AberdeenGroup



            Closed Loop
 Corporate Performance Management
         Benchmark Report
 Managing Corporate B...
The Closed Loop Corporate Performance Management Benchmark Report




                                            Executiv...
The Closed Loop Corporate Performance Management Benchmark Report



  This adoption of a short cycle, closed loop perform...
The Closed Loop Corporate Performance Management Benchmark Report




                                   Table of Contents...
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        Figure 2: Best Practices Closed Loop Perform...
The Closed Loop Corporate Performance Management Benchmark Report


    With the new program in place, the company has alr...
The Closed Loop Corporate Performance Management Benchmark Report



        Best-in-Class Objectives for CPM are Radicall...
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        market share. This advantage is further reinf...
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Figure 6: Enterprises Gain from a CPM Program from a...
The Closed Loop Corporate Performance Management Benchmark Report



        Figure 8: 75% Are or Will Be Involved in New ...
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Figure 9: Best-in-Class Companies Universally Embrace ...
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                      Challenges                 % Se...
The Closed Loop Corporate Performance Management Benchmark Report


This illustrates the broad acceptance across industrie...
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Table 2: Characteristics of Best-in-Class versus Prime...
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                 •       Sales organization can now f...
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search has demonstrated that, left to individual funct...
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        Figure 14: Best-in-Class Identify Technologie...
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                •    The compressed time frames in whi...
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        Best-in-Class Performance Management Programs...
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A “tops down” approach is essential to ensuring that t...
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        Industry Norm Steps to Success

        1. En...
The Closed Loop Corporate Performance Management Benchmark Report


Unlike traditional variance analysis that provides a l...
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             •   Provides a single point of record fo...
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4. Compress the Decision Cycle for Evaluating New Cust...
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                                            Featured...
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                              Sponsor Directory

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                                                 Aut...
The Closed Loop Corporate Performance Management Benchmark Report




                                  Appendix A:
      ...
Closed Loop Corporate Performance Management
Closed Loop Corporate Performance Management
Closed Loop Corporate Performance Management
Closed Loop Corporate Performance Management
Closed Loop Corporate Performance Management
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Closed Loop Corporate Performance Management

  1. 1. AberdeenGroup Closed Loop Corporate Performance Management Benchmark Report Managing Corporate Business and Financial Risk March 2005 Sponsored by
  2. 2. The Closed Loop Corporate Performance Management Benchmark Report Executive Summary The marketplace is becoming increasingly fragmented, volatile, and complex, which has resulted in companies with best-in-class business performance putting a premium on the deployment of closed loop Corporate Performance Management (CPM) systems with sharply compressed cycle times. Best-in-class enterprises focus on the following critical areas that are frequently given little atten- tion by competitors with lower performance: • Explicit linkage of plans to specific cross-functional operational objectives and metrics • Root cause performance analysis designed to inform better future decisions • Systematically determining and propagating best assumptions, analysis, and decisions • Targeting performance management around very specific high profit and/or strategically sig- nificant potential market segments Key Business Value More than 75% of all enterprises that engaged in a program to improve their closed loop perform- ance management systems achieved impressive improvements in % gross margin — on average a 6.8 percentage points gain (17.7% to 24.5%). Enterprises with best-in-class closed loop performance management programs consistently outper- form their competitors (Figure 1) across all industries and company sizes: • 32.7% gross margin versus 24.7% for industry norm, and 15.3% for laggards • 65.7% profitable segments versus 41.3% for industry norm, and 31.5% for laggards • 27.2% share of profitable segments versus 20.1% for industry norm, and 14.9% for laggards Figure 1: Companies with Best-in-Class CPM Programs Achieve Winning Performance CPM COMPETITIVE BEST IN CLASS POSITION NORM PREVIOUS % GROSS MARGIN % POINTS IMPROVEMENT LAGGARDS 0% 5% 10% 15% 20% 25% 30% 35% CURRENT % GROSS MARGIN Source: AberdeenGroup, March 2005 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  3. 3. The Closed Loop Corporate Performance Management Benchmark Report This adoption of a short cycle, closed loop performance management strategy has become a best practice across all industries and company sizes, including not for profit organizations such as pub- lic sector governments and organizations. There is a clear and growing trend across most enterprises, but especially for those reporting best- in-class business performance, to adopt, or deeply explore adopting, the strategy of selecting a “prime vendor” to anchor their closed loop CPM technology strategy. Recommendations for Action Aberdeen recommends that organizations take the following key actions to ensure they are able to leverage their performance management programs to maximum effect: • Compress your CPM cycle time to align with your customer and market dynamics — move towards daily/weekly rather than monthly • Ensure alignment amongst cross-functional objectives, metrics, and incentives • Focus on managing those initiatives, market segments, and metrics that provide differentiated performance • Assess the business value of a “prime vendor” versus “best of breed” CPM solution strategy All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  4. 4. The Closed Loop Corporate Performance Management Benchmark Report Table of Contents Executive Summary .............................................................................................. i Key Business Value ........................................................................................ i Recommendations for Action..........................................................................ii Chapter One: Issue at Hand.................................................................................1 Complex and Distributed Value Chain Strategies Demand Rapid Closed Loop Management.................................................................................................. 1 Closed Loop Performance in Action ........................................................ 2 Best-in-Class Objectives for CPM are Radically Different.............................. 4 Best-in-Class Companies Prioritize Pressures Differently ............................. 4 Chapter Two: Key Business Value Findings .........................................................5 Best-in-Class CPM Companies Consistently Outperform their Competition.. 5 Improving CPM Provides High Value for All Participants ............................... 6 Best-in-Class Companies Prioritize Different Strategic Actions ..................... 8 Challenges and Responses........................................................................... 9 Best-in-Class Are Compressing Cycle Time ................................................ 10 Chapter Three: Implications & Analysis............................................................. 12 Enterprises are Adopting a “Prime Vendor” Solution Strategy ..................... 12 Pressures, Actions, Capabilities, Enablers (PACE)...................................... 14 Best-in-Class CPM Business Process Capabilities ............................... 14 Best-in-Class Prize Collaborative Closed Loop Workflow Technologies 15 Public Enterprises: Obvious Differences and Provocative Similarities .. 16 Enterprises Are Not Currently Well Armed for this Rapid Cycle Environment .............................................................................................................. 17 Best-in-Class Performance Management Programs are Focused on Speed, Decisions and Choice .................................................................................. 