With Cinco de Mayo just a few days away, I couldn’t help but think of the terrific Dos Equis television commercials with “The Most Interesting Man in the World” (MIMW) and his tag line: “Stay Thirsty My Friends!”

I think that line embodies a great attitude or value for an organization to adopt with respect to its performance management system—“stay thirsty,” or said another way, “never be satisfied.”  When measuring and managing your organization’s performance, you should never be satisfied because when you are satisfied and rest on your laurels, that is when your performance begins to suffer and others start to outperform you.

By Gary Cokins, Founder, Analytics-Based Performance Management LLC; www.garycokins.com

Many organizations over-rate the quality of their enterprise and corporate performance management (EPM / CPM) methods and supporting software systems as well as exaggerate how comprehensive and integrated they are. For example, when you ask executives how well they measure and report their costs and non-financial performance measures, most proudly boast that they are very good. However, this is inconsistent and conflicts with surveys where anonymous replies from mid-level managers candidly score their scaled answers as “needs much improvement.”

Every organization cannot be above average! 

What makes exceptionally good EPM / CPM systems exceptional?

Rather than try to be a sociologist and psychiatrist to explain the contradictions of executives boasting superiority while anonymously answered surveys reveal inferiority, let’s simply describe the full vision of an effective EPM / CPM system that organizations should aspire to.

First, we need to clarify some terms and related confusion. EPM / CPM is not a system and is definitely not a process. It is the integration of multiple managerial methods – and most of them have been around for decades arguably even before there were computers. EPM / CPM is also not just a CFO initiative with a bunch of scorecard and dashboard dials. It is much broader. Its purpose is not about monitoring the dials but rather moving the dials.

What makes for exceptionally good EPM / CPM is that its multiple managerial methods are not only each effective but also they are seamlessly integrated and imbedded with analytics all flavors. Examples of analytics are segmentation, clustering, regression, and correlation analysis.     

EPM / CPM is like musical instruments in an orchestra

I like to think of the various EPM / CPM methods as an analogy of musical instruments in an orchestra. An orchestra’s conductor does not raise his or her baton to the strings, woodwinds, percussion, and brass and say, “Now everyone play loud.” They seek balance and guide the symphony composer’s fluctuations in rhythm and tone.

Here are my six main groupings of the EPM / CPM methods – its musical instrument sections:

Strategic planning and execution – This is where a strategy map and its associated balanced scorecard fits in. Together they serve to navigate the organization to fulfill the organization’s mission and vision and the executive team’s strategy to meet the mission’s calling. The executives’ role is to set the strategic direction to answer the question “Where do we want to go?” Through use of correctly defined key performance indicators (KPIs) with targets, then the employees’ priorities, actions, projects, and processes are aligned with the executives’ formulated strategy.

Cost visibility and driver behavior – For commercial companies this is where profitability analysis fits in for products, standard services, channels, and customers. For public sector government organizations this is where understanding the costs of their outputs that consume processes and resources fits in. Activity-based costing (ABC) principles are foundational by modeling cause-and-effect relationships based on business and cost drivers. This involves progressive not traditional managerial accounting.

Customer intelligence – This is where powerful marketing and sales methods are applied to retain, grow, win-back, and acquire profitable, not unprofitable, customers. The tools are often referenced as customer relationship management (CRM) software applications. But the CRM data is merely a foundation. Analytics, supported by software, leverage CRM data to define actions to create more profit lift from customers. They impact the behavior of customers from being satisfied to being loyal.

Forecasting, planning, and predictive analytics – Data mining typically examines historical data “through the rear-view mirror.” This EPM / CPM grouping shifts attention to look forward through the windshield. The benefit of more accurate forecasts is there is reduced uncertainty. Forecasts of future volume and mix are core independent variables from which so many dependent variables have relationships and can therefore be calculated and managed. Examples of dependent variables are the future headcount workforce and spending levels. CFOs increasingly look to driver-based budgeting and rolling financial forecasts grounded in ABC principles using this group.

Enterprise risk management (ERM) – This cannot be omitted as a main group of EPM / CPM. ERM serves as a brake to the potentially unbridled gas pedal that EPM / CPM methods are designed to step hard on. Risk mitigation projects and insurance requires spending which reduces profits and also steers expenses from resources the executive team would prefer to provide earn larger compensation bonuses.

