By Gary Cokins, Founder of Analytics-Based Performance Management LLC
In my work career I have the fortune to travel extensively around the globe. As a result, I observe the issues and concerns facing executives, mid-level managers, and those in the project team trenches. During my travels one question has repeatedly emerged: how do we get started?
At my gray-haired age, I’m not sure why I have overlooked this fundamental and basic issue, but it is now becoming clearer to me that a key barrier preventing organizations from pursuing their vision of enterprise performance management (EPM) – regardless of their vision of it – is that they do not know how to get started. There are other barriers too, such as the false perception of some senior executives that the benefits from enterprise performance management do not exceed the administrative effort and expense, but the behavior of senior executives is a topic for another day. This article discusses why the barrier that prevents organizations from getting started has slowed the adoption rate of performance management.
Enterprise Performance Management: An Enigma or Simply Ambiguous?
There will be confusion for a long time to precisely define enterprise performance management (EPM). In my mind, the good news is this: enterprise performance management is not a new managerial method that everyone now has to learn, but rather it is the assemblage and integration of existing improvement methods that most managers are already familiar with. Collectively, these methods are interdependent, working together to manage the execution of an organization’s strategy. And most organizations have already begun to implement some of the EPM portfolio of methods, such as the balanced scorecard, but not enough of them have reached that flash point where substantial synergy kicks in.
Some executives and many mid-level managers have misconceptions about the components of the EPM suite. For example, many believe that the high accuracy in calculating product and service-line costs requires employee timesheets recorded at fifteen minute intervals, when in truth the major and dominant determinant of cost accuracy is much more influenced by better mapping of how work activities are uniquely consumed by outputs (e.g., products, services, channels, and customers). Regardless of the misconceptions, and there are many since most managers have yet to see or experience an organization that is nearing the complete vision of EPM, the problem is that these misconceptions prevent an organization from making progress – from moving ahead!
One proven way to break through this barrier and to get the ball rolling for good is to use the approach of rapid prototyping coupled with iterative re-design and re-modeling. Rapid prototyping works because within two or three days an organization has successfully accomplished constructing its initial system – albeit it at a high level. The “getting started” is over before you hardly knew it had begun!
Rapid Prototyping of Activity-Based Costing (ABC) and the Balanced Scorecard (BSC)
Those who remember the miscues of the early 1990s in implementing activity-based costing systems can now with hindsight realize those ABC implementations that fell short of expectations were way over-designed and over-built. The diminishing returns in additional accuracy were not worth the exponentially burdensome extra level of administrative effort required to collect and calculate the cost data. Worse yet, it took forever to create that gargantuan cost model. These implementations collapsed under their own weight long before the employee teams and managers could ultimately use the cost data originally promised for decision support.
While ABC information answers eternal organizational questions such as “where do we make or lose money?”, “what does something cost now?” and “what will something cost if something else changes?”, what has rescued this initiative is the application of rapid prototyping. Since calculating costs is not bookkeeping but rather a modeling exercise to transform spending expenses on resources (e.g., salaries, travel, power, supplies) into the calculated costs of the consuming outputs and outcomes (ultimately the costs of products, service-lines, channels, and customers), then the first model can be scaled into deeper levels that are more revealing. So the prudent approach is to build the first complete scope ABC model in two days using estimates from only four or five cross-functional employees who are familiar with their areas. On the third day, these employees brief a peer group – and maybe, but cautiously, an executive or two – so more work colleagues can get a vision of what an ABC system could eventually look like in their organization and be used.
Of course the cost data in this initial model is not accurate, but the next iteration becomes more accurate and granular by taking a few more days, going deeper, and replacing estimates with fact-based data in a few crucial areas. An organization benefits from making its design and assumption mistakes early on, not later when it will be much more difficult. Better yet, during the co-worker briefing that follows each iteration, their colleagues internalize what they are seeing and can immediately relate it to their problems. Project teams need two parallel plans: (1) an implementation plan, and (2) a communication plan. The second plan is much more important than the first! Resistance to change is what stops progress, and this can be overcome when the buy-in process starts out with an effective way of education.
Can a strategy map and its associated balanced scorecard also be completed as quickly? You bet, but only if the executives are willing. Some balanced scorecard consultant facilitators are mastering rapid brainstorming methods. Some are as simple as having the executive team take four brief hours to have each executive individually fill out thirty to forty SWOTs (an organizational strength, weakness, opportunity, and threat assessment) on Post-It™ notes and paste all of them on wall panels divided into focus areas using frameworks like the Malcolm Baldrige Award, the European Foundation for Quality Management (EFQM), or Norton-Kaplan. Next, they manually cluster the sticky SWOT notes into common groups with similar characteristics. Then they finally describe each cluster on a larger Post-It in words reflecting a strategic objective. That’s it! These larger Post-Its can be pasted on a wall-size poster board, and the executives can return to their offices.
Next, the core process managers from the next managerial level take over. In the next day or two they identify the few and manageable projects or initiatives that can be accomplished (or the area of their process they must excel at) for each strategic objective. They then define those vital few key performance indicators (KPIs) – three at most – for each project or process specified. Voila. The initial strategy map, key projects or initiatives, and the vital few (rather than trivial many) relevant KPI measures are then defined. And as a bonus, many of those middle managers will for the first time have learned the senior executives’ strategy in a way that they can understand it, since many do not know their organization’s strategy.
Is a Ready, Fire, Aim Approach All that Bad?
Rapid prototyping achieves the benefits advocated by W. Edwards Deming, the popular quality management guru, with his plan-do-check-act (PDCA) iterative cycle. By accelerating organizational learning rates, EPM methods are more quickly implemented.
Typically, people do not like taking responsibilities for decisions, so they don’t make any. What is needed is the courage to make decisions. This is what differentiates leaders from mere managers. Managers are adverse to risk, prone to over-planning and under-executing, while leaders take calculated risks knowing they can always adjust. Let’s not wait for the stars to align to get started. Nike has the right idea: “Just do it.”
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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