18 Chapter Four: Recommendations for Action ...................................................... 20 Laggard Steps to Success........................................................................... 20 Industry Norm Steps to Success ................................................................. 22 Best-in-Class Next Steps............................................................................. 23 Featured Sponsors............................................................................................. 26 Sponsor Directory .............................................................................................. 27 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  5. 5. The Closed Loop Corporate Performance Management Benchmark Report Table of Contents Author Profile ..................................................................................................... 28 Appendix A: Research Methodology .................................................................. 29 Appendix B: Related Aberdeen Research & Tools ............................................. 31 About AberdeenGroup ...................................................................................... 32 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  6. 6. The Closed Loop Corporate Performance Management Benchmark Report Figures Figure 1: Companies with Best-in-Class CPM Programs Achieve Winning Performance i Figure 2: Best Practices Closed Loop Performance Management Cycle .............2 Figure 3: Best-in-Class Enterprises Highlight Distributed Value Chain Pressures 4 Figure 4: Best-in-Class Companies Outperform Competitors by a Wide Margin..5 Figure 5: Best-in-Class Companies Have the Most Profitable Market Segmentation Portfolios ..............................................................................................................6 Figure 6: Enterprises Gain from a CPM Program from all Starting Points............7 Figure 7: Performance Improvement Spans Multiple Corporate Business Metrics7 Figure 8: 75% Are or Will Be Involved in New CPM Activity .................................8 Figure 9: Best-in-Class Companies Universally Embrace a Decision Centric CPM Strategy................................................................................................................9 Figure 10: Current Cycle Time Strategy ............................................................. 10 Figure 11: Future Plans for Compressing CPM Cycle Times ............................. 11 Figure 12: Best-in-Class Enterprises Are Moving to a “Prime Vendor” CPM Solution Strategy.............................................................................................................. 12 Figure 13: Best-in-Class Enterprises Ensure that Internal and External Metrics and Incentives are Tightly Aligned............................................................................. 15 Figure 14: Best-in-Class Identify Technologies that Enable Closed Loop Collaborative Decisions............................................................................................................ 16 Figure 15: Enterprises Rely Heavily on Paper/Manual/Spreadsheets ................ 17 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  7. 7. The Closed Loop Corporate Performance Management Benchmark Report Tables Table 1: Prioritized CPM Challenges and Success Actions ..................................9 Table 2: Characteristics of Best-in-Class versus Prime Vendor CPM Strategy .. 13 Table 3: Best-in-Class PACE (Pressures, Actions, Capabilities, Enablers)......... 14 Table 4: Corporate Performance Management Competitive Framework............ 18 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup
  8. 8. The Closed Loop Corporate Performance Management Benchmark Report Chapter One: Issue at Hand Key Takeaways • Growing market complexity, volatility, and fragmentation are driving enterprises to deploy closed loop performance management systems with daily/weekly cycle times and focused on dominating specific profitable market segments • Best-in-class companies tightly integrate financial and operational performance manage- ment in terms of planning , metrics, analysis, and reporting • All enterprises are driving towards significantly compressing CPM cycle times with the ma- jority of best-in-class companies targeting real time or daily closed loop cycles Complex and Distributed Value Chain Strategies Demand Rapid Closed Loop Management • Achieving individual operating metrics that will “deliver” the plan Competitive Framework • Initiatives are prioritized based on their impact on corporate per- Key formance objectives The Aberdeen Competitive Framework defines enter- • Leading indicators of impending operational and financial chal- prises as falling into one of lenges are identified and monitored the three following levels of • Early market and value chain results are quickly analyzed and the practices and performance: implications for the next planning cycle are rapidly implemented Laggards (30%) —practices • Companies with consistently winning business performance have that are significantly behind deployed a rigorous and structured program to enable the most ef- the average of the industry fective decision-making, based on a “closed loop” approach Industry Norm (50%) — practices that represent the average or norm Best-in-Class (20%) — practices that are the best currently being employed and significantly superior to the industry norm All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 1
  9. 9. The Closed Loop Corporate Performance Management Benchmark Report Figure 2: Best Practices Closed Loop Performance Management Cycle Source: AberdeenGroup, March 2004 Closed Loop Performance in Action A leading entertainment company providing a broad range of integrated services was faced with a marketplace characterized by the success of individual offerings determined by sales within the first week of release — frequently by the first day’s sales — “our decisions were as good as yesterday’s information; but we are a daily business”. There was the additional impact of the tight relationship between the sales of a leading product, (e.g. a movie), and the subsequent sales of related products (e.g. DVD and mer- chandizing). With the responsibility for the individual products and services distributed across different business units, this increased the potential for the planning and analysis of results does not reflect this deep inter-dependence. The existing financial planning and performance management system consisted mainly of disconnected spreadsheets with no real time information, and no common assumptions. The majority of time was spent securing and consolidating the data, leaving little time for integrated planning or insightful analysis. The company embarked on a program involving the implementation of a real time financial planning and analysis system supported by a data warehouse with POS data feeds, with the following objectives: • Ensure that corporate initiatives were coordinated across all business units and the in- ter-relationships modeled and embedded in the planning and target-setting phase • Develop and assess multiple “what if” scenarios to better determine the corporate impact of alternate market responses to new products and services • Introduce the processes and technologies to analyze on a daily basis both the individ- ual and collective performance, determine the root cause of plan deviations, and take immediate corrective action All print and electronic rights are the property of AberdeenGroup © 2005. 2 • AberdeenGroup
  10. 10. The Closed Loop Corporate Performance Management Benchmark Report With the new program in place, the company has already: • Significantly improved its ability to manage the overall financial risk and the cor- porate impact of very fluid consumer buying behavior • Reduced their budget cycle time and market responsiveness from 4 weeks to 1½ weeks • Enabled the decision-makers to now spend 80% of their time on analysis and pro- active management With these solid improvements in place, the company is now embarking on the second phase: to make the whole closed loop process more proactive by systematically taking advantage of the sce- nario building and analysis capability to develop more effective contingency plans. Aberdeen research has determined that only those enterprises able to answer “yes” to the following questions are really deploying effective closed loop processes: • Do my functional and cross-functional operating activities and metrics clearly and di- rectly map to my corporate plan? • Is the primary objective of the plan to improve future decision making, including the quality of plan assumptions? • Does my CPM process prioritize and focus on those activities, markets, products, and decisions that drive competitive performance, versus across the board reporting? • Are best results practices identified, propagated, and incented across the organiza- tion? • Does my examination of our processes provide financial analysis of all operating per- formance? Whereas in the past, this cycle would consist of an annual planning process and a periodic — monthly and quarterly — review and performance report, the volatility of the new marketplace de- mands a structural change in the process, based on: • Testing of the validity of the plan assumptions themselves, as much as analyzing per- formance against the plan. • Developing the frequency and level of granularity of the performance measurement based on decision importance — no fixed periodic review of everything — no “peanut butter” approach • Much greater emphasis on the “why” rather than just the “what” of what has happened — does this indicate a trend, a blip, an anomaly, etc — and what do we do about it? • Much more frequent and systematic testing of pilot concepts — with sharply focused interpretation of the results — based on viral deployment strategies — the enterprise cannot afford to “bet the farm” on a single, all embracing thrust • Continuous development of best practices based on best results, structured identifica- tion, and propagation of pilot-based best results All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 3
