Where Do You Begin Implementing Enterprise Performance Management?

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

I’m half-way through my current blog series where last time I looked at the budgeting process, and just two-weeks away from appearing at the SAP Conference for EPM in Chicago, October 13-14, where I plan to expand further on some of the concepts and ideas I’ve been writing about. So far I have considered the constituent parts of EPM, what makes for good and for bad EPM systems, and pointed to some ideas for evolving and improving EPM. But as organizations embrace the full vision of enterprise performance management – not just the narrow financial definition of better budgeting, planning and control – they frequently ask, “Where should we start?” Some may be eager to begin with a balanced scorecard, others by measuring channel and customer profitability. Still others want to take it to the limit by redesigning their core business processes.

In fact, there is no one-size-fits-all answer. So where you start depends on which enterprise performance management methodology you consider provides the fastest significant return and gets the employee buy-in ball rolling quickest.

Enterprise performance management is not new. Organizations have been doing it for years, arguably even before computers arrived on the scene. The traditional version of enterprise performance management involved a weakly communicated strategy that was followed up by measurements of customer service, sales and order-fulfillment functions. There was no attempt to integrate the varied components of enterprise performance management or to develop proactive core processes. Today, top performing organizations realize they must integrate methodologies and their supporting systems, visually display measurements and apply predictive analytics to all their processes. This is the new version of enterprise performance management.

As organizations realize that enterprise performance management is really much more about improving performance rather than just controlling and managing it, they begin asking, “Where do we begin to take what we already do to a much higher level?”

Accept that enterprise performance management is about integration and speed

An organization attains the full vision of enterprise performance management when executive leaders expediently communicate strategy to managers and employees alike and are committed to providing continuous updates to their plans.

leaders1_birds

This allows everyone to act in sync and without wasted effort. Speed matters in communications. Performance suffers when managers and employees are forced to repeatedly react to unexpected changes. To realize maximum benefits, any of the methodologies – such as strategy mapping, customer relationship management, Six Sigma, lean management and anticipatory capacity resource planning – must be robust, seamlessly integrated and in sync. Because some organizations already have several of these methodologies in place but not necessarily connected, the “where to get started” question depends on identification of the key factors relating to the organization’s current situation.

For example, if a reasonably sound, activity-based accounting system already provides information on which specific combinations of products, services, channels and customers earn or lose profit, executives may want to focus on successfully incorporating this information into a strategy map and associated balanced scorecard implementation. Failure to execute a well-formulated strategy is a major frustration that frequently prompts executives to pursue a broad enterprise performance management initiative. On the other hand, the executive team might be receiving cost information that is either incomplete, for example, because the team is receiving only product- or service-line profit information and not the full-channel and customer-segment information or inaccurate, perhaps because of distorting indirect cost allocations. In this case the executives may want to upgrade their management accounting system by applying activity-based principles.

Again, determining where to start on integrating an enterprise performance management framework depends on the organization’s weaker links.

Any approach to enterprise performance management begins with the attitudes of senior leaders. If they launch into enterprise performance management with a Darth Vader attitude – seeking underperformers to expose and cut off their air supply – the process will be painful with potentially negative repercussions. Employees will experience fear. Enterprise performance management should focus on remedy not punitive measures; A trust-based approach involves a great deal of accountability from individuals for achieving desired results. Wise leaders see their role as setting direction and continuous redirection, clearly communicating their ideas, and empowering their managers and employee teams to determine the best methods for moving the organization forward in the direction communicated by its leaders. These fine leaders are coaches not dictators.

Assuming an enlightened leadership team, then what?

