks to the fi-nancial customer and process growth of a companyERM distinguishes financial customer and operationalrisk

There are multiple advantages to combining EPM andERM First ERM allows the organization to establishimprovement projects before EPM metrics show that aproblem is looming Second ERM challenges the intu-itive belief of EPM that everything will proceed as plannedLastly risk management prepares an organization much bet-ter for dealing with discontinuities that threaten corporateobjectives

ANTICIPATE BEHAVIORS

Every organization has its own behaviorsmdashsome construc-tive and some not It is important to understand noncon-structive behaviors as they may keep a company from actingcorrectly upon strategic objectives and measurements

One privatized public service organization decided tointroduce KPIs The initiative was widely resisted as var-ious districts felt this was violating the privacy of districtsand their employees The CFO pushed forward and noticedthat contrary to all theory performance of the highest scor-ing districts went down instead of overall performance go-ing up Upon investigation it was discovered that the worsescoring districts were accusing the best scoring districts ofmaking them look bad This led to a change for the worsein the behavior of the better scoring districts to create anequal albeit lower performance

REWARD THE RIGHT BEHAVIORS

People who show they are doing the right thing shouldbe publicly rewarded Every month a professional servicesfirm held a sales meeting In one meeting a sales managerspoke up and said that he would most likely not make hissale target if his number of orders didnrsquot increase The othersalespeople thought he had ruined his chance of receiving abonus because he still had more than six months to make thetarget

But senior management praised the sales manager forhaving the courage to step forward and ask for help Imme-diately two presales consultants were assigned to the salesmanager the COO promised to tour his region and thesales manager was awarded a special incentive for loyaltyThe other salespeople stood corrected and learned a valu-able lesson

Define Metrics that Drive the Right Behaviors 203

DEFINE METRICS THAT DRIVE THERIGHT BEHAVIORS

The theory is clear Metrics and targets should be assignedto a performance owner and that person should have themeans to achieve those targets But conventional wisdomisnrsquot always right Some key metrics should not be as-signed to a single performance owner but to two or some-times three performance owners who need to collaborate toachieve the target In this case the targets are not definedfor a single business domain but for crossovers betweenmultiple areasmdashthe business interfaces

For example a CIO had a problem with the businessinterface between IT Development and IT Operations ITDevelopment was responsible for implementing systemsand IT Operations was responsible for running them afterextensive acceptance testing A new metric was introducedaverage time used to take a new function point into pro-duction Both managers complained that they did not havethe means to achieve the target by themselves The CIOpointed out that they had hit the nail on the head Themetric served to drive collaborative behavior

Bottom line if you simply follow conventional wisdommetrics can tell you after the fact whether you have achievedresults Done right metrics can actually drive the behaviorsthat lead to sound business results And that is when EPMreaches maturity as a performance-management tool

Afterword

Altimeters Vertical speed indicators Fuel gauges Airplaneshave an endless array of instrumentation to tell pilots whatis going on while theyrsquore flying through the sky But pilotsget into trouble when they rely too heavily on these toolsand forget to look out the window

By the same token EPM is an awesome set of instru-ments for knowing how a business is performing and fortaking action in the future But EPM today is based onKPIs for business that are relevant today And there may besomething coming at you head-on that you just canrsquot seewith existing performance metrics

While tracking and projecting performance based onexisting metrics is essential itrsquos not enough if companieswant to remain competitive and relevant in the futureProfessionals need to continually ask themselves originalquestionsmdashquestions outside of their day-to-day realitymdashthat can lead to fresh thinking new business opportunitiesand readiness for unplanned events

I call this ldquodecision contextrdquo Decision context is theinformation we use to color our judgment of significantissues The key is to identify and play out a number ofpossible scenariosmdashincluding highly unusual onesmdashbeforethey happen in an effort to uncover new insights and beprepared for the unexpected