Process improvement – This is where lean management and Six Sigma quality initiatives fit in. Their purpose is to remove waste and streamline processes to accelerate and reduce cycle-times. They create productivity and efficiency improvements.

EPM / CPM as integrated suite of improvement methods

CFOs often view financial planning and analysis (FP&A) as synonymous with EPM / CPM. It is better to view FP&A as a subset. And although better cost management and process improvements are noble goals, an organization cannot reduce its costs forever to achieve long term prosperity.

The important message here is that EPM / CPM is not just about the CFO’s organization; but it is also the integration of all the often silo-ed functions like marketing, operations, sales, and strategy. Look again at the six main EPM / CPM groups I listed above. Imagine if the information produced and analyzed in each of them were to be seamlessly integrated. Imagine if they are each imbedded with analytics – especially predictive analytics. Then powerful decision support is provided for insight, foresight, and actions. That is the full vision of EPM / CPM to aspire to.   

Today exceptional EPM / CPM systems are an exception despite what many executives proclaim. If we all work hard and smart enough, in the future they will be standard practices. Then what would be next? Automated decision management systems relying on business rules and algorithms. But that is an article I will write about some other day.

ABOUT THE SPEAKER / AUTHOR

Gary Cokins, CPIM

([email protected];  phone 919 720 2718)

http://www.garycokins.com 

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in advanced cost management and enterprise performance and risk management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located in Cary, North Carolina at www.garycokins.com .  He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, and EDS. From 1997 until recently Gary was a Principal Consultant with SAS, a leading provider of enterprise performance management and business analytics and intelligence software. His two most recent books are Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (ISBN 0-471-57690-5) and Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics (ISBN 978-0-470-44998-1). His most recent book is Predictive Business Analytics (ISBN 978-1-118-17556-9), published by John Wiley & Sons. Mr. Cokins can be contacted at [email protected] .

Linkedin.com contact:  http://www.linkedin.com/pub/gary-cokins/0/15a/949

Phew! Another first week of March has come and gone and so has Ascendant’s 2013 Mission-Driven Management Summit—our 5^th annual conference on strategy and performance management for mission-driven organizations.

While we like to think the summit is a success every year, I believe this year we had a fantastic conference at the National Press Club and even managed to put it on in the face of the Snowquester—the early March snowstorm than never really materialized in Washington, DC.

Way back before there was Wikipedia and search engines such as Google, Yahoo, AltaVista, Lycos, or even Ask Jeeves there were these quiet buildings in towns, cities, and schools across the country called libraries.  You may even remember being in one at some point if you are over 30 years old.

Anyway, the point of these “libraries” was to provide information in the form of books (and magazines and newspapers) to the general public – or students and faculty in the case of school and university libraries – basically for free.  And, acquire your collections through funding you received either from property taxes, tuition, or donors who understood the importance of maintaining free and open access to information.

Over the past year and a half, I’ve had the pleasure of supporting the Office of Management and Budget as one of our clients here at Ascendant. A lot has been accomplished in those 18 months, but one of the coolest achievements was finally launching Performance.gov. A website dedicated to showing the “performance side” of the federal government. In other words, it’s how the government is cutting waste, streamlining operations, and improving performance.

Admittedly, it was a long process bringing together the largest agencies in the federal government to report publically on top issues and priorities. But, it was worth it! If you follow our blog, check out Melanie’s post earlier this month to learn more about Performance.gov. Anyway, the reason I’m writing this post on essentially the same topic is because I was recently telling someone about the website and she asked me, “so what, why should I care?”  

It was an interesting question. Why should you care? My response – you should care because it tells the story of the impact that YOUR tax dollars are having on the American people. One of my favorite examples of this story is the Department of Interior’s goal of cutting violent crime in Indian communities across the country. High crime rates on some Indian reservations have been a concern for some time and DOI decided that they were going to change that. So, using performance metrics and review meetings to guide the effort, DOI developed a pilot program to reduce the violent crime of four specific communities with the highest crime rate.

The original goal was to reduce the crime rate by 5% and many considered that to be an ambitious goal at the time. To kick off the effort, Interior began collecting and analyzing crime data, identified trends, and began allocating resources to the areas of highest need. As the program progressed, regular reviews of the data became the norm, law enforcement strategies were continuously evaluated, and the communities were engaged on the front lines.

All of this effort began to pay off. By the end of 2011, the initiative had far exceeded its goal by reducing crime in these communities by a whopping 35%.  Now that is a performance story! Reducing violent crime on Indian communities by 35%! That means, through the Department of Interior, YOUR tax dollars have had a positive impact on the lives of thousands of people in Indian communities throughout the country.