Organizations will not make speedy progress by focusing exclusively on one methodology, such as better forecasting, and taking a year or longer to implement these improvements. If you take this approach then in all likelihood your competitors will beat you, or your customers’ expectations will outpace you. Instead, you need to enact multiple methodology improvements simultaneously. An increasingly accepted best practice for such improvements is to apply the “plan, do, check, act” (PDCA) cycle. Start with rapid prototyping, followed by iterative remodeling for all of the relevant methodologies. Naysayers will argue that the organization can handle only a few projects at a time, but they underestimate the capabilities of people to work together when they are being guided by leaders, not just managers.

With these rapid prototyping techniques, an organization makes mistakes early and often, not later when more has been invested and it is more costly to make corrective changes. This do-it-quick approach accelerates learning and brings fast results that in turn gain buy-in from employees who by nature are naturally resistant to change. Iterative modeling allows for scaling each of the prototyped methodologies into repeatable and reliable production systems. Enterprise performance management is like gear-teethed cogs in a machine: The more closely linked and better meshed the methodologies are during implementation, the smoother and faster the organization moves forward Software applications are very relevant, but their purpose is to support all of the methodologies. They are enablers of processes, not complete solutions on their own.

Embrace uncertainty with predictive analytics

Gradually, managers and employee teams will begin to see and understand the big picture, including how all of the methodologies fit together. Those in commercial organizations will realize that creating higher profits and increasing shareholder wealth is not a goal but a result. For these organizations, the true independent variable is finely managing the innovation-based R&D and spending on marketing to focus on the desired customers to retain, grow, acquire and win back – and cut lose the unprofitable ones. Leaders in public-sector organizations may view funding as a scarce commodity; therefore, they need to maximize outcomes by increasing output or improving service delivery without the use of additional resources.

Executives are constantly on a quest for the next breakthrough in managerial innovation. My suggestion is to start by integrating and enhancing existing methodologies that have proved their worth. It’s likely that the organization has attempted applying already to some level of competence. However, integration deficiencies may exist in some areas, leading to time lags that cause excessive and costly reactions.

Successful organizations can gain much insight by performing much deeper analysis, such as better and more granular customer segmentation. This more detailed business intelligence can be utilized within the methodologies in use and supporting systems for better decision making. The next major task is to get in front of the wave, using predictive analytics to mitigate risk by making changes before the effects can occur. Predictive analytics may well be the next major competitive differentiator, separating successful from mediocre or failing organizations. The uncertainty of future demands or events should not be viewed as a curse, but rather embraced as something organizations can tame with the powerful and proven probabilistic tools that already exist.

So what to do? Start now – everywhere. Most organizations over-plan and under-execute. For organizations that have experienced recent upheaval, now is the time to regain some order. With a nurturing attitude from executive leaders who act more like coaches than bosses then organizations can move quickly towards completing the full vision of enterprise performance management. But it requires a willingness for executives to step forward, initiative and empower their organizations to embrace enterprise performance management as the new culture for how the business operates.

Next time I shall discuss why modeling is an essential capability within an EPM system.

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

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

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

Enterprise Performance Management: Integrating a Suite of Proven Methodologies

By Gary Cokins, Founder of Analytics-Based Performance Management LLC 

In my first blog of this series I talked about a Tipping Point in EPM. I’ll be expanding on this theme a little more when I present at the SAP Conference for EPM in Chicago on 13/14 October. But before that I’d like to invite you to join me as I continue this blog series with an examination of EPM and its constituent business processes from a number of perspectives.

Enterprise performance management (EPM) can be described as the integration of various methods that translate plans into results – execution. It is a framework for managing your strategy. Strategy is of paramount importance and is senior management’s number one responsibility. For commercial companies, strategy usually answers three key questions:

  1. What products or service lines should we offer or not offer?
  2. What markets and types of customers should we serve or not serve?
  3. How are we going to win?

EPM provides insights to improve all performance in the above three choices. But, its main power is in achieving number three – winning – through adjusting and executing strategies. EPM does this by aiding managers to sense earlier and respond more quickly to uncertainty. It does this by pushing accountability for results to the lowest possible organization levels.