  11. 11. The Closed Loop Corporate Performance Management Benchmark Report Best-in-Class Objectives for CPM are Radically Differ- PACE Key — For more detailed descrip- ent tion see Appendix A Best-in-class enterprises deploy CPM programs with the objective of Aberdeen applies a methodology to benchmark “shining the laser” on critical emerging enterprise performance issues, research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that as quickly as possible, to manage business risk and to test plan assump- indicate corporate behavior in specific business tions. processes. These terms are defined as follows: Best-in-class companies are rapidly adopting a dynamic performance Pressures — external forces that impact an management program that incorporates the elements of: organization’s market position, competitive- ness, or business operations • A “future decision” versus a “reporting” focus Actions — the strategic approaches that an • Insight into improving the next planning cycle versus appor- organization takes in response to industry tioning blame pressures • Integrated business process scope versus functional silo scope Capabilities — the business process competencies required to execute • Weekly/daily versus monthly cycle times corporate strategy The integration of operational and financial metrics is a telling indicator Enablers — the key functionality of an enterprise’s ability to prioritize amongst competing customer fac- of technology solutions re- ing, supply chain and product development issues, by providing a quired to support the organiza- common profit-based framework. tion’s enabling business prac- tices Best-in-Class Companies Prioritize Pressures Differ- ently Best-in-class companies, especially enterprises over $1 billion in annual revenues, overwhelmingly identify the pressures of managing a distributed enterprise, from a value chain perspective, as the most compelling pressure on the effectiveness of their legacy CPM processes and technologies — their competitors view this as a much lower priority issue. This heightened focus on the value chain context reflects the fact that companies with best-in-class performance are generally much more advanced than their competitors in terms of implementing collaborative and global value chain strategies. These strategies place a premium on managing in a business environment of highly distributed authority, responsibility, and decision-making. Figure 3: Best-in-Class Enterprises Highlight Distributed Value Chain Pressures DISTRIBUTED ENTERPRISE ALIGNMENT P R IO R I T IZ E D PRESSURES VOLATILE MARKETPLACE LAGGARD NORM SHORTENED PRODUCT BEST IN CLASS LIFECYCLES 0% 10% 20% 30% 40% 50% 60% 70% 80% % IDENTIFIED AS CRITICAL Source: AberdeenGroup, March 2005 All print and electronic rights are the property of AberdeenGroup © 2005. 4 • AberdeenGroup
  12. 12. The Closed Loop Corporate Performance Management Benchmark Report Chapter Two: Key Business Value Findings • Best-in-Class companies widely outperform their competitors in terms of % gross Key Takeaways margin, % of profitable segments in their portfolio and the % market share of the most profitable segments • 75% of all enterprises deploying a closed loop performance management program significantly improved their % gross margin within a year • Best-in-Class companies drive their short cycle closed loop CPM programs with the prime objective of improving future decision making through focused root cause analysis and interpretation Best-in-Class CPM Companies Consistently Outperform their Competition Companies that deploy best-in-class Corporate Performance Management strategies report signifi- cantly higher business performance than their competitors, especially in critical market-facing ar- eas: • 32.7% gross margin versus 24.7% for industry norm, and 15.3% for laggards (Figure 4) • 65.7% profitable segments versus 41.3% for industry norm, and 31.5% for laggards (Figure 6) • 27.2% share of profitable segments versus 20.1% for industry norm and 14.9% for laggards (Figure 7) Figure 4: Best-in-Class Companies Outperform Competitors by a Wide Margin BEST IN CLASS C P M C O M P E T IT IV E P O S IT IO N NORM PREVIOUS % GROSS MARGIN % POINTS IMPROVEMENT LAGGARDS 0% 5% 10% 15% 20% 25% 30% 35% CURRENT % GROSS MARGIN Source: AberdeenGroup, March 2005 A critical component of this superior performance derives from their dominating a disproportionate share of high profit segments (Figure 5) — not just from a higher overall % All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 5
  13. 13. The Closed Loop Corporate Performance Management Benchmark Report market share. This advantage is further reinforced by the fact that these best performing enterprises have captured a far higher % market share of profitable segments: 27.2% versus 20.1% for industry norm and 14.9% for laggards Figure 5: Best-in-Class Companies Have the Most Profitable Market Segmentation Portfolios BEST IN CLASS C P M C O M P E T IT IV E P O S IT IO N NORM LAGGARDS 0% 10% 20% 30% 40% 50% 60% 70% % PROFITABLE SEGMENTS Source: AberdeenGroup, March 2005 Improving CPM Provides High Value for All Participants Based on the definition of closed loop performance management provided in Chapter One — Best Practices Closed Loop Performance Management Cycle — 20% of respondents have implemented this program, and an additional 30% are planning to do so in the next twelve months. Improving CPM capabilities is a winning proposition for the large majority of enterprises — 75% of all participants in a program to improve their closed loop performance management programs achieved positive results. Best-in-class companies improved the most in terms of an absolute increase in % gross margin, but enterprises with industry norm programs achieved the highest proportional gains. This is because the industry norm companies had both more improvement potential than the best-in-class, and deployed true closed loop programs as compared to many laggard companies who were more focused on improving automation and reporting. All print and electronic rights are the property of AberdeenGroup © 2005. 6 • AberdeenGroup
  14. 14. The Closed Loop Corporate Performance Management Benchmark Report Figure 6: Enterprises Gain from a CPM Program from all Starting Points 9.0% 8.0% 7.0% PERCENTAGE 6.0% POINTS 5.0% IMPROVEMENT 4.0% IN % GROSS 3.0% MARGIN 2.0% 1.0% 0.0% LAGGARDS NORM BEST IN CLASS COMPETITIVE POSITION Source: AberdeenGroup, March 2005 More than 2/3 of survey respondents reported at least some improvement in various performance metrics (Figure 7), with the most improvement centered on customer-facing metrics such as % gross margin, and % profitable growth. The high profile given by enterprises to tracking segment portfolio profitability and market share is consistent with the emphasis placed by most enterprises with the objective of winning where it matters most — in the external marketplace. Figure 7: Performance Improvement Spans Multiple Corporate Business Metrics PRIORITIZED KPI % PROFIT MARGIN % PROFITABLE GROWTH % PROFITABLE SEGMENTS MAJOR IMPROVEMENT MINOR IMPROVEMENT % SHARE PROFITABLE SEGMENTS 0% 10% 20% 30% 40% 50% 60% 70% % OF RESPONDENTS REPORTING IMPROVEMENT Source: AberdeenGroup, March 2005 The widespread improvements in business profitability that are attributed by respondents to an en- hanced closed loop CPM program explain the strong support (Figure 8) given to initiatives that in- crease the effectiveness of legacy CPM processes and technologies. All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 7
