By: Bob Champagne,
VP- Performance Optimization Solutions at UMS Group
As we wind down the final days of 2008, I thought I’d take the opportunity to summarize some of my observations from what I believe to be one of the most pivotal years in the evolution of Performance Management as a discipline.
Despite all of the macro-economic turmoil (volatility of commodity costs, loss of customer growth, credit market collapses, loss of equity values, et al), there were in fact some bright spots in how we “manage” our companies, and our ability to drive gains in efficiency, effectiveness, and overall value delivered to customers. While this may not be of much short term consolation to those in the C-Suite who have had to watch profits and shareholder value diminish because of largely non forecasted and uncontrollable market forces, there will soon be a time where the value of “performance” related gains become more noticeable and significant.
History has shown that while all companies experience pain during heavy market corrections, those who survive are often those who are able to “weather the storm”. They are most often those who have found a way to expand and contract their business “on a dime”, who know what efficiency buttons they can push and which ones they can’t, and who can manage the margin effectively between business survival and business failure.
More importantly, these are not lessons we learn in a time of crisis, but rather the result of embedded processes, skills, and culture that have been established over time. That is why I believe that the improvements we have made in our performance management processes are so significant. Many of these gains may not even show up on our 2008 and 2009 P&L’s due to the overwhelming impact of other uncontrollable forces on today’s business results. But rest assured, that when the dust does settle, it will be these very processes, skills, and competencies that will have allowed those that have survived to do so unscathed.
So, with that as my humble (and somewhat depressing) attempt at a “backdrop”, here’s my take on where these gains in Performance Management were most notable, and why I believe this year was so pivotal for the discipline:
1. Increased Visibility/ Accountability for Enterprise Performance- Just a few short years ago, it was hard to find someone in the organization with true responsibility and accountability for driving “Enterprise Performance”. Of course, all of our companies have had budget analysts, financial planners, business intelligence managers, etc. with responsibility for providing management reports and information. And most of us have also had HR, OD, and Change Management functions with responsibility for facilitating changes in business process or culture. But few of our companies have had executive level accountability for driving PM processes, skills and culture throughout the enterprise. This changed significantly in 2008.
While still mostly in the minority, we are now seeing senior management (often Officer level individuals) with responsibility for driving Enterprise Performance, much like we saw emerge over the years with IT, Internal Auditing, Safety, Asset Management, and most recently Enterprise Risk. Don’t get me wrong- I am not for proliferation and expansion of our management layers, but something very real does happen when executive level leadership and visibility is brought to bear on a key business priority.
Of those I consider to be true “best practice” organizations in the discipline of Enterprise Performance Management (EPM), 100% claim executive sponsorship, leadership and demonstrated commitment in the C-Suite as the most significant factor in their success. The fact that we are now seeing this level of visibility emerge in the industry, not only as a role, but as part of senior management/ executive career paths, is one of the most notable changes we’ve seen in 2008.
2. EPM as an Integrated Business Process- Even with the right leadership visibility, EPM can still hit major roadblocks if the focus strays from being a core business process, to being a single function or task in the chain. Until recently, anything resembling a Performance Management department at our companies usually had accountability for a single activity like producing monthly management reports or implementing components of a business intelligence solution. Even today, I could point you to companies where, despite the elaborate title of “Enterprise Performance Management”, and the token executive or senior manager who runs it, it remains nothing more than a glorified benchmarking or industrial tourism function.
But this is changing for the better. We are now seeing companies who see EPM as not one business function, but rather a set of functions that together make up an integrated process. I won’t go into detail here on each component (will save for future posts), but suffice it to say that there are four critical components to the process- Indication, Analysis, Insight, Action (what we’ve termed (IA^2). Things like reporting, benchmarking, data gathering, best practices research each make up a critical part of the process, but by themselves generate little value.
The fact that we are now seeing companies (albeit, again, the minority) take accountability for more broadly defining this process is encouraging. Again I point back to functions like Risk Management (that used to connote the activity of insurance buying”) that today is responsible for managing a full suite of risks, many of which were unknown to the business only a few years ago. Process versus activity/ business function: a simple, yet big distinction that is starting to differentiate winners in EPM space.
