ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT

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3 ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT

5 ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT AN OPERATING SYSTEM FOR YOUR ORGANIZATION Ron Dimon

6 Copyright 2013 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) , fax (978) , or on the Web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) , fax (201) , or online at Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) , outside the United States at (317) or fax (317) Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at For more information about Wiley products, visit Library of Congress Cataloging-in-Publication Data: ISBN (Hardcover) ISBN (ebk) ISBN (ebk) ISBN (ebk) Printed in the United States of America

9 CONTENTS FOREWORD PREFACE xiii xi ACKNOWLEDGMENTS xxi CHAPTER 1 What s Broken and What s Possible 1 Strategy-Execution Gap 1 Buckets of Pain 5 The Promise of EPM 7 What Enterprise/Corporate/Business Performance Management Is Not 7 Business Intelligence with a Purpose 12 Notes 13 CHAPTER 2 An Enterprise Performance Management Process 15 Context 16 Impact 17 Responsibility 17 Management Operating System 18 Macro and Micro 27 The Middle 28 Summary 29 Notes 30 CHAPTER 3 Gather: Turning Data into Information 31 Management by Exception 33 Your Point of View 35 Information Qualities 38 Information Delivery 40 Management and Statutory Reporting 44 vii

10 viii CONTENTS Sustainability Reporting 47 Enabling Technologies 51 Rationalization 53 Potential Quick Wins 54 Summary 54 Notes 55 CHAPTER 4 Understand: Turning Insights into Actions 57 Business Questions 58 Patterns and New Insights 63 Big Data and Predictive Analytics 71 Data Visualization 73 Enabling Technologies 75 Components for Your EPM Roadmap 75 Potential Quick Wins 75 Summary 77 Notes 77 CHAPTER 5 Debate: Turning What If into What s Next 79 People 81 The Process 83 Scenarios 85 Resilience 88 Drivers: What Moves the Needle? 89 Debate Management 91 Enabling Technologies 94 Potential Quick Wins 95 Summary 96 Note 96 CHAPTER 6 Commit: Bringing Accountability and Focus to the Enterprise 97 Accountability 100 Gaming the System 103 Enterprise Planning and Forecasting 104 Enabling Technologies 108

11 CONTENTS ix Ingredients for Your EPM Roadmap 108 Potential Quick Wins 108 Summary 109 Notes 110 CHAPTER 7 Execute: From Insight to Actions to Results 111 Everything Is Connected 111 Sales Performance Management 113 Sales Operations Performance 114 Order to Cash Performance Management 116 Supply Chain Performance Management 119 Marketing Performance Management 123 Summary 128 Notes 128 CHAPTER 8 Strategy: Aligned to the Right Outcomes 129 The Language of Strategy 129 Functional Value Maps 130 Optics: Line of Sight 132 Metrics Equal Focus 134 Profitability 136 Strategic Flexibility 137 Closing the Gap 138 Summary 139 Notes 140 CHAPTER 9 Bringing It All Together 141 Alignment 142 A Common Business Language 149 Maturity Is in the Arrows 151 Return on Investment and Total Cost of Ownership 154 Standard Architecture 156 Your EPM Roadmap 156 Organizational Readiness: The EPM Center of Excellence 161 Paralyzed by Feuds? 161 EPM and Incentive Plans 162

12 x CONTENTS How Do You Get Started? 163 Summary 167 Notes 167 APPENDIX: AN EPM MATURITY MODEL 169 BIBLIOGRAPHY 175 ABOUT THE AUTHOR 179 INDEX 181

13 FOREWORD I have been involved with what is now called Enterprise Performance Management (EPM) in one way or another my entire career, whether it was in financial reporting and analysis or formulating strategy for our global business. I am a strong proponent of closing the gap between high-level strategy and day-to-day decisions, and of completing the cycle from a decision to its effectiveness. All too often we devise great plans and set out to execute them and then get overcome by events or sidetracked without coming back to see how relevant our plans were or how effective our decisions are. Current economic demands and competitive pressure now require that we pay more attention to this cycle of Strategy, Plan, Execute, Analyze, and Improve. We must be more flexible and adaptable and be able to react to changing market conditions and customer preferences. And we must have a new level of accountability at all levels of our organizations. And with more mature and advanced EPM tools and the vast amounts of data at our disposal, there is no reason we should not be using this to give us more insight into the business and make faster, better decisions. At Hyatt, we use our EPM capabilities to optimize all of our resources in pursuit of our goal of becoming the most preferred brand in each customer segment that we serve, not just for our guests but also for our managers, associates, and investors. The general managers at our full-service owned and managed hotels have an average tenure of more than 21 years at Hyatt. They are supported by regional management teams that use information, planning, analytics, and what-if modeling to support our general managers in achieving their goals. EPM is one of the foundational elements of our success and helps us focus on our mission of providing authentic hospitality. EPM is not just another management fad or another technology buzzword. This is doing commonsense, fact-based management right. In this book, Ron Dimon shows us a way to think about EPM holistically and directly connects it to what s important in the business: sustainably delivering stakeholder value. The book provides a framework to hang your EPM roadmap onto, and helps you prioritize what s next on your journey to managing and improving performance. I wish you luck on that journey. Gebhard Rainer, EVP and CFO Hyatt Hotels Corporation Chicago, IL November 2012 xi

15 PREFACE Thank you for buying this book. It was a lot harder to write than I thought. The main problem was removing content there is so much to Enterprise Performance Management (EPM), it s not easy to make it be just about a few things. The genesis of this book is my career: For over 30 years I have been involved in Finance Systems and Processes, from my first job at Deloitte, Haskins + Sells as a 19-year-old programmer writing the Journal Entry subsystem for a trial balance program (called ATOM: Audit Techniques On Microcomputers, originally written in dbase II), through Lotus 1-2-3, Accpac, then custom-developed systems (like BOX, the Broker of Obligations and Transactions that connected US Navy purchase cards with Citibank), to nine years at Hyperion Solutions (later acquired by Oracle) where I helped raise the EPM toddler (back then it was called BPM Business Performance Management.) However, as they say, I am standing on the shoulders of giants with the content of this book. My EPM epiphany came after watching so many Hyperion professionals whiteboard the RAMP cycle (Report, Analyze, Model, Plan) which I initially thought was a great way to sell software when I started noticing clients visceral reaction to it: Yes! That s how I want our business to be managed! So I immersed myself in the EPM system and started noticing all of the untapped business value. Later, I got to take that whiteboard to a whole new level with senior business executives, mostly CEOs and CFOs of name-brand companies, when I worked with Simon Tucker at The Business Foundation. When we took out the technical jargon and talked only in management processes, business value and strategy-toexecution terms, they would experience a reaction similar to my Hyperion clients: I don t care what you call it or what it costs, that s what I want! I d like to think of this book as part sequel to Howard Dresner s first book The Performance Management Revolution: Business Results Through Insight and Action (John Wiley & Sons, 2007). I had a lot of fun working on that book with Howard and this book delves into some of his ideas in more detail and with less eloquence. Who should read this book? This book is for CFOs, CIOs, their direct reports, and any organizational visionary or aspiring leader who wants to bring it all together and create xiii

ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT

ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT ENTERPRISE PERFORMANCE MANAGEMENT DONE RIGHT AN OPERATING SYSTEM FOR YOUR ORGANIZATION Ron Dimon Copyright 2013 by John Wiley & Sons, Inc. All rights reserved.