Yearly Archive for "2007"

A crucial part of Strategic Planning for any organization is establishing a clear consensus on value creation — which is another way of deciding on the main focus of the company.

Simple as it may sound, there are quite a few business organizations which get sidetracked and lose focus of the main value creation process.

Strategic planners and top-level leadership have to provide clear cut answers to questions like

• “what specific kind of value are we generating and for whom?”,
• “how do our processes add value to existing goods and services?”,
• “what are our key value drivers as dictated by our strategic goals?”

For example, if a book retail chain is expanding its coffee house operations into in-store restaurants, is it keeping its focus on its main value-added activity of selling books or gradually shifting into restaurant or catering business?

And what would that mean for the whole organization in terms of the new processes that need to be integrated with the existing ones?

What kind of new measurements must be taken with which kind of new technologies to feed what type of new reports back to the strategic planning level?

A shift in business focus and the definition of “value creation” should be taken very seriously as it will trickle down and affect every process within an organization.

Integrating different processes with the goals of the strategic plan is a crucial aspect of all Corporate Performance Management (CPM) applications.

First, processes must be defined to translate the strategic goals into operational realities.

Secondly, measurement criteria must be developed and tools must be adopted to provide metrics about the results of those processes. However, such a step must be supported by integration of technologies used at different levels of the organization to prevent any inefficiencies.

Thirdly, people involved in the execution of the strategic goals must be rewarded by incentives which are commensurate with revenue growth goals of the company.

Business consultant Michael Coveney has outlined the following 12 Best Practices to implement a Corporate Performance Management (CPM) system:

1. Identify and agree on objectives for each process

2. Plan for all aspects of the business

3. Align strategic goals with operational budgets

4. Assign responsibilities to goals

5. Report at levels that achieve objectives

6. Record assumptions on business environment

7. Communicate goals, objectives and timetables

8. Give access to relevant information

9. Use statistical techniques to predict future performance

10. Provide a feedback loop

11. Budget or forecast a range of scenarios

12. Create an analysis methodology

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Measurement

Without measuring results it’s impossible to know whether the Strategic Plan is reaching its goals or not.

However, most business organizations limit themselves to traditional financial measurements like year-over-year losses or gains. But are those really the best indicators of an organization’s value-added activity?

For example, if you are a tutoring organization, which should be a more crucial measurement of business success: the year-over-year increase in income/profits, or the change in the number of students admitted to the top 20 universities?

CPM brings clarity to the nature of the measurements process itself and helps managers select the right kinds of performance measurements.

Processes

Most organizations operate with traditional processes like annual planning, budgeting, performance measurement, forecasting, reporting and analysis, etc.

However, more often than not, such processes are linked to general financial metrics and not to specific performance targets that really matter for the organization.

A process, for example, which “makes money” is deemed a good process whether it leads to (just to give just two random examples) more healthy patients and shorter hospital stay, or, higher consumer satisfaction and less kitchen accidents.

Without a clear idea as to how each process contributes to specific performance targets, market performance becomes almost an incidental outcome of “better financials.” CPM aims to bring the focus back to the processes that would serve the strategic goals of the organization the best.

Incentives

Sometimes people are rewarded for meeting targets that are not directly related to strategic goals, with adverse implications for the organization’s future growth.
For example, if a manager gets a year-end “resource utilization” bonus, she will try to spend all her allocated budget before the year’s end whether such expenditure contributes to the company’s top strategic goal (e.g., market share) or not. The chances are she will also try to maximize the projected costs and minimize the projected revenues for the year ahead to hedge her bets.

CPM emphasizes the importance of providing management incentives for satisfying not the traditional budgetary targets but specific goals defined by the Strategic Plan.

Data Integration

Some organizations use different technologies at different levels to implement and measure different processes. The result can be a total lack of coordination, confusion, and erosion of morale.

For example, the Strategic Plan might be delivered as a PDF document. The budgeting might be presented in Excel sheets. Process management might use MS Project. A statistics package like SPSS might be used for multi-variate analysis of the results.

But when it comes to deciding whether the goals of the Strategic Plan have been met or not, no manager might be able to make any sense of the overall situation due to the different data platforms used at each step.

CPM aims to eliminate such variance by streamlining and integrating the technologies used by different departments for different processes.

Corporate Performance Management (CPM) system consists of the following elements:

1. A Strategic Plan.
2. An inventory of budgeting, forecasting, planning, reporting and measurement tools available.
3. Integration of those tools in a way to help reach the Strategic Planning goals.
4. An inventory of internal and external resources.
5. A method to relate the allocation of those resources to the Strategic Plan so that the managers can decide which actions to take to implement the plan.
6. A feedback loop from the operational units back to the line management and all the way up to the strategic planners.

