Closing the Intelligence Gap - Gary Cokins on Performance Management

Everyone is familiar with the relentless question from children in a car’s back seat during a long road trip impatiently asking, “Are we there yet?” To some managers this question can apply to the journey of implementing the full vision of the performance management framework. As an example, Michael Ensley recently wrote a blog asking Jonathan Becher and I “How would each of you define Performance Management and what does it mean when it is successfully implemented?” Jonathan responded first, in "Performance Management Defined (and Debated)." My turn.

When is Performance Management successfully implemented?
For the second part of Michael’s question, I commented on a similar question in my June, 2009 blog, “Can You Ever Complete Implementing Performance Management?” posed by John Colbert, an IT analyst with BPM Partners:

There are many types of performance initiatives, arguably dozens, including profitability optimization and strategic planning. Executives select which initiative to pursue like choosing your food in a cafeteria line. The selections for any organization will depend on what is most desired. However, a key to getting synergy is to both integrate the initiatives' methodologies and imbed analytics of all flavors in each – especially predictive analytics…"

John also states, “… (P)erformance management is an ever evolving project that is never really ‘complete.’” This is my belief too. I have stated that there is no organization on the planet Earth that has completed the full vision of the Performance Management framework. But the smart and healthy ones have traveled far. It is like running a marathon without a finish line. But it is better to be running in the lead.

I expand on my observation in an earlier blog “One Performance Management – Many Recipes” where I state that

Just like our grandmothers each had their own recipe for a holiday fruit cake, organizations are concocting their own customized versions of the performance management framework. Increasingly there is consensus that performance management is not a process or a system, but rather it is the integration of multiple managerial methodologies like cog gear-teethed wheels in a machine to be synchronized – better, faster, cheaper and smarter.

How does one define Performance Management?
Now let’s address the first part of Michael’s question – a definition for performance management. One of the causes for impatience with the performance management road trip is there confusion, ambiguity and lack of consensus in the marketplace about the definition of performance management.

As evidence of this confusion just Google the term and you will see what I mean. Many of the hits are about employee performance management and appraisal, an HR and personnel task. Additional confusion is because different information technology research firms define it differently. And different consulting firms and software vendors describe it to fit their unique competencies rather than what their customers may require.

A major source of the confusion is that performance management is perceived by many as far too narrow. It is often referenced as a CFO initiative with a bunch of measurement dashboards for feedback and better financial reporting. It is much, much more and broader. More recent confusion comes from the term being narrowly applied to a single function or department, such as marketing performance management or IT performance management. These two examples are an operational view in contrast to the strategic enterprise-wide view that Colbert, myself and others share. It is not business process management but performance management.

Since my impression is that performance management is not a new methodology but rather is the integration of existing methodologies, none near optimal, and that have been in practice for decades – arguably even before computers – then my belief is it is better to discuss what performance management does rather than have arcane debates about defining what it is.

But if I was pressed, I would define performance management as follows: Performance management is the integration of multiple methodologies with each one embedded with business analytics, such as segmentation analysis, and especially predictive analytics … to achieve the strategy and to make better decisions.

April 12th is a celebrated day in one country. Do you know where and why? Read on.

This past week in Moscow I presented seminars and met with customers of my co-workers in Russia. It was my fourth visit to Moscow, but this time my eyes were a bit more open to look at what works well in Russia rather than my typical misperception of what didn’t work there, particularly its management of its national economy.

First, let’s talk about Russia. If you think you’ve learned a lot about Russia from movies of the Kremlin and Red Square next to it, or through its Olympic figure skaters and hockey players, that’s just the tip of the iceberg. I had the pleasure of seeing the Bolshoi Ballet perform in the famous Bolshoi Theatre. They were fabulous, and not only their technique but also with their facial and body expression – true feelings exhibited with no mask. And what about the music of composers like Tchaikovsky (his Violin Concerto in D, #35, is my favorite of all classical music), Rachmaninov and Rimsky-Korsakov? And what about writers like Pushkin and Dostoevsky? Russia has incredible performing arts and literature, and a national audience and readers who cherish them. And the work of their Classical painters, like Levitan and Shishkin, are so remarkable that, had Russia been less shut off from the world, today these painters could be household names like Rembrandt.