In contrast to the popular 1990s business process reengineering (BPR) approaches, where after radical redesign every single step and task were explicitly mapped, EPM instead relies on the power of focusing on the pertinent and relevant information. After determining the organization’s strategic objectives, measures (i.e., key performance indicators, KPIs) and their supporting projects, the rest will follow naturally. That is, employee work activities align to pursue strategy, often intensely customer-focused, as job number one.

umbrella

So what then is it that EPM is comprised of- if it offers companies so much potential? EPM is an umbrella-like concept covering tightly integrated and universally applicable methods: strategic planning, scorecard measurements, budgeting, rolling financial forecasts, costing (including activity-based costing [ABC]), forecasting resource requirements, and also financial consolidations. EPM also includes the important adjacent neighboring methods that are independent of any industry: business intelligence tools, customer relationship management [CRM], specifically sales performance management; supplier performance management; shareholder valuation (e.g., cost of capital, economic profit and value); human capital management (HCM); and six sigma and lean operations.

Key elements to EPM

There are three primary elements for EPM:

  1. Focus. The task of managing strategy begins with making choices and focus. There is never enough money or resources to chase every opportunity or market on the planet. We are continually limited by scarce and precious resources and time, so focus is key – and strategy yields focus.
  2. Communicatation and Feedback. The task of managing strategy continues with communication. This context is reserved for senior management articulating its strategy to employees, typically with a strategy map. Along with articulating strategy comes the all-important feedback to managers and employee teams. It allows everyone to answer the question, “How am I doing on what is important?” A balanced scorecard is the key tool for reinforcing communication of the strategy. Think of a balance scorecard as the drive gears of the strategy map. Think of the strategy map’s strategic objectives as a set of chain links, where each chain link uses if-then relationships. The leading and lagging measures steer work efforts to align with the organization’s mission and vision. By integrating, distributing, and analyzing enterprise-wide information, an organization gains the power to act on this information – ahead of its competitors.
  3. Collaboration. The task of managing strategy ends with collaboration. (It is essentially a never ending iterative loop.) By aligning the strategic objectives among the various departments and functions, the organization taps into the collective knowledge of its employees and unleashes each person’s potential. The EPM framework truly makes executing strategy everyone’s job. Collaboration in this sense is all about collective dialogue. Management is not equivalent to control – management is coaching people for continuous improvements.

A simple way to think about EPM is that it embraces both planning and executing. However, EPM is greatly aided when managers and employee teams have good visibility into the drivers of performance in particular fact-based intelligence on product, channel, and customer profitability reporting. With fact-based intelligence, better strategic objectives are more likely to be formulated, and employee teams can analyze what is happening and what might happen (e.g., what-if planning scenarios) in order to make better decisions.

People and culture matter

Business schools tend to divide their curriculums between hard quantitative oriented courses, such as operations management and finance, and soft behavioral courses, such as change management, ethics, and leadership. The former relies on a run-by-the-numbers management approach. The latter recognizes that people matter most.

The quantitative approach applies Newtonian mechanical thinking as if the world and everything in it is a big machine. This approach speaks in terms of production, power, efficiency, and control, where employees are hired to be used and periodically replaced, somewhat as if they were robots. In contrast, the behavioral approach views an organization as a living organism that is ever changing and responding to its environment. This Darwinian way of thinking speaks in terms of evolution, continuous learning, natural responding, and adapting to changing conditions.

The trick to general management is integrating and balancing the quantitative and behavioral approaches. In today’s knowledge-worker dominated world where customization and personalization are increasingly the ‘norm’, old-school, command-and-control style executives who prefer to leverage their workers’ muscles but not their brains run into trouble.

Increasingly, the strategy must reflect customer preferences and needs, while also satisfying shareholders (i.e., owners) entitlement to wealth creation. Translated, this means top-down guidance with bottom- up execution. From the shop floor to the top floor – and back again, EPM bi-directionally converts plans into results.

