By Gary Cokins, Founder of Analytics-Based Performance Management LLC
There is much confusion and little consensus as to what enterprise performance management (EPM) is. Different information technology research firms define it differently. Different consulting firms describe it to fit their unique competencies rather than what their clients may require. Since my impression is that most of these organizations view EPM far too narrowly – such as only a CFO initiative with better budgeting and control – my feeling is that it is better to discuss what EPM does rather than have arcane debates about defining what it is.
I argue that organizations have been performing the various methods that comprise EPM for decades – well before it received its recent popular references in the media. Organizations have been pursuing basic types of performance management methods arguably even before there were computers! So why is EPM receiving popularity as a buzz phrase now?
The Debut of EPM at the Enterprise Level
If you had done a Google search a few years ago on the term “performance management”, the results would have predominantly referred to the human resources and personnel departments’ attention to monitoring and improving individual employees including employee appraisals. But if you do that Google “search” today the shift is toward the performance of the organization or enterprise in its entirety – not for individual employees. Today the term “enterprise” typically precedes “performance management.”
Some would argue that this shift to where EPM regularly appears in the media and information technology (IT) community has been due to the IT research firms observing that business intelligence software vendors – the type with functionality more towards data-mining and analyzing data rather than producing the raw transactional data – are now integrating analytical information across multiple departments. For example, a computer manufacturer’s purchasing system detects a temporary vendor part shortage that, in turn, is directly signaled to its customer order entry agents to influence their customers to select alternative product variations, perhaps with a discount or deal as inducement, until the part shortage is resolved. The risk of a missed sales opportunity is eliminated. This “demand shaping” is more powerful than “demand management.” This type of communication from the purchasing function deep in the bowels of the production function to a call center agent deep in the sales function would have rarely existed a few years ago.
Others might argue that the increasing appearance of EPM at the organizational level arose from the same IT research firms observing that ERP software vendors like SAP now provide strong combination suites of at-a-glance visual dashboards and scoreboards. Further, these reporting tools are now linked to strategic planning and execution; managerial accounting; and forecasting tools – and they are extremely scalable to handle millions of records for products, distribution channels, and customers.
These are certainly factors, but I believe the emergence and interest with EPM in the media and marketplace has deeper root causes.
The forces causing interest in EPM today
I believe that a better way to understand what EPM is about is to understand what problems the various EPM methods solve – the immense forces on management – such as these:
- A failure and frustration by executives to execute their usually well-formulated strategy. The terminations of CEOs by boards of directors have been recently occurring at record high levels due to this frustration
- A lack of trust among managers to achieve results is an increasing concern. Consequently, there is an escalation in accountability of managers and employee teams for results with consequences
- Change is the new constant. Increasingly rapid decisions by employees (without time for higher management input) needs to leverage trade-off and predictive analytics. This means a need for employees to understand their executive team’s strategy
- Mistrust by managers of their managerial accounting information and its flawed and/or incomplete product, channel, and customer profitability reporting
- Poor customer value management. There is a shift from being product-centric to customer-centric with customers now viewed as the primary source of shareholder wealth creation. Surveys report customer retention and growth as the CEO’s number one concern
- Dysfunctional supply chain management with a lack of trust among the traditional adversarial relationships between buyers and sellers along the supply chain. Trading partners should ideally be collaborating and identifying mutually beneficial projects and actions
- Balancing risk appetite with risk exposure to optimize financial results with anticipatory risk mitigation actions
Today effective EPM software goes well beyond query and reporting data mining – it addresses and resolves all of these issues. The result is rather than just monitoring the dials of its key performance indicator (KPIs) dashboards, organizations must move those dials. The purpose of EPM is not just managing but improving organizational performance.
Join me in part 2 of this blog next week where I shall discuss the deep root cause forces spurring interest in EPM today.
About the Author: Gary Cokins, CPIM
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.
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