Connecting New Dots 205

DIFFERENT THINKING

Although there are many techniques for thinking differentlyabout the business I like the approach used by the futuristand business strategist Peter Schwarz in his book The Artof the Long View Using Schwarzrsquos methodology you startwith an important question and then identify and groupdetermining factors into various categoriesmdashpolitical eco-nomic social technological physical and so on Itrsquos criticalwhen you develop these factors that you think beyond theconstraints of today Itrsquos also important to force yourself tothink outside of the box when imaging future scenarios

Next you select two significant factors that are inde-pendent of each othermdashin other words neither one canbe the cause or result of the other Itrsquos always tempting toevaluate multiple factors but as humans two is often all wecan really handle Plus itrsquos actually harder than you mightthink to isolate three or more factors that are completelyindependent of one another

Armed with these two significant yet independent fac-tors the next step is to brainstorm how these factors mightbe made to relate to one another in the context of a futurebusiness opportunity or threat

CONNECTING NEW DOTS

I recently participated in a roundtable discussion with sev-eral distinguished business executives and academics wherewe put this technique to work in a hypothetical situation

It happened that within three of the companies repre-sented real estate was a major opportunity for them so wedecided this would be an interesting area to explore

Using Schwarzrsquos technique of selecting two significantfactors that are independent of each other we chose tobrainstorm mobility (the desire and the ability to travel)

206 AFTERWORD

and telecommuting (the option of working away from anoffice setting)

Not only did we enjoy a stimulating and creative dis-cussion in the course of our brainstorming session we alsodiscovered a new business opportunity we all found quiteintriguing

The new business we envisioned was a vacation-telecommuting destination resort Travelersmdashmost likelyhigh-income single professionalsmdashwould spend severalmonths at an exotic location where they would receiveall the personal services they have come to expect Thesedestinations would provide a workspace an Internet con-nection technical support video conferencing large screenmonitorsmdashyou name it They would also arrange for socialopportunities outings and receptions (These travelers areafter all single) And of course theyrsquod be located in someof the most desirable spots in the world

We ended our brainstorm there but itrsquos not difficultto guess what the next steps might be for an organizationseriously interested and in a position to pursue our idea asa new business opportunity

Interesting stuff but how does it relate to EPMIn a perfect world EPM starts at the inception of a busi-

ness idea and helps it get better over time This is easier whenyou have observations of the real world You can measurethem Much of it has to do with documenting assumptionsWe state what we believe and then start collecting data totest and validate that belief Then we adjust the model aswe learn more

But truly great business ideas are rarely sparked by ana-lyzing the current reality So what is the role of EPM whenwe canrsquot observe anything helpful in the real world becausenothing exists yet The answer is EPM can kick start theprocess If company profits are off sales are down or qual-ity is decreasing performance data may be the wake-upcall to explore things more fully Companies also need to

Resist the Status Quo 207

think creatively about positive performance metricsmdashnotjust those that are alarming

EPM also plays a critical role once new business ideashave been conceived Before investing heavily in an initia-tive companies must model the concept They need a planincluding revenue goals people requirements business pro-cesses and equipment and so on These must all be trackedwith EPM

With new initiatives it is especially critical that everyoneis in tight alignment This is precisely where InformationDemocracy fits in Information Democracy as a principle ofequality that demands actionable insight for all requires thatinformation is shared among all who may benefit from itmdashline of business managers marketing managers HR man-agers and so onmdashand not be hoarded by the IT departmentor the executive suite With EPM all the players in a newbusiness initiative know what they are responsible for andhow they are meeting those responsibilities

RESIST THE STATUS QUO

New ideas can be wholly threatening to the status quowithin a company In organizations just as in our personallives we tend to surround ourselves with people like usThis can lead to a form of organizational blindness thatprevents new ideas from flourishing

When the pilgrims neared the shores of the Atlanticthe Native Americans simply could not see them Theyhad no context for humans appearing from the ocean sothey were blind to their existence Companies are the sameThey optimize and become so good at the current realitythat they often canrsquot see beyond it

This is why itrsquos so essential to stay open to new ideasmdashand proactively develop them Step outside of yourself asmuch as possible to understand and leverage the world

