Since I started writing about Enterprise Performance Management (EPM) several years ago, I sought to escape the “flash in the pan” buzz of the next big “management THING”. And many of my readers and clients truly embrace EPM for what it is- the cornerstone of what the enterprise should be built upon- a core process that daily operations are built around, and a vehicle for taking the companies vision and strategy to its destination.

But the more I read in EPM and Business Intelligence space, the more I am bombarded by h the plethora of scorecard and dashboard APPLICATIONS espoused by the likes of the “Big 3″ and the myriad of  other “bolt-on” solutions provided by software boutiques and web developers.

Let’s straighten this out once and for all- EPM is NOT an application, it is a business PROCESS. Not only is it a business process, it is (or should be) the central business process of the enterprise. Sure, the process and supporting technologies are connected, but here’s the real acid test. If you are an implementer of these systems or tools, ask youself how much time you spent (or intend to spend) on the following activities as you implemented your so called EPM software:

1. Affirming your strategy, and translating it into something your front line employees can easily understand
2. Refining and your objectives and aligning your management team to them
3. Translating your key objectives into measureable and benchmarkable KPI’s
4. Doing the requisite analysis (benchmaking, trending, analyzing, forecasting) targets for each of these KPI’s
   
5. Linking your key initiatives to the KPI’s they are designed to improve, and prioritizing (and de-prioritizing) them according to these linkages
6. Defining ownership and individual accountability for each KPI
   
7. Defining the reports and analysis needed by these individuals and workgroups to enable them to be successful
8. Linking appraisals and reward systems to the achievement of KPI’s and business metrics
9. Defining and mapping the process required to MANAGE KPI achievement
10. Training management and supervisors in the EPM PROCESS
11. Shaping and reshaping culture by “walking the walk”, and surrounding the EPM process with the required investments in change management (the people side of change)
    
12. Defining the best technology solution to enable all of the above
13. Selecting and designing the technology solution
    
14. Implementing said technology
    

If the time, energy and resources you spend on #13 and 14 is more that 1/3 the resources spent on #’s 1-12, you’ve got a very “unbalanced” EPM solution in the works. Getting the EPM system to the point of real value add requires that degree of “footwork” in each of the other areas, and if your’re not yet ready to make that investment, spend your IT dollars elsewhere.

EPM is not a software application, but a living process that brings all parts of the business to their highest performing level. When we view it any other way, we do the business a great disservice.

I am often asked by my clients, what measures are most appropriate for functions that are outsourced…particularly in terms of Vendor or Business Partner measures, accountabilities, and ultimately their compensation.

Here’s my take on it. This question is really NOT about measures at all per se, but far more about the NATURE of the business relationship itself.

Let’s face it, there is no shortage of vendors claiming to be the “business partners” of their clients. The first part of answering the measurement and compensation question is figuring out which vendors are, and which vendors are not, true business partners. A good acid test for this is to ask whether the contract you have with the partner is based on a “task list” of deliverables, versus a set of real business outcomes. If it is the former, then you should face the reality that your contractor relationship is just that- a contractor/ commodity based/ perpetually “low bid” kind of relationship, and probably not worthy of a partner performance/ partner pricing conversation. Just measure the vendor on a $ per widget/ widget quality basis and be done with it. But don’t expect them to do any more than produce good widgets.

On the other hand, if you genuinely do share business outcomes as the basis of your contract, then the measurement/ performance question gets much easier. Why? Because if your partner is genuinely accountable for YOUR business outcomes (and you for his, as I will discuss later), then it would only make logical sense that these measures would also end up on YOUR corporate scorecard. And that means you shouldn’t have to spend time coming up with a NEW or creative set of measures, but rather a delegation, if you will, of measures that you already have.

A good example of this are the partnerships Utilities have with their Vegetation Management (tree trimming) function, which incidentally and surprisingly is often the utility’s #1 O&M line item. These contracts range from the rather elementary level of $ per manhour, to the more sophisticated cost per tree or cost per span. But the ones in which a real “business partnership” exists are opting for measures like # of tree-driven interruptions, or related frequency and severity measures. For you utility foresters out there, this translates into indicators like Tree-CAIDI or Tree-SAIDI. Pretty cool huh? The real message here is that when you have a true business partnership, the measures you use to track their performance are the very same measures you use to track yours. A true win-win so to speak.

And the beauty of this is that it works both ways. A colleague of mine once told me that during each of his monthly client update meetings, his client would ask him- “how are YOU doing?” and “Is this contract making money/ profits for YOU?”- suggesting that having the vendor (my colleague/partner in this case) make money is as equally important to the client- a truly radical thought.

Another respected peer of mine told me that “the “master-slave” contractor relationship is “dead” because it will always produce “average” performance–that it is a model based primarily on distrust- essentially producing “just enough to get by” behavior. The partner model turns this on its head, and has the client saying to the partner “I want to make you as wildly successful as you make me” “.

