Toxic organizations have managers who are more interested in reporting other people’s performance. Especially when the organizations do not have a unified role specific, function specific and cross functional KPI’s and critical success factors designed and bench-marked right at the start. To measure their efficiency and productivity in an unbiased way. Against internal targets and also against peers.
Focus on Marginal, Not Absolute.
Nothing in the world is purely linear. Two variables will always have a limiting relationship beyond a point. Be it in a social, cultural, economic or corporate context. Be it finance, supply chain, manufacturing, human resource or even strength of materials. Key performance metrics and success factors must be sustainable and visible to the right stakeholders at all times. Absolute values of metrics often do not necessarily convey much insight. There is a need for developing metrics that convey not only absolute impact but also ‘marginal’ impact of managers decisions. It should prompt periodic revision of key configuration and design of your processes and applications. A company with good operating cash flows can have poor gross margins vis-à-vis their peers and vice versa. But the marginal impact of reduced operating cash flow is what makes sense. Isolated metrics more often than not are not really actionable. There is some root cause somewhere deep down. E.g. Fill rates or returns of a particular SKU can emanate from a badly scheduled production on a particular machine!
Multiple Sources of Truth.
Enterprise systems footprint is complex is most large organizations. Disparate transaction and OLAP applications and integration protocols makes staging and measuring such KPIs hard. Data warehouse is post mortem. Organizations need real time metrics. Thankfully local alerts and notifications exist for managers to take corrective actions. Control towers and Dashboards continue to be siloed. There are multiple ‘sources’ of information. Multiple sources of truth. Your ERP, CRM, SRM, SCM, HCM, PLM and other legacy applications have phenomenal amounts of data generated in real time, incl. information from external sources. You can derive customer service related metrics from your ERP, SCM or CRM or data warehouse systems. Does your organization have a robust solution architecture for reporting and consuming such metrics in real time? A single version of truth?
The Technology is in Place…But
Yes you can ‘report’ on the fly from your ERP systems (e.g. S4 HANA) but as of now far removed from a unified Enterprise Performance Management ‘Cockpit’. It will get there but a pre-configured set of Metrics does not necessarily help all firms and Industries. Not all metrics make sense. Some metrics can be primary and some secondary. Some metrics are cross-functional. A supply chain manager directly impacts working capital needs of the company but can indirectly impact employee productivity. So, does a marketing manager who launches new variants of same products all the time with no concept of life cycle management.
No Analytics without Metrics.
The trouble is most firms aren’t in that stage of maturity to make good their investments in ‘Predictive Analytics’. Not yet. Using massive amounts of data from internal and external sources to build Regression, Time Series and Analytical models in a meaningful way is hard. The software alone can’t help. They must integrate neatly with your transactional systems. Getting the basic Metrics and KPIs right is the first hurdle to cross. It is relatively easy to implement EPM. It has discernible cultural and financial impact. It builds the base for more meaningful Analytical applications. The trends and patterns ultimately must say something about the Metric and KPIs you want to improve. Something that your customers, investors and peers care.
Every organization needs an EPM strategy of their own to organize, automate, and analyse business decisions, methodologies, metrics, processes and systems to encourage and stimulate appropriate behaviour from different stakeholders. Organizations need to translate a unified set of KPIs into plans, monitor execution, and deliver critical insight to improve financial and non-financial performance. Organizations need to build a strong base before venturing into Predictive and Prescriptive Analytical Applications
This is Part 1 of a series of articles on Enterprise Performance Management, exploring Processes, Methodologies, Frameworks & Technology defining metrics, critical success factors, key result indicators and Key Performance Indicators.
The author is Ram Rishi, a Managing Principal – Finance & Analytics, with Lydian Global Business Services Inc.(www.mylydian.com) Lydian’s compelling combination of deep industry expertise, custom developed products and Solution vision and its ability to mix and match the right set of software and design, help customers derive the additional value that businesses expect from their investments in Enterprise Technologies.