The global financial crisis of 2008 seems to have passed into our rear-view mirrors for now, and many companies are settling back into business as usual. However, the crisis has long-lasting impacts, as regulators have become more strict (in areas extending beyond the finance sector), investor tolerance levels have been reduced, and customer expectations have increased.
In day-to-day terms, this means the pressure is on for companies to deliver more timely and transparent reporting data, to find more areas of potential value and efficiency across their operations, and to deliver better service quality to retain customers.
What then, is the place for considering Enterprise Performance Management (EPM) in the aftermath of the global financial meltdown? What is EPM? How can it be implemented? And is it worth investing in?
Broadly, EPM is a framework for managing performance, from the identification of business objectives (and therefore specific goals), to the consolidation of information relevant to these goals, to the interventions of management based on this information.
To distinguish from “Business Intelligence” (BI), which has tools to analyse specific areas of performance, EPM brings this intelligence together in a holistic mix of process and technology to enable management teams to identify, monitor and manage areas of risk and areas for improvement. In these days of increased and diverse market pressures, identifying risk and improving operational performance have become less of an “option” and more central to delivering results and shareholder value.
In our view, implementing EPM has three key success factors. Firstly, an organisation structure that supports EPM. Secondly, enabling technology. And, thirdly, a commitment to act on the data. In the context of Asia Pacific companies, all three of these factors are a little more complex to achieve.
Finance and EPM
In our experience, the company’s finance department needs to lead the way in implementing an EPM framework. Already the home of financial reporting, finance has the basic processes and the discipline for handling data and reporting, which can provide a platform for expanding the scope to broader performance monitoring.
In some companies we have worked with, a dedicated performance management group has been established inside the finance function, mixing people with skills in statistical analysis, technology, and operations. Whether a dedicated team or not, someone in the company needs to “own” the EPM framework, and finance is usually the most logical place to house it.
There is no question that technology plays a key role in delivering the information required to enable enterprise performance reporting and analysis. The challenge is which solution to choose. Unfortunately, there is no simple answer to this, because there is no one “silver bullet” system that can deliver all.
Enterprise Resource Planning (ERP) software is touted by the major players as being “enterprise wide”, but SAP’s purchase of BusinessObjects (a well-known BI vendor) in 2007, hot on the heels of Oracle and its purchase of Hyperion (another major BI vendor) earlier in 2007, suggests that these companies recognised some of the gaps in their own solutions.
Does this mean that an ERP solution is the only way to implement EPM? They certainly present a more integrated solution now, even though some sort of “middleware” (such as Tibco or WebSphere) is still required to stitch all the data sources together.
Overcoming Asian Barriers
With this in mind, it is possible for smaller companies to establish their own EPM “architecture” with a “layer” of multiple data-source systems, a layer to consolidate these diverse data sources, and a layer to facilitate analysis and reporting – all of which do not necessarily have to include a major ERP solution – less costly therefore, but potentially more “fiddly” because it requires putting together more component systems.
A final EPM consideration is what to do with the data! Plenty of companies have invested in EPM, but do not make optimal use of the rich data it provides. A key consideration is whether monthly management meeting agendas are focused on performance review.
Some companies we work with do not have a formal monthly management meeting, or perhaps meet quarterly. In our opinion, this is a lost opportunity to make timely directional improvements in the business. The rest may hold a regular monthly meeting, but the tone and scope of discussion in these meetings often makes them long and unproductive.
Having a focused agenda, having in mind the principal performance indicators that show the health of the business, and leveraging the rich data from finance, operations and customer service are some key basics of driving a productive monthly meeting. Another consideration is whether the culture of the firm is such that performance (or underperformance) can be adequately dealt with. A willingness to face the “brutal facts” and acting upon them is not something every company is born with.
For companies in Asia, geographic diversity and culture often complicates this entire picture even further. Firstly, in terms of structure, the finance function is typically spread across the region, with duplicated finance teams in each country while headquarters is struggling to get each location to follow the same finance processes.
One solution to this is a “shared services” model, where transactional finance activity and expertise (such as performance management analytics) are centred in one place, typically a location with reasonable skill pools and lower labour costs. Shared services can ensure consistent internal finance and reporting processes across different countries.
Similarly, geographic dispersion impacts the ability to get each location onto the same technology platforms for finance and other information sources. Historically, each country may have developed its own systems and its own preferred vendors, the result being a patchwork of systems and a “pea soup” of data.
Again, a shared-services delivery model can help dramatically smooth out the inter-country wrinkles. One client we have worked established a tough imperative in syncronising systems across the region, mandating that legacy systems be “switched off” at a pre-determined and clearly communicated time.
When it comes to using the data, culture is somewhat of a barrier in Asia. At its extreme, culture may even prevent the implementation of EPM, as senior management in each country market may fear the potential transparency of their operations, and the potential for difficult questions from regional leadership.
This may manifest itself as a lack of enthusiasm for implementing new reporting systems, or may elicit arguments that the existing technology is suitable and that the cost of new technology is unwarranted.
Perhaps the easiest way to counter such objections is to develop a sound business case as a platform for change, and to demonstrate senior leadership commitment to a vision for improvement.
We have worked with a number of companies to analyse and assess the case for implementing changes, such as new operating models or technology. A short, fact-based assessment of the current situation, the development of a clear vision for how things should work in the future, and some explicit senior leadership commitment to change can go a long way in bringing country management teams “on board”.
In the Asia-Pacific region, we have seen only a handful of companies achieve a truly regional operating model, and these companies did so through a mixture of standardising their technology platform across the region and moving to a shared services model to ensure processes and policies were consistent.
At the end of the day is it all worth it? The overwhelming answer has to be “yes”. EPM is about driving clarity into the business, understanding when things go astray, and being able to make intelligent decisions throughout the business year. In the context of Asia, this can also mean better compliance and improved risk management across diverse markets.
The payback may not be immediate or obvious, but EPM holds the potential to enable better pricing decisions, better production decisions and better customer decisions. As economist Milton Friedman once said, “There's no such thing as a free lunch”, and the same message applies to EPM. It takes vision to make the case for change, investment to implement, and commitment to use, if rich benefits are to be achieved.
About the Author
Philip Wixon is a Director for Australian management consulting firm Third Horizon Consulting Partners, which recently opened an office in Hong Kong, where Wixon is based. He has been a management consultant for 13 years at international firms including Arthur Andersen & Co, Infosys Technologies, and Hewitt Associates.