- Industry Performance Management
- Performance Management on Mobile
- Integrated Business Planning
- Convergence to IFRS
- One Minute Analytics
- Profitability Performance
- Office of ePM
- Sustainability
Industry Performance Management [Top]
Performance management is very specific to a particular business and varies a lot across different businesses/industries. The key to derive value from performance management initiative is going to be identifying the financial and operational drivers, opportunities, risks, metrics/KPIs, strategy in order to put together a good framework. These value creators are often completely different across industry. Therefore, Performance Management (or analytics) varies significantly across industries with respect to these value creators, though it can be mapped to a common performance management framework that cuts across Strategy Management – setting the objectives, defining initiatives and creating metrics to measure the objectives; Planning – identifying drivers, creating annual plans/monthly rolling forecasts, have integrated planning across various functions on demand/supply side of any vertical; Analysis – reporting and analysis by different business lines the actual details, for each LoB business users; Optimization – through factors like customer /product or segment profitability. Applying this framework across various industries through different value creators that are core to the industry can make it very relevant as ‘Industry performance management’.
Building a ‘Industry Performance Management’ model will be one of the key trend as most companies adapt ePM framework over next decade. The performance management frameworks would evolve and become best practice from an industry specific context.
SAP’s current and future direction enables extensive industry specific performance management, given their best of breed Performance management solutions and extensive industry knowledge across all industries that exist. With this direction, SAP would enable true closed loop performance management bridging the gap between strategy to execution, having solutions across this.
Few examples on how SAP is focusing on Industry performance management solutions built internally as well as through extended eco system of partners:
Leading airlines in Europe uses SAP BusinessObjects Profitability and Cost Management to improve profitability analysis by route, flight, aircraft, day of operation, cabin class and sales region. Given the competitive landscape in airline industry, route profitability accuracy was most strategically important. Availability of industry specific scenario was key to bringing value from a Performance management initiative Planning in Banks is a lot different. Especially the balance sheet planning where asset/liabilities projections and the interest impact of them are very industry specific and unique. SAP BusinessObjects Planning and Consolidations allows planning for banking very effective. Again a key example to have success in Performance Management initiative Healthcare is another unique industry when it comes to drive planning for revenue. Users in routine and ancillary departments would like to refine the impact of top-level volume assumptions on department workload and patient charges. For example, they can assess projections of patient days against bed mix or capacity, or they can modify the historical rate of services (such as the number of surgical minutes) per admission or per visit. Any resulting changes to gross-charge projections pass to your reimbursement plan. SAP BusinessObjects Planning and Consolidations enables planning in the healthcare environment with solutions to cover healthcare vertical, with wide adoption of customers in this vertical. Conventional attempts at applying ROI measurements to public sector expenditures involve quantitative methods to perform cost-avoidance or cost-benefit analyses. Such financial measures provide only a one-dimensional view that fails to represent the true value of government programs. ROI measurements in the public sector must include both the tangible and intangible impacts of spending – that is, not only the operational but also the social. SAP BusinessObjects Strategy management covers solutions focused on Public sector to manage ROI holistically.
Industry based ePM is going to be key to drive best practices and getting value from a performance management initiative.
Performance Management on Mobile [Top]
As Performance management is focused towards business users/analysts who are not necessarily in front of the computer and in the current world spend most of their time with their business mobiles/blackberry, performance management applications built well on mobile devices are going to be key over the next decade.
Lets take few examples:
A buyer in the Procurement department sits in a negotiation meeting with a new supplier, wants to quickly pull up information of other supplier supplying this item. He also wants to understand the risk profile of this new supplier. He wants to quickly compare the new supplier vs. existing suppliers, on multiple kpis. All of this needs to be on his mobile device just before the meeting.
Sales executive needs to get on a forecast call. Before that he wants to cross check the pipeline information at different stages to talk about the same on the call. He also want to update the forecasts for few key opportunities. He never carries anything other than a mobile.
CFO gets into an operations review meeting. There is discussion happening on potential spends towards top revenue generating product. While the product managers are very excited about pushing the spends, CFO wants to use his objectivity and ensure these products are generating profitable products. He needs the information on the ranking of these products based on their profitability. He also wants to quickly put small what if scenario analysis on the impact of profitability after incorporating new spend requests raised by the product managers. All of this our of his mobile
The above and enormous examples are coming up as key needs for performance management to be effective, as most of business is getting done through mobile as a trend over the next decade. While reporting and information access through mobile has already matured to a good extent, the greatest value would be to have applications that can help in what if analysis and support quick decision making on the fly, using mobile devices.