EPM provides robust and practical insights. EPM informs an organization about its current position, which direction it is going, which direction it should be headed, and what it will require to get there.

Performance Management is Based on Business Modeling

With new advances in software modeling tools, data warehousing and mining, technology is no longer the obstacle – but our thinking is! Modeling is best done using a combination of principles and tools. Business modeling is central to the performance management suite. Senior managers can verify the feasibility of their proposed initiatives using computerized business models to predict results rather than through experience gained in the school of hard knocks.

These tools provide every manager with the needed ability to:

  • Identify business problems and
  • Uncover opportunities to improve, and then to size their impact if successfully improved.

Executives can rely on these same systems to foster communications among managers and employee teams. Employees can actively manage with an increased confidence that what they choose to work on aligns with the organization’s strategy and goals.

In my next blog I’ll invite you to walk with me through a discussion about performance management with a CFO, and set the challenge for you to ask the hard questions in your own organization.

 

About the Author: Gary Cokins, CPIM 

   
Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

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

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

 

 

 

 

The 2014 SAP Conference for EPM: Strategy AND Execution

In EPM (or enterprise performance management if you prefer full names), we talk a lot about the Strategy to Execution cycle, believing that enhanced performance is possible by linking and continually re-aligning operational plans with business strategy and objectives.

While EPM as a solution area is focused primarily on the area of Finance within organizations, the principle of linking strategy with execution spreads far wider than this, and having an eye on your goals despite all that goes on around you can prove to be a success factor in many parts of business, if not personal lives also.

I’m presently involved in planning for the 2nd annual SAP conference for EPM, which is a collaborative venture between TA Cook Conferences and SAP. Being mindful of the strategy to execution link has been a big part of our planning cycle, and as we now approach the event (with just 5 weeks to go), I am pleased that we took the decision to set out our objectives early, defined a plan to work to, have held regular alignment calls with central and dispersed teams so that we can adjust plans and correct our course in light of new information or changes – with the result that we are now well on track towards holding a terrific event that has an excellent speaker line-up, fabulous sponsors and so far is seeming to attract interest and registrations from many Finance executives and managers.

stage

Customer stories are key

Given my involvement in the event planning team I thought it might be remiss of me if I didn’t share some details of it with you in the coming weeks. After all, many readers of this blog channel are Finance professionals, and so it’s something that I hope will be of interest. At the last event we took feedback from many customers who attended, and by-and-large they told us that the thing they wanted to hear most at the conference were stories from other customers about their EPM solution experiences. With that in mind we set out our stall this year to focus squarely upon giving our customers’ the stage – with the result that we have eleven SAP EPM customers joining the event next month to talk about their experiences in implementing and using EPM solutions. With speakers from a range of industries using varying EPM solutions, there will surely be “something for everyone” interested in EPM. Our speaker line-up this year includes:

  • Blue Cross Blue Shield of Michigan
  • Citrix
  • City of Henderson
  • Dolby
  • HealthNet
  • John B. Sanfilippo and Sons
  • Lexmark
  • Mars
  • Owens Corning
  • Pacific Gas & Electric
  • T-Mobile

As well as this impressive customer line-up, we also have some special guests joining the conference including Joel Bernstein, SAPs CFO Global Customer Operations and Paul Hamerman, Principal Analyst at Forrester Research who are both due to take part in a discussion panel on day-1, and Gary Cokins of Analytics-Based Performance Management who will present the day-2 keynote. More details are available in the event brochure

Collaboration leads to better results

Our ability to secure this excellent speaker line-up has in many ways been a result of great collaboration with our sponsoring business partners. I’ll mention them more in my next blog as partners have been a key factor for us in creating a well-rounded agenda. Suffice to say as a result of that collaboration, we can expect to hear some terrific EPM stories from the customer speakers who have decided to join us at the event.

