Frank Buytendijk Blog

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

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

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.