Why Is Solitude the Secret to Enterprise Performance Management (EPM)?
Enterprise and corporate performance management (EPM/CPM) methods embedded with business analytics are a hot topic. Will they stay hot? Or are they a business improvement fad, like the quality control circles in the 1980s? My bet is these methods are keepers. Why? It is for many reasons. A major one is the EPM/CPM methods are so fundamental to an organization’s health.
Consider how EPM/CPM complements other components of your business system:
- strategy execution with a strategy map and its companion balanced scorecard (with key performance indicators, KPIs)
- enterprise risk management (ERM)
- capacity-sensitive, driver-based budgets and rolling financial forecasts
- product, service-line, channel, and customer profitability analysis (using activity-based costing [ABC] principles)
- customer lifetime value (CLV)
- lean and Six Sigma quality management for revenue growth and operational improvement
- and resource capacity planning
A second reason they will remain hot is the obvious low-hanging fruit opportunities have already been picked. One has to be more astute about identifying ways and actions to gain a competitive edge. A third reason is gut feel and intuition are no longer sufficient given the complexity involved in managing an enterprise. Fact-based information is needed. A fourth reason is the computing power, “big data”, and software is now available to access more data from traditionally disparate systems to allow digging deeper.
The increased interest in EPM/CPM methods
Why is there interest in applying EPM/CPM methods? The answer is the margin for decision errors is getting slimmer. In the past an organization could make a few bad decisions and survive. There was usually enough buffer to get by. In 1985 the Coca-Cola Co. survived its ill-fated experiment with New Coke. Two Clairol shampoos, Look of Buttermilk and Touch of Yogurt, were decisively rejected by consumers who did not relate to putting something in their hair that might be food, but the company recovered. And Netflix survived its product pricing reversal that was based on customer protests.
Those examples are major marketing decisions. However, there are also hundreds, perhaps thousands, of daily decisions being made at many levels within an organization. Enough poor decisions can add up. A McKinsey LLC study reported that 460 companies of the S&P 500 reported at least one annual fiscal loss between 1998 and 2007. The losses may not all have been due to poor operating and strategic decisions, but how are we to know without the facts?
Applying EPM/CPM with embedded analytics is here to stay. Aside from the obvious enablers like access to data and software technologies, what is needed to be effective at applying and leveraging analytics-based EPM/CPM?
How do managers think?
There are many types of problem solvers. Some can complete crossword puzzles while on a noisy train or bus. Some clerical workers can quickly calculate a few numbers on a scratch pad and shout out an answer. The managers I will describe here are in a different situation. They are tasked with more complex problems, like identifying which type of customer is most attractive to retain, grow, win back or acquire. They must also determine the optimal deal, offer, coupon, or discount to do accomplish those customer retention and growth challenges.
Most managers and analysts are savvy. Their approach is that using analytics is often more confirmatory than it is exploratory. To them it is not like trying to find diamonds in a coal mine or the proverbial needle in the haystack. They do not flog the data until it confesses with the truth. They have the option to use software tools to do that, but experienced analysts are more like investigators. They suspect and hypothesize that two or more things are related or that some underlying behavior is driving performance and results seen in their data. They then search for confirmation and understanding of the relationships.
When managers are engaged in the process of problem solving they need to be deep thinkers. This is a virtue that every organization can benefit from. I was inspired about deep thinking by reading a lecture by William Deresiewicz that was delivered to the plebe class at the United States Military Academy at West Point in October 2009. His message was about leadership, but it applies to anyone, especially managers.
The value of solitude
Deresiewicz began his lecture by asking, “What does solitude have to do with leadership? Solitude means being alone, and leadership necessitates the presence of others – the people you’re leading. When we think about leadership in American history we are likely to think of Washington, at the head of an army; or Lincoln, at the head of a nation; or King at the head of a movement – people with multitudes behind them, looking to them for direction. And when we think of solitude, we are apt to think of Thoreau, a man alone in the woods keeping a journal and communing with nature in silence.”
Solitude allows one to be alone with their thoughts. I was alone when I wrote this piece. Solitude provides executives, managers and analysts the chance to dig deeper and explore root causes and drivers of outcomes. It is crucial to carry out the task of leadership as well as analysis and problem solving.
Solitude allows leaders and managers to focus on determining lasting improvements and skills that their organizations will need for sustained organizational performance improvement. These include exploiting and integrating EPM/CPM methods with embedded analytics. These include strategy maps, scorecards, dashboards, risk management, activity-based costing, predictive analytics, rolling financial forecasts, and many others.
And solitude allows analysts to think about solving a problem from different angles. They can ask questions of the data that can lead to more and better questions. Ultimately the EPM/CPM method with embedded analytics can answer their questions.
What do managers require?
The basic requirements of managers and analysts are easy and flexible access to data and the ability to manipulate it to gain insights. Those in the information technology (IT) department who do not recognize this and act more like gatekeepers hinder managers from realizing their full potential in solving problems and facilitating better decisions.
Once these IT-related systems needs are met, what managers and analysts next need is a work environment that provides them with solitude for deep thinking. They need an executive team who will create a culture for being analytical, will tolerate managers making mistakes as long as one learns from the errors, and will protect such an environment and culture.
Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.
Become a Member today and get 30% off on-demand courses, tools and coaching!
For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.
Follow us on Linkedin!