  15. 15. The Closed Loop Corporate Performance Management Benchmark Report Figure 8: 75% Are or Will Be Involved in New CPM Activity ACTIVITY INVOLVED > 12 MONTHS ACTIVITY INVOLVED < 12 MONTHS NEW ACTIVITY < 12 MONTHS NEW ACTIVITY > 12 MONTHS NO COMPLETED OR PLANNED ACTIVITY Source: AberdeenGroup, March 2005 Best-in-Class Companies Prioritize Different Strategic Actions Best-in-class companies recognize that the heart of an effective CPM program is increasing the scope, quality, and impact of future decision-making; this explains the priority they report (Figure 9) for strategic action to better manage in a chaotic and distributed environment. All respondents identified root cause analysis as a prime strategy, and this appreciation is critical to evolving from a reporting to a decision-making ethos. Aberdeen research has shown that the root cause of a plan shortfall is frequently not in the functional area where the metric shortfall is meas- ured. Only a root cause approach can uncover the real source of the problem or opportunity as a prelude to taking corrective action. For example a company could be reporting lower than planned % order fill rates in a distribution center (DC) and consider that the problem had to lie with the people or practices in this DC. How- ever, the real problem could easily be that manufacturing decided to produce longer runs to increase their productivity, which extended the time between the manufacture of specific items and caused certain line order items not to be in stock at the DC. Alternatively, the expected shipments of key parts required for the manufacture of these line items could have been delayed, making it impossi- ble for both manufacturing and distribution to perform at planned levels. All print and electronic rights are the property of AberdeenGroup © 2005. 8 • AberdeenGroup
  16. 16. The Closed Loop Corporate Performance Management Benchmark Report Figure 9: Best-in-Class Companies Universally Embrace a Decision Centric CPM Strategy PRIORITIZED ACTIONS DEPLOY DECISION MAKING CPM FOCUS CPM ON ROOT CAUSE LAGGARD NORM FORMAL CONTINUOUS BEST IN CLASS LEARNING 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% % IDENTIFIED AS CRITICAL Source: AberdeenGroup, March 2005 Challenges and Responses There was consensus (Table 1) that the prime source of challenges to the effectiveness of CPM programs is processes that are not explicitly future decision focused. Generally, this meant that the purpose of the cycle was to report actual performance against plan, and to allocate blame or praise based on these results — but not to extract key learnings that inform and improve the next cycle of corporate decisions. This was the case even for best-in-class performers — but they have identified a decision-centric CPM strategy as the prime strategic action to correct this problem, while their competitors are far less focused on this corrective approach. Laggards identified the failure of their CPM processes to more exactly and consistently translate their business strategies and objectives into specific operational programs and metrics. Aberdeen research has indicated that this is the single most likely source of failure to achieve these strategic objectives. Table 1: Prioritized CPM Challenges and Success Actions Challenges % Selected Responses to Challenges % Selected 1. Culture and processes not designed 62% 1. Promote a set of pilot programs to 85% to focus on improving future decision test/demonstrate corporate closed making loop flexibility and responsiveness 2. Lack of precise translation of plan 58% 2. Develop compelling business case 68% objectives to specific operational tar- for closed loop performance man- gets agement initiative 3. Individual functional targets/metrics 54% 3. Conduct competitive benchmarks 57% in conflict with each other on performance management to identify internal shortfalls 4. No clear criteria for adjusting plan 50% 4. Implement technology that sup- 46% objectives and/or assumptions based ports closed loop performance man- on actual results agement and root cause analysis All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 9
  17. 17. The Closed Loop Corporate Performance Management Benchmark Report Challenges % Selected Responses to Challenges % Selected 5. Performance management pro- 42% 5. Install formal program to reward 36% grams not perceived as competitive best practices differentiator 6. Unavailability of software to com- 35% 6. Benchmark non-competitive best- 25% plete closed loop planning and analy- in-class companies sis Source: AberdeenGroup, March 2005 Best-in-class enterprises have zeroed-in on the approach of promoting multiple, small, highly fo- cused pilot programs to gain support for CPM programs, rather than trying to gain approval for a single large program. This winning approach presents a much lower initial investment threshold, demonstrates rapid positive results, and frequently enables partial self-funding of the larger pro- gram. Best-in-Class Are Compressing Cycle Time CPM cycle time is the elapsed time starting from the modification to one or more elements of a strategic plan or budget, and the completion of the first closed loop performance review of actual results against the revised plan. Companies with best-in-class performance differ sharply from their competitors as nearly 40% have already deployed CPM cycle times (Figure 10) that are conducted weekly or more often — com- pared to less than 10% of industry norm and none of the laggards. This dedication to shorter cycle times aligns tightly with their heightened recognition of the opportunity cost of delayed decisions in a rapidly changing marketplace, and their focus on rapidly implemented and assessed pilot pro- grams. Figure 10: Current Cycle Time Strategy Source: AberdeenGroup, March 2005 Eighty percent of respondents indicated that they were progressing to significantly shorter CPM cycle times, with over half of best- in-class reporting the objective of real time or daily cycles. The most profound charges are reported by laggards, with more than 50% indicting the intent to move from an exclusively monthly or quarterly cycle to a weekly one. All print and electronic rights are the property of AberdeenGroup © 2005. 10 • AberdeenGroup
  18. 18. The Closed Loop Corporate Performance Management Benchmark Report This illustrates the broad acceptance across industries and company sizes of the critical need for more timely, integrated and insightful CPM approaches in response to the fluidity of the competitive marketplace. Figure 11: Future Plans for Compressing CPM Cycle Times C O M P E T IT IV E P O S IT IO N BEST IN CLASS NORM REAL TIME/DAILY WEEKLY MONTHLY/QUARTERLY LAGGARD 0% 20% 40% 60% 80% 100% % OF RESPONDENTS Source: AberdeenGroup, March 2005 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 11
  19. 19. The Closed Loop Corporate Performance Management Benchmark Report Chapter Three: Implications & Analysis • Best-in-class enterprises are leading the pervasive charge to embrace the value of a Key Takeaways “prime vendor” technology strategy • Most enterprises are not currently technologically well armed to be effective with a closed loop CPM program • Closed loop collaborative workflow and intelligent profit-centric plan variance analysis technologies are the most highly prized Enterprises are Adopting a “Prime Vendor” Solution Strategy Nearly 80% of best-in-class enterprises either have adopted, or are seriously considering adopting, a “prime vendor”. CPM solution architecture (Figure 12); in every competitive segment more than 50% of respondents are trending away from the traditional “best of breed” solution approach Figure 12: Best-in-Class Enterprises Are Moving to a “Prime Vendor” CPM Solution Strat- egy BEST IN CLASS COMPETITIVE DEDICATED TO PRIME VENDOR POSITION STRATEGY NORM EVALUATING PRIME VENDOR STRATEGY LAGGARD DEDICATED TO BEST OF BREED 0% 20% 40% 60% 80% 100% % OF RESPONDENTS Source: AberdeenGroup, March 2005 This is largely explained by the growing perspective of end users that a closed loop CPM process requires a tight link between planning and operational metric setting, and that the most effective analysis of results requires a deep understanding of the use of this analysis to improve future plans and decisions. Table 2 illustrates the central differences reported between enterprises who have chosen a “Prime Vendor” CPM strategy and those who chose to deploy a “Best of Breed” strategy. “Best of Breed” strategies are more likely to be selected in less complex business environments involving independ- ent business units, where the marketplace is relatively stable and where the root cause analysis against plan is straightforward and not subject to a significant degree of variation between cycles. All print and electronic rights are the property of AberdeenGroup © 2005. 12 • AberdeenGroup
