Frank Buytendijk Blog

I’ve commented a few times on a concept called ‘management excellence’. Organizations should recognize that the competitive differentiation of operational excellence is diminishing, and that a new competitive wave has started. Organizations should extend their focus on cost, quality and speed, to including being smart, agile and aligned.

How? By taking a more process-oriented view to performance management. You can download the following four white papers.

• “Management Excellence: How Tomorrow’s Leaders Will Get Ahead” introduces what management excellence means, and describes the Oracle management process framework called Strategy to Success (S2S)
• “Management Excellence: The Metrics Reloaded” discusses the performance indicators that organizations should focus on when they adopt Strategy to Success
• “Management Excellence: From Strategy to Success” details the S2S processes and introduces a blueprint to map your own management processes
• “Management Excellence: Techniques and Technologies” highlights important techniques that an EPM System must offer in order to support Strategy to Success.

frank

PS. To our friends at Cognos, who were so kind to adopt the term “performance management excellence” immediately, thank you. Imitation is the sincerest form of flattery. But “performance management excellence” means more than just being “really good” in performance management. Feel free to read the white papers.

I realize, a provocative statement, but think about it. Many commentators have highlighted that bankers were given large bonuses based on the revenue they brought in by taking big risks (and no disincentive for risk management). Linking incentives to performance is a form of performance management, in this case an example of how not to do it. The same commentators have pointed out that financial institutions usually didn’t really understand the risk profile of the subprime mortgage packaged that they bought, reshuffled in different packages and sold. The risk calculations were based on very complex and advanced analytics. Analytics are a part of performance management. Oh, and lastly, many organizations felt safe because they were ‘compliant with regulations’ and did all the necessary reporting. Obviously, ‘accountability’ (a large driver of performance management), was not enough.

Therefore my harsh statement: performance management caused the current crisis. That’s the bad news. The good news? I think performance management plays a leading role in weathering and solving the crisis too.

In this series of blogs I will explore various angles to improve performance management, in order to weather the crisis and make sure this doesn’t happen again (something else will happen at one point again, but at least hopefully not because of the same reasons).
- Better performance indicators, earlier in the blg I introduced a KPI called ‘true value index’
- Better systems and management processes, everyone using spreadsheets to support strategic management processes really has a problem now
- Better integration between performance and risk
- A focus on trust

Can’t wait to hear your reaction!

frank

So we need better performance management to deal with the current crisis, I argued in my previous posts, starting with better performance indicators (see my blog on the True Value Index). But we need better systems and management processes too.

Everyone still using spreadsheets for critical management processes such as planning and forecasting, and external reporting, has some serious problems. Spreadsheets may look simple and flexible when putting them together, but totally cannot deal with rapid and massive change in a coordinated manner. Spreadsheets are fine as a user interface, but bad as the basis for performance management.

The key to dealing with rapid and massive change in a coordinated manner is in a comprehensive EPM System. One of the airlines, using an EPM System, was able to replan its complete operation after 9/11 and stayed profitable that quarter, as well as the quarter after it and after it. While others were still planning when to hold an executive meeting, they had put the new plan in action already.

Management processes should be organized more like operational processes, such as order-to-cash and procure-to-pay. Tried, tested, efficient and reliable. So, after a quick run through of the design-to-decide process to set a new course, on the management level a plan-to-act process would lead to creating a new plan and taking that into action. Seamlessly integrated, the analyze-to-adust process would track progress according the plan, using the same indicators. And the record-to-report process should keep all stakeholders up to date with a single version of the truth.

Never heard of design-to-decide, plan-to-act, analyze-to-adjust and record-to-report? Check out Management Excellence: How Tomorrow’s Leaders Will Get Ahead and the Journal of Management Excellence.

Today, the 3rd issue of the Journal of Management Excellence was posted. Download it here.

“People, Process and Technology” is how Ravi TNC puts it in his article in this 3rd Journal of Management Excellence. These are the three pillars for change management, and it defines the scope for what we need to organize. This Journal of Management Excellence focuses again on “Organizing for Management Excellence”, like the last issue. Many organizations are now beyond the business case of how to get started with business intelligence and performance management, and are looking for ways how to embed it in the organization. One of the most important success factors is having a center of excellence (COE), or competence center. In the previous issue of the Journal, we described how such a COE should look like, and we described the various types. In this issue we also look into the future, with a contribution from Jorgen Heizenberg, Principal Technology Officer at CapGemini, about what’s beyond the center of excellence. Further, Telecom Italia shares its best practices.

But there is more to organizing for management excellence than establishing a COE. Robin Peel makes the case for data governance, and he describes how we should particularly organize master data. We shouldn’t organize for management excellence just to save costs or for the sake of it. Nigel Youell, who led a research project together with Cranfield University, describes what organizations should do to recognize success.

On a different note, I’d like to share with you that the Journal is now also translated into Japanese.

The next issue of the Journal will be about creating value. I’d welcome your contribution, please contact me.

McGraw-Hill, who published my book “Performance Leadership” in september 2008, just informed me that the first print of the book is sold out already, and that the second print is now on the shelves.

Thank you for buying the book. I would love to hear your thoughts.

frank

So we need to have better metrics in place and clean up our management processes in order to fix the crisis that, as I argued, was caused by performance management.