208 AFTERWORD

around you Make new connections by reading science fic-tion novels medical journals or biographies of NapoleonAnything thatrsquos indirectly related to your daily focus

Remember you can analyze all you wantmdashand I en-courage you to do somdashbut there is a diminishing return onthe current reality Place some bets Have a willingness tobe wrong Take a chance

And above all unlike the pilot who relies too much oninstrumentation donrsquot forget to look out the window

Appendix EPM Resources

Organizations

BPM Standards GroupBPM ForumThe Data Warehousing Institute

Vendor and Consultant Listings

Business Finance magazine Vendor Directorymdashwwwbusinessfinancemagcomresourcesvendorsindexhtml

Business Finance magazine 2007 Business PerformanceManagement Software Buyers GuidemdashwwwbusinessfinancemagcommagazinearchivesarticlehtmlarticleID=14745amphighlight=technology20buyers20guides

The OLAP ReportmdashwwwolapreportcomBPM Magazinemdashwwwbpmmagnet

Useful Links

Business Intelligence Networkmdashwwwb-eye-networkcomhome

Ohio State University Fisher College of Business Centerfor Business Performance Managementmdashhttpfisherosueducenterscbpm

210 APPENDIX EPM RESOURCES

Publications

BPM magazineBusiness Finance MagazineDM ReviewIntelligent Enterprise

Glossary

Balanced Scorecard A performance-achievement framework developed byRobert S Kaplan and David P Nortonthat required performance-measurementsystems to identify measures and objec-tives related to four perspectives fi-nancial customer internal process andlearning and growth

Basel II An effort by internationalbanking supervisors to update the orig-inal international bank capital accord(Basel I) which has been in effect since1988 The revised accord aims to im-prove the consistency of capital regu-lations internationally make regulatorycapital more risk sensitive and pro-mote enhanced risk-management prac-tices among large internationally activebanking organizations

Business Intelligence (BI) Knowl-edge gained through the access and anal-ysis of business information

Business Intelligence Tools Thetools and technologies used to accessand analyze business information Theyinclude tools for query and reportingOLAP (online analytical processing)data mining and advanced analyticsend-user tools for ad hoc query andanalysis enterprise-class query analysisand reporting including dashboards for

performance-monitoring and produc-tion reporting against all enterprise datasources

Enterprise Performance Manage-ment A category of technologies andpractices that enables organizations totranslate strategies into plans moni-tor execution and provide insight toimprove financial and operational per-formance The research and analystfirm Gartner describes this categoryas ldquoCorporate Performance Manage-mentrdquo which it uses as an umbrella termto describe the methodologies metricsprocesses and systems used to monitorand manage the business performanceof an enterprise AMR Research callsthe category ldquoEnterprise PerformanceManagementrdquo which it describes as anemerging superset of applications andprocesses that cross traditional depart-ment boundaries to manage the full lifecycle of business decision making

Business Modeling The process ofcreating models of how a business worksand functions in such a way that they canbe used productively to simulate the realworld The ability of executives plan-ners managers and analysts to modeland test operational and financial plan-ning assumptions for their business isfundamental to good decision making

212 GLOSSARY

EPM Center of Excellence AnEPM Center of Excellence solves manyof the challenges faced by organizationsimplementing EPM It is an internalgroup that provides consulting servicesand oversees the EPM efforts within anorganization The CoE helps standard-ize tools procedures and best practicesenabling companies to leverage their ex-periences across projects allowing themto achieve scalable results and reduce thecost of their EPM efforts

Consolidation The process of takingdata from different systems and entitiesand possibly disparate formats and com-bine and aggregate that information tocreate a unified view

Dashboard An application or customuser interface that organizes and presentsinformation in a graphical format that iseasy to read The information may be in-tegrated from multiple components intoa unified display A dashboard metaphoris useful for conveying the idea Thedifference is that in EPM the dash-board is interactive A dashboard helpsmonitor individual business unit andorganizational performance and pro-cesses for a greater understanding of thebusiness