  20. 20. The Closed Loop Corporate Performance Management Benchmark Report Table 2: Characteristics of Best-in-Class versus Prime Vendor CPM Strategy CPM Solution Strategy Characterisitc Best in Class Prime Vendor Best Practices Cycle Modules Single Multiple Integration Data CPM Process Module Linkages Manual/Extracted Automated Technical Architecture Multiple Single Closed Loop Workflow No Yes Root Cause Analysis Functional Cross-Functional Source: AberdeenGroup, March 2005 A large multi-national consumer goods manufacturer was faced with the need to drive rapid market penetration for new and enhanced products and categories in a dysfunctional technical environment defined by: • Eleven different, and incompatible, transaction, planning, and annual performance management systems • Inconsistent/conflicting metrics for defining corporate health and disagreement about how these metrics should be defined, translated to the individual functional areas, and analyzed • Thousands of spreadsheets and “tons of manual data — but no way to understand what it means” The company embarked on a program to implement an integrated system for planning, metrics/scorecards, and business intelligence that included: • Determining and zeroing-in on the major sales and marketing business processes that drove competitive performance, and uncovering the common themes • Shifting from a departmental to an enterprise scope for success • Starting with integrated operational and financial planning first, then introducing a set of aligned automated and layered scorecards, and finally using business intelligence to provide insight and inform course corrections to the next planning cycle The following benefits have been achieved and are enabling the company to focus effectively on rapidly developing and exploiting opportunities for targeted marketplace success: • “Close the integrated loop” for the entire corporation on a quarterly basis • Effective “early warning” system based on leading performance indicators All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 13
  21. 21. The Closed Loop Corporate Performance Management Benchmark Report • Sales organization can now focus on profitable growth and on high-value customer relationships instead of “arguing about whose version of which numbers is right” Pressures, Actions, Capabilities, Enablers (PACE) As discussed in chapters One and Two, best-in-class companies are prioritizing marketplace pres- sures very differently from their competitors, and this is leading them to logically focus on different sets of strategies. Best-in-class companies are targeting a specific set of prioritized business process capabilities and enabling technologies to support these differentiated strategies. (Table 3) Table 3: Best-in-Class PACE (Pressures, Actions, Capabilities, Enablers) Prioritized Prioritized Ac- Prioritized Ca- Prioritized Priorities Pressures tions pabilities Enablers 1 Distributed enter- Deploy closed Root cause analy- Work flow that en- prise increases loop performance sis with forward ables closed loop difficulty of shar- management sys- looking implica- business process ing information tem for proactive tions and alignment decision making 2 Volatile market- Establish formal Harmonizing tops Collaborative tech- place punishes continuous learn- down/bottoms up nologies to link inter- inflexible/fixed ing and propaga- and cross- nal and external in- period planning tion strategy functional metrics formation sources 3 Shortened deci- Focus corporate Developing col- Software to prioritize sion cycles in- performance man- laborative proc- plan short- crease the oppor- agement process esses with com- falls/overages based tunity cost of be- to support root mon metrics with on profit implications ing wrong cause analysis customers and suppliers 4 Competitive pres- Align individual Establish clear Business intelligence sures make single incentives and criteria to trigger applications to carry phase (vs. itera- performance as- re-planning out I intelligent vari- tive) initiatives sessments consis- ance analysis high risk tently across en- terprise 5 Product/solution Establish formal Identify competi- Software to store proliferation CPM cross- tive metric differ- and push/pull propa- makes aggregate functional team entiators and de- gation of best results level analysis ploy focused im- practices provement pro- gram Source: AberdeenGroup, March 2005 Best-in-Class CPM Business Process Capabilities Best-in-class enterprises, far more than norm and laggard competitors, are investing significant time and effort in ensuring that cross-functional activities, metrics, and initiatives are harmonized across the enterprise and with trading partners. This is a critically significant difference as Aberdeen re- All print and electronic rights are the property of AberdeenGroup © 2005. 14 • AberdeenGroup
  22. 22. The Closed Loop Corporate Performance Management Benchmark Report search has demonstrated that, left to individual functional silos, bottoms-up metrics are guaranteed to be in direct conflict with each other. Even the definition of commonly used metrics such as fill rate will likely be very different between buyers and suppliers. Figure 13: Best-in-Class Enterprises Ensure that Internal and External Metrics and Incen- tives are Tightly Aligned 80% 70% 60% 50% % IDENTIFIED AS 40% BEST IN CLASS CRITICAL 30% NORM 20% LAGGARD 10% 0% FORWARD LOOKING HARMONIZED CROSS- COMMON METRICS ROOT CAUSE ANALYSIS FUNCTIONAL METRICS WITH PARTNERS PRIORITIZED CAPABILITIES Source: Aberdeen Group, March 2005 Best-in-Class Prize Collaborative Closed Loop Workflow Technologies Best-in-class enterprises strongly focus on technologies (Figure 14) that facilitate automated col- laborative workflow and enable short cycle, closed loop performance management. This is fully consistent with their migration to a “prime vendor” technology platform and the need to ensure that the information and decision flow around the performance cycle is aligned across the organization. This also provides the platform for early and proactive issue and opportunity alerts across the per- formance cycle to enable superior re-planning. An example of such a workflow could be made around the introduction of a completely new plat- form of products into multiple geographical marketplaces and channels. Clearly, there needs to be a high degree of collaboration and alignment across engineering, marketing, sales, manufacturing, procurement, and distribution to ensure: • The effective translation of the plan into specific compatible actions • Executing these specific activities • Monitoring and analyzing results • Determining the next phase of the new product line introduction based on these find- ings An automated collaborative workflow would ensure: • The full enterprise team was aligned in time, activity, and inter-dependence of the indi- vidual activities • A much more rapid cycle time to assess and respond to actual market conditions versus plan assumptions • A mechanism to proactively alert team members based a foreseen upset in any individ- ual functional activity All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 15
  23. 23. The Closed Loop Corporate Performance Management Benchmark Report Figure 14: Best-in-Class Identify Technologies that Enable Closed Loop Collaborative Deci- sions 90% 80% 70% 60% % IDENTIFIED AS 50% BEST IN CLASS CRITICAL 40% NORM 30% LAGGARD 20% 10% 0% CLOSED LOOP WORKFLOW COLLABORATIVE INFORMATION SOFTWARE PRIORITIZING PLAN SHARING VARIANCES PRIORITIZED TECHNOLOGIES Source: AberdeenGroup, March 2005 Public Enterprises: Obvious Differences and Provocative Similarities One of the most profound changes uncovered in the research has been the growing adoption by the public, not-for-profit organizations of a strikingly similar set of CPM attributes normally associated with best-in-class performers in the private sector. The public sector has clear differences from the private sector: • Profitability and return on investment are not the prime measures of financial and or- ganizational success • Not subject to global competition • Customers do not directly “buy” services; however, they are voters and this can add a potentially complicating political component to many decisions • Public enterprises have been particularly challenged by the actual and planned reduc- tion in social services that is a result of unprecedented federal budget deficits “water falling” down to state and municipal governments; rising interest rates; and lack of full funding of homeland security requirements There are also dramatic similarities in the pressures facing public and private enterprises: • The growing requirements for demonstrated/tracked financial accountability • The need to ensure that organizational objectives are effectively translated to cross- functional units/departments and individuals that have potentially conflicting bottoms- up metrics and incentives • The need to be able to respond to changes in priorities and to redeploy resources within the budget cycle • The need to manage the growing trend towards outsourcing activities and services, and to monitor and make effective decisions in this distributed environment All print and electronic rights are the property of AberdeenGroup © 2005. 16 • AberdeenGroup
