Tie execution to strategy. Establish one version of the truth. Deliver real- time, actionable information. Enable better decision making. Improve financial performance. All sound good; all are strategic goals linked with performance management. Are they merely marketing copy, or does all that goodness truly come with business performance management (BPM)? If these benefits are real, how do they translate into everyday changes in your company that you can see and quantify? This month and next, we'll help you determine whether BPM pays for itself, has better ROI than the other 20 projects on your radar and is something you can champion inside your company.
If the answer is no, then you can put BPM on the back burner, and I can stop writing this column. My professional view, however, is that within the next two years, your company whatever your industry, size and stage of IT development should be initiating BPM in some form. As evidence to support this belief, I offer the following discussion of specific BPM benefits and real-life examples to show satisfactory even outstanding payoffs are attainable.
Tie Execution to Strategy
The corporate equivalent of getting all the fish to swim in one direction, linking execution to strategy is the overarching BPM payoff. Everything else folds under its rainbow. The idea is that with accurate and consistent analysis available throughout the organization, everyone will understand the corporate goals and all their activities can be in concert with the company's mission. Improved financial performance will follow naturally.
You can't mesh execution with strategy, however, unless several concrete elements are cooperating. BPM can help wrestle them into place. The nitty-gritty components are:
- Fast budgeting and planning cycles, with just a few iterations.
- Linking data from different systems and forecasts from all levels of the company to give a common view of performance, present and future.
- Making that view, and the company goals, easily available to all.
- Identifying and tracking the true sources of profitability and of cost savings.
After installing BPM software from SAS, Progress Rail Services, one of the largest rail services in North America, became a more entrepreneurial billion-dollar company. Finance manager David Klementz says, "Everyone has a strategic plan, but until you have performance management and an ongoing view of the key indicators, you cannot see how operational steps you take affect the financials."
Klementz describes a "before" in which business plans went on a shelf and thinking was short-term because the company was overly focused on financial measures. Now, "We pull up our scorecards at senior management meetings; and if a question comes up, we can drill down to get most answers right there," notes Klementz.
The specific changes that came with BPM included automated scorecards at the business unit and division level, and cutting month-end consolidation time from 14 to six business days. This, by the way, includes drawing data from Progress Rail's approximately 40 different systems, including Oracle, Baan, Hyperion and others.
The new measures also help unify discussions among business units. On a recent trip to a unit in Mexico, "They pulled up their scorecard and began talking to it, just as we do," says Klementz. The path forward with BPM at Progress Rail Services will provide scorecards for individual plants, where he expects to use different metrics. "Senior management can now make decisions much faster, going right from the strategic to the tactical and financial. We intend to provide those advantages at numerous levels in the company," says Klementz.
One Version of the Truth
Different managers and divisions, all looking at the same structure in budget templates and discussing forecasts with matching levels of detail is a wonderful goal that eludes many companies that were built through mergers, have international subsidiaries that define their own accounting, and are a patchwork of transactional and planning systems. In practice, this requires a BPM system to:
- Link and consolidate data from disparate systems to give a common view of performance and
- Make the unified view available to everyone who can create value with it.
Coty, Inc., a cosmetics manufacturer with more than 8,000 employees in 25 countries, has 40 different types of systems, including SAP, Oracle, JD Edwards and homegrown, each with unique financial consolidation and reporting. As a first step toward unifying this infrastructure, Coty installed Hyperion Enterprise for financial consolidation at more than 40 local sites. This delivered a consolidated view at corporate headquarters, but not the time to create complete, detailed views for each country office. "We had multiple versions of the truth," explains Jim Shiah, Coty's controller. "At the country level, they did not get to see the impact of licensing fees, for example."
When a new CFO mandated improvements in resource allocation, Coty bought a Hyperion suite of analytic products. With this software, Coty expects to lower infrastructure and personnel costs and spend significantly less on deployment, software support and hardware investment, saving more than $2 million over a three-year period.
Coty had several specific problems to tackle. While it had reporting by brand, the views were not multidimensional. "We used to look at our company by country first, brand second, category third," said Shiah. "Now, the analytic systems really invert our decision pyramid from geographic to brand-category."
To make the shift to BPM work, Coty had to redesign the underlying data structures and hierarchies that varied from one country to the next. "Country managers had to give up some familiar ways of breaking down their business," said Shiah.
Some payoffs in capital expenditures are already evident. Until 2003, Coty took an annual wish list from each department, containing requests for everything from furniture for marketing to extra clerks in operations. "We tended to allocate capital by negotiating with the wish list," notes Shiah. "Now, we start at the strategic priorities facing the company and decide what each department needs to fulfill the strategy. Only when we can see what is left over do we consider the wish list."
Coty now has some 250 users of its BPM capabilities. Thanks to Web accessibility, the "audience" is gradually widening beyond finance. Coty has found new subtleties in its decision-making processes, with more "fact basis" and objectivity replacing from-the-gut decisions and their attendant subjectivity. Executives find that using the same metrics across the organization brings confidence because all affected see and share the results of their decisions.
If information can't be real-time, it should be as fresh as possible. The faster the information arrives, the faster you can turn the ship. To capitalize on a BPM system and run a company more tightly, your system should:
- Deliver data with minimal time lag from transaction or event to availability for analysis.
- Enable faster closing cycles.
- Automate error-prone tasks, getting people out of the data chain and putting them at its end.
- Support faster forecast preparation.
Miles Kimball, a multichannel marketer best known for its catalogs, sells more than 12,000 SKUs through three Web sites and three sets of catalogs. CEO Mike Muoio, after implementation of a BPM system from Comshare to supplement its core customer relationship management (CRM) system, asserts that nothing outweighs its ability to bring corporations onto a real-time footing.
Real-time information stirs religious fervor among its converts. "Ten years from now, if you're not real-time, you'll be crushed," Muoio asserts. "There is a heartbeat to this business, and now our people can get in touch with that rhythm. Behaviors can be aligned and the way you go to work, culturally, is forever altered in a positive way."
In a company that depends on personalized products, it is imperative to cut data precisely and quickly to respond nimbly. At Miles Kimball, the real-time culture appears to mean that many more questions are asked because rapid answers trigger more questions. It also can mean that more decisions occur, but they are often smaller adjustments.
For the company's merchant, product planning and operations staff, immediately spotting the success or failure of products, categories and offers leaves more time to improve the next catalog.
Miles Kimball wants to realize half its sales via the Internet, thereby saving through decreased use of paper catalogs. BPM lets the company put tactics behind that strategic shift. "Say we change the landing page on a Web site and offer free shipping from 9-11 a.m.," says Muoio. "We instantly start to see the results and gauge efficacy. That's real time, and it's very powerful."
Next month, we'll look at whether BPM lives up to the claims that it can deliver greater accountability and ownership, actionable information and better decision making.
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