Data Mart A system for collectingdata from transactional systems and ag-gregating it in a data store for accessby decision makers Typically involvessome scrubbing or cleansing of data asit is extracted and loaded from trans-actional systems to ensure consistencyof the data (eg normalizing customernames) Data marts are departmental inscope and are used to isolate the dataneeded to support a particular divisionor departmentrsquos needs This data maycome directly from transactional sys-tems or represent a subset of the datawarehouse

Data Manipulation Language(DML) The underlying language foraccessing and controlling a databasemanagement system Examples in-clude SQL (Structured Query Lan-guage) for relational and MDX(Multi-Dimensional Expression Lan-guage) for multidimensional database-management systems

Data Warehouse A data-collectionand organization system similar to a datamart but designed to work on an enter-prise level

Decision Support System (DSS)Business analytics presented in a for-mat appropriate for use by executives inmaking decisions

Economic Capital (EC) Theamount of capital that banks and in-surance companies set aside as a bufferagainst potential losses from their busi-ness activities

Economic Capital Modeling Theprocess by which models are createdof the optimal use of economic capitalacross a company including the appro-priate capital to support specific businessunits and activities and to quantify howchanges in strategy alter capital require-ments

Economic Value Added (EVA) Aldquovalue-basedrdquo metric popular withmany companies EVA is an integratedframework for performance measure-ment value-based planning and incen-tive compensation developed by JoelStern and G Bennett Stewart III EVAis calculated by taking operating profitsand deducting a charge for the cost ofcapital The Stern Stewart EVA frame-work is now employed by more than 300companies worldwide including Coca-Cola Siemens Sony and government

Glossary 213

agencies such as the US Postal Ser-vice and The Port of Singapore Author-ity Companies that have adopted EVAfrequently realize long-lasting improve-ments in operating efficiency growthmorale motivation and stock marketvalue

Enterprise Resource Planning(ERP) A transactional software sys-tem that allows a company to automateand integrate the majority of its businessprocesses to share common data andpractices across the enterprise

Enterprise Risk Management(ERM) Enables organizations to as-sess and analyze risk holistically identi-fying areas of concern and proactivelydeveloping measures to comply withregulations

Event-Driven Planning A planningprocess that is focused on significantevents as opposed to arbitrary calendardates

GAAP Stands for Generally AcceptedAccounting Practices and is the standardframework of guidelines for financial ac-counting It includes the standards con-ventions and rules accountants followin recording and summarizing transac-tions and in the preparation of financialstatements

IFRS Stands for International Finan-cial Reporting Standards and is a set ofnew accounting and financial reportingstandards developed by an internationalcommittee in the early 2000s that super-sede IAS (International Account Stan-dards) that were adopted beginning inthe 1970s

Information Democracy The con-cept of delivering actionable insightto all user constituents Similar to

information transparency except thatInformation Democracy suggests anaction step once an insight has beengleaned

Key Performance Indicator (KPI)A measurement or metric that is in-cluded on a scorecard because it drivesperformance achievement Key perfor-mance indicators express objectives infinancial units for comparative pur-poses Financial information can be usedto compare results and thus measureperformance

Lean A business system for organiz-ing and managing product developmentoperations suppliers and customer re-lations that stresses creating customervalue with less human effort less spaceless capital and less time than the tradi-tional system of mass production

Master Data Data that is shared acrosssystems (such as lists or hierarchies ofcustomers suppliers accounts or or-ganizational units) and is used to clas-sify and define transactional data Manycompanies currently manage their mas-ter data in a very manual fashion (viaspreadsheets) in a homegrown systemor in some cases do not manage it atall

OLAP (Online Analytical Process-ing) The process of manipulatinglarge chunks of data in response to an-alytical queries by end users OLAPdata is organized by dimensions (timeproducts geographies measures sce-narios and so on) that include hierar-chies which support drilling down fromhigher levels to more detailed viewsOLAP gives analysts managers and ex-ecutives insight into data through fastconsistent interactive access to a widevariety of possible views of informationOLAP technology enables data to be