  24. 24. The Closed Loop Corporate Performance Management Benchmark Report • The compressed time frames in which to analyze results and to make the right forward- looking decisions These similarities have resulted in the requirements for public enterprises around closed loop per- formance management systems, in many ways, to mirror those of the private sector, in terms of: • Setting clear strategic directions, objectives, and success measures • Translating them into the required programs and activities of the cross-functional de- partments, and ensuring that common and/or compatible metrics are determined • Analyzing results to understand the root cause of plan shortfalls or overages, and doing this in weekly time frames • Ensuring that best practices results impact the next planning cycle and are effectively propagated and leveraged throughout the organization Enterprises Are Not Currently Well Armed for this Rapid Cycle Environment With the exception of reporting plan variances, all CPM activities are currently more dependent upon manual processes or spreadsheets than on leveraging custom or commercial software. This results in a sharp limitation in the speed, data inter-relationships, and depth of analysis that is feasi- ble to do across many of the key CPM activities — and thus will inhibit companies from speeding up their CPM cycle time. The greatest opportunities for the deployment of application software in CPM would appear to be in the areas of: • Analyzing results to determine best practices • Electronically linking plan objectives to specific operating tasks and metrics • Closed loop workflow integrated with collaborative alerts Figure 15: Enterprises Rely Heavily on Paper/Manual/Spreadsheets DETERMINATION OF BEST PRACTICES S&OP PLANNING/OBJECTIVE SETTING CLOSED LOOP WORKFLOW/ALERTS CPM AREA PROPAGATION OF BEST PRACTICES ROOT CAUSE PERFORMANCE ANALYSIS PAPER/MANUAL SINGLE PLAN/RESULTS RECORD CUSTOM COMMERCIAL LINK PLAN TO OPERATIONS METRICS REPORTING PLAN VARIANCES 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % OF RESPONDENTS Source: AberdeenGroup, March 2005 All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 17
  25. 25. The Closed Loop Corporate Performance Management Benchmark Report Best-in-Class Performance Management Programs are Focused on Speed, Decisions and Choice Best-in-class companies are described by a common set of characteristics that set them apart from their competitors and are a major source of their superior performance (Table 2). • Process: Closed loop decision-centric based on entire business processes • Organization: Performance teams are cross-functional and determine/drive change • Knowledge: Detailed micro-market profitability data in common use • Technologies: CPM specific workflow and intelligent analytics • Metrics: Harmonized cross-functional and tops-down/bottoms-up Table 4: Corporate Performance Management Competitive Framework Laggards Industry Norm Best-in-Class (30%) (50%) (20%) Closed Loop CPM Focused on functional silo Loose linkage, mainly functional Closed loop, decision-centric Process performance with no pro- silo process from planning to process focused on integrated grammatic learning for re- analysis to re-planning business processes planning Closed Loop CPM Functional silo teams only — Cross-functional team performs Cross-functional team perform Organization no cross functional team formal operations review and ands formal operations review recommends changes and is empowered to manage process and implement changes Closed Loop PM Profitability at aggregate level Customer specific profitability by Market segment profitability at Knowledge for individual customers and major product; awareness of ma- customer / product / channel / aggregate market level jor value chain causal relation- geographical level; root cause ships logic defined Closed Loop CPM Spreadsheets; no electronic Basic ERP and planning applica- Closed loop workflow soft- Technology linkage of performance tions with some database busi- ware; root cause / pattern rec- phases ness intelligence ognition analysis Closed Loop CPM Functional silo metrics not Metrics mainly at functional silo Metrics determined by specific Performance Metrics harmonized across silos; stan- level with metrics aligned to stra- plan objectives; cross- dard metrics not tied to plan tegic objectives functional and tops changes down/bottoms up metrics are harmonized Average % Gross 15.3% 24.7% 32.7% Margin Average % Profitable 31.5% 41.3% 65.7% Segments Average % Share of Highest Profit Seg- 14.9% 20.1% 27.2% ments Source: AberdeenGroup, March 2005 All print and electronic rights are the property of AberdeenGroup © 2005. 18 • AberdeenGroup
  26. 26. The Closed Loop Corporate Performance Management Benchmark Report Chapter Four: Recommendations for Action • Compress your CPM cycle to align with market dynamics – daily/weekly rather than monthly Key Takeaways • Ensure alignment amongst cross functional objectives, metrics and incentives • Focus on managing those initiatives, market segments and metrics that provide differen- tiated business value performance • Assess the business value of a “prime vendor” versus “best of breed” CPM solution strategy Laggard Steps to Success 1. Establish a Closed Loop CPM Business Process Referring to Figure 2: Best Practices Closed Loop Performance Management Cycle, ensure that you have an integrated cycle and not just a set of independent processes and technologies that do not flow information, analysis, and logic across and amongst these individual phases. The best way to ensure that you have a truly closed loop process in place is to test it against the specific characteristics of an effective system: • Functional and cross-functional operating activities and metrics that clearly and di- rectly map to corporate plan • The primary objective and use of plan versus actual analysis is to improve future deci- sion making • CPM process prioritizes and focuses on those decisions that drive competitive advan- tage • Best practices results are identified, propagated, and incented across the organization • Financial analysis is central for all key operating performance assessments It is not critical, at the start, for these elements to be operating at the level of the capabilities of best- in-class performers — but it is essential that the set of closed loop elements are designed and im- plemented to learn and inform each other, at least to some degree. 2. Identify the Mission Critical Set of Strategic Objectives No organization can manage in an environment where everything is “critical” and, therefore, of equal importance — that guarantees that nothing is really critical to corporate success. An integral part of the best practices CPM process is to ensure that the handful of strategically significant issues — especially those that are multi-divisional and have a meaningful impact on overall corporate fi- nancial performance or risk — are clearly identified. This up front identification provides the context and basis for ensuring that adequate management resources and time are invested in ensuring success of the issues of primary importance and not dif- fused across a broad spectrum of much less important issues and opportunities. All print and electronic rights are the property of AberdeenGroup © 2005. 20 • AberdeenGroup
  27. 27. The Closed Loop Corporate Performance Management Benchmark Report A “tops down” approach is essential to ensuring that the identified objectives are truly of corporate strategic importance. 3. Clearly Translate Key Plan Strategies to Operational Objectives and Metrics One of the most frequently reported causes of plan shortfalls is the failure to ruthlessly ensure that these identified strategic objectives are mapped to specific operational and cross-functional tasks, activities and metrics. It is a given that, left to themselves, bottoms-up operational and functional activities and metrics will: • Be in structural conflict with each other (i.e. that accomplishing one functional objec- tive will actually harm the performance of an adjacent functional activity). • Will never “add up” to the overall planned corporate performance. • Will have no common context or guidance on what changes may be best to make in fu- ture direction in those cases where actual corporate or functional performance falls short of plan. The other extremely important objective of this translation is to ensure that the strategic objectives can most likely be achieved, and not be a “target” with no hope of bringing them to reality. Transla- tion quickly uncovers potential resource, timing, and especially, cross-functional alignment issues that must be addressed to make the strategic objective feasible. 4. Establish Common Metrics for Adjacent Functional Areas This recommendation directly addresses the point made above that virtually all individual bottoms- up functional metrics are in direct or indirect conflict with each other and will ensure a dysfunc- tional corporation if left to themselves. It is not sufficient — indeed it is irrelevant — for functional areas to “be aware” of the impact of their decisions on other activities. So long as individuals and teams are measured and rewarded on specific metrics, then that is how they will behave and make decisions, irrespective of any other rhetoric. Therefore, all operational and functional metrics should be designed to support the corporate strate- gic objectives. A good place to start would be adjacent functional areas — such as manufacturing and distribution, or marketing and sales, where the potential losses from a conflict in metrics and decision-making would be most apparent and most quickly realized. 5. Develop Profitability Data at the Individual Customer/Product/Location Level Lack of sufficiently granular data makes it extremely difficult even to attempt to measure the root cause(s) of plan shortfalls or overages, let alone to determine the right corrective action. This is es- pecially the case when the information available is in operational units of measure such as volumes, physical units, etc — and not translated into their financial equivalents. Aberdeen research has determined that the area where even minimally available profit information has the greatest impact is in customer facing segmentation. Important improvements in analysis and decision-making can be derived by focusing initially on securing profitability data at the individual customer/product/ship-to level, rather than at the average for all customers or channels across prod- ucts and geographies. All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 21
