Frank Buytendijk Blog

Performance has everything to do with passion, motivation, dedication, skills, teamwork. Performance is about People. Management is all about control, procedures, guidelines and regulations. Management is about processes and systems. In other words, Performance comes from Venus, and Management from Mars.

Seen this way, a??performance managementa?? is a bit of a contradiction in terms. I have been exploring this idea for the last three years, and many of the posts in this blog have been inspired by this journey. And this journey has had a deliverable that I am very proud ofa?|

TODAY, September 5, my book called a??Performance Leadershipa?? has come out. It is published by McGraw-Hill and it will be available world-wide.

Often, people start to behave strangely when confronted with performance indicators, management reports and targets. They sit back after the target is made, and push things to the next year, or start spending excess budget as much as they can. Management sometimes spend more time explaining why certain numbers are not right, instead of trying to increase sales. And people have endless creative ways of playing the numbers.

This goes for people and their behaviors within the organization, but also for organizations in relation to their environment, their stakeholders.

What would happen if we apply lessons in the field of personal development to performance management? Stephen Covey (Seven Habits of Highly Effective People) teaches us that people should ideally develop on four dimensions. The physical dimension is needed to stay healthy, and have energy for the other dimensions. The mental dimension helps us get ahead: where are we now, where do we want to be, how do we get there? The social and emotional dimension helps to develop ourselves as balanced people who are an asset to their environment. The spiritual dimensions, lastly, helps us to think about what we stand for, or in other words, what we want to be remembered for.

How does that translate to performance management? The physical dimension is comparable to managing day-to-day operation. These must be efficient, so that there can be the appropriate management attention for improvement and innovation. The mental dimension nicely dovetails with strategy, asking yourself the same question: where are you now, where do you want to be, how will you get there? But that is where performance management usually stops, ita??s all we ask ourselves. And as organizations are living organisms, according to the Covey-parallel, we leave half on the table.

How do we manage the social dimension of the organization? How do we make sure that the value we add, is not substracted somewhere else? Are we really running a transparent and responsible business? At first glance, talk about the spiritual dimension seems far-fetched, but it isna??t. Every organization has core values, has a certain culture, attrachts certain people and has a certain image. This describes what the organization stands for, which has a huge impact on the bottom line.

Do you want to know more? Check out www.performance-leadership-book.com. You can subscribe to the mailing list, order the book, read the a??lost chaptersa?? and leave comments.

Cana??t wait to hear your feedbacka?|

In Q&A on Management Excellence and Oracle EPM, Part 1 I have answered a number of questions coming from the press briefing I recently did across 16 cities in Asia. Here are some answers to the remaining questions.

"What are the relationships between Oracle EPM and Oracle BIEE or BI modules from EBS? How do these functionalities complement one another?" [Shirley Tsai, DigiTimes, Taiwan]

We have not been sitting still. In a long long list of things we have done in the newest release, integration has been an important theme. Oracle BIEE and Essbase is tightly integrated. Also, you can drill back to operational details (like in the general ledger) from HFM, Essbase and planning, and there are many more examples. But it needs to be said that Oraclea??s strategy is to be open. We are equally open to sit on top of other systems such as SAP, or any other business application or source/target of data.

"Four to five years ago, the discussion focus on EPM/BI was on forecasting and data integration. Today, can you explain/elaborate how Oracle EPM/BI solution can address advancements in forecasting and data integration?" [Mandy Chung, CNET, Taiwan]

Interestingly enough, the forecasting discussion has been relevant in EPM and BI (and predecessor terms) for the last 20 years. OLAP tools used to be called DSS (decision support systems), and they would do all kinds of forecasting already. What is new that the range of forecasting techniques supported has grown, reflecting new business insights. For instance, who heard of real options 10 years ago, in relation to forecasting. Or from the wisdom of crowds? I see this as a constant evolution. One EPM application to check out is Crystal Ball, one of the most popular predictive analytics packages in the world.