SAP solutions are focusing in this direction through their On Mobile solution as a key approach to get better reach to management. Mobile is going to be the key user interface for management and business users. With its latest acquisition announcement of Sybase, a clear path towards making this a reality.
Integrated Business Planning [Top]
Organizations do lot of planning in silos. Sales folks get together and do their annual plans, and revisit them every quarter, month and even weekly. Operations – whether it is Production, Servicing Operations, HR do their own planning based on often outdated sales plans. Offcourse there is lot of maturity in the sales and operations planning, with supply coming closer to demand. On top of all this, the Office of CFO/FP&A or Finance do their budgets, financial planning, monthly forecasting at a much higher level and most often do not drive based on the plans built by sales or operations, but are their own version working with LoB managers. Finance plans basically drives the earnings forecast to be published to external stakeholders. While many big corporations have started doing a good job at each of this area, there is no connected framework that would make sure all of the plans leads to unified external forecast reporting as well as internal management alignment. This silo planning also results in different assumptions and presumptions floating around and people grappling to understand which are right, committed and agreed plan.
Integrated Business Planning is a framework that would bring all the silo planning together into a comprehensive end to end process that would result in more accurate business forecast and predictable business. While this has been a dream for many companies, it is still way behind and would be a framework we hope businesses adapt to over the next decade, supported by suitable technology.
Lets look at below picture to understand Integrated Business Planning Integrated Business Planning runs top down/bottom up across the pyramid with different level of detailed planning, with varying frequency. While the top most level is often more integrated across sales, operations and finance, as it goes down, there is definitely much of things happening in silos, with no communication between them. This is essentially is not optimal and leads to disjointed effort towards goals of the organization. Building a framework to integrate these silos is challenging but would be very beneficial. Also it is essential to have the monthly forecasting cycles driver based, where operational drivers drive the end financial plans, and offcourse sales targets drive the operational capacity and suppy, with overall goal of profitable revenue growth. While the main issue in integrated business planning is silo planning, there are other parts that should be covered as part of this integrated business planning initiative, looking beyond budgeting, adopting adaptive planning especially to incorporate events into forecasting, proactive addressing risk in planning.
The benefits of this framework would help business to overcome pressures of rising customer order fill rate expectations, profit based demand supply balancing, better cash flows and orchestrated top down/bottom up alignment.
Integrated Business Planning is definitely a significant item for improving Enterprise Performance management. Technology solutions are gearing up to support this framework significantly. Worth trend in the ePM area for the next decade.
Convergence to IFRS [Top]
Convergence to International Financial Reporting Standard (IFRS) is the coming together of all financial reporting into a common global language, and would help standardization across the globe. This is like the ISO for accounting and financial reporting. Here is an excerpt of US SEC
“The Commission has long expressed its support for a single set of high-quality global accounting standards as an important means of enhancing … comparability,” the proposal states. “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.”
SEC new official position on IFRS
Now its not going to be easy for all the companies in almost all countries of the world to converge into a common standard in a year or so. Also some of the countries such as US have still not clearly mandated the year for moving into IFRS though they have indicated significant interest. But countries such as Canada, Korea, India etc have already signed up to get sooner to IFRS.
Roadmap in short
- US – Large accelerated filers by 2014, Other Accelerated filers by 2015 and other by 2016
- Canada – From 2011 for all public companies, optional for private companies
- Japan - Mandatory adoption by 2016
- India – Convergence based on Networth across 2011, 2013 and 2014
- South Korea – Starting 2011
Adaption to IFRS is going to be quiet active over the next decade, as companies in each country in the globe start adapting to IFRS. Many countries have announced roadmaps to IFRS, where there is a phased approach to adaption of the same
While IFRS is more of an accounting problem, technology migration/adaption to support IFRS is going to be significant. SAP’s solutions are keen to help the whole exercise with more efficiency. SAP has introduced a Business Process Expert community for IFRS to help all involved to understand the implications of IFRS from a technology standpoint.
The technology solutions that are going to be very active for enable IFRS would be the New GL functionality in SAP ERP (ECC 6.0), Financial Consolidations functionality in SAP BusinessObjects Planning and Consolidation (BPC), Financial Reporting and Analysis through SAP Business Objects Xcelsius and Crystal and Financial Forecating functionality in BPC products.
ePM is going to be a key part of the IFRS convergence.
One Minute Analytics [Top]
Many would have read the book ‘One Minute Manager’ by Kenneth Blanchard and Spencer Johnson. This book was the pioneer in management education to effectively reach better performance in business and leadership. While this book highlighted 3 key secrets - One Minute Goals, One minute reprimand, and One minute praising, in the next decade every manager needs a 4th secret to be successful and that would be ‘One minute analytics’.