So what is significant about April 12? On April 12, 1961, the USSR launched cosmonaut Yuri Gagarin on Vostok 1: the first human in outer space and the first to orbit the Earth. Every Russian knows this date as Cosmonaut’s Day.

What’s my point? Russians have strengths, and their maligned Soviet central planning is now not looking so bad as we better understand the causes of the economic meltdown produced by capitalism. What do I mean by this?

Reading recent comments here, I have concluded that readers of my blog just don’t get it. No matter how much and how exquisitely I explain the sound logic and compelling rationale for implementing Performance Management (PM) methodologies, my readers are just not intelligent enough or mature enough to understand any of the methodologies or how they integrate together for synergy.

Anything I explain about the benefits to improve organizational performance from applying strategy maps, scorecards, customer profitability analysis using activity-based costing, marketing relationship management and other PM methodologies, is simply beyond their mental reach. Hopeless.

For example, when I explain that Performance Management 2.0 has each methodology with embedded business analytics, such as offered by my employer SAS, my readers eyes glaze over. It is so laughable, I could cry.

And if you believe that my blog readers are fools, string in sequence the first letter of the first nine words of today's blog title to see what it spells. It could be talking about you!

Who would have predicted these outcomes as the best critical success factors to achieve the full vision of an optimized Performance Management framework (click on the image for a larger view)?


You need a lot of factors to ultimately contribute to successfully achieving the full vision of the Performance Management framework!

Before you read my next sentence, please click here and watch for 10 seconds.
.............

What you just watched gives you some idea of my life with my employer SAS – now approaching almost 200 cities visited since 2005 (and 41 in 2008). Am I a wanderer or an adventurer? No, I am simply a careful observer of what I see, and then I intensely focus on trying to make sense of what I learn.

So, what am I? Like a bee in the big garden of the world, I’m a pollinator. I pick up what I see in one place and drop it along with my prior insights from elsewhere into another place – to people. That is, I share my observations with others. I share them in seminars, in meetings with customers and consulting partners of SAS, with media journalists, and with my co-workers. And I’m about to share an observation with you.

As I write this blog, I am flying from Bucharest, Romania to Istanbul, Turkey. I am reflecting on my past 72 hours of interacting with Romanian business and government executives and managers. Here is my observation. People and organizations are far more similar than dissimilar. The differences between how well organizations perform are minimally influenced by which nation they reside in.

The major factor influencing high or low performance is the quality and competence of executive leadership. It's about leaders’ recognition that their organizations need to be both smart (e.g., using business analytics for discovery and decision making) and healthy (e.g., involving managers and employee teams with its strategy management).

I will end this blog here. If you care to read more about my observations of executive leaders, read my previous post, "An Interview with a CEO You Might Want to Work For."

In my recent blog about my trip to Rome, Italy, I marveled at the great architectures and sculptures, wondering how much of those achievements were from art, craft or science. I then asked the similar question about various implementations of performance management methodologies, such as dashboards, scorecards, strategy maps, costing models, and customer intelligence reporting.

Let’s further discuss this question. In that blog I said, “The art and craft of developing and maintaining performance management designs is evolving into a science.” What did I mean?

Despite my Newtonian view (probably shared by a vast majority in business and IT) that an organization is a big machine that simply needs more gears, pulleys and dials to better operate it, many of my blogs and articles describe the importance of behavioral change management. (A good example is my blog, “Why Do You Have to Be a Sociologist to Implement Performance Management?”) I realize there is also a Darwinian view that an organization is like an organism, and we must acknowledge its sense-and-respond behavior. A balance of the Newtonian and Darwinian management styles is needed for a healthy organization.

But please indulge me for the next few paragraphs, and let’s explore how science in the form of business analytics can be inserted into performance management methodologies.