There’s no particular secret to setting up and hosting events. Obviously you need the right subject matter, but that alone doesn’t create the event. What you do need is a clear strategy, a workable plan and then you have to execute on it. This needs careful thought, planning, collaboration and continual re-alignment towards the overall goal despite the many challenges that occur along the way. And that’s really no different to many processes in business…albeit just a bit more “glitzy” perhaps in the end result!

Realizing a Tipping Point for Enterprise Performance Management (EPM)

By Gary Cokins, Founder of Analytics-Based Performance Management LLC 

When should an organization decide to implement one or more components of an enterprise performance management (EPM) system? To answer this we can learn a lesson from Malcolm Gladwell, a social scientist and author of the best-selling book The Tipping Point, who describes how changes in mindset and perception can attain a critical mass and then quickly create an entirely different position of opinion. Let’s apply Gladwell’s thinking to the question of whether the widespread adoption of EPM solutions is near its tipping point or whether we will only realize this in retrospect after it has happened.

Gladwell observed that to determine whether something is approaching the verge of its tipping point, such as an event or catalyst, it should cause people to reframe an issue. For example, in the 1990s just-in-time (JIT) production and inventory control reframed manufacturing operations from classical batch-and-queue economic order quantity (EOQ) thinking to the method based on customer demand-pull product throughput acceleration. So, is EPM reframing organizational challenges and nearing its tipping point? To answer this, we should first acknowledge that EPM is not a new concept that everyone has to learn, but rather it is the assemblage and integration of existing methods that most managers are already familiar with. Collectively, these methods help better manage the execution of an organization’s strategy, planning and analysis functions together with the support of business intelligence tools.

Multiple Tipping Points of Performance Management Components

Enterprise performance management is comprised of multiple methods, all interdependent and interacting. They have been around for some time but what is profound is that we are now experiencing the combined influence of multiple and concurrent sub-tipping points all at once. Ultimately their collective weight is resulting in an overall tipping point for adopting EPM. These tipping points are:

  • The Balanced Scorecard (BSC) – Thanks to successes on how to properly implement the combined strategy map and balanced scorecard framework (and there are plenty of improper implementations), executives are now viewing BSC differently. Rather than the focus of a BSC being a means of reducing the massive number of collected measures (the so-called key performance indicators, or KPIs) and distilling them down to the more relevant few, executives now understand the strategy map and BSC framework as a mechanism for improving strategic execution and performance improvement programs. They are reframing BSC as a way to better execute their strategy by communicating it to employee teams in a way they can understand it, and then aligning the employees’ work behavior, priorities, and resources with the strategy.
  • Decision-Based Managerial Accounting – Reforms in management accounting practices, led by activity-based costing (ABC), may once have been viewed as simply a more rational way to trace and assign increasing indirect and shared overhead expenses to products and standard service-lines (in contrast to misleading and flawed cost allocations based on broad, cost distorting averages). Today, reforms to management accounting practices are being reframed as the essential managerial information necessary to better understand which products, services, types of channels, and types of customers are more profitable or not – and why. There is a shift from less cost control (hindsight cost monitoring to correct unfavorable deviations from expectations) to more cost planning (providing a level of spending supplied to match demands). This is because most capacity spending cannot be quickly adjusted up or down in the near term. This means better capacity and resource planning, understanding of cost drivers, and less historical cost variance analysis.
  • Customer Value Management – Customer relationship management systems (CRM) have been narrowly viewed as a way to communicate one-to-one with customers. However, executives have learned that it is more expensive to acquire new customers than to retain existing ones, and that their products and service-lines have become commodities that offer little competitive advantage. As a result, organizations are reframing CRM more broadly as a way to analyze and identify characteristics of existing customers that are more profitable and valuable, and then apply these traits to formulate differentiated and tiered treatments (such as marketing campaigns, deals, offers, and service levels) to existing customers as well as targeting new customers that possess relatively higher future potential value. This reframing places much more emphasis on micro-segmenting customers and post-sale value-adding services via cross-selling and up-selling. The new recognition is to not just grow sales but rather grow the more profitable sales.
  • Shareholder and Business Owner Wealth Creation and Destruction – The strong force of the financial capital markets to assign financial value to organizations has caused executive teams and governing boards to realize that old, traditional methods of placing value on a company are obsolete. Balance sheet assets now only account for a small fraction of a company’s market-share price capitalization. As a result, executives are reframing their understanding as to how to increase its positive “free cash flow,” the financial capital market’s metric of choice, to convert potential value (ideas and innovation) into realized value (financial ROIs). Consequently, they have reframed a path of continuous shareholder wealth creation governed by customer value management.
  • Advances in Technology – There is now a growing consensus that technologies, such as cloud computing and in-memory computing, are competitive advantage differentiators for those organizations that embrace them. Organizations are reframing their view of technologies as not just being tools but as enablers.

