Gary Cokins, founder and president of Analytics-Based Performance Management LLC, has 40 years of experience with enterprise performance management (EPM).
His career started in 1971 after graduating with a degree in industrial engineering and operations research from Cornell University and with an MBA in finance and accounting from Northwestern University Kellogg School of Management.
This quantitative foundation led Gary to a first-line management job in accounting and operations management with a blue-chip conglomerate. During the next 30 years in management consulting, he leveraged skills in problem solving, including authoring several books and articles, and also educating and helping organizations successfully implement EPM methods embedded with analytics.
Here, he offers an overview on how EPM can improve an organization's bottom line. Read on:
What is analytics-based enterprise performance management?
There is some confusion and lack of consensus about the term enterprise performance management. Many narrowly perceive it as a CFO initiative with a bunch of measurement dashboards for feedback. It is much broader.
The good news is EPM is not a new process or single improvement method that everyone now has to learn. Rather, EPM tightly integrates existing business improvement and analytical techniques that executives and employee teams are already familiar with. Think of EPM as an umbrella concept. EPM integrates operational and financial information into a single-decision support and planning framework, including strategy mapping; balanced scorecards with KPIs; costing (including activity-based costing principles); budgeting; forecasting; lean and six-sigma quality process management; and resource capacity requirements planning.
These methods fuel other core solutions such as customer relationship management (CRM), supply chain management (SCM), risk management, and human capital management systems, as well as lean management and Six Sigma quality initiatives.
They are many moving parts. Together, they are like gears in a machine that EPM software seamlessly meshes. Analytics-based performance management selectively embeds analytics of all flavors into each method. Examples are regression, correlation, segmentation and clustering analytics.
How can analytics-based enterprise performance management help improve an organization's performance?
Performance improvement comes from addressing challenges related to each of EPM's methods. These include:
- Strategy execution with a strategy map along with its companion balanced scorecard and dashboards displaying key performance indicators (KPI). Metrics align the priorities and behavior of a workforce with the executive team's strategic objectives. The common phrase is "You get what you measure." Measurements bolster holding employees and teams accountable for results.
- Measuring and managing product, standard service-line, channel, and customer profitability. Many managerial accounting systems miss-allocate expenses into costs and rarely calculate costs below the product gross profit margin line. Customers are the primary source of shareholder value creation, and they can range from high-to-low, demanding expenses independent of the sales volume and mix they purchase.
- Driver-based rolling financial forecasts. The annual budget is typically out of date soon after it is published. Creating the budget requires months of preparation. With increasing volatility and uncertainty, updates at frequent intervals need to be refreshed to determine future headcount and spending levels. Driver-based cost information facilitates better "what-if" scenario planning and decision-making, including incremental and marginal expense analysis that separates variable from sunk and fixed costs.
- Supply chain management. Increasingly, customers need to view suppliers as allies, not as enemies, to pressure for lower prices. EPM helps trading partners in a supply chain identify and implement mutually beneficial projects to lower costs and accelerate cycle times. Supply chains now compete with other supply chains for their share of consumer wallets and purses.
- Process improvement. Organizations must continuously reduce costs, increase quality, and improve service levels. Fact-based information is needed to determine what to change.
What are the most common problems or frustrations the organizations you help are facing today?
The more easily surmountable problems that companies face are IT-related, such as low-quality, "dirty" source data and disparate hardware systems from multiple vendors. With EPM, software is no longer an obstacle. EPM software is proven.
The major obstacle involves people. Examples include natural resistance to change, fear of being measured or held accountable, fear of others knowing the truth, and weak leadership. My frustration is with the slow adoption rate by companies of the various EPM methods, some of which have now been around for decades.
What advice do you find yourself repeating to these organizations over and over?
I have two types of advice.
- First, related to my prior answer, do not underestimate the magnitude of people's resistance to change. People prefer the status quo. Managers need to improve their skills with behavioral change management techniques.
- Second is to start small, but think big. This includes using quick implementation techniques like rapid prototyping, pilots, and proof-of-concepts. These help accelerate learning and achieve organizational buy-in to the benefits from the EPM methods.
What do you think would surprise most organizations about the efficacy of their current management strategies?
A major surprise to executives recognizing that the commonly accepted strategies (e.g., low-cost provider, product and service differentiation, a focused narrow customer segment) are all no longer sustainable in the long term. They are all vulnerable to competitors invading a company's market space.
Amazon is good example, starting with selling books, then retail goods and now television shows. Given this vulnerability of any strategy, the best offense to achieve a competitive edge is to create a culture for analytics for better investigation and discovery to support better decisions.
In the past, the best leaders and executives had the best answers. That is no longer the case. Today, the best leaders and executives ask the best questions. There is too much volatility and uncertainty for executives to rely on their intuition, sixth sense, or past experiences they previously relied on to get them promoted to their leadership positions. They need to promote having analytical skills and capabilities in their organization.
To learn more about EPM, and how cloud-based EPM is becoming the preferred way to deploy these solutions, check out our free white paper entitled "EPM in the Cloud."