Did you see the movie "Mama Mia" with all the ABBA tunes? My favorite song was “Take a Chance on Me.” I think my wife did when I proposed marriage to her. I’m a little like Forrest Gump’s box of chocolates. You never know what you’re going to get.

But when it comes to the portfolio of business intelligence and performance management solutions, there is really no gamble. The methods are proven as effective when properly implemented. With today’s global economic downturn, they are more relevant than ever.

Don’t ask what the return on investment (ROI) on any of them is until you are prepared to answer what the consequence of not taking action is. (Read my “Nag to Wag” blog for more. ) In Howard Dresner’s recent blog post, Howard observes key points related to how organizations should approach the current economic downturn:

“In the corporate world, we’re seeing many respond with a ‘kneejerk’ reaction to this malaise (of the economy): budget cuts, reductions in force (RIFs, layoffs), reduced financial guidance, asset sales, bankruptcies, etc. These organizations have adopted a sort of ‘bunker mentality’ to face the threat. As a result, they overreact, shedding more ‘ballast’ than they need to stay afloat. By exaggerating the challenge and overcompensating, they weaken their enterprise for the future. … While this may please Wall Street (in the near term), this sort of tactical approach doesn’t bode well for their future. In contrast, the wise organization carefully analyzes the current threat, developing multiple scenarios for the future and creates suitable short and long term plans. This forward-thinking approach allows management to proceed strategically, with an eye to the future, but still grounded in the present.”

Howard is so on target. It baffles me why some organizations hesitate to apply business intelligence (BI) tools and the performance management methodologies that convert BI’s potential into realized results. The use of strategy maps, causally linked scorecards, activity-based costing principles, optimized marketing campaigns and the rest of the performance management portfolio just makes good sense. It is not a faith-based decision but rather reasoned logic compared to what managerial and decision support practices most organizations use today such as spreadsheets, intuition, flawed standard cost accounting and politics.

“Take a chance?” Nah. Create your roadmap to start implementing them now. (Read my “Where Do You Begin Implementing Performance Management?” for more information.)

Gary Cokins

Is there a bright side to this economic downturn? No. Not in the short term. No one likes to see increased anxiety in households. However, in the long term, organizations that seize the opportunity to build more robust decision support with business intelligence systems and the performance management solutions that leverage them will get a jump start that competitors never get a chance to overcome.

In a recent article titled “How the New Obama Administration Might Impact Business Performance Management,” IT analyst John Colbert describes reasons why organizations should start now expanding and integrating the methodologies that comprise the performance management framework. John says,

“Regardless of timing, if you are going to be running any kind of a business during this cycle, you will need to have a robust platform for planning for the twists and turns on this economic road. I know that many will think that they can monitor fluctuating oil prices, currencies and credit rates in their trusty Excel spreadsheets; but for true collaborative enterprise planning and modeling, with advanced analytics that can be run by less spreadsheet savvy general managers, you should likely revisit your planning and reporting platform. In many cases, this may require simply upgrading to the current version of your performance management software vendor’s modeling platform. However, if you are still doing the bulk of your modeling and planning in spreadsheets, this may be the time to consider a more enterprise-grade solution. Also note that several of the leading vendors, as well as a few innovative new vendors, are developing “planning-specific” functionality in their product – different from traditional budgeting. Planning often involves fewer (yet more senior) resources and requires the ability to model and save a variety of scenarios while enabling collaboration amongst the team for detailed business discussions on these scenarios.”

I totally agree with John’s observation of the limits of spreadsheets and remarked about this in my blog, “Excel Heaven – or is it Hell?” In his article John continues to describe how business intelligence and performance management solutions can improve complying with anticipated increased government regulation and proactively embracing corporate sustainability initiatives.

An organization’s options are simple: blindly cut costs with shaving-the-icecube, across-the-board employee layoffs for short-term appeasement of Wall Street analysts ... or prudently invest for long-term sustained economic value creation.

