Enterprise Performance Management Bridging the Gap from Strategy to Operations

Transcription

1 Enterprise Performance Management Bridging the Gap from Strategy to Operations A White Paper by Guident Technologies, Inc. Adam Getz Business Intelligence Architect May, 2007

2 2007 Guident 1 Summary In order for organizations to effectively conduct operations in the demanding and highly competitive global economy of the modern world, there is a need for them to make critical decisions in an immediate manner. More and more, organizations are required to make improved, faster, and more accurate decisions in order to stay competitive in the marketplace. Performance Management creates additional value for the company by leveraging assets to better understand, optimize, and align strategies and processes to improve effectiveness throughout the enterprise. Ventana Research Enterprise Performance Management (EPM) solutions solve organization s need to make timely decisions. Moreover, these solutions bridge the gap between conceptual planning of organizational goals and the physical monitoring of status of daily operations, and allow organizations to determine if they are correctly proceeding both at the strategic level and tactical levels. These solutions allow for information to flow from executives, management, and lower level staff and back again to the executives in a circular manner. Actionable information seamlessly progresses through multiple layers of an organization in a carefully guided manner so all participants get the insight they need to recognize and solve problems quickly, efficiently, and effectively. Performance management is more than a tool set, but is an organized process and methodology for managing a business and closely monitoring results. Performance Management in the Past A decade ago, Business Intelligence (BI) software provided a privileged group of business users the ability to perform independent data query, operational reporting, and basic analysis functions. Analytical systems focused on historical data and organizations were able to understand past results. However, business users had little to no understanding of present data and decision-making could not be made in the present. Traditionally, performance data was stored in the hands of the organization s financial analysts. Thus performance measurements for the organization were focused on keeping score and were based in report cards. Organizations gave little attention to improving the measurements around their strategic and tactical operations, and little incentive was given to line managers to embrace real-time management of their performance. Implementations of business intelligence applications occurred, but did not permit

3 2007 Guident 2 The Hackett Group found that companies spend an average of 25,000 person days per $1 billion in sales on financial planning and budgeting activities and an average cycle time of four months to develop budgets optimal decision making for the organization as only select power users had the access, time, and knowledge of the decision support systems and the underlying historical data. In addition, organizations were relying on spreadsheets alone to conduct their enterprise planning and budgeting processes. According to the 2004 Forrester Business Technographics survey over 52% of medium, large, and very large businesses were using spreadsheets for budgeting execution either as a standalone tool or with ERP applications, best-of-breed point solutions, and homegrown solutions. While popular and commonly used, spreadsheet software alone proved to be poorly suited for enterprise planning and ultimately caused unnecessary spending. Spreadsheet-based planning and budgeting processes were inefficient, contained data integrity and data quality issues, included great deals of risk as data was easily flawed, and encapsulated a high degree of rigidness and inflexibility. Today s Role of Enterprise Performance Management Over the years, EPM has evolved to become a vital method for A dramatic shift has occurred to where how organizations formulate overall strategy, constantly monitor continued improvement is valued over historical results. their operations, and rapidly adapt to changes that occur in the Boyd Harter Executive Vice President marketplace. In addition to improved automation, timeliness, and Guident business alignment, performance management now includes fundamental processes, methodologies, and metrics that blend advanced analytical technologies with streamlined business processes. Performance management has advanced far beyond a pure financial focus and has been extended to include other key business processes. EPM now gives organizations a top-down framework to align planning, budgeting, and forecasting process and brings a piece of these processes to all levels of the organization. At its core, EPM now focuses on bringing together an entire organization from the executive level, through management, all the way down to lower level staff. Organizations align themselves with a single set of goals and metrics that everyone in the organization works toward. Organizations determine key performance indicators (KPIs) that are the metrics that form the basis of quantifying objectives of organizational performance. At every level, the organization manages itself to monitor these key

4 2007 Guident 3 metrics and adapt to organizational drivers that optimize metric measurements. Metrics are shared by everyone and allow for the organization to set goals, measure success, and take necessary action to improve performance. EPM solutions have become an ideal way for organizations to bring together high-level strategy with daily execution. These organizational-improving solutions are allowing organizations to map strategic plans to tactical and operational plans, translate executive level goals to organizational unit and individual staff member business metrics, and focus the entire organization on working on support the overall organization strategy. Further, EPM allows accountability to be shared with the organization and directs some level of accountability to be brought to everyone s role. Each individual within the organization now has vital part in ensuring the optimal performance of the organization. A Successful EPM Methodology Rather than being a one-time implementation of a solution, EPM drives organizations through an on-going process of performance improvement organization, and delivers optimal results over the long-term. Organizations are taking a cyclical approach to EPM to ensure that the actions of the organization support the strategic and overall goals. To be succesfuly implemented, an organization requires a good framework and structure to focus their enterprise performance management initiative ensures optimal results. Phases of EPM Methodology Formulate Strategy - Executives of organization conduct long-range planning that includes determination of strategic initiatives and definition of key metrics that will drive the organization. In addition, executives plan strategic initiatives for the organization and analyze the impacts of the plan in terms of profit/loss and usage of capital and human resources.