3. Technology as an Enabler- A Novel Concept?
Certainly a novel concept, but one that few actually embrace. I must admit that watching the consolidation occur between the SAP’s, Oracle’s, and IBM’s of the world, and their recently acquired business intelligence and reporting/ performance management products/companies (the Hyperion’s, Cognos’, Business Objects’, Pilot Software, and the like) was nothing short of painful to witness over the course of the year. At the beginning of 2008, I had the unfortunate opportunity during a software selection process for a client, to witness a presentation by one of the IT monoliths (who will remain nameless to protect the innocent) in which they were asked to demonstrate their Performance Management application. Not only was the integration between the various products unclear, but it was actually hard for the vendor to discern which of its products actually served the EPM application needs. It was the epitome of integrating their company “on the fly”, with a result that left all of our collective “heads spinning” (and the emperor (vendor) with no clothes (almost literally)!).
Well, all joking aside, the year unfolded quite differently than most of us expected. I am not sure whether it was the IT shops getting their integration act together, clients better articulating what they needed (and more importantly what the didn’t need), companies becoming more operationally versus IT centric, or a combination of all three. But we are definitely leaving 2008 with a lot more clarity than when we entered it.
We entered 2008 with over 20 EPM applications, and each of the large IT shops with at least one of these applications that they were (unsuccessfully) struggling to integrate into their suite, for the main purpose of growing their footprint within their key client organizations. We are leaving 2008 with 2-3 clear frontrunners, and the major IT vendors much more willing to fill the niche client need and less focused on owning the “whole enchilada”- a major step forward in a relatively short amount of time.
4. Forward versus Backward Looking:
What’s more important- leading or lagging indicators? This question has probably caused more debate than any other question among key EPM stakeholders and executives in 2008. And although it is an interesting question, the answer of which may appear to be somewhat “Holy Grail-ish” to the EPM managers out there, much of the debate was pretty wasteful and unnecessary.
Well, of course BOTH are necessary, we all say. The world is not black or whit.- We all know that, right?. Yet the conversations seemed to want to sway all the way to “why do we care about what’s happened in the past?” end of the spectrum. Amazing how our tendency is to abandon the old, and adopt the new, without asking the obvious questions. What is the right balance between leading or lagging? When should I use each? Is there a difference in what information each of those types of indicators provide? 2008 began to reveal some insight into this, largely because of the coincidence of the market uncertainty that was dropped on all of our laps.
Clearly, we cannot abandon the lagging indicators. They are necessary for gauging what worked and what didn’t within each of our strategies. They tell us (albeit retrospectively) when we veer off course. And lagging indicators often help us learn about what caused these deviations. But even those indicators that may appear to the naked eye to be “leading” (ergo, the alarm in an airplane cockpit) ,are really only the manifestation of some lagging event. So for starters, I think we can all rest easy that lagging indicators and report cards, while they may not pass the “new new thing” test, certainly will remain the core of our management reporting and scorecards.
But 2008 also told us that leading indicators were both necessary and vital. And more importantly, 2008 told us WHY that was. The role of leading indicators is to help us predict things that we have some ability to control or better react to. For example, a decline in number of building permits may indicate a future drop off in electricity demand long before it is visible in consumption results. These indicators can help us make changes more quickly, and often more deliberately, than we would otherwise be able to, be those staffing changes, modifications to production planning, changes in commodity contract strategy, etc.
In short, lagging indicators help us monitor our progress, gauge our success, and provide cues into necessary course corrections. Leading indicators, on the other hand, are warning signs- over the horizon indicators if you will, that help you see what isn’t immediately apparent on the surface. 2 different measures, 2 different purposes, and often best to keep them separated in 2 conversations.
All of those distinctions notwithstanding, 2008 has shown us a sharp increase in companies that are focused on adding leading indicators into their mix of performance measures, and yielded some good ideas as to what some of them might look like.