So the long and short of it is that this is not a question of what you should measure or pay a contractor for, but rather a question of whether the contractor is really a business partner. versus a basic commodity type vendor. If the latter is the case, then you should be spending your time ensuring that the measure of success that you choose is something that should show up on BOTH of your scorecards, and be given equal attention.

One of my biggest “pet peeves” lately is the degree to which the consulting industry, including many of my peers for whom I have the greatest respect intellectually, are tending to gravitate toward the complex solutions, over the simple and more powerful INSIGHTS that our clients demand. At the risk of offending some within my industry, it’s a problem worthy of some straight forward discussion, and one in which even the best management advisors (including those who “advise from wiithin”- i.e. internal consultants and change managers) can stand to learn a great deal from.

Nowhere is this more prevalent that in the discipline of Performance Management. I’m referring here to all phases of PM including defining, measuring, benchmarking, analyzing, reporting, and improving organizational performance. Many of those in the consulting profession are, by trade, Engineers, Accountants, Economists, and Statisticians. And while all of these disciplines are essential to good business, it is often their very nature to opt for the more intellectually robust answers to even the most simple of business problems.

One of the areas most affected is (and what should be) the SIMPLE process of defining and reporting on Key Performance Indicators (KPI’s) within the enterprise. I’ve had the opportunity most recently to develop these types of frameworks in the Utility Sector- an industry which is most heavily dominated by very analytically sophisticated engineering. In a recent review of Utility Industry PM scorecards and KPI’s at over two dozen organizations, I saw numbers that ranged from a low of 12 KPI’s inside of a very tight architecture, to a high of over 400. After all, they are called KEY performance indicators for a reason, right?

Of course, it is important to look at the problem in the right context. If, in fact, the organization reporting 400 KPI’s had them all sitting inside of a tightly aligned “architecture”, I could be convinced that they were in fact on the right path. But reality shows companies with the highest volume/ # of indicators often have the weakest structures within which these measures are managed; and as a result have little ” line of sight” between what is important to the organization, and the metrics they manage to.

All of us have heard the adage of “analysis paralysis”; the process of getting so lost in the numbers that we lose sight of the forest by only seeing the trees. Sure, we have our 10 layered, drill down analyses and sophisticated multivariate regressions with super high predictive values, but does the guy in the bucket truck at the “work-face” really understand what it all means? We have the most sophisticated models but we’ve sacrificed the most important variable- the connection with the job that needs to get done on the front line.

To add insult to injury (and the core of my frustration), it is that the vast majority of business consultants often bring MORE complexity to a client who already has an overly complex way of managing their business. These clients don’t need more analytical models or more layers of analysis in their performance management system, they need less! Ironically, it is the simplest of frameworks that deliver the most insight.

So what can us consultants and executive advisors do to drive this type of simplicity into our client offerings and deliverables. Here is a short list of things we can do, particularly in PM space, to stop us from going down the proverbial slippery slope:

1. Focus on the enterprise outcome at hand and link everything to that- purge your client’s KPI list of all those random measures that would mean nothing to an executive of the business. In other words, make a distinction between KPI’s and what might just be random data elements or input variables.

2. Focus on PM insights and conclusions. Don’t overwhelm your client with overly complex analytic or economic models. Rather steer toward the answer with a handful (2-3) supporting justifications. Summarize the result of your analysis without bringing them through all of your analytic machinations.

3. Shoot for directional cues, not analytic precision. 90 % of the insights you generate for your client can likely be drawn from 20% of the effort you put you and your team through. For example where factors can be assessed using scales of hi-medium- and low, then opt for that rather than trying to develop more complex normalizers or coefficients to make the same point

4. Make your analysis approach simple enough that the client can follow your path, and replicate the analysis himself if he wants to. For example, design your models around 3-5 high impact variables versus 50 smaller ones.

5. Focus your PM framework on outcomes, not activities. If you look carefully at what your client calls key metrics or KPI’s, you’re likely to find that most of them are oriented around activities and project milestones, not result indicators or business outcomes. Keeping the two separate will allow you to assess causal impacts between initiatives and outcomes, rather than cluttering up your PM framework/ system with a mix of both.

6. And where you can, price your projects on value, not man-hours- The larger consulting firms will have the biggest problem with this since they are all focused on amassing huge amounts of billable hours, where complexity is your friend. Trust me, your client is waiting for someone to turn this model on its head. The faster you do that, the more competitive advantage you’ll have.

So, in the spirit of simplicity, all of this can be summed up by adopting the age old adage of K.I.S.S (keep it simple stupid), and using that as your guiding principle. Of course, the most pedantic, intellectually sophisticated, and complex thinkers among us will most certainly have a different view on this. But that’s the whole point isn’t it?

Get the fundamentals right, all the rest is “icing”- by the time you’re finished reading this, you’ll realize what a hokey pun this really is!

