Gary Cokins, Founder and CEO, Analytics-Based Performance Management LLC

What is currently missing in the way overall enterprise performance is being managed?’

To clarify enterprise and corporate performance management (EPM/CPM) is more overarching and comprehensive than “employee” performance management. Of course, employees are important, but the EPM/CPM “methods” include them as employees work collectively in an organization. I refer to EPM/CPM as “methods” because EPM/CPM is not a process or a system but rather the seamless integration of multiple managerial methods. They include strategy execution with a strategy map and its companion balanced scorecard (with key performance indicators … KPIs) and operational dashboards (PIs); enterprise risk management (ERM); capacity-sensitive driver-based budgets and rolling financial forecasts; product, service-line, distribution channel, customer profitability analysis (using activity-based costing [ABC] principles); and lean and Six Sigma quality management for operational improvement. All of these are like gears in a machine. Regarding the “what is currently missing?” question, the answer is simple. Most organizations have not implemented many of them. And if they have with some, they are poorly implemented and not seamlessly integrated.

Given that a company’s workforce now has a significant proportion of virtual and freelance workers, how should enterprise and corporate performance management (EPM/CPM) methods include them?

The EPM/CPM methods are indifferent to whether a worker is an employee or a contractor. They are all resources for the purpose of improving an organization’s performance. All are contributors. What matters is how the executive team is aligning their actions, priorities, and behavior to execute the executive team’s formulated strategy. A strategy map and its associated balanced scorecard is the EPM/CPM method for this. Whether they are employees or contractors their performance should be monitored against targets for the KPIs set by senior management to hold them accountable for results – performance.

What are employees, managers and decision makers looking to make enterprise and corporate performance management (EPM/CPM) more effective?

To be more effective everyone needs, and deserves, fact-based information with visibility to what is causing results. For example, to understand profit margin layers of products, service-lines, distribution channels, and customers the costs need to be calculated using “drivers” so that workers and executives can understand the “why” supporting the “what do things cost”. When they observe that their largest customer in sales volume is one the least profitable customers, they need to see and understand how all the extra special work they are likely doing to serve a high demanding large customer is costing them money and eroding the profit margins for that customer.

What are some of the new things being introduced in enterprise and corporate performance management (EPM/CPM) that are working/not working?

What is increasingly working with progressive organizations is activity-based costing (ABC). When properly implemented (by right-sizing the costing to have “good enough” cost accuracy), the organization can understand the true unit-level costs of their outputs and their profit margins. As a bonus, having unit-level cost consumption rates allows an increasing trend to abandon the traditional “bottom-up” cost center consolidations budgeting and replace it with capacity-sensitive driver-based budgeting based on forecasted demand levels. The next step, since the annual budget is typically out of date in a few months after it is published, is to shift to periodic driver-based rolling financial forecasts.

I describe this topic in this 8 minute recorded video: http://www.cfothoughtleader.com/driver-based-budgeting-look-hood-top-finance-consultant-gary-cokins/

Another “new thing” is, as I earlier mentioned, using a strategy map and its associated balanced scorecard with KPIs to improve the execution of the executive team’s formulated strategy. A major frustration of executives and their boards of directors is a failure to fully implement the organization’s strategy.

What is not working is the underestimating of the need for behavioral change management. The slow adoption rate of EPM/CPM methods is not due to software technology. The information technology tools are proven. The slow adoption rate involves people including (1) resistance to change which is human nature; (2) fear of being measured; (3) fear of being held accountable; (4) fear of others knowing the truth; and (5) weak leadership to name a few reasons. Managers need to improve their competency and skills with change management to gain buy-in and reduce resistance to progressive managerial methods.

If not periodic appraisals, then what & how?

Appraisals do serve a purpose. Everyone needs feedback about their performance. What the EPM/CPM methods allow is for everyone in an organization to answer every day “How am I doing on what is important?” (The challenge is a consensus on what is important.) They can know the answer by viewing where the dial in their scorecard (i.e., dashboard) is relative to the target of their KPIs – is it ahead or behind? But when every employee and manager has this feedback then everyone can answer “How are we doing on what is important?” That is how an organization aligns everyone – like the Olympic gold medal rowing crew in perfect synchronization – with executing the executive team’s strategy.


ABOUT THE AUTHOR / SPEAKER

Performance Management Interview with Gary Cokins, Founder and CEO, Analytics-Based Performance Management LLC - GroSum TopTalkGary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins is an internationally recognized expert, speaker, and author in enterprise and corporate performance management improvement methods and business analytics. He is the founder of Analytics-Based Performance Management, an advisory firm located in Cary, North Carolina at www.garycokins.com. Gary received a BS degree with honors in Industrial Engineering/Operations Research from Cornell University in 1971. He received his MBA with honors from Northwestern University’s Kellogg School of Management in 1974.

Gary began his career as a strategic planner with FMC’s Link-Belt Division and then served as Financial Controller and Operations Manager. In 1981 Gary began his management consulting career first with Deloitte consulting, and then in 1988 with KPMG consulting. In 1992 Gary headed the National Cost Management Consulting Services for Electronic Data Systems (EDS) now part of HP. From 1997 until 2013 Gary was a Principal Consultant with SAS, a leading provider of business analytics software.

His two most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics, and Predictive Business Analytics. His books are published by John Wiley & Sons.

https://www.linkedin.com/in/garycokins

Find all of Gary’s books are at https://www.goodreads.com/author/list/47692.Gary_Cokins

Amazon author page: http://www.amazon.com/Gary-Cokins/e/B000


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