There has been a major course shift in data integration though. This used to be a set of disparate technologies coming from specialty vendors, and is now basically part of middleware. Enterprises have multiple data sources from multiple vendors and are looking to their middleware to provide better data integration. Oracle EPM can leverage Oracle Fusion Middleware as well as work with 3rd party data integration options, as it has always done so in the past. Ia??d also like to highlight the pre-packaged ETL with the BI Applications as this is a huge competitive differentiator.

a??Oracle, IBM and SAP accquired several BI companies recently. This has made their business models kind of similar. How does Oracle differentiate itself from IBM and SAP in the BI area? How does Oracle integrate BI into its existing business portforlio?a?? [Wu Xiao Bing, China Electronics News]

I dona??t see it as my task to educate the competition with a strategic competitive analysis, so let me concentrate on Oraclea??s strategy ;-). Oracle distinguishes itself from the competition by being the one stop shop for best of breed. Some vendors are one stop shops, but dona??t deliver a variety of business applications. Many vendors offer a piece of the puzzle, but not the whole thing. Through Oraclea??s middleware, you create a single ecosystem, to connect all best of breed applications, whether they are Oraclea??s or not. There is no vendor who does that with the breadth and depth Oracle has.

a??Is Oracle's next generation EPM just another product or a brand new concept? How is it different from its previous EPM systems?a?? [Zhang Zhen, Computer Partner World, China]

Oraclea??s new release is a big release, not simply an update. But it does not represent a major course change. Why would it? EPM applications and technologies need to be open to all kinds of sources and targets, and it needs to encompass strategic, financial and operational management processes. This course was plotted even before Oracle acquired Hyperion, and Oracle is delivering on this course.

The key to Oracle EPM is that it is complete, open and integrated, three huge competitive differentiators.

What advantages does Oracle's EPM have over e-HR companies which also have performance management in their products?a?? [Zhang Zhen, Computer Partner World, China]

There are many factors that influence organizational performance. A certain market position and brand value does, leadership does, luck does. HR also has an impact on organizational performance, that is why Oracle has an HCM (Human Capital Management) offering. And management processes do too. This is what Oraclea??s EPM focuses on. I dona??t compare the different styles or definitions of performance management conflict or compete. They are complementary.

a??How can Oracle help its clients in fleshing out their key performance indicators? Is Oracle EPM part of PLM strategy? What's the relationship between the EPM strategy and PLM strategy? What are the requirements on users' side when using Oracle EPM? What kind of skills, especially management skills must the users obtain?a?? [Hao Jinyu from IT 168 in China]

Oracle offers thousands of standard reports, performance indicators, dashboards, etc. already through its business intelligence applications. This is a good place to start from. Many will be usable out of the box. Also, Hyperion Performance Scorecard helps by structuring the key performance indicator creation and management process. Techniques such as strategy maps or value maps help connecting performance indicators to judge their relevance. Hyperion Profitability and Cost Management helps identify value drivers, it makes sense to center performance indicators around these value drivers. But it is not all about software and technology. One of the thought leadership projects we have going on is to identify some key metrics for the distinct management processes we have found. Once the work is done, I will report on it in my blog!

Is EPM only good for large organizations?a?? [China]

EPM is not only for large organizations. In fact, on average organizations are only getting smaller world-wide. This is because of outsourcing and partnering. EPM is very relevant for small companies for a number of reasons: (1) they are part of a larger value chain, (2) regulations mostly do not distinguish between large and small organizations, (3) globalization makes that also small organizations have to deal with complex surroundings. I think it is a mistake to a??water downa?? EPM for small organizations, they deal with the same issues as larger organizations.

Last week there was a press briefing in Asia. What was special is that we did a live video stream to 16 cities, while we were interacting through group chat with all the reportors. Everyone could see everything. I presented the basics of our management excellence story, and took questions. Unfortunately there was not enough time for all questions, so I am taking the opportunity here to answer some of the remaining ones.

a??There are trends on that companies adopt new KPIs to measure their corporate performance i.e. compliance, Green IT (carbon dioxide footprints). What are Oracle EPM enhancements to these?" [K. Tanikawa, Japan]

We are doing many, many things in this field. We have established a Green Customer Council, have partnered with several large customers like Gaz de France to promote their success, etc. I would leave it to my colleagues in the business applications space to go deeper into for instance compliance, supply chain management and Green IT, but will respond specifically to EPM, with regards to sustainability reporting. I truly believe that sustainability reporting should not be a separate application, most organizations have the right technology in-house already. I think the right technology is Hyperion Financial Management, the financial consolidation system. Sustainability reporting is like any style of external reporting. Whatever you report externally should be reliable, complete, correct, auditable, traceable and all other qualities you would expect from an external report, even if there is no legal obligation. Sustainability reporting is all about trust, and reporting through a spreadsheet or any other informal system is simply not good enough.