5 2007 Guident 4 Set Goals Lower level managers of the organization develop detailed plans for fulfilling strategic objectives and determine real-time operational metrics and key performance indicators (KPIs) for measuring tactical performance. Specific budgets, plans, forecasts, and business metrics are set for organizational units, divisions, and departments. In addition, accountability is set for all organizational members as management defines and assigns individual goals and objectives and links them to defined business metrics. Monitor Organizational staff members and employees proactively observe key organizational metrics and track progress towards end results. On a real-time basis, individual employees and departments supervise their own unique goals and performance, as well as executives oversee execution of high-level strategies. Individuals confirm that the performance of operations is within acceptable targets, and executives make sure that rolled-up and aggregated targets for the organization are being satisfied. Decide Root-cause analysis occurs both at the operational levels by staff members and management and strategical levels by executives to determine organizational issues and formulate corrective solutions. Organizational goals, metrics, and benchmarks are updated and modified to include improvements. In addition, underlying tactical, financial, or operational details are scrutinized to gain insight into business drivers and long-term implications. Organizational members and employees at all levels diagnose root causes of performance and determine corrective actions before issues escalate. Adapt Corrective actions occur at all levels of the organization to resolve organizational issues and align the organization with improved strategies and objectives. Organizations act upon metric measurements and either change their organizational goals, update the definition of metrics of a specific organizational unit or individual, or modify tactical procedures to perform at a more efficient level. Organizations act upon the information that they now readily have available and rapidly correct issues and problems.

6 2007 Guident 5 Dashboards and Scorecards...dashboards and scorecards are the key tools in a business performance management discipline that enables executives to communicate business strategies in a customized way to each employee and monitor the execution of those objectives to fine-tune the organization and keep it on track. Wayne W. Eckerson Director of Research and Services TDWI Maintaining consistent views of operations through all lines and divisions of an organization can be a challenging task. But all participants of an organization need information they can use to focus on accomplishing the same organizational goals. Dashboards and Scorecards provide relevant metrics, alerts, and monitoring tools to everyone in an organization who needs to monitor and manage business activities, operations, and strategies. Unlike lengthy management reports, a dashboard provides a simple and easy interface to deliver relevant and timely information. Dashboards improve organizational performance by informing individuals in real-time on the state of their performance. Dashboards typically provide graphical interfaces that are intuitive and represent either key performance indicators (KPIs) or business metrics that provide a history of results. Similar to the instrument panel on a car, the performance management dashboard displays meters and gauges that represent underlying data. Dashboards are typically easy-to-use, easily personalized, and can alert decision makers when business metrics approach and exceed accepted ranges and targets. Dashboards may also provide basic controls that can alter the view of the data and allow for business users to collaborate. The graphical format of Dashboards can vary, and business users have the option to pick the format that is most relevant to their data and customize to their specific needs. Formats of dashboards can include gauges, barometers, thermometers, charts, graphs, maps, trend lines, metric trees, and traffic lights. However, the value of dashboards is the ability to display actionable information in an intuitive format and conduct meaningful analysis of the data. Dashboards are typically used by managers and staff in lower levels of the organization, are updated in real-time or near real-time, and use charts and tables to symbolize events for the purpose of measuring performance.

7 2007 Guident 6 Figure 1: Example of a Dashboard A scorecard is another vital component of a performance management solution that allow organizations to control their performance by connecting physical operations with organizational strategy. The scorecard monitors the execution of strategic objectives at each of the organization and ensures a consistent understanding at all levels of the organization s priorities and expectations. The value the scorecard brings to the organization is the linking of actions and decisions of all individuals in an organization to the overall strategy of the organization. In addition, the scorecard enables visibility to everyone up and down an organization and establishes accountability to the appropriate individuals. The scorecard is a robust tool that allows for assignment of goals and objectives to all individuals and focuses accountability on the relevant individuals and organizational units. Typically scorecards provide internal and industry benchmarks, goals, and targets that assist an individual s understanding of their own unique contribution to the organization. Often, the scorecard spans strategic, tactical, and operational aspects and decisions of the organization and supports the specific demands of varying levels of management.

8 2007 Guident 7 Unlike dashboards that tend to monitor the performance of operational processes, scorecards focus on charting the progress of tactical and strategic goals. Further scorecards present results in a graphical format using symbols and icons to represent the status of key metrics, and tend to show data in a linear format. Scorecards are typically used at all levels of an organization including executives, managers and staff. They are usually updated in periodic snapshots, use graphical symbols and icons to present summaries of organizational performance, and chart overall progress over time for the organization. Figure 2: Example of a Scorecard

9 2007 Guident 8 About Guident Guident is a leading information technology services firm providing enterprise-consulting services to clients in the federal government and commercial industry sectors. Guident specializes in building and implementing solutions that provide rapid, sustainable value, in the areas of Business Intelligence Solutions, Oracle Solutions, and Systems Integration. Guident was founded in 1996 based on the beliefs in providing the disciplined methodologies of the "Big Four" consultancies with the flexibility and cost benefits of a smaller practice unit. For more information visit