Gary Cokins

Dutch business executives and government administrators are digesting the findings of a recent research study about how to best organize departments, functions and divisions for the 21st century. The report, "The Emergence of the Multidimensional Organization," from the Universteit van Amsterdam’s business school , revealed through field research with 40 Dutch organizations that there is a shift in thinking. Most firms or government agencies traditionally organize around a unit, sometimes a profit center concept, where managers have both authority and accountability for what they can locally control. But is this sub-optimal?

Economists have wrestled historically with determining the appropriate organizational structure for implementing business strategy. In the 1970s Professor Alfred D. Chandler of the Harvard Business School led the field with research and published articles that explored three S’s of management: strategy, structure and systems. He proposed guiding principles that organizations should highly value fit-to-market and fit-to-strategy tests. Businesses have constantly shifted organizational (i.e., human) structures to attempt to achieve better performance. Why might a new shift be needed? What role does information technology have to enable or accelerate this shift?

Everything matures in stages. Larvae mature into butterflies. Babies grow into kids and then grow into people like you. Information systems also advance through stages of maturity.

For example, the earliest accounting system processed payroll, purchases for accounts payable and invoices for customer accounts receivable, and then dumped all these transactions into a general ledger bookkeeping system. Today the system can precisely measure customer profitability for individual customers and integrate that information with marketing systems. That helps sales and marketing target what types of customers to retain, to grow more quickly, to win back and to acquire. And which types not. Then, the system can suggest what profit-lift actions to take, tailored for each customer.

The reporting of performance measures has advanced through its own stages of maturity. The display of performance information for control has advanced from the old Red Baron single engine biplane with rudder-and-stick control to today’s Airbus-style jet navigation. The cockpits are certainly different.

A Federal Computer Week article, Positive Outlook for Dashboards, describes advances in the visual display of information. A good example in the article is the US Coast Guard, which for decades has been perfecting the skill of navigating the seas. Now, the Guard is learning and improving competencies to quickly observe relevant information from visual dashboard displays, such as alert messages, and rapidly drill down and mine the information to understand what is happening – what may be causing any exceptional outcomes. Dashboards are not just about monitoring dials – they are about moving the dials.

But there are more applications for dashboards.

In a recent rebuttal letter to the Financial Times (Oct 30, "Hidden costs of a Microsoft Farewell" page 8), the writer states, "We are a spreasheet and data-modeling consultancy whose clients work exclusively from the Microsoft Office suite and for good reasons show little inclination to change their ways." when I read it Iasked myself if there aren't also bad reasons to tightly clutch Excel as a tool.

In my opinion Excel can be a dragging anchor that impedes progress toward adopting the full vision of the Perform Management framework. Disjointed spreadsheets, which I refer to as “spreadsheet-itis” disease, are a nuisance that has now become a serious problem. This is not only because using them involves cumbersome and untimely reporting, but because it denies people a single, unified view of vital data – one version of the truth.

There may be good spreadsheet reports within a given department, but generally the rest of the organization is not aware of them. Additional pain results when others recreate their own version of the same report – a wasteful duplication of effort. With multiple spreadsheets, when data differs, which are the right numbers? Linked spreadsheets, some perhaps a decade old, and disjointed legacy systems are just not dynamic enough, nor are they flexible. Finally, problems with maintaining undocumented or documented spreadsheets surface when the employee who personally developed the spreadsheet transfers to elsewhere in the organization or departs it altogether. And it gets worse.

My day always gets a little brighter when I read an article or blog by someone who shares my feelings about performance management. I guess that is just human nature, isn’t it?

Here is a quote from a white paper titled Business Performance Management (The New BPM) by David Munaretto with PSC. He says:

“But what exactly is Business Performance Management (BPM)? Ask five people and you will get six answers. The COO will say it is Operational Performance Management (OPM) because it is used to manage activities associated with production and distribution. The CFO will say it is Corporate Performance Management (CPM) – running a business 'by the numbers.' Others will say it is the latest incarnation of analytics, dashboards, and Business Intelligence (BI). Then there are those that will confuse BPM with the other acronyms with the same letters – Business Process Management (which we are, for this paper, labeling as BPrM). The difference between them is more about the approach than the results. The more contemporary Business Performance Management is a broader top down approach while time honored Business Process Management assumes a more focused supporting role and is bottoms‐up."