Synergy from the Links Among EPM’s Components

Each of these five tipping points have interdependencies. Transactional systems now provide valuable source data at faster speeds, and EPM methods then transform data into decision-based information. This produces even a higher ROI of an organization’s prior investments in its information technology assets. The tipping point then is the growing demand for EPM solutions as value-multipliers.

 

About the Author: Gary Cokins, CPIM

Gary_Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

gcokins@garycokins.com; phone +919 720 2718

http://www.garycokins.com

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

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

 

New SAP Press Book Offers Primer on Financial Planning and Analysis

From Malcolm Faulkner, Sr Director Product Marketing, SAP

A book I co-authored has recently been published by SAP Press and is now available on their website. I’ve been asked by my SAP enterprise performance management (EPM) marketing colleague, Mr. Chris Grundy (who manages our EPM social media programs) to write a blog explaining why we wrote the book, and to describe the whole experience. In this blog, I’ll provide a short overview of the book itself and in a second blog, I’ll share some of the lessons I learned in writing a book.

FPA Book

First off, the intention in writing the book was to explain in one place what financial planning and analysis processes are and how SAP software can make them more effective and efficient. The book is written as a primer for everyone interested in implementing SAP’s enterprise performance management applications to improve their strategic, financial planning and profitability analysis processes.

To that end, I truly believe the book provides enormous value to anyone interested in these functions and how software applications support them – in general and specifically, SAP applications. Enterprise performance management is an enormous subject that embraces many functions and business practices.

If you work in strategy, financial planning, or business analysis or a related field, and particularly, if you use or are considering using SAP software, then I hope you’ll check out Financial Planning and Analysis with SAP: SAP Solutions for EPM, by William D. Newman and myself.

Part 1 – The EPM Foundation

In Part 1 of the book, we define enterprise performance management, discuss it’s relation to business intelligence (BI), describe the financial planning and analysis lifecycle, and cover the key processes that occur in it. These include strategy development and translation (execution), planning, budgeting and forecasting, profitability and cost analysis, and internal monitoring and external reporting of performance. We also introduce the EPM portfolio from SAP.

Part 2 – EPM Products from SAP

In Part 2, we explore the three key EPM applications used to enable financial planning and analysis – SAP Strategy Management, SAP Business Planning and Consolidation, and SAP Profitability and Cost Management. We also have a chapter on SAP Financial Information Management, the “glue” for integrating SAP’s EPM solutions. Lastly, we discuss the use of both SAP’s EPM products and BI tools for continuous performance monitoring and support of reporting requirements.

Part 3 – Leveraging Capabilities from Alternative Software Solutions

An important component of EPM applications is financial consolidation. This is the sister of financial planning, so we include one chapter on it just for completeness. For more information on financial consolidation you can also read Accelerated Financial Closing with SAP by James Fisher, Elizabeth Milne and Birgit Starmanns.