Having said that, there are of course specific key performance indicators involved, according to standards such as GRI (Oracle is a GRI member). One of Oraclea??s partners, 2Future, has used Hyperion Financial Management to build all these standard performance indicators and standard reports, specific for sustainability reporting.

a??Oracle's EPM/BI has been all about operational excellence. How are you going to differentiate this new EPM/BI solution against the previous one? And please tell me the differences between the new and previous versions.a?? [Korea]
a??What are the unique value propositions of Oraclea??s new EPM/BI vision in comparison with competitors? Is smart, agile and aligned a real differentiator?a?? [Korea]

I dona??t think Oraclea??s EPM/BI has ever been specifically about operational excellence. Instead, the field of performance management in general has been focusing on internal financial management control. In our thought leadership we would like to establish an understanding of management processes that is less focused on finance alone, and expands towards operational management processes and strategic management processes. Our work on extending operational excellence with management excellence has led to identifying the competitive factors for the future: being smart, agile and aligned. This should not be seen as something a system delivers out-of-the-box, it should be seen as something organizations need to achieve for themselves. A system can be an enabler. Our thought leadership aims to help people getting more out of the software they already own, or get more out of the software they are buying. Still, the software has a very strong value proposition, compared to the rest of the market. If you study the management processes we have identified, you see they rely heavily on techniques such as simulation, scenario analysis, multidimensional analysis, operational and financial integration and master data management. Next to Oracle Business Intelligence, Hyperion Financial Management, Hyperion Performance Scorecard and Hyperion Planning, products such as Crystal Ball, Hyperion Strategic Finance, Hyperion Strategic Operational Planning, Hyperion Profitability and Cost Management, Essbase and Data Relationship Management really make the difference.

Some more proof points:
a?? We have a 2 year lead on our closest competitors in terms of integration. Integration of EPM with Operational Systems, integration of core financial management solutions, integration with middleware technology, integration of a BI Foundation
a?? Unlike others, we are open and committed to standards (e.g. XBRL, XMLA, etca?|)
a?? Most complete EPM system in the market. In addition to our industry-specific analytic applications, Oracle offers over 26 functional BI applications with over 5,000 metrics and dozens of role-based dashboards. Also from a completeness point of view, only Oracle offers a pervasive information delivery layer that spans all delivery channels.

a??Regarding Analysis, EPM vendors are saying that data analysis has to expand from one department to enterprise level. Can Oracle's new solution help enterprises to expand analysis to enterprise level?a?? [AK Toh, Bloter.net, Korea]

Absolutely. There are various factors that make it possible for Oracle to do so. Technology should be scalable and functional to start with, but standard content is also important. Oraclea??s BI Apps provide a wide range of standards performance indicators, alerts, analyses, data models and connectors across all kinds of industries and functional domains. Correct me if I am wrong, I think there are over 5000 over them. Equally important is having a common enterprise information model, containing all metadata across all BI technologies and EPM applications. Lastly, master data management is really important to make data coming from a variety of domains comparable. It is the combination of these things that does the trick.

a??Most customers should have some kind of business measures or IT tools that help them manage cost and profitability. How can Oracle Hyperion Profitability and Cost Management help them promote both operational and management excellence?a?? [Taiwan]

We are currently working on a white paper that actually describes just that. In short, the following things are important: Business User Driven Profitability Modeling, Flexible Allocation Platform, Business Rules Engine, Traceability Maps, Model Validation Reporting, Hierarchy and Dimension Management, Multidimensional Calculations, Powerful Analysis and Reporting and Integration with Other Performance Management Applications. The key to profitability and cost management is that it is part of an overall management system. Profitability Modeling, Planning, Analysis and Reporting go hand in hand.