5. Changes in how we communicate:
The final observation I have about 2008 as it relates to performance management, is how we communicate ABOUT performance. OK, this may seem a bit trite, as almost every management book I know talks about the importance of communication in managing the business. What they don’t talk about is what TYPE of communication we are talking about.
Over the years, all of have experienced what I will term wasteful and often unnecessary communication with our colleagues, employees, and upper management. So much so that some of us remember the “standing” meetings where the entire meeting was conducted standing up so as to encourage brevity.
2008 revealed a number of success stories where companies were able to use performance data and analysis to “cut through the noise”, as one of my clients put it. “When conversations are oriented around performance data, they tend to be less wasteful, to the point, and more actionable”.
In fact, the words “Performance Management” in some communities relates to the “performance appraisal” process specifically, and is considered an HR process, revolving around how those conversations are conducted, managed, documented, etc. So it is only fitting that the more holistic process of EPM reinforces that by bringing data, analysis and expanded insights to the table to make those conversations more productive and less wasteful.
But 2008 also showed us companies that have successfully expanded performance conversations to exist in cross functional settings. For example, using performance data to spark debate and dialog BETWEEN groups of stakeholders, where each one drives a major part of a business outcome. While sometimes more difficult to manage and facilitate, the dynamic generated by these forums is proving to be quite healthy.
We are also seeing companies become more successful in how they broadcast performance results. And NO, this does not mean more technology. Not that technology is bad, but it does sometimes slow down the speed with which more creative and higher impact solutions can be generated. More of my clients are displaying their top KPI results on simple posters around their lobbies, hallways, and workspaces- displaying a unified set of performance results that have replaced the unwieldy display of excel charts and data dumps that previously laced the corridors. Some have gotten real creative, going for the high traffic areas- kitchens, water coolers, and my favorite, commode-ications (the process of hanging performance results on the backs of bathroom stalls- a guaranteed read!).
Others have brought their operational results to the inside covers of their annual reports, complementing their financial ratios with evidence of their successes, failures, and objectives for the coming year- information the shareholders are starting to find more valuable as financial information becomes more and more routine and sometimes non differentiable to the eyes of an average shareholder.
So once again, as Performance Managers, we leave the year better than we found it, perhaps more so in 2008 than in previous years. And that is a testament to our hard work and commitment to keeping the discipline moving forward in a high value adding manner.
Still, we have challenges in 2009. Some of them will be larger than our challenges to date, if for no other reason than the traps that many of them will lead us toward. So where should our focus be in the year ahead?
– We must automate our data streams and simplify the data gathering processes without becoming slaves to the availability of technology and speed (or lack thereof) with which it can be implemented.
– We must push our managers and employees to get more aggressive with their target setting without losing the gains we have made in management buy in and commitment.
– We must proactively address gaps in our business culture and create an environment of individual accountability without losing the collaboration we gained through our stronger communication and cross functional teaming
– We must continue to focus our measurement on the indicators that matter, without losing the comprehensiveness and completeness of our measurement framework
– We must continue to deliver real value to the business in our roles as Performance Managers and Executives, while avoiding the temptation to increase EPM costs and infrastructure beyond its capacity to sustainably deliver strong ROI
With that, we draw an official end to 2008. I wish each of you all the best as you pursue your 2009 objectives, and address many of the above business challenges. And I look forward helping you meet these challenges though sharing the experiences and best practices that we continue to amass through our work in EPM around the globe.
As always you can find our most up to date thinking on our website (http://www.umsgroup.com/enterpriseperformancemanagement/ ) and on my personal blog at http://pmdaily.blogspot.com , or contact me directly at 973-335-3555 or through the LinkedIn Network at http://www.linkedin.com/in/bobchampagne
Author: Bob Champagne is Managing Partner of onVector Consulting Group, a privately held international management consulting organization specializing in the design and deployment of Performance Management tools, systems, and solutions. Bob has over 25 years of Performance Management experience and has consulted with hundreds of companies across numerous industries and geographies. Bob can be contacted at firstname.lastname@example.org