Deploying an EPM application shouldn’t be a protracted process. While they may embody sophisticated forecasting and modelling processes, they aren’t massive ERP applications. Therefore, the implementation times should be correspondingly shorter.

Customers are also looking for pre-built content and best practices. SAP bundles (and sells) pre-built content along with the underlying applications and a prescribed set of services that are called rapid deployment solutions (RDS). We discuss the RDS’s that currently exist to help accelerate the adoption of SAP’s EPM solutions within financial planning and analysis.

EPM is a broad domain and uses data pulled from many other systems and sources, particularly ERP and data warehouses. Therefore, it would be remiss not to include some discussion of peripheral solutions, integrating SAP EPM with them and investigating how to extend EPM capabilities into other SAP solutions.

Part 4 – The Future of Enterprise Performance Management

Anybody involved with financial planning and analysis (whether on the business or IT side) is well aware of the developments in Big Data, cloud, and mobility, along with innovations in analytics. These advances are beginning to change the way we access and use applications along with providing additional power, capability and convenience. This last section talks about the relevance of these emerging technologies and highlights the future and planned innovations for EPM from SAP.

Wrapping it up

As I wrote in the forward, when writing this book, we focused on four key processes in financial planning and analysis, which themselves are composed of many sub-processes and activities. That’s a ton of stuff before we even begin to think about SAP’s EPM portfolio. On top of this, we have to consider the turmoil from a rapidly changing global business environment and huge technology shifts that are dramatically changing the way in which applications are built, deployed, and used. To say that writing this book was a massive undertaking would be an understatement to say the least. However, we believe that it fills a void and hope that it will help all readers better grasp the issues and importance of EPM.

This blog article originally posted on SAP Analytics 14 August 2014

How do we transform finance to cope with constant change? One word; Collaboration!

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

Throughout my ten part blog series I have been discussing how CFOs can use new technologies to help leverage the finance team in providing greater organizational value. In the capstone summary I also wanted to note that underlying each of the changes discussed is a theme of greater collaboration.

Businessman and businesswoman using digital tablet in office

In many ways technology is enabling this collaboration. But your speed of adoption will increase if you start with a spirit of collaboration before any implementation begins:

  • A strong CFO looks to collaborate with his or her key lieutenants. More effective plans are developed when everyone is looking to optimize the whole organization.
  • A strong corporate finance team looks for ways to team with the business units they support. How can information be shared across units to make the whole stronger than the individual parts?
  • Strong finance teams also look to gain advantage by teaming up and down the value stream. For instance, the concept of eliminating duplicate data entry extends up and down the value stream. Why re-key a key vendor’s data or ask your customer to re-key yours?

New technologies such as integrated planning modules are leveraging collaborative work flows which are often imbedded into the design of new modules. These systems provide real time status of work flow which can be tracked automatically. Group messaging and polling functions facilitate online dialogues which can be happening with people around the globe. Joint work efforts can be tracked by automated audit trails maintaining change history. Teams can access the organization’s knowledge bases though on-line content management systems – anytime, anywhere. Even security concerns are better addressed as prepackaged solutions build in the security checks.

Old approaches that relied on linked spreadsheets had finance teams constantly trying to validate if they were working on the right numbers. Past surveys [1] have estimated that FP&A teams spend 47% of their time collecting and validating date. They spend another 30% of their time administering the planning process. As a result, they only have 23% of their time to do any real value added planning work. The new technologies we are discussing (mobile, in-memory, predictive analytics, and cloud) can flip this equation leaving finance teams free to focus just on collaborating and doing real planning work.