What is One Minute Analytics?
With mobile, tweeting and googling ruling the world, business users are going to be demanding information that they need in ‘One Minute’. From an era where spread marts ruled the world globally, ability to pull information to analyze and make decisions would be needed in as short as ‘One Minute’. This is going to get to the point where it should be as easy as searching and finding information you need through google with keywords search.
‘One Minute Analytics’ is going to be the key goal for every Performance management initiative in many organizations. Few examples of ‘One Minute Analytics’:
- The Tech Savvy CEO of the next decade would like to pull market share information across his business lines in the midst of his board meeting, from his mobile, with data flowing from market research database and internal sources
- The Chief People Officer would like to pull the revenue per employee information by geography, benchmarked against other competitors, in an operational review meeting where he is negotiating a strategic salary increase – updated upto last employee, in a minute
- In a S&OP review that is conducted on web collaboration, the demand planner, supply planner and financial analyst would like to pull capacity utilization of high cost and low cost plants before agreeing on their S&OP plan
- Strategic Planner and Chief Sales Officer are sitting together for a forecast review with their key planning analyst and they would like the analyst to quickly pull a forecast report based on past ten years sales trends (read data mining)
- Annual Operating Plan review is on. CEO reviews the plans, he is not impressed with the growth, profitability and sustainability metrics projected. Wants the CFO and Office of PM to get him the revised plan with profitability impact based on change of the key drivers – growth, better sustainability metrics
- Regional Business VP gets some free time on the weekend and wants to understand his bottom 25 profitable customers, and send action emails to the account managers of those customers
Do the above examples sound familiar in a normal perspective? While many organizations have evolved and got to a point with computer solutions, using different technologies, to get to the above needs, yet the important point is, results cannot be achieved instantaneously and the data is not the latest, or it is too slow and the business user/manager gets frustrated, relies on intuition/thumb rules to make decisions.
In the next decade the innovations in web 2.0, mobile computing, predictive analytics, in memory analytics incorporated into ePM solutions are going to drive towards this important business need of ‘One Minute Analytics’.
Profitability Performance [Top]
While past decade saw Budgeting, Planning and financial consolidation as the core business process surrounding Performance Management, the biggest business problem that LoB and CFOs would like to analyze and look up to ePM framework is ‘Profitability Performance’ or ‘Profitable Analysis’ or ‘Profitability and Cost Management’.
Financial Analyst or Management Analyst spend enormous time to find out answers for these core questions, with examples from some industries:
- High Tech - What are my top 10 profitable customers?
- CPG - What are my top 100 profitable products and top 500 retail accounts?
- Professional Services - Which are the projects that are not profitable and need to be shelved?
- Banking – Which are the bottom 1000 non profitable accounts that needs to be followed up and removed, which branches (banking centers) are most profitable and least profitable?
- Healthcare – Which are the most efficient and profitable clinical services (cardiology, eye care etc.) and that are at the bottom?
- Lifescience - Which are the most profitable drugs, and which are not?
- Insurance – What are the bottom 10 insurance policies, and how can they be improved especially the cost to serve?
- Public Sector – What are cost of my agency programs and how can they self sustain? Which programs should be discontinued?
- Retail – Which are my most and least profitable stores? How can I improve the stores profitable and make decisions to discontinue them?
- Aerospace/Airlines – Which are the most profitable routes that I need to focus, with more traffic and how can I optimize cost to serve?
As you see from the above example, its evident that profitability management is a key driver in every industry and having a solution to manage this will give instantaneous results.
To achieve the right results, there needs to be provision to build complex cost and profitability models, and also a powerful and robust allocation engine. Allocation engine is the key to get the results allocated to the right product, customer, project etc.
Based on the above, Profitability and Cost Management adoption is going to be one of the biggest areas in the ePM framework over the next decade. With the right software solutions, organizations can aim to achieve and get answers to the very pressing problems laid above.
SAP BusinessObjects through their acquisition of the ALG, have a best in class solution for handling Profitability performance. This is going to be a key component of ePM initiative of every organization in the next decade.
Office of ePM [Top]
With enormous traction in the ePM space happening over last few years, the next decade (2010-2020) is definitely going to be key decade for ePM. As an active practioner of ePM in the last decade, the focus of my blog series would not be just on technology but the business process aspects of ePM. What are those top 10 trends. Here it goes…
While finance or in some cases IT was driving enterprise performance management initiatives, in the next years, many large organizations would start focusing on setting up an independent Office of Performance Management, reporting directly into CEO and working hand in hand with various LoB.