But performance management alone is not enough. In fact, treating performance management as a single discipline is dangerous. Rewarding bankers with huge bonuses without weighing in the risks, was actually part of causing the crisis, according to many commentators.

Risk management is proactive performance management. Why wait until performance indicators show business is not going well? Performance management is proactive risk management: the best defense is a good offense.
There are different types of risk: financial risk, operational risk, reputation risk, and strategic risk. Interestingly enough, this is very close to the perspectives of the balanced scorecard. Financial risk and financial performance are related; operational risk matches the process perspective; reputation risk is related to the customer perspective; and strategic risk can be linked to the growth and learning perspective.
Most performance management methodologies are “closed systems.” They either ignore risk management as a related discipline or try to fit it into one area of performance management. Another way to look at risk management is to combine key performance indicators (KPIs) with the results of a risk management exercise, spanning all areas of performance. In this way every performance indicator has a counterpart, or a key risk indicator (KRI).

The exercise of establishing both performance and risk indicators leads to insightful discussions. Do high rewards always have high risks? Do low risk initiatives contribute enough to the objectives? Are there options that are low risk and high reward?
The structure of strategy maps, linking performance indicators with single lines displaying what-leads-to-what, tend not to recognize these dilemmas between risk and reward. They help us “optimize objectives,” but easily lead to new problems in other areas. For instance, cost cutting, leads to use of inferior materials. Inferior material leads to a heavier burden on the environment and customer complaints of quality problems. Or, think of laying-off people, which negatively affects the knowledge base of the organization and the motivation of the people still left. It is good business to manage these risks when putting together performance management improvements.

Source: Buytendijk, F.A., Performance Leadership, McGraw-Hill, 2008

Performance management is usually associated with management control, accountability and compliance regulations. But despite all these controls and regulations, and despite the corporate scandals that led to heavy regulations, we have not been able to avoid the financial crisis.

We tend to forget that economy is a social science, based on human behavior. Many have commented that the reason for so many healthy banks needing cash infusions as well, is because of a lack of trust between banks, so that they are not willing to provide short term loans. A lack of consumer confidence doesn’t help as well. People are not spending anymore.

Trust is a vital principle of performance management. Within every organization there should be trust. Employees should trust the management and vice versa. Without a basic level of trust, there would be no productivity at all. The same kind of trust, and probably even more, is needed between organizations. All relationships, even the most transactional ones, require trust.

Trust, more than control, fuels the performance of relationships. In more strategic relationships, too much accountability hurts. An atmosphere of strong accountability does not fit well with the creation of trust, whereas an atmosphere of open commitment does. Without an open commitment between parties, the relationship can be terminated at any moment because at all points the accounts can be settled. This leads to lower switching costs and, in general, to more transactional behavior. It doesn’t mean there should be no control and no measurement. The aim of performance indicators and management processes should be to build that trust.

In bad times, people – and organizations – have the urge to hide, and limit the focus to protecting oneself. Of course you shouldn’t expose yourself, but when times are bad, you need your stakeholders the most. NOW is the time to use performance management to create more transparency towards your stakeholders. You need investors to keep their head cool, you need your regulators to be on your side, you need your customers to keep spending with you, you need your partners and suppliers to stand next to you.

To weather the crisis, performance management between organizations may turn out to be more successful than performance management within the organization.

Source: Buytendijk, F.A., Performance Leadership, McGraw-Hill, 2008

Recently, IDC published a very interesting report called "Worldwide Business Analytics Software 2008 - 2012 Forecast and 2007 Vendor Shares". Given that IDC's definition of the business analytics sector also includes data warehousing, it is no surprise that Oracle is #1.

However, next to data warehousing, there is another segment, called “Performance Management Applications and Tools. This segment consists of 9 categories:

1. Financial Performance and Strategy Management Applications
2. Other Supply Chain Analytic Applications
3. Supply Chain Product Planning
4. CRM Analytic Applications
5. Services Operations Analytic Applications
6. Workforce Analytic Applications
7. Business Intelligence tools - Query, Reporting, Analysis
8. Business Intelligence tools - Advanced Analytics
9. Analytic Spatial Information Management Tools

If we compare total revenues and vendor share across these categories (and in most of the categories individually), Oracle is #1 as well.

These revenues and vendor shares are calculated based on 2007 data, the year where Oracle acquired Hyperion. I think there are a number of reasons why Oracle took the #1 position.

First, and I can tell first hand, having come from the Hyperion acquisition, Oracle is incredibly skilled in integrating acquired companies. The speed and precision is impressive. The combination of Oracle and Hyperion hit the ground running from day 1, from my perspective.

Second, the product positioning is very clear. Not much overlap, swift delivery of integration, and solid continuation of product lines.

Thirdly, if I dare say, I think our “thought leadership” may also have to do with it. Oracle, and before that Hyperion, invests heavily in EPM best practices and next practices that customers can benefit from. This is recognized and appreciated. I don’t want to come across overly self-confident, but we simply know what we talk about. Our recent work on for instance management excellence shows that.

frank

PS. Other vendors have issued press releases and claimed leadership in performance management or subcategories as well. I can only encourage you to read the complete IDC report.