BPM is the combination of Business Intelligence (BI) and BPrM – an amalgamation of the various methodologies used to plan, measure, analyze, and run a business. It is about having all of the information you need in one place so you will know both the cause and the effect of a business action, when and where it occurred, and what to do to make timely adjustments. Thus, BPM provides the ability to identify performance deviations early and initiate corrective actions automatically.

Simply stated, today’s BPM is dashboards and metrics brought together in real time and in the business context to provide a basis for action.”

What I like is his recognition that performance management leverages process improvement, but it needs to be in the context of strategy setting. I discuss this in my earlier blog, Process Effectiveness or Strategy – Which has a Greater Performance Impact?

David does slip up a bit in his last sentence, sort of equating performance management (his BPM) with dashboards and metrics. It is so much more – including embedded analytics in each of its integrated methodologies. But it's a minor complaint about a writer who is asking the right questions.

Gary Cokins

One of the problems with business intelligence (BI) information is that it does not always complete the task, e.g. solve a problem or move to the next step of creating and realizing value. I refer to this syndrome as “What? So what? Then what?” My concern is that many organizations use BI to answer only the first question. Then they are stymied when it comes to answering the next two questions.

The power of converting raw data into information, which BI does so well, is in answering the next two questions. That is where you increasingly add value for decision making with each subsequent answer. The “what? information is useful for managers and employees to more clearly observe and understand outcomes that may have never seen before. It reports the reality of what has happened. Predictive analytics reports the possibility of what will happen.

However, an obvious follow-up question should be “So what?” What do I mean by this?

I was educated as an industrial engineer. Engineers are not perceived as very worldly or sophisticated. They are often pictured with a pocket protector stuffed with pens. But some engineers, like me, do have appreciation for the performing arts. For example, I appreciate (make that love) classical music. In particular, I admire and am in awe of the great classical music composers. How did Tchaikovsky and Mendelssohn transcribe such beautiful music from notes in their brains to the pages of a musical score encompassing many instruments? (Hint: I don’t think they had a Blackberry or e-mail to distract them.)

What connection am I making between classical music and performance management? I believe that over the next three years, performance management (as I have been defining it broadly) will impact organizations in a way similar to how Ludwig van Beethoven’s masterpiece, his 3rd symphony (the Sinfonia Eroica), changed the future of classical music.

If you read my earliest writings about Performance Management back to 2002 (including my book), I passionately argue that its perception is far too narrow. Many see it as a bunch of dashboard dials with better financial reporting. It was also viewed as CFO tools. It is so much broader.

It is thrilling when I read other writers who view enterprise performance management as ranging from suppliers through the organization, including customers. It is the end-to-end value chain with many decisions occurring every minute, hour and day. Dan Woods, the chief technology officer of Evolved Media, wrote such an article titled "Peaking Performance" that appeared on Forbes.com’s website. In the article Dan states:

“The art and science of running your business based on the newly available flood of data is the practice of Performance Management…The modern practice of performance management has replaced this outmoded process (of historical, transactional data) with the equivalent of a corporate nervous system that shows what is happening right now in a company and can avert problems in the future…The old model of the enterprise was purely financial, focused on costs. The new model is multi-dimensional -- both financial and operational -- and focuses on profitability…The progress in implementing a strategy can be tracked month to month or week to week. If a roadblock is found, the problem can be communicated back up to the boardroom and the strategy can be tweaked and adjusted…Forecasts can be (frequently) updated from inputs that reflect activity from past experience rather than a guess at what you can achieve…While it is rare to find all of these capabilities in one company, the best companies aggressively adopt techniques that provide the most insight and create the most value. You can't run a business if you have to assemble information every time you ask a question. ”

Dan said it well. As time passes more executives, managers and employee teams will see what Dan Woods sees. Enterprise performance management is about analysis and decision making, not just better reporting.