"If an enterprise has hard-coded or custom-built their own EPM business models, would they still need Oracle's EPM solutions and how would Oracle's solutions help them?a?? [Shirley Tsai, DigiTimes, Taiwan]

I have nothing against custom built applications. In fact, I think they are often very strategic of nature, reflecting a certain unique viewpoint or insight an organization has. Every organization striving for management excellence will have unique custom-built things. However, there are a few things in performance management that are so standardized, it is a waste of time and money to reinvent the wheel. I see no added value in a custom built financial consolidation tool or budgeting application. I also see no added value in your own definition of standard performance indicators such as days-sales-outstanding or absenteeism. I do see value in an organization building its own very specific performance indicators reflecting the organizationa??s strategy and value proposition, or a system that produces a very specific simulation model. What Oraclea??s EPM Solution offers is to be able to do both in a single environment, making use of the same data and metadata.

a??On a foggy day years ago, when navigation systems were just new, a German car drove into the river Elbe. His navigation system indicated there was a bridge.a??

Since the days of Plato we already know not to confuse the map for the terrain. Although the map may be a fair representation of reality, it is only a representation. Simplified, aggregated, stylized. As silly as the example of the car driving in the river may sound, in most organizations we do the same in our management processes. We mind the scorecard more than the actual work; we run the numbers, and not the business. Here are a few examples:

Pick a number
Setting targets and defining performance indicators is often a somewhat mystic process. Targets are subject to negotiation, through the hierarchic process they get disconnected from the actual resources and activities. And it is only a number. That number is per definition not a??righta??, as you can never know for certain what is going to happen throughout the year. Let me put it like this: everyone exactly a??hitting their numbersa?? have been playing with them. What are the odds you would exactly reach an abstract number?
And while we are at it, what would be more realistic: setting this one stretch target, with a small probability of reaching it, or setting a range where you think you will end, with a high probability of reaching it. Predictability is a highly valued characteristic these days.

Stick to the plan
Thata??s leadership, right? Create a plan, and make sure everyone sticks to it. But one thing is certain, the longer you stick to a plan, the more you get disconnected from reality. After all, it is only a plan. It is better to stick to reality. In order to be successful, it is of course important to stick to your goals, but while you are on your way reaching them, you should continuously ask yourself if there are better, faster or cheaper ways of making it to your goals. As long as the goals are clear, and we agree there is a better plan, we should change it. The budget should never keep you from doing the right thing.

Geronimo!
Aligning the organization towards an aspirational goal is a powerful thing. But things can go wrong as well. As we say in The Netherlands a??if all noses point in the same direction (metaphor for being aligned), who looks left and right when you cross the street?a?? Unfortunately, performance management and risk management are very separate disciplines today. These need to be integrated. I would argue that building a balanced scorecard and using a strategy map to create leading indicators makes you see changes in your environment worse instead of better. Performance indicators can never paint a complete picture of reality and the more performance indicators you define, the less oversight you will have. If there are a 100 things you monitor, aspect 101 will go wrong, if we apply Murphya??s law. Dona??t monitor, but see!

What is the best strategy?
Read this next bit carefully. Read it twice. Here it comesa?| The best strategy is not the strategy that gets you to your goal in a straight line. Reality is never a straight line. The best strategy is the best strategy that gets you there in most alternatives of the future. A sustainable strategy is not built on optimization towards a single goal, but is optimized towards adapting to different realities. I realize this is a rather dense statement, and a blog is perhaps not the best way of fully exploring this. The best book I can recommend on this topic is a??Strategy Paradoxa?? by Michael Raynor.

What does this mean?
My colleagues Jim Franklin and Thomas Oestreich, and myself have been toying with the term a??uncertainty managementa??. Performance management is not about predictability and control, but about anticipation and agility. Uncertainty management is being ready for the future. We dona??t know what is going to happen, and most likely it is not how we thought it would be or how we intended it to be.