  28. 28. The Closed Loop Corporate Performance Management Benchmark Report Industry Norm Steps to Success 1. Ensure that the CPM Business Process Focuses on Future Decisions This requires that review processes and performance analysis be explicitly set up to assess and in- form decisions that should be made as part of the next CPM planning/objective setting phase. The process should not focus on a status review of performance per se — but rather on the excep- tions (prioritized by financial impact and strategic importance) which would call into question the appropriateness of those decisions the corporation would otherwise have made in the absence of this exception. For example, if the plan calls for the introduction of a whole new product line in a new country over the year, and early returns from the initial foray indicates a significant shortfall in market penetration or profitability, then this becomes a high profile area for review, as it may require a change in the rest of the new product introduction strategy. 2. Migrate from Functional Silo to Integrated Business Process Metrics The greatest opportunities and the greatest risks to corporate performance usually come from stra- tegic objectives that are inherently multi-functional and frequently, multi-divisional. As such, they depend upon coordinated changes to a number of individual functional activities within an inte- grated business process. This business process level focus is essential to achieving broader and more pronounced corporate performance improvement. Best-in-class enterprises recognize that effective management requires functional performance be a sub-set, and subordinate to, the overall effectiveness of the strategic initiative to improve corporate performance. Business process performance is not the sum of the individual bottoms-up perform- ance components; in many cases an uncoordinated improvement in a bottoms-up metric (such as increasing production throughput) can actually damage a business process target (such as minimiz- ing the investment in inventory).Adopt compressed weekly CPM cycle times. The key here is to align the CPM cycle time with the variability in the marketplace, and not some artificially contrived quarterly or monthly cycle driven more by reporting than by decision making. The “best” cycle times clearly differ depending upon the nature of the competitive environment you are facing — it should not be dictated by the availability of data. When your marketplace changes are occurring more rapidly than you can secure data, then this is a major warning indicator that you must find a way to gain even rough-cut usable data within the required decision cycle time frame. Many enterprises with best-in-class performance are moving up at least one cycle compression unit — from quarterly to monthly or from monthly to weekly. They are also building the capability of launching a new CPM cycle on an “as required basis” — when dramatic changes in the competitive landscape compel an immediate and strategic response. 3. Adopt Root Cause Analysis to Identify Core Success/Failure Activities The key to effective and actionable analysis is to design the assessment of actual versus plan, based on determining the “root cause” of the variation, and based on the impact on profitability and cash flow. As mentioned previously, very frequently, the decisions that caused plan variation are taken in functional areas that are not where the variation is measured. For example, a shortfall in manu- facturing productivity could have been the result of procurement of substandard parts — each func- tional area can only be measured based on the variables within their control. All print and electronic rights are the property of AberdeenGroup © 2005. 22 • AberdeenGroup
  29. 29. The Closed Loop Corporate Performance Management Benchmark Report Unlike traditional variance analysis that provides a line-by-line assessment of the income statement and balance sheet (e.g. providing revenue and cost variability as separate items), root cause analysis develops net profit variability analysis based on distinguishing between controllable and uncontrol- lable decisions and spanning functional areas. For example, the decision to outsource certain manufacturing to China could have multitude of im- pacts, including: • A reduction in cost of goods sold • An increase in net freight and logistics costs • An increase in inventory levels to offset the risks from longer delivery times • An increase in lost sales due to lack of supply responsiveness to dynamic market de- mand Traditional reporting would have these impacts reported separately and there would be no way to synthesize the results and understand the net impact of the decision on corporate performance. Root cause analysis would analyze this decision in its entirety and display the individual components as described above, but also provide the overall corporate impact. 4. Institute a Process for Systematically Identifying CPM Best Practices In order to ensure that the corporation takes maximum advantage of the learnings from pilot pro- grams and other initiatives, enterprises should establish a formal process that includes: • Visibility and access to the approved set of specific initiatives, including scope, area of impact, required investment, expected benefits, etc. • Standard assessment of results, on a periodic basis, to determine the effectiveness of the initiative to date, and provide guidance on next steps (including cancellation where warranted). • Propagation of results best practices, including an overview of other areas in the cor- poration where these proven best practices could have a positive impact. • Reward program to incent individuals and teams to propose and take part in new initia- tives. Best-in-Class Next Steps 1. Deploy Workflow Solutions to Accelerate and Automate CPM Cycle Time The introduction of software that automates and manages closed loop corporate performance man- agement from an integrated workflow perspective has the following reported advantages and should be closely examined as a logical next step in overall CPM program effectiveness: • Provides systematic, electronic linkages across individual phases of the closed loop process and ensures consistency and accuracy. • Allows compression of the CPM closed loop cycle time — it is much less likely that a weekly or more frequent CPM cycle time could be achieved without some form of auto- mated workflow enablement. • Provides a solid backbone for rapid and prioritized exception management and alert/response, especially where multiple individuals or teams are involved All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 23
  30. 30. The Closed Loop Corporate Performance Management Benchmark Report • Provides a single point of record for all assumptions/decisions/results of all phases in the cycle 2. Systematize Continuous Learning Including Creating a Common Best Practices Repository The storage of best practices programs and learnings in an on-line repository is a powerful way to accelerate the propagation and adoption of high value impact best practices across the enterprise. This repository should include the following attributes: • Intelligent search so queries can identify best practices related to the specific issue at hand; ability to sort best practices by area of opportunity, area of benefits, etc. • Standard information of each projects’ issues, challenges, actions, and results; including both completed and in progress initiatives • Proactive notification of emerging best practices in the areas individually identified as of interest • Time phasing to alert if specific best practices have not been updated in more than a speci- fied time phase — e.g. no improvements input in over a year • Contact information for the team that was involved in each best practice 3. Develop ‘What-If’ Simulation Capabilities to Manage Marketplace Risk One of the prime objectives of a closed loop corporate performance management system is to im- prove the ability of the enterprise to handle the major areas of financial and value chain risk. Aberdeen research has indicated that the emerging best practice in this regard is through the use of “contingency planning” based on: • Running a series of “what-if” scenarios that capture the assumptions around different pos- sible competitive environments — generally requires at least a 25% probability to make a specific exercise worthwhile • Determining the vulnerability of the enterprises’ financial performance based on the degree to which key base case assumptions have to be “wrong” in order for the financial risk to become significant • Establishing the leading indicators that would highlight, at the earliest possible time, evi- dence that a specific high-risk scenario is unfolding based on actual results and ensuring that these leading indicators are monitored on a frequent basis. In those cases where a relatively small change in a base case assumption results in a large increase in financial risk and performance shortfall, this should result in a deeper assessment of the expected value of the variable. This should also lead to the development of contingency plans; laying out what the various affected areas of the corporation should do different from the base case to offset these added risks. All print and electronic rights are the property of AberdeenGroup © 2005. 24 • AberdeenGroup