214 GLOSSARY

explored well beyond the capabilities oftraditional reporting systems

Performance-Accountable Organi-zation An organization that deliverscontinuous performance improvementand accountability in all its activitiesfrom all its employees across the enter-prise When an organization is truly per-formance accountable CEOs and CFOscan report openly and comprehensivelyon performance and set expectationswith confidence

Performance Scorecard A strategicmanagement tool designed to translatean organizationrsquos mission statement andoverall business strategy into specificquantifiable goals and to monitor theorganizationrsquos overall performancemdashnotjust financial returnsmdashso that future per-formance can be predicted and properactions taken to create the desired fu-ture

Predictive Modeling The process bywhich models are created or chosen totry to best predict an outcome

Risk Adjusted Return on Capital(RAROC) Modeling The processby which models are created to eval-uate projects and investments that aredeemed riskier than their low-risk orriskless counterparts

Rolling Forecast A forecasting me-thod that shifts planning away fromhistoric budgeting and forecasting andmoves it toward a continuous predictivemodeling method It requires access torelevant information from multiple datasources and business processes through-out the enterprise

Sarbanes-Oxley On July 30 2002the Sarbanes-Oxley Act (Public Law104ndash204) went into effect and changed

the corporate landscape in the UnitedStates with regard to financial report-ing and auditing for publicly tradedcompanies Written to address many ofthe issues brought to light during theincidents involving Enron and ArthurAndersen the law establishes strin-gent financial reporting requirements forcompanies doing business in the UnitedStates

Scorecard An application or customuser interface that helps manage an or-ganizationrsquos performance by optimiz-ing and aligning organizational unitsbusiness processes and individuals Itshould also provide internal and industrybenchmarks and goals and targets thathelp individuals understand their con-tributions to the organization The useof scorecards spans the operational tac-tical and strategic aspects of the businessand its decisions Often methodologiesderived from internal best practices oran external industry methodology areused for scorecarding (For example theterm ldquoThe Balanced Scorecardrdquo specif-ically refers to the Kaplan and Nortonmethodology)

Six Sigma A rigorous and disciplinedmethodology that uses data and statis-tical analysis to measure and improve acompanyrsquos operational performance byidentifying and eliminating ldquodefectsrdquo inmanufacturing and service-related pro-cesses

Service Oriented Architecture(SOA) A collection of services thatcommunicate with each other The ser-vices are self-contained and do not de-pend on the context or state of the otherservice

Value-based Management (VBM)Reporting An approach to manage-ment and performance reporting that

Glossary 215

aligns a companyrsquos overall aspirationsanalytical techniques and managementprocesses to focus decision making onthe drivers of value

Virtual Close The ability to com-plete the entire closing and reporting cy-cle within a few hours instead of days oreven weeks

Voice of the Customer (VOC) ASix Sigma process for capturing therequirements and feedback from cus-tomers (internal or external) to pro-vide them with the best in classserviceproduct quality This processstresses being proactive and constantlyinnovative to capture the changing re-quirements of the customers over time