An interesting way of dealing with uncertainty, and being more realistic, is to use simulation techniques. We dona??t have data about the future, but we do have assumptions, we think in certain ranges, we understand constraints, perhaps we observe certain patterns. If we simulate different scenarios, we get a feel for different outcomes, and their probabilities. Check out www.oracle.com/crystalball , a great way (and a great tool) to make the difference in your performance management initiative. More realism, less surprises.

frank

Ia??ve known Mark Smith, industry veteran, CEO & Executive Vice President of Research of Ventana Research for years. Personally, I like his research, it doesna??t beat around the bush and insightful. It was nice to see Mark reacted to my blog on introducing the Journal of Management Excellence.

Mark wrote:

a??Management Excellence is a critical concept, and while management theories and science have long been introduced through the academic and consulting world, the challenge is much deeper. The basic foundation of people and the lack of culture, education and rigor to follow a new method of managing business requires business transformation. In addition the management process for sales, customer, supply chain, operations, etc.. all require specific context that must be established for these organizations to take this seriously. Just designed this for a CEO/CFO/COO executive focus will not drive this down and throughout the organization as already seen by many efforts like Balanced Scorecard and others.a??

I couldna??t agree more with Marka??s assessment. Todaya??s competitive differentiators for organizations across most industries are being smart, being agile and being aligned. We have defined these as the pillars of management excellence. Picking up changes in the market to capitalize on (smart) is often a grass roots exercise, putting together little hints from various parts of the company and the field. And agility can only be achieved if all business functions work in concert. Indeed, management processes for sales, marketing, supply chain, operations, etc need to operate within the same context. The management excellence can have the same impact as operational excellence has, which is a business transformation as well.

Mark then continues writing:

a??Just as deep as this is the challenge that the technology to instrument and guide this change must be wholly adopted by business management. One of your challenges in this effort at Oracle is that the applications for supporting must be led by selling and consulting to business and executive management. Having Management Excellence with EPM as part of Oracle middleware and IT focus is going to be the divide that will hinder Oracle from having true success in this initiative. Oracle will have to invest into this initiative with sales and services dedicated to this area and not just as a set of products in the middleware division for it to be taken seriously by organizations and us industry pundits.a??

Here I dona??t agree with Mark. You see, EPM actually is some kind of middleware. It connects multiple databases and business applications, and it makes sure all are aligned. It integrates the data from multiple sources, and it supports running business processes. The difference with a??traditionala?? middleware is that these business processes are management processes, not transactional processes. Seeing EPM as middleware simply makes a lot of sense. However, indeed the EPM audience is a business audience. So Oracle has a dedicated sales force and services group for EPM that speaks the business language and breaths EPM every single day. I think we addressing the challenge Mark talks about very wella?|

frank

Recently Oracle announced that Wal-Mart, the worlda??s largest retailer, has selected OracleA? Business Intelligence Suite Enterprise Edition Plus to provide comprehensive data intelligence and analysis from across Wal-Marta??s operations.

This is significant news for a number of reasons. First, because it shows that BI can be a strategic deployment. Wal-Mart plans to use the system to administer its logistics, transportation, category management, finance, human resources, real estate, merchandising, store and club operations and other business resources, within Wal-Mart and Sama??s Clubs. I have pointed out for years, and also in this blog, that BI only starts to become strategic, if you apply the concept of a??horizontal alignmenta??. BI starts to make sense if you analyze data and events spanning multiple functional domains. Walmart is a shining example of this. No tactical, silo deployments, but a strong standard across the organization.

Second, the press release states that the announcement builds on Wal-Marta??s strategic relationship with Oracle. BI is not a separate category anymore, but should be seen within a complete ecosystem of business applications.

Wal-Mart sets a new example in best practices.

frank

Recently we introduced a new product, called Oracle Hyperion Profitability and Cost Management (HPCM). This is great news, as I think profitability management is crucial in todaya??s business. Margins are under pressure due to a variety of reasons and we cana??t take our eyes of the ball in our business operations. Over the last year I have had an incredibly interesting email exchange with an industry expert, called Mike Haley, and I would like to share a few points from the many pages of this email conversationa?|

Profitability management is the new Activity Based Costing
The biggest problem of ABC/ABM (activity based management) is that it is called like that. It is one of those examples where unfortunately the name of the application (I don't mean this in the technical sense but as in "how a concept is applied) is the same as the concept. And it's not. Profitability Management is actually the same as ABC, and so are many other exercises. For many, activity based costing is a loaded term. Many projects in the past failed. The difference today is that there is a much stronger business imperative.