They say that some of the best business is done in hotel bars. And isn’t that the truth. I can’t tell you the number of times a friendly chat over “a Guinness” has led to a provocative new insight, business model, partnership, or just a different way of looking at the world of business.

This week was no different.

Earlier this week, while in Preston England on business, I ran into a chap who was struggling to connect to a wireless router in the hotel lounge. Having shared a similar experience the day before- to the same level of dissatisfaction- I introduced myself and began commiserating. Within 10 minutes, our laptops were closed, and the conversation ensued.

After concluding we had been bitten by the technology bug, and that our connection likelihood was approaching nill, we turned the conversation to travel, family, politics (wouldn’t recommend this, but if it comes up, you’ve gotta play), and ultimately business.

As it turns out, the guy on the other side of the table was quite the entrepreneur. 10 years ago, he had invented a technology called “multi ice” that had a significantly better cooling action on fishing boats. Suffice it to say that in the fishing industry, just a few additional hours of cooling, coupled with a natural additive in the “ice mixture” had a dramatic impact (as high as 10%) on what the fishing industry calls “yield”- the difference between “the catch” and the amount of “waste” generated as a result of inadequate cooling and its rapid impact on cell degradation (a fancy way of saying BAD FISH). Any improvements in yield impact the profits of fishermen, distributors, and stores, and restaurants- nearly every part of the food supply chain. Moreover, his “new” ice was not something he sold as an alternative to taking ice onboard boats, but rather it was an “ice making” machine that converted saltwater into the ice solution, eliminating the need to take large quantities of ice on board in the first place.

The conversation pressed on into some very interesting areas…how he applied the technology to other meats (nearly any you can imagine), his approach to customer satisfaction, marketing, partnering, governance, capital acquisition, and his “no risk value proposition” to his customers. So what’s this all got to do with performance management?

EVERY PART of his business involved some sort of measurement and tracking. From R&D (determining the size and performance of his machines) to manufacturing, product testing to marketing, sales to cash- he had applied measurement to nearly every stage of his process. His entire explanation of his product and market came down to something that was frequently and deliberately measured and managed.

In explaining his product, he didn’t go straight into a typical marketing or sales pitch…but instead gave measure by measure proof that his product was the best, if not only, product that could produce these results. His opening slide was not the typical “here’s how great we are”, but rather an “infrared” picture of two fish of the same weight- one frozen in his solution/ icing process, the other frozen in a more conventional manner. The weight differences (up to fourteen days later) were dramatic, as were the differences in cell degradation which was also evident from the photos. No explanation needed…the pictures spoke volumes about the product’s effectiveness. It’s hard to imagine a customer saying anything but “you had me at hello”. The measures told the story, everything else was just peripheral packaging.

I said earlier that the measures permeated all aspect of the food supply chain, up until and including the cash generation part of his business and customer satisfaction. Taking his quality measurement to the next level, one could calculate his average improvement in yield. For example a small (relatively speaking) fishing boat that generates 1 ton of catch daily would save roughly $150 per day. Extrapolating, then the annual savings would be upwards of $20k, just under the cost of the equipment, generating a payback of just over 10 months- virtually unheard of in that industry. And those numbers don’t even include the cost and storage of ice, which is also offset by the on-demand nature of his ice production equipment.

But he took the data even further. Because of his confidence in the data, and the degree to which he was able to harness and leverage it, he began instituting a “guaranteed savings” program, in which the customer absorbed little to no risk. If the customer didn’t realize the improvements in yield in the early phases of implementation, the customer didn’t pay.

To date, the value of the data has proven out. He has yet to have a dissatisfied customer, nor has he paid one penny against his guarantees. And with those kind of attractive economics, he was able to arrange financing for many of his customers, in which, (because of the rapid payback, low cost of the equipment, and attractive interest rates) generated an initial positive cash flow right out of the gate.

And there was so much more,…too much to go into here. It’s not everyday that these conversations are so rich in mutual “takeaways”- this one was one of those real “jackpots”, with many of the ideas discussed having direct implications in both of our disciplines. In the performance management business, you see a lot of ideas and no shortage of fancy dashboards, analytic models, statistical tools and techniques. And I’ve met a lot of companies who have invested millions in the latest and greatest- six sigma, ISO, LEAN, …the list goes on. But without the fundamentals in place, most will fail. This meeting was ALL about the fundamentals, and a real reminder for me of where it all has to start.

Good business starts with good data and good measurement…not the other way around. Without good data, I seriously doubt my new friend would have been nearly as successful as he has been to date. And I suspect he will find new data and new ways to harness and leverage it into the future.
Right now, I am at the airport, and soon my new friend will be back on his way home too. By the time we both arrive at our destinations, I suspect we’ll both have a new portfolio of insights from new introductions that we make in the airport, on the plane, and in the car ride home. Just another insight-rich travel day.

So go ahead mate, next time you find yourself with a little downtime- go have yourself a Pint and some good company.