So, back to the original question of - “why should I care?” I think this story is a perfect example of why you should. It shows real impact for real people. I’d like to encourage anyone reading this blog to check out Performance.gov and find similar stories of YOUR tax dollars at work.  

The Saturday, Jan. 26 Wall Street Journal, had a great essay by Bill Gates about the power of good measurement systems.  To me, there were two key aspects of Gates’ argument that “[y]ou can achieve incredible progress if you set a clear goal and find a measure that will drive progress toward that goal—in a feedback loop.”

First, he points out its importance to innovation.  Precise measurement instruments, Gates paraphrases William Rosen as saying, allow inventors to see if their incremental design changes led to improvements.  The lesson being: Without feedback from precise measurement, Mr. Rosen writes, invention is “doomed to be rare and erratic.”

Some of you may have heard on Jan. 16 that Morgan Stanley announced a new way of distributing some of its highest-paid employees’ bonuses (see the front page of the Jan. 16 Wall Street Journal).  The bank’s plan—which would affect thousands of brokers and investment bankers, among others—would pay out 2012 bonuses greater than $50,000 in four installments over three years.

A result of the financial crisis, the deferred compensation plan is the latest idea developed to try to manage the performance of those who work on Wall Street.

Success should be judged by results, and data is a powerful tool to determine results. We can't ignore facts. We can't ignore data. -President Barack Obama, July 24, 2009

The quote that says it all. In 2009 the federal government acknowledged the importance of data, of informed decision making, of tracking performance, and in 2010, the federal government did something about it. The GPRA Modernization Act of 2010 was passed. The act required federal agencies to set 2-year Agency Priority Goals, use data-driven measures to gauge success and to make this all available on a public website. Now, just two years later, the site is playing a critical role in the movement towards increased government transparency. Together, the 24 agencies have 103 Agency Priority Goals, 8 Cross Agency Priority Goals (goals that are impacted by a set of agencies such as Exports), and 6 Cross Agency Management Goals. The website represents a new zenith of information availability, transparency and accountability within the government. Performance.gov allows anyone and everyone to see what is being done to improve cybersecurity, reduce gang violence, prevent foreclosures and provide insight into a multitude of other pertinent issues. The general public can now see what their taxes are being used for- and whether they’re doing a good job or not. During a briefing, Shelley Metzenbaum, associate director for performance and personnel management of the Office of Management and Budget, told reporters “what we’ve now done is give you information about those goals: we explain why the goals were chosen, the strategies with each goal, we explain the progress we’ve made with them, and if there were problems, we explain those.” The website provides and in-depth look into what the government actually does and the continued process of self-assessment and improvement that is now underway.

Performance.gov was designed to deliver “a view of the progress underway in cutting waste, streamlining government, and improving performance.” The website’s layout allows you to browse by agency or by the following areas of focus- acquisition, financial management, human resources, technology, performance improvement, open government, sustainability and customer service. You can now access an Agency’s priority and strategic goals, their plans for accomplishing them, and even their financial reports.

This is just the beginning. Performance.gov asserts that “over time, we will add more information from agency strategy plans, performance plans and reports, and we will produce this information in formats that allow users to see trends, look at goals contributing to common themes, see programs contributing to common goals, and cross-reference other related data.”

Performance.gov sheds a light on where tax-payers’ dollars are being spent and how key issues are being solved, but this is not its only function. The site represents a new approach to problem solving by the agencies. They each honed in on specific and important goals and were able to improve the methods used to track progress. So, while there is still room for improvement (as is always the attitude in performance management- growth and learning, right?) the site is definitely a good start. 

While the term “vlog” traditionally refers to video blogs, I’m referring to this post as my first vlog as shorthand for a “venting blog.”  Today, I had (actually, I’m having because I’m still in the midst of it) one of the more frustrating customer service experiences in recent memory. At 7:59pm I am waiting for a delivery that I was told would arrive between 7:45am and 11:45am this morning.

The question this issue begs is:  Who is accountable?  I called the delivery company at 11:50am when it hadn’t arrived yet and I hadn’t heard from them.  The customer service rep called the driver who said it would be delivered by 3:00pm.  The rep, when she saw my account, told me that they never should have told me 7:45-11:45 and that she was sorry.  Great.