Why so many projects failed in the past
Like with many projects, because of internal politics. In many cases, allocated costs were not seen as an instrument to optimize a value chain, but as a??funny moneya?? to shift around managing budgets. Thata??s disconnected from reality. These politics still exist ofcourse, but with the increased pressure organizations cana??t afford to fail because of internal politics.

Another reason for failure is a??going overboarda?? and looking for precision. Allocating costs and revenues is never a precise exercise. It is based on assumptions and discussion. The goal of profitability and cost management is not precision, but accuracy. The cost and revenue structure needs to reflect the cost and revenue drivers within the organization. Transparency of that process is far more important than creating a a??precise black boxa?? that no one understands.

Despite modern systems to track all kinds of data, the amount of indirect costs is increasing
Many organizations are introducing shared service centers, centralizing certain operations, either in the front or in the back office. The economies of scale outweigh the overhead of such centralized operations, but the overhead still needs to be allocated. On a more esoteric level, customers appreciate working with authentic organizations and it needs to be clear what they stand for. The importance of brand marketing is increasing. How can these efforts directly contribute to various transactions? By nature these are indirect operations that benefit all business units, products and services.

Dynamic product pricing and Service pricing is becoming more important
Most business models today have adopt mass customization principles. Customers can choose their own configurations and timelines for delivery. This is where profitability management is not a controlling activity in the back office anymore, but has become a pricing instrument to compete better in the front office. A radical way of making the old a??ABCa?? a strategic imperative today.

frank

In my blog about the Jean Michel Jarre concert I wrote that the seeds of innovation can often be found many years before.

Jorgen Heizenberg of Cap Gemini responds:

You mention that the seeds of innnovation can be found in the past - which can be true - however I am still waiting for them to bloom! If you look at the functionality of past BI applications (EIS, Decision Support, Expert Systems, Olap, Reporting etc) and the current ones there is not much improvement from the enduser point of view. Sure you now have 'cool stuff' like zero footprint but I am still waiting for intelligent BI tools (Intelligence meaning the possibility to adapt to changing circumstances). For example: Why do I have to look for exceptions in a OLAP Cube i.s.o. of the tool showing this to me proactively. Why do I have to look for a specific report (often in some kind of subfolder with a completely stupid name) that matches with the current business problem that I am facing i.s.o. typing my problem in a Google like environment and sit back for the answers sorted by relevance. And so on... After this whole BI consolidation it has been so quiet in this market. Everybody is figuring out how to integrate the x# solutions in their product stack but where is the real innovation? I am not seeing it! Are you?

Jorgen makes a few interesting points, but I dona??t agree on everything he says. He contrasts integration with innovation, but this a?? in my opinion a?? is not a contrast. Integration of business intelligence technologies and performance management applications is an important innovation. It provides users the opportunity to make use of standard applications for standard problems, and homemade applications for specific problems, within a single environment making use of the same data and metadata. To continue Jorgens thoughts: why do I have to redo half my work if I move from one application to the next? And what about integration of BI and EPM into business applications, so that business processes become smarter. Ia??d call that pretty substantial innovation.

Another point I want to make is that in innovative processes it sometimes takes a while before we get it a??righta??. The seeds are planted years ago perhaps, but it takes a few generations to blossom. Two years ago there was a first round of a??Google search style information accessa?? to BI tools. Most got it completely wrong. Keyword search is virtually useless in BI environments. You may search for a??total revenuea?? and find all kinds of reports, including tax reports for the a??internal revenue service (IRS)a??. But you wouldna??t find the report that lists the different types of revenue, and then the total revenue underlines, like this:

Rev. A 100,000
Rev. B 250,000
Rev. C 150,000

500,000

And this would be exactly the report youa??d be looking for. Already at Hyperion, we developed Google search integration, based on metadata. Perfect? Perhaps not, but a whole lot better than some other stuff out there. And it gets you closer to Jorgena??s vision of sitting back and look for the answers sorted by relevance.

