See also:
CPM: What it is and how it is different from traditional approaches? -- Part One
CPM: 12 Best Practices in Implementing a Solution -- Part Three
CPM: Selecting the Right Technologies -- Part Four (A)
CPM: Selecting the Right Technologies -- Part Four (B)
CPM: Selecting a CPM Vendor -- Part Five
CPM: Emerging Technology Systems -- Part Six

Components of a Solution

          In the last article (Part One), we took a look at what CPM is in comparison to traditional planning, budgeting, forecasting, reporting and analysis. CPM is a combination of metrics, methodologies, processes and technology aimed at implementing and monitoring strategy. Organizations that implement CPM solutions consistently perform better than those organizations that don't. Gartner, the Stanford-based research and advisory firm, predict that 40% of organizations will implement a CPM solution over the next 3 years and that those that do it successfully will outperform their peers.

          So what's involved in implementing an effective CPM solution? How do organizations move from traditional business management processes to those that encompass CPM? That's the subject of this article.

Bridging the gap between Strategy and Execution           To bridge the gap between strategy and execution, four different areas of management need to be aligned: Measures, Processes, People and Technology. Aligning two or even three of these areas is not enough -- all four need to be addressed.

Measures

          To begin with, organizations need to plan and measure the right things. For example, if customer satisfaction is an essential part of your business, then it is obvious that business activities that focus on keeping customers satisfied should be planned and measured. A sad fact is that most organizations rely mainly of financial measures -- take a look at your typical monthly management report. The chances are that it shows this year actual vs. this year budget by summary chart of accounts. And that's the level most people budget at -- by financial account. The trouble with this is that financial accounts are typically the result of actions and not the actions themselves. It's like looking at a garage bill that shows the cost of the service -- but now what was actually carried out. This means that when a variance occurs or a desired result is not achieved, you do not know what caused the variance. For example, was the action fully carried out?

          Within the context of CPM, measuring the right things means planning and measuring the things that count. At a recent conference I asked a member of the audience what was vital for the company they worked for, to stay in business. This person worked for a private hospital and initially gave me an accounting based answer -- 'That we make a profit'. I asked if there was anything more important than that -- to which they thought and responded 'Oh yes -- that we keep people alive ... and that we give them the best possible treatment ... and that they go out better than when they came in'. For this organization, here were three vital measures -- and not one of them a financial measure -- although finance coupled with an action program would be required to deliver the right result.

Check out your own budgets, reports and forecasts -- are you measuring the right things -- the things that drive value in your organization?

Processes

          Once an organization has decided on the right measures, they need to decide on what targets should be set and how they are going to be delivered. To do this organizations typically invoke the processes of strategy formulation (i.e., deciding on how to achieve the target measures); planning (deciding on exactly what actions or tactical plans will be required to implement the chosen strategies); budgeting (allocating resources to those tactical plans); management reporting (monitoring the actions and results of the tactical plans ability to reach the target measures); forecasting (to see if the target measures set over time are still on course to be achieved); and finally analysis (to see where the variances are and to decide on what to do about them).

          Now this explanation seems very logical -- but I challenge you to see how your own processes of strategic planning, budgeting, management reporting, forecasting and analysis actually stand up to that description. Can you see in each process the action plans of how each measure is going to be delivered? Sadly, too many management processes are financially focused rather than focused on actions to deliver specific measures. Without this focus, performance becomes something that just happens, rather than being driven by management action.

People

          People are nearly always responsible for the results they produce. And the reverse is also true -- to produce desired results requires people to do the right things. But quite often, incentives paid to people are often at odds with an organization's strategy. Consider the following: The aim of most organizations is to beat the competition and yet we often reward people on beating the budget. As a result, employees will focus their attention during the budget process of minimizing revenues and maximizing costs. Even worse, if those budgets are not aligned with strategy -- for example the revenue budget is set to grow 5% year a year when the economic climate actually grows by 15% -- we are now rewarding people for achieving below market growth while our competitors take market share from us.

          Incentives should always be set on individual ability to implement action plans that meet or exceed strategic goals. These goals in turn must reflect what the organization wants to achieve in the ever changing business environment in which it operates.

Technology

          The role of technology is to enable the CPM process to deliver strategic goals. Strategic planning, budgeting, forecasting and monitoring actual, are all part of the same process -- moving an organization towards achieving its desired goals.

          The trouble is that most organizations implement them as discreet and separate processes often using different and incompatible technologies. For example, a Word document may be used to capture the strategic plan, spreadsheets used to enter budgets, the general ledger to report actual while a general purpose OLAP tool is used to analyze variances. Four different systems, four different technologies, resulting in four separate versions of the truth. Some poor soul now has to make these fit together in order to answer questions such as: Which products are forecasted to be the most profitable compared to last year.

          CPM exploits technology by combining all the management processes into a single, closed loop application focused on the implementation of strategy.

          In the next article (Part Three), we will look at 12 'Best Practices' in implementing a CPM solution.

About the Author:

Profile of Michael Coveney

Email: mcoveney@comshare.com

See also:
The Strategy Gap: Leveraging Technology to Execute Winning Strategies
Michael Coveney, Brian Hartlen, Dennis Ganster and David King
John Wiley & Sons, 224 pages, US$27.97 / £22.98 (Amazon.com)

Thomas A. Faulhaber, Editor Email: editor@businessforum.com Telephone: 617.232.6596 -- FAX: 617.232.6674 227 Fuller Street Brookline, Massachusetts 02446.5757

consult@businessforum.com

URL: http://www.businessforum.com/Comshare02.html
Revised: February 10, 2003 TAF

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