What is the likely reason for this trend?
ePM is an organization wide initiative and there needs to be clear ownership independent of specific functions such as finance or sales. Especially in bigger corporations where the complexity of business is wide and there is a need to constantly relooking at business models and therefore changes to how performance management is perceived, it is important that there is a group /office that is responsible for taking care of the organization evolution reporting needs.
With a clear office of PM available, the redefinition of process and technologies required to address performance management needs are addressed extensively.
Have they not existed before?
Yes they have, but have been part of Finance or IT or as Internal Audit or sometimes even in HR functions. There have been also groups that is part of Office of CEO. But the purpose of Office of PM is take it further down the organization and not just keep it at very top level. This would ensure great drive of performance culture.
What would be the charter of Office of ePM function?
- Drive a best practice approach to reporting, analysis, business insights, risks, performance driven thinking across the organization
- Enable quick reporting and insights to top management, who can better present to external stakeholders
- Getting beyond boundaries of a specific function, and view it from the organizational goals perspective – not just focusing the financial, or human resources drivers – but moving towards a goal of sustainable drivers across organization
- Enable technology ePM projects that would bring value to organization
- Taking organization beyond internal walls – enabling competitive insights /benchmarking for industry best results with enabling industry data
- Ensuring all external compliance and reporting are taken care smoothly
- Ensure accurate metrics to HR department to ensure performance driven culture – usually the data for this may not come from any transaction system, but probably through customer surveys, internal surveys, sustainability surveys
- Ultimately play a pivotal role in ensuring Strategy to Execution is fulfilled
Who are the people who will be in this function?
The office of PM would typically led by a very senior person for it to receive the traction. But the team should consist of business experts who know the organizations business very well, analysts who are good at analyzing data (even statisticians/people with mathematical background) would also be important to work with the business experts and offcourse it should have technical experts who can drive ePM initiatives to adapt to latest and greatest business intelligence and application technologies that would help getting the right efficiency. Technical experts work very closely with both the business and analyst.
Many organizations have started on this path, but focused on more of EPM Center of Excellence with respective to technologies, based on few initiatives. Next level would be to make it an independant business function . Setting up of such emerging function is most likely over the next decade, it would probably start as a virtual group but bound to become an independent function.
Sustainability [Top]
With enormous traction in the ePM space happening over last few years, the next decade (2010-2020) is definitely going to be key decade for ePM. As an active practioner of ePM in the last decade, the focus of my blog series would not be just on technology but the business process aspects of ePM. What are those top 10 trends. Here it goes…
Over the next decade, large corporations are going to grow larger. Smaller corporations would be targets of acquisitions. Probably lot of companies’ investors would set up themselves in such a way that the big fish can take over them at some point. Whether you are acquired or grow, one of the important aspect is going to be – is your business long term sustainable. Sustainability is going to drive your value. From a Enterprise Performance Management initiative perspective, making the organizations more sustainable is going to be key. What does this mean? We need to identify the metrics and KPIs that drive sustainability, not just the business performance. Also another narrower understanding of sustainability is – it is more associated to just ‘Go Green’ revolution (environmental). Though it is an important part of the sustainability, sustainability is broader.
Sustainability can be broadly measured through the important aspects of Social, Environmental and Economic metrics and KPIs. While the past decade has been focused on Economic (read financial) aspect of Enterprise Performance, the Next Decade is going to look beyond just economic performance, more into social and environmental metrics. The balance scorecard needs to bring these additional perspectives.
Examples of
- Economic Metrics (traditional business performance) – Profitability, Revenue, Cash Flow
- Social Metrics – Employee Satisfaction, Community Programs
- Environment Metrics – Waste generation, Energy consumption
ePM initiatives and strategy would be directed not only to have a profitable organization but a sustainable organization. This is going to be top most priority for CEOs (Coco Cola's CEO wants him to be called as Chief Sustainability Officer and want to get a sustainable corporation as his vision 2020, over the next decade, check out his references to having sustainability as part of the business plans and metrics - true indicator of how this would be part of ePM initiative) as they would start to look at reviewing their business and looking at the future strategy and decisions, based on sustainability KPIs.
Harvard review also analyses sustainability imperative in this article.
Technology surrounding sustainability is going to be key to get the ePM framework crystallized in the next few years. SAP has pioneered and brought out this thought leadership already with their Sustainability Performance Management solutions, that is part of their SAP EPM solutions, with the goal to take ePM beyond just business performance.
Check out the top sustainability companies in the world, interesting