AAbstraction services 133Acceptance testing 114

115 187 188 203Accountability

and commitment 19and compliance issues 35culture of creating

152ndash156and EPM 48ndash52and limitations of BI 14map See Accountability

mapand scorecards 113and use of dashboards

109Accountability map

benefits of 72as consensus building

tool 66ndash71and defining EPM

vision 180and lack of clear goals

63need for 63ndash66purpose of 66

Accurate expectations(Tenet 2) 51 143 144

Achieve on-demandvisibility (Tenet 5) 51147 148

Ad hoc query and reportingBI tools and

technologies 13 2259 129 130

and IT purchases 22 54Adaptive visualization 39

40 130Adoption of EPM

barriers to adoption53ndash60

motivation for examples41ndash48

AnalyticsBI tools and technologies

13 45 128ndash131and dashboards 109and Decision Support

Systems 21EPM Center of

Excellenceresponsibilities 82ndash85

218 Index

Analytics (Continued)and EPM system 15 99EPM system example 20focus on business

processes 14guided 130packaged applications

139reporting distinguished

129Analyze and plan step of

EPM implementation182ndash184

Anticipate results (Tenet 3)51 144 145

BBalanced Scorecard 24 72

118 123 145 198201 See alsoScorecards

Bank of America EPMCenter of Excellence90ndash92

Barriers to adoption ofEPM

ineffective approaches53ndash57

tools and technologies57ndash60

Basel II 36BI See Business

Intelligence (BI)Build step of EPM

implementation 182186 187

Business challengesBI lack of support for

managementprocesses 148 149

fragmented financial andoperationalinformation 142 143

goals and strategies nottranslated intoperformance metrics143 144

inconsistent metrics andlack of single reportinginfrastructure 149150

incorporating newmanagementtechniques 144 145

lack of communicationenterprise-wide acrossall management levels151

performanceaccountabilityproblems 152

performance monito-ring difficulties 147148

static annual plans lockedin business unitspreadsheets 146 147

Business improvementcontinuous improvement

52 113 118 148149

and limitations of BI 14

Index 219

performanceimprovement 52 120123 125 145 148149

Business Intelligence (BI)and EPM system 15

22ndash24improvements in 21 22limitations of in

managingperformance 13 1422 23

platforms 45ndash48 60101 128ndash131 142

tools and technologies13 22 24 45 4658ndash60 128ndash131

use of 22Business management

running a businesscompared tomanaging 6 7

sole proprietorship simplebusiness model 7 8

Business network 3 4 2576

Business organizationdecentralization trend3 4

Business processes andlimitations of BI 14

Business review process 124

CCalculation services 133Change

executive level changeand implementation ofInformationDemocracy 77

resistance to 74 94ndash96202

Change management 77182 190ndash197

Chief Performance Officer77

Closing process 43 128145 150

Collaboration andinformation sharing140

Collaboration services 133Command-and-control

management 154Commitment

and EPM 15EPM system example

18 19goal and objective

setting 50and management cycle

10 11Common data model 124

125Common services as

component of EPMsystem 17 60 101133 134

Communicationand creating culture of

accountability 155156

220 Index

Communication (Continued)need for 195

Compliance issues 33ndash38Connective management

processes 50Consolidation of tools and

technologies 95ndash97Continuous improvement

52 113 118 148 149Corn Joe 60Corporate culture 152ndash156Costs

and barriers to adoptionof EPM 58ndash60

BI tools andtechnologies 22

and consolidation oftools and technologies95 96

controlling 80 81 111124

fragmented approach toacquisition of toolsand technology 93

metrics 50total cost of ownership

58ndash60 98 99 133139

and use of ServiceOriented Architecture133

Cox Enterprises 177ndash179Customers

and benefits of EPMCenter of Excellence80

BI tools andtechnologies 24 4658

feedback 91 123and need for

information 76and standardizing

business terminology97

DDashboards

creation of 86ldquodashboard myopiardquo 56and decision making 23ease of use 193and EPM environment

132general awareness and

acceptance of 24versus scorecards

108ndash113use of with EPM 30 38

39 44 72 105 113ndash116 127 178 195

Data integrityand EPM system 98

132 135problems with 57ndash59

Data manipulationlanguage 22

Data manipulation language(DML) 22

Index 221

Data mart 54 80 See alsoData warehouse

Data mining 13 59 8495 128

Data services 133Data warehouse 19 30 45

54 56ndash59 80 88114 126ndash128 136

Decentralization trendand business

organization 3 4and deregulation 120and need for culture of

accountability 153and role of EPM 25

Decision-making processand accountability maps

63EPM modeling

example 107 108and role of EPM system

40 140Decision management 40

140Decision Support System

(DSS) 21Deliver continuous

improvement (Tenet6) 52 148 149

Deployment of EPMsystem

Business Intelligenceplatforms 128ndash131

common services 133134

dashboards 108ndash116

features of system 98 99financial management

software 101 103future requirements 139

140and growing demand for

EPM systems 138139

master data management134ndash138

modeling software106ndash108

planning software103ndash106

reporting and analysissoftware 119ndash128

scorecards 108ndash110112 113 116ndash119

system components99ndash101

unified userenvironment 100102 132 133

Design step of EPMimplementation 182186

Drivers for adoption ofEPM 41ndash48

Drucker Peter 4 5

EEBay 3 4Economic capital (EC)