The major emphasis is to close the gap between strategic planning and policy execution so the planning will not remain as a mere theoretical exercise.

CPM tries to go beyond the traditional financial reporting of (for example) same-store sales figures a year apart, or similar metrics showing the annual changes in selected variables.

Such measurements are crucial but in themselves that do shed any light on the actual practices that create such changes.

CPM aims to address not only the end result of the change but its causes as well.

A Corporate Performance Management (CPM) system brings a comprehensive approach to business processes.

It uses a wide variety of components including Economic Value Added (EVA) based measurements; different kinds of business methodologies including scorecards, activity-based measurements, etc.

CPM synthesizes a number of “best practices” and newest technologies to come up with and implement the best strategic plan for a given business.

As a self-contained system, CPM employs a Closed-Loop Process which begins with an assessment of the business’s mission and goals, which goals it wants to achieve and when, which resources should be allocated for which programs, the identity, needs and interests of the stakeholders, etc.

Then comes monitoring of the implementation and the collection of specific metrics.

This loop is closed with an evaluation of the measurements and re-assessment of the organization’s main goals, operational targets, and processes.

Gartner reports that 40% of the organizations will implement CPM within the next 3 years and they will have a significant performance advantage over those that don’t.

Corporate Performance Management (CPM) is a management approach that encompasses all “the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise,” according to the management research and consultancy firm Gartner that came up with the concept.

It is basically yet another but effective and sophisticated tool to increase business productivity and profits.

CPM is the direct descendant of other platforms and management tools that were developed in the past like the “Decision Support Systems” of the ’70s, “Executive Information Systems” (EIS) of the ’80s, and the “Business Intelligence” (BI) model of the ’90s.

One thing that separates CPM from other business performance platforms is its focus on strategic planning and deployment.

“How can a business organization draw up a Strategic Plan and execute it with success?” That’s the chief focus of CPM in a nutshell.

Here is how business consultant Lydsay Wise defines “Business Performance Management”:

“The market uses the terms business performance management (BPM), corporate performance management (CPM), and enterprise performance management (EPM) interchangeably.

Vendors and industry analysts use these terms to describe performance management, but essentially they all mean the same thing.

BPM represents the next generation of business intelligence (BI), and is defined as the use of software to help organizations manage their processes and measure their key performance indicators (KPIs) in order to optimize performance and help drive corporate strategy…”

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U.S. Air Force’s Arnold Engineering Development Center (AEDC) in Tennessee has decided to go back to 20-year strategic planning instead of running its Air Force jet engine testing program according to tactical short-term policies.

AEDC Commander Col. Art Huber said the Center is trying to achieve the following by re-emphasizing strategic planning (also referred to as “strategic landscaping”):

• What is the Center’s central mission?
• What are the mid-and long-term goals of the Center?
• What capabilities and resources are necessary to achieve them?
• Who are the main stakeholders? What are their interests and needs?
• What are the gaps, constraints and barriers standing in the way of meeting the strategic goals?

Thanks to the strategic planning in the past, today the Center has world-class altitude jet engine test cell capability, Huber said. Similarly, the needs of the future must be determined today through similar strategic planning if such superiority is to be maintained.

Strategic planning at times can suggest processes that could not be brought to the surface by mere tactical considerations. Here is an example:

Currently the Center also serves commercial customers, besides the U.S. Department of Defense. A decision to serve DoD exclusively may bring a change in the way the Center utilizes its client’s resources.

Currently the Center and its Aerospace Testing Alliance (ATA) emphasize reducing the the cost of testing by 3 to 5 percent, which makes sense from a conventional point of view.

But is it really the best way to maximize service value for DoD, given the fact that low-cost testing may also mean idle days with no testing scheduled?

“From a strategic viewpoint, when an aerospace program is spending a million dollars a day, whether they are testing or not. It may be much smarter for us to spend a little extra money and have resources on hand to expedite their time through AEDC rather than save a small amount of test dollars and drive a larger overall bill to the program,” said ATA General Manager Dr. David Elrod.

To read more on the merits of strategic planning in hi-tech defense industry: http://www.t-g.com/story/1298911.html

Strategic Planning is mainly a top-to-bottom process in that it’s a leadership level responsibility. It’s where the leadership refines and crystallizes its vision and direction for the organization and communicates it to the rest of the organization. Without that crucial communication the business entity is like a ship without a rudder.