Check out Jorgena??s blog: www.biguru-online.com

frank

Operational excellence is a term that we all know. It is the umbrella for all activities that we do to improve the quality of our products and services, to speed up the speed of our business processes and to squeeze out the cost. Particularly ERP systems have been very successful here. So what is the business realm of EPM (enterprise performance management). It must be the management side of things. Making the organization smarter, more agile and to create organizational alignment.

This is what is called management excellence. Operational excellence, whether you are good at it or not, increasingly is becoming a given. There is a decreasing competitive advantage in being even faster, or having an even higher quality or an even lower price. The next competitive edge is about having more insight in large and small changes in the market, and doing something with that. Ita??s not the operational processes alone that do the trick, ita??s the management that makes the difference.

Management Excellence is going to be a very important theme for Oracle EPM the coming year. That is why we have launched The Journal of Management Excellence.

In this quarterly publication, we will be exploring all facets of management excellence. In this first issue, we focus on introducing the concept. Please pay special attention to the article on Uncertainty Risk Management, this is a new concept to performance management.

In the second issue, the theme will be a??organizing for management excellencea??, focusing on centers of excellence, or alternative ways of embedding performance management in your organization. Do you feel like contributing an article? Wea??ll make it worth your whilea?|

Best regards, frank

People working in the public sector get to hear a lot they should run their operations more as a business. And business is considered to be more advanced in management than public sector, so we all think.

Actually, I think business has quite a bit to learn from public sector, when it comes to performance management. I recently did a bit of research with my colleague Nigel Youell, and we found the following five lessons to be learned from the public sector:

Linking aspirational goals to concrete performance indicators

Businesses, particularly in public companies, are run with a fairly short term horizon. Quarterly results, and a year to prove a new strategy is right. The public sector is more used setting aspirational goals, that really speak to the imagination -- and try to measure the progress towards those goals. The City of Boston has found some proxy metrics (performance indicators that are not precise but correlate with a certain goal) to measure "opportunity and hope."  For instance, they measure the annual school dropout rate, the number of young adults so-called BPL programs, or the number of youths and families referred for services by streetworkers.

Transparency

The public sector is much more used to living in the transparent world, perhaps every business executive should function in the public sector to learn how to deal with that. In my Hyperion days I blogged once about school scorecards in my home country, The Netherlands. If you go to www.onderwijsinspectie.nl (School Inspection Board), you can select any school in the country and see how it is rated by the inspection board. Schools are living in a competitive world too, their budget is linked to the number of pupils they have.

Enterprise-wide

I recently wrote about City-wide Performance Reporting (CPR) in New York City, as an excellent example of performance management. They have shown it is possible to align a complete and complex organization. A total of more than 40 city agencies and organizations were involved in creating city-wide performance indicators.

Cause-and-effect

Business life is largely hierarchic of nature. Performance management shows us how we have contributed to corporate goals, but usually not how we contributed to the goals of our peers. I think in the end peer contributions are equally important than individual rolled-up contributions. Or let me take that back, I think they are MORE important, because if you do peer contributions really well, there is increased leverage in reaching the corporate goals. There are multiple examples in the public sector where managers between services collaborate. For instance, social services (streetworkers) may have a positive effect on school results, by keeping children of the streets. And positive school results are correlated with crime rates. In the public sector, cause-and-effect relationships are more defined horizontally.

Continuous improvement

Ok, public sector is notorious for heavy spending at the end of the year, to get new and increased budgets the next year. That's wrong, but it equally happens in corporate life. Again, New York City shows it can be different. In their CPR initiative they are not measuring towards fixed goals, they are measuring year-over-year comparisons. In other words, going for continuous improvement.

Stakeholder orientation

Network Rail (NR), the railway infrastructure organization in the UK, truly understands performance management "21^st century."  Performance improvement is not about maximizing your own goals, but looking at both stakeholder contributions and requirements. For instance, although passengers are not customers of Network Rail (they are customers of British Rail, Virgin, etc), still they are stakeholders, and performance indicators are put in place to see who NR achieves for passengers. Also, NR actively monitors the success of their suppliers, as part of a strategic relationship. Business, mostly focused on shareholder value maximization, can learn a great deal from this.

So what can the public sector learn from business? Would love to hear your thoughts...