In addition to collaboration, success with these new technologies requires three key elements. The first is leadership and whether they are willing to explore new ways that finance can improve organizational value. This is likely a CFO who is looking to have greater impact. The second is an organization with a willingness to change. In addition to collaborating, there also needs to be an openness to what is possible. This leads to the third element which is experimentation. As Peter Drucker advised, systemic innovation “consists in the purposeful and organized search for changes, and in the systemic analysis of the opportunities such changes might offer for economic or social innovation.” [2]

Whether you are a CFO or just someone in looking to add greater value, ask yourself these questions:

  1. What changes should we be making to expand the value our finance team creates?
  2. How should our planning, budgeting and forecasting process change to take advantage of the next generation planning tools already here?
  3. How can in-memory computing help us harness Big Data for greater insights?
  4. What predictive analytics will provide us with greater lead time for improving?
  5. How can we better reach our strategies by aligning our execution efforts? What should be dropped to create capacity for what needs to be added?
  6. Which customers provide our current profitability? How will that change in the future?
  7. How can we improve the return on all expenditures?
  8. How can we eliminate wastes by moving to real time consolidation?
  9. How can we increase our response times using real time close and disclose approaches?
  10. How can finance improve collaboration?

Finally, how can finance find the time to pursue these goals? That begins with your leadership and identifying dumb stuff you are currently doing that should stop. I hope this series of blogs have helped get you started.

[1] See joint studies by APQC/ Beyond Budgeting Round Table (BBRT) and by Business Finance Magazine and BBRT. See “The Budget (1922 – 2009) Is Dead” by Jack Sweeney, Business Finance magazine, June 1, 2009.
[2] Drucker, Peter, Innovation and Entrepreneurship: Practices and Principles, (New York: Harper & Row) 1985, page 35.

Steve Player

Real time close and disclose

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

As we continue to examine how technology is helping CFOs successfully deliver greater value, I wanted to extend last week’s discussion of real-time consolidation to also include real time closing and disclosing of financial information. These can provide real benefits to all organizations from small to gigantic and everyone in between.

Technology has expanded the work day. Many business are 24/7/365 (hours per days/ days per week/ working every day of the year). The business is like a ship on the ocean, constantly serving. In most organizations, the work does not stop. For these, an accounting close of a month, a quarter or a fiscal year is merely a defined reporting period for comparison purposes. You want it to be accurate, but you also want it to be as unobtrusive as possible. For most, that means cut-off procedures with minimal disruption.

Clock in train station, Liege, Belgium

Achieving real time closing follows this same steps discussed in last week’s real time consolidations – it starts with finance efforts to stop doing dumb stuff. This means eliminating the need for duplicate data entry, converting manual account reconciliations to automated approaches, simplifying other monthly systems interfaces, and getting systems to exchange and validate information.

About 15 years ago, this approach was described as being able to do a virtual close. One of the key benefits claimed was providing management with financial information faster. Frankly, I see this as a misleading claim. In successful organizations, any critical information needed by management is already being provided.

The real reason that CFOs need to move to real time closing is that doing so will free up a huge spike in the finance team’s work load. Streamlining the manual interfaces and account reconciliations means digging up the root causes and eliminating them. The monthly time saved by these improvements is better spent developing and implementing improvement plans.

The most recent advances have extended real-time information to also include the disclosure process – which has been called the last mile of reporting. The use of the new XBRL reporting language enables information to be tagged and reused. Initially, the benefits of this development was sold as a check to make sure that any late changing numbers would be captured and updated. When Sarbanes/ Oxley began to require CFO the sign that their financial statements were accurate, this feature became an even bigger deal. Adding this capability has been a must have for most publically traded companies.

As finance teams have become more familiar with XBRL, they are beginning to see opportunities to expand its use. From its roots in financial reporting, new disclosure reporting is expanding additional external reporting such as:

  • Linking to all footnote reporting including executive compensation
  • Covering sustainability reporting issues
  • Tracking social responsibility issues

It is also begun to be used for internal reporting such as:

  • Tracking total costs of ownership
  • Quality performance reporting
  • Measuring employee personnel productivity

By using these technologies to help CFOs cover the basics, they also create more capacity to expand into additional areas. Next week, I will recap our process and look at what else the future may hold.

Steve Player