Herman Singh answers the question: Will EPMS dashboards dash your plans or delivering dashing results?
I’d like to talk you through the really exciting field of enterprise performance management systems (EPMS). (The “enterprise” was added because the acronym without it was, well, awkward!)
Why this topic and why now? It’s about VUCA (volatile, uncertain, complex and ambitious) times and, yes, the rhythm is gonna get you!
I sit on half a dozen boards (some of listed firms), have equity stakes in a similar number of enterprises and consult to a few dozen local and global firms in the areas of strategy and operational improvement. The one common theme that I come across for all of them is the ludicrous difference between the espoused and enacted strategy. In other words, the actual business results and the strategic intent are light years apart. “Why this?” to quote my German ex-boss from a few decades ago.
The reason is that actually most business leaders are driving their businesses the way a man would drive a car if he had a blacked out windscreen and was navigating by following the white lines on the road through a hole he had cut in the floor!
Most leaders are focused on this week’s, month’s or quarter’s results. They are incentivised and punished for short-term gains or losses. This means that the emphasis is on pure financial and operational metrics: sales, NPS, customer acquisition, cashflow, gross margin, opex and so on.
Actual results are compared to budget which often only bears resemblance to the first year of the strategy, to keep the board calm. Yes, there is a strategy but it’s looked at twice a year once it had been dusted off from the bottom drawer.
This is the kind of endemic behaviour that got Kodak, Blockbuster and Barnes & Noble into a whole world of pain. You can’t incrementally improve your way to the future.
This means that strategy, budget, tactics, execution, reporting and analytics need to be tightly coupled. It’s this that allows you to drive by looking through the windscreen, with long-range and short-term direct and peripheral vision. The ability to do this is becoming critical in a VUCA world – a crazy world where certainty goes out the window. Three things are key: 1) Have a plan, 2) Execute the heck out of it and 3) If it’s wrong then read the signals early and pivot fast.
The challenge is that there has been no way to do this in an integrated and holistic manner. Until now. EPMS is a system that allows you to cascade strategy into budgets and a balanced scorecard of actions and measures, through robust reporting and analytics engines to give the exec a clear view on both operational and strategic performance. But more important is the agility brought with this – the ability to anticipate and pivot in time.
The first rule of a forecast is that it is always wrong. (Sharp intake of breath by the CFO community). Yes, we figured out that a forecast is a guess. Better to have one than not but a guess nonetheless. What’s needed is not a more accurate forecast; what’s needed is better agility.
The best analogy for this is gaming. Yep, what teenagers (and a good few older people) waste their time on. How? It all has to do with Ping! No, that’s not a typo. Ping refers to the latency of the internet from your location. In other words, how long does it take for your move of the mouse or controller to turn into action and how long does it take for you to get a response?
What’s more important in an online game involving shooting? Accuracy or latency? That’s not a rhetorical question. The jury is in. Countries with low Ping produce the highest ratio of winning players. South Korea! Assuming that accuracy is evenly distributed globally that implies that faster response beats more accuracy. Better to shoot and miss and shoot again than to accurately shoot at where the target WAS!
So efforts to improve forecasting are an exercise in futility beyond a certain point. The laws of diminishing returns means that constant reforecasting, a favorite of the panicking CFO-CEO-COO triumvirate suffers from the law of diminishing returns. But it does give them a sense of being busy and doing something by pulling an old trusted lever that’s not connected to anything other than frustrating the heck out of the entire organisation.
It makes far, far more sense to channel all that energy into a proper EPMS system, the connective tissue of the business. Creating a highly response and agile system for smart pivoting is much more valuable than more cranking of spreadsheets in a vain effort to try to outguess an increasingly erratic world.
Integrating fragmented systems allows the board and exco to get control rather than just generating reports. Control is agility and responsiveness.
Norton and Kaplan developed the Balanced Scorecard over 25 years ago. You finally have a way to implement it in a tightly coupled and cohesive way. Gamers spend their money on cheats. One of them is having the fastest connectivity and the highest power console or PC with the finest tuned controller.
Be a gamer! Get your cheat. It’s EPMS. You might just make it to the Business Finals.