Investing In Performance Management - Get The Optimal Roi
Few today dispute the need for Enterprise Performance Management solutions - with
greater than 65% of US companies and 62% plus European companies deploying Balanced Scorecard or strategic EPM systems within their organizations. As with all enterprise systems solutions however, the hyperbole from consultants on value add has been prodigious and at times stupefying.
What really matters for new investors in Asia, and for SMEs throughout the world, is understanding what evidence there is of the ROI, of these, oftentimes, significant systems infrastructure investment?
PERVASIVENESS - IT COSTS, BUT IT DELIVERS A 2007 survey of 200 large companies by the Hackett Group of Atlanta, found that organizations deploying 'world-class' EPM systems (defined as companies in the top quartile for efficiency and effectiveness) enjoyed equity market returns of 2.4 times of their peers in their industry (including stock price and dividends). This study also revealed a critical success factor in successful deployment was 'pervasiveness' - that is to say, many more operations managers had access to the online reporting tools that in their peers in the industry. It is thus where PM permeates throughout the organization that we see the real business performance gains (equity and value).
While a wide scale deployment deployment can deliver high ROI, it can also come at a high cost. The experience of many of the early pioneers in EPM has been painful , with very significant cost overruns, and low, to non-existent ROI. These often massive cost overruns, resulted from a combination of poor implementation planning, lack of experience and inappropriate technologies. Technologies based on existing ERPs (bolt-on BI or Dashboard solutions) were invariably costly to implement, and offered very little of the functionality of purpose designed software.
Lack of coherent planning for implementation also meant that solutions were often hybrids of top down Balanced Scorecards with rich pockets of production and cost data. These often resulted in ill balanced, overly complex and patchy information spread on Dashboards. We have moved on - we now know we must plan for and deploy the 'decision architecture' from the top-down , and we must build it before we commence.
CULTURE COMES FIRST We also know from experience that investment in EPM, without an 'aligned' culture is doomed to failure. A 2007 BRWS study found that of all obstacles to successful EPM implementation, two stood out as most critical: (a) lack of accountability management in the organization, and (b) lack of acceptance of a data driven approach to business management. Where a culture is not ready for EPM, the likely consequences will be growing internal conflict, increased IT and consulting costs, and very low ROI. We know then that it is vital to ensure that you culture is ready for, or will be modified to absorb and engage the benefits of the EPM before you commence.
MANAGING WITH DATA - TRAIN YOUR MANAGERS How capable are your managers of managing with data, of analyzing and acting on the information an EPM will provide? How coherent and consistent are your reporting and performance review processes? Do you review and communicate performance at all levels as needed, to involve all your people? Do you link quantitative data analysis with your performance appraisal and rewards processes? If you do not do these things at this time, do not depend on technology to do it for you! You will need to plan how you will use your EPM system, and to train your managers to use the information to manage more effectively - to manage for performance.
BUILD THE FOUNDATIONS BEFORE YOU INVEST We strongly recommend you consider the following before investing in an EPM solution: 1. KNOW IF YOU ARE READY - conduct an 'EPM readiness assessment' - know where you need to improve processes and management practices before you invest; 2. GET SENIOR EXECUTIVE COMMITMENT - ensure you have the top level support before you begin - do not commence if it is not there; 3. BUSINESS CASE - take time to quantify the potential ROI, and the potential total cost of ownership (TCO) of your systems; 4. BUILD A ROAD MAP - map out the implementation pathway for up to 3 years ahead, with clear milestones, investment decision points and assigned resources; 5. DESIGN YOUR INFORMATION ARCHITECTURE - map it out before you begin - and focus on key decision makers; 6. PLAN FOR PERVASIVENESS - plan for full deployment, and allocate your costs to take into account widespread deployment of the system; 7. MANAGE FOR PERFORMANCE - create the review and reporting processes which will ensure you get ROI on the EPM investment - train and align your managers; In the next article in this series, I will review the technology options open today, and provide guidelines on how to go about selecting the 'best fit' EPM technology for your organization.
by: James Johnston
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