Presented by Gary Cokins and Carlos Pulido
Enterprise performance management (EPM) is now viewed as the seamless integration of managerial methods such as strategy execution with a strategy map and its companion balanced scorecard (KPIs) and operational dashboards (OPIs); enterprise risk management (ERM); capacity-sensitive driver-based budgets and rolling financial forecasts; product / service / channel / customer profitability analysis (using activity-based costing [ABC] principles); supply chain management; lean and Six Sigma quality management for operational improvement; and resource capacity spending planning. Each method should be embedded with business analytics of all flavors, such as correlation, segmentation, and regression, and analysis; and especially predictive analytics as a bridge to prescriptive analytics to yield the best (ideally optimal) decisions. This presentation will describe how to complete the full vision of analytics-based enterprise performance management.
Q&A
Q: What has been one major lesson learned by organizations to successfully implement enterprise and corporate performance management (EPM/CPM) methods?
A: A major lesson learned is to not underestimate the large magnitude of managers’ and employees’ resistance to change. It is human nature. People like the status quo. Similar barriers are (1) fear of other departments knowing the truth, (2) fear of being measured, and (3) fear of being held accountable. So, the “lesson” is these have nothing to do with systems, technology, or software. They are about people. The additional “lesson is implementers of the various EPM/CPM lessons need to apply the “soft” skills of behavioral change management to get buy-in from their colleagues. A problem however is many implementers do not have these skills.
Q: How well does SAP provide the features and functions of the enterprise and corporate performance management (EPM/CPM) methods?
A: SAP’s Profitability and Performance Management solution (PaPM) provides the user with a robust and reliable platform to build enterprise and corporate performance management models that support the critical decision-making process that could maximize efficiency and profitability. The solution includes several business-relevant models using predefined content and comprehensive allocations so that users can start using these prebuilt models to accomplish specific business goals without having to start from scratch. SAP PaPM contains 30 different functions and runs on the HANA database. It can handle millions of transactions in a manner of seconds or minutes. It can connect to any ERP system or data source.
Q: Why is there an impression by CFOs and accountants that implementing an activity-based costing (ABC) system is not worth the effort because it is too complex and difficult to maintain?
A: This impression is because CFOs and accountants are wed to precision, 100% accuracy, and detail. This comes from their focus on external statutory financial reporting for government regulatory agencies. But ABC is used for internal management accounting. The ABC message is: “It is better to be approximately correct than precisely inaccurate!” CFOs and accountants also wrongly believe that ABC requires input time sheets from employees, who dislike completing them. They also wrongly believe that an ABC system might need 2,000 work activities. These are all misconceptions.
In my webinar I described a “rapid prototyping with iterations” method to implement an ABC system in three weeks, not in six months. The ABC system typically has roughly about 70 activities, not the 2,000. And 70 activity “cost pools” is far better than the traditional single “overhead indirect cost pool”.
Q: What is an effective way to identify the key performance indicators (KPIs) in a strategy map?
A: A fast way to identify KPIs is with a one-day workshop with the executive team. Its primary purpose is to quickly define ten to twenty “strategic objectives” in the four “Perspectives” of the Kaplan and Norton strategy map which feeds into a Balanced Scorecard as its feedback mechanism. The workshop rapidly identifies the projects and core process improvements needed to accomplish each of those “strategic objectives”.
The next step is to answer what measure or metric can monitor the progress of accomplishing each “strategic objective”. These are the KPIs … only two or three KPIs max for each “strategic objective”. This limits the number of KPIs to about 50. Remember, they are “Key” performance indicators. With the executives’ assigning a target for each KPI, then managers and employees can focus their actions and decisions to attain the KPI targets. The result is an alignment of managers and employees behavior and priorities to implement the executive team’s formulated strategy.
This workshop is effective because executives and managers learn faster by “doing” than from “training.” This workshop provides accelerated learning in large part because the participants immediately apply workshop concepts to their own organization’s issues and goals.
Q: What is a recommended way on how to get started implementing any or all of the enterprise and corporate performance management (EPM/CPM) methods?
A: As just described in the two prior answer, use rapid prototyping with iterations. Start small and think big. Crawl, walk, run, fly, and soar.