  31. 31. The Closed Loop Corporate Performance Management Benchmark Report 4. Compress the Decision Cycle for Evaluating New Customers, Products, and Markets Aberdeen research has determined that the performance of new customers, products, and markets are much more volatile than for more mature segments, and more likely to be the cause of overall corporate shortfalls and/or financial risk exposure. In addition, the ability of the enterprise to improve its overall financial stability and performance is increasingly tied to its ability to quickly penetrate the right new micro-markets and gain a dominant relative market share This suggests that special attention should be paid to these new initiatives. Enterprises’ should con- sider breaking out the management and reporting of major new initiatives, including a separate set of scorecards, etc. to monitor them more closely and more frequently than the rest of the corpora- tion. 5. Assess the Business Value of a “Prime Vendor” Solution Strategy Enterprises that are able to closely integrate the decision process in their closed loop corporate per- formance management programs are much more likely to achieve a faster, more focused, and more effective program, and generate superior top and bottom line performance. This is especially the case for enterprises whose value chains are more complex and therefore re- quire greater coordination and more timely responsiveness to changes in the competitive environ- ment. Examples of this level of complexity include multi-tiered, extensive use of outsourcing, multi-divisional with strongly related markets, supply chains and/.or services, etc. Achieving an integrated closed loop CPM program with disparate technologies is becoming an in- creasing challenge as an issue of the decision-making harmonization across different phases, and less one of simple data transfer. Enterprises should closely examine the business value of using a “Prime Vendor” strategy to unite around a common integrated workflow and provide a common logic context for consistency and accelerated decision-making. All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 25
  32. 32. The Closed Loop Corporate Performance Management Benchmark Report Featured Sponsors Geac Geac is a global enterprise software company that addresses the needs of the chief financial officer. Geac’s best-in-class technology products and services help organizations do more with less in an increasingly competitive environment, amidst growing regulatory pressure, and in response to other business issues confronting the CFO. Geac software and solutions are deployed at more than 18,000 organizations around the world. About half of the Fortune 100 use and rely on Geac systems every day. Geac collaborates with ex- isting and prospective customers through a network of approximately 2,300 professionals in 53 lo- cations worldwide. Invensys Invensys Process Systems is a major global supplier of systems, software, instruments, and services for industrial process automation, real-time production management, and asset performance optimi- zation. The company brings together well-recognized product brands – Foxboro®, Triconex®, SimSci-Esscor®, Avantis®, and Wonderware® – for the broadest portfolio of automation solutions available from a single vendor. In addition, Invensys Process Systems has developed an exclusive approach to solving the biggest challenge facing manufacturers today – managing both asset avail- ability and utilization. Primary customer industries include refining and petrochemicals, upstream oil and gas, fine chemicals, power and utilities, pulp and paper, food and beverage, and metals and mining. All print and electronic rights are the property of AberdeenGroup © 2005. 26 • AberdeenGroup
  33. 33. The Closed Loop Corporate Performance Management Benchmark Report Sponsor Directory Geac Computer Corporation, Ltd. Attn: Chris Kelly 555 Briarwood Circle Ann Arbor, MI 48108 1.800.922.7979 http://www.performance.geac.com/ Invensys Process Systems 33 Commercial Street Foxboro, MA 02035 Phone: Worldwide 508-549-6477 Phone: US, Canada 866-746-6477 www.invensys.com All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 27
  34. 34. The Closed Loop Corporate Performance Management Benchmark Report Author Profile Stanley Elbaum Senior Vice President Research Aberdeen Group, Inc. Stan Elbaum is a senior vice president with AberdeenGroup, responsible for the development and deployment of Aberdeen’s interactive environments and tools that leverage actionable research for our community. He has more than 20 years of experience at the executive level in industry, man- agement consulting and software, as well as market research and brings a strong end user perspec- tive to the Aberdeen Solutions. Elbaum has been deeply involved at the executive and operational levels in the development and implementation of CPM processes and technologies in a variety of multi-national corporations in industries as diverse as consumer packaged goods, petrochemicals, high-tech, and the pulp and pa- per industry. He has been a leader in introducing CPM strategies that are aimed at providing com- petitive advantage through the leverage of best business practices and technologies and the focus on proactive, profit-centric approaches. Elbaum currently leads the Aberdeen research that focuses on performance management across the value chain and deeper research into the leverage of CPM. All print and electronic rights are the property of AberdeenGroup © 2005. 28 • AberdeenGroup
  35. 35. The Closed Loop Corporate Performance Management Benchmark Report Appendix A: Research Methodology D uring January/February 2005, Aberdeen Group and Manufacturing Business Technology magazine examined the Corporate and Business Performance Management practices, ex- periences, technologies, and intentions of more than 150 enterprises in consumer goods, high tech, transportation, retail, and other manufacturing and service industries. Responding finance and operations executives completed an online survey that included questions designed to determine the following: • The degree to which closed loop CPM strategies impact on corporate practices, perform- ance processes, and financial results • The structure and effectiveness of existing CRM procedures • Current and planned use of automation to aid these activities • The benefits that have been experienced by enterprises that have successfully leveraged closed loop CPM capabilities to improve financial and operating performance • The key challenges to implementing a closed loop CPM program and the actions taken to overcome these obstacles Aberdeen supplemented this online survey effort with telephone interviews with select survey re- spondents, gathering additional information on closed loop CPM strategies, experiences, and re- sults. The study aimed to identify emerging best practices for closed loop CPM and provide a framework by which readers could assess their CPM capabilities. Responding enterprises included the following: • Job title/function: The research sample included respondents with the following job titles: Senior Management (e.g. CEO, COO, CFO) or Vice President (35%); Director/Manager (31%); Finance Staff (24%); and internal consultant (10%). • Industry: The research sample included respondents predominantly manufacturing (60%) and services (40%) industries. • Geography: 66% of study respondents were from North America, 13% from Europe, 18 % from AsiaPac and the balance from Africa, and the Middle East. • Company size: About 24% of respondents were from large enterprises (annual revenues above US$1 billion); 33% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 43% of respondents were from small businesses (annual reve- nues of $50 million or less). Solution providers recognized as sponsors of this report were solicited after the fact and had no substantive influence on the direction of the Closed Loop Corporate Performance Management Benchmark Report. Their sponsorship has made it possible for Aberdeen Group and Manufacturing Business Technology to make these findings available to readers at no charge. All print and electronic rights are the property of AberdeenGroup © 2005. AberdeenGroup • 29

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