modeling 36Economic value added

(EVA) 145

222 Index

Educationand benefits of

consolidation 95 96costs of training and IT

fragmentation 93EPM Center for

Excellence role of79 82 84 86 92

and EPMimplementation 156179 186ndash188 191193 195

Employee buy-in 193 194Employees See also

Individual usersneed for information 75training See Education

End-user tools 13129ndash130 184

Enterprise-class queryanalysis and reporting129

Enterprise PerformanceManagement (EPM)

and accountability SeeAccountability

background 21barriers to adoption

53ndash60benefits of 16 29 98

99 195ndash197and Business Intelligence

(BI) 15 22ndash24business users system

requirements 139140

and compliance issues33ndash38

and ldquodecision contextrdquo204

deploying SeeDeployment of EPMsystem

described 14 15EPM Center of

Excellence See EPMCenter of Excellence(EPM CompetencyCenter)

funding and resources82 84ndash86 90 92192 193

implementation SeeMethodology forimplementation ofEPM

individual user benefitsof EPM SeeIndividual users

Information DemocracySee InformationDemocracy

integrated suite solutionscompared to EPMsystem 15 16

IT tools as part of 17and management cycle 15management system

example 17ndash20metrics See Metricsmotivation for adoption

of examples 41ndash48

Index 223

and planning SeePlanning

project selectionself-assessment form159ndash176

prototype 181purpose of 22 23role of 17 23ndash25 98

99 206 207scope and charter

development 181structured methodology

use of SeeMethodology forimplementation ofEPM

as system 60system components 99

100thinking differently

technique 205 206tools and technologies

See Tools andtechnologies

Enterprise resourceplanning (ERP) 6 720 27 32 99 104115 120ndash122 126131 134ndash136

Enterprise risk management(ERM) 201

EPM Center of Excellence(EPM CompetencyCenter)

benefits of 79ndash81creating 81 82

defined 56examples 88ndash92funding 85 86goals and strategies 87need for 78ndash81relating to other

initiatives 87 88reporting structure 83

84responsibilities of 82 83skill set required 84 85and standardization of

business semantics 97and standardization of

tools and technology94

tasks 86 87Evaluation

and accountabilitymapping 68

EPM system example 20and management cycle

9ndash12perspective process 12

50review phase 190self-assessment

questionnaire159ndash176

Event-based planning 103Execute with conviction

(Tenet 8) 52 150 151Execution

commitment 11EPM system example

224 Index

Execution (Continued)execute with conviction

(Tenet 8) 52 150 151and management cycle

9ndash12and problems with

management systems13

tracking 11 50Executive information

systems (EIS) 21

FldquoFact gaprdquo 24Feedback

customers 91 123EPM implementation

187EPM vision and strategy

181and management cycle

51metrics 144 200tracking process 11

Financial managementsoftware as componentof EPM system 101103

Financial reportingproblems with 34 35reporting and analysis

software as componentof EPM system119ndash128

role of EPM 35Flexibility need for 7 130

Funding and resources 8284ndash86 90 92 192193

GGenerally Accepted

Accounting Principles(GAAP) 42 197

Global Hyatt 101 103Goal and objective setting

and accountability 50alignment of personal

and corporateobjectives 200 201

18 19and management cycle

rationalization process10 11

HHawthorne Effect 198 199Health Insurance Portability

and AccountabilityAct (HIPAA) 33

IImplementation of EPM

See Methodology forimplementation ofEPM

Index 225

Individual usersacceptance testing 114benefits of EPM 38ndash

41dashboard displays of

KPIs 115 116employee buy-in

obtaining 193 194end-user tools 13 129

130 184unified user

environment 100102 132 133

user acceptance andfeedback 181

user perspective 38ndash41100

Informationaccess to 5 6 58 73ndash75

Documents

Performance Management Revolution : Business Results Through Insight and Action