While EPM has been around more than a decade it has had limited success. Historically this “methodology/tool” has been introduced by and driven from within the Finance departments in organizations. There have also been other variants of EPM–Corporate Performance Management (CPM), Financial Performance Management (FPM), and a few others. It could be argued that the broad definition of how these methodologies are defined and driven within different organizations lies in organizational placement rather than the underlying “concept and objective”. Ultimately
EPM and its variants focus on improving business performance in a predictably reliable manner. In this paper the author explores two key themes:
1. What are the challenges in making EPM a core discipline across the entire organization?
2. How can organizations ensure that EPM delivers to its promise of enhancing business performance?
What are the challenges in making EPM a core discipline?
There are multiple reasons for lack of stickiness for EPM and the inability of firms to harness this methodology as a foundational requirement. Some of the more common reasons are 1) EPM is perceived as a finance driven initiative and this perception results in no cross-functional buy-in, 2) EPM may be considered the “Flavor of the month” program, prompting limited attention from employees, and 3) EPM is often mired in the classic “An IT solution can get it done syndrome”.
In addition, there are some even deeper challenges that have not received the warranted attention in many organizations. There is lack of a well-defined purpose as to why EPM is important that is uniformly communicated across the organization. Often, EPM tracks financial metrics which are essentially outcomes of the various processes. Little to no attention is often given to measuring the underlying causes and drivers of those outcomes. Additionally, over time almost every organization goes through change, driven by transient customer preferences, increasing global competition, changing technology, regulation, and other factors. For many organizations, the pace of change poses a significant challenge to maintaining continuity of a program like EPM.
How can organizations ensure that the purpose of EPM delivers to its promise?
EPM must be made part of the organizational DNA. The following are the key tenets to making the EPM journey effective and sustainable.
A. Institutionalize Process:
Process excellence is a critical and sustainable enabler for EPM to become part of the DNA. Well defined managerial and operational processes have been the differentiator between companies that consistently perform well and those whose good performance is sporadic. The drive for process excellence is also fundamental to the organization’s ability to weather change without chaos. As a part of this endeavor, organizations must recognize that process excellence is not a one-time effort, rather it requires the establishment and commitment to an orchestrated mechanism to define, manage, own, and govern processes and process change as a continuous effort.
B. Evaluate the outcomes but measure the drivers
This point is best illustrated through an example. Working Capital is often used as an EPM metric. Many organizations typically evaluate this as they approach fiscal quarter end and/or fiscal year end. Invariably there is an intense set of managerial actions taken to drive the inventory balances down. However, few organizations take the time to measure the drivers that cause high inventory balances to be at “unacceptable levels”. These drivers are easily understood by how organizations answer the following questions:
- Do you have a disciplined S&OP (Sales and Operations Planning linking Product Innovation to Demand Generation to Supply Execution) process in place with metrics to measure performance at key check points?
- Is there an overall Lean/Continuous Improvement philosophy that governs processes for inventory management, production scheduling etc.?
C. Integrate to sustain
The intensity of change is unprecedented in today’s business environment. Change is being driven from many quarters – Technology, Innovation, Customer Experience, Competition to name a few. Almost any change will require businesses to do one or more of the following in terms of the organization’s activities: (i) stop some processes (ii) start new processes (iii) modify existing processes. Irrespective of which bucket process change falls into, organizations have to integrate the change into their routine activities. It is not about managing the change. The integration of change as the norm for the organization has to be in terms of how the rationale for changes is communicated, how teams are prepared and trained for the new order, and finally how are the tools and techniques used by the organization adapted for the new order.
Ultimately, the manner in which organizations answer the following questions determines the potential for success in EPM becoming the “way of running the business”:
• How clear is the leadership’s commitment to EPM as a foundational platform?
• How do employees across all functions perceive and internalize EPM?
• In what process excellence tools and people capabilities does the firm invest?