Eliyahu Goldratt, in his book, "The Haystack Syndrome," states: "...Tell me how you measure me and I will tell you how I will behave. If you measure me in an illogical way... do not complain about illogical behavior..."
Performance measurement systems are not necessarily illogical; it is when the fundamentals that they are based on undergo a dramatic shift that the validity of the existing measurement system gets questioned. When the U.S. economy moved from a habitual 2-3% growth rate to a -4% drop, most organizations got caught on the wrong foot as their systems were not geared towards managing recessionary pressures. Suddenly cost and investment are no longer considered different.
Such sudden shifts in market conditions call for a structured approach towards re-establishing the organization's goal, re-defining the initiatives, re-planning of milestones, more focused monitoring, quicker interpretation of results and dedicated execution - all geared towards not only surviving today but also preparing for tomorrow's growth. And this needs to be done fast enough to react positively towards market fluctuations. The process that encapsulates such a mechanism is also known as Enterprise Performance Management (EPM).
EPM as a whole is neither a one-time initiative nor is it a time-bound project. It is not about only implementing tools and technologies, though the right combination of tools and technologies act as an important facilitator for the success of EPM. It is more importantly about establishing a set of processes and policies that inculcates a performance oriented culture within the organization. After all tools have been implemented, processes established and policies enacted, it finally boils down to whether each employee believes that her actions have a direct bearing to her company's larger performance objectives.
Enterprise Performance Management -- An Execution Perspective
Enterprise Performance Management encapsulates the ability of the organization to establish the following process:
Figure 1: The Performance Management Cycle
Define Goals: Through the goal-setting exercise, the senior management clearly communicates, both internally and externally, the targets that they are attempting to achieve and hence the direction that is being set for the organization over a short, medium and long-term period. Let's consider a CPG firm ABC Ltd., dealing with Personal Care products, that has set up a goal of "Increasing the Market Share in the Western Region by 10%"
Identify Initiatives: Setting the right goals does not help much unless one is aware of how the goals are to be achieved. To achieve the stated goal of increasing 10% market share in the western region, ABC Ltd. has identified the following initiatives:
- Product Recall
- Product Availability
- ==> Increase Market Share in the Western Region by 10%
So they would need to ensure sufficient product availability at the retail shelves, define the right price point, ensure that they have the necessary product recall (so that consumers buy their brand and not their competitor's when the need arises) and also have promotional activities carried out to push the sale through.
Detailed Planning: Each of these initiatives would require resources (capital and human) and would need to achieve certain intermediate milestones. To be able to increase market share by 10% over the entire year, ABD Ltd. will need to set up quarterly targets whereby their market share numbers grow from 3% in the first quarter to 10% at the end of the fourth quarter. To plan for the related initiatives, ABC Ltd. will need to link each initiative to a set of metrics. To ensure a high level of product recall, ABC will need to plan for media spend and identify the right media combination to target. From an availability perspective, they would need to work out the logistics and support it with a production plan.
Continuous Measurement and Monitoring: In most large organizations this is where the real challenge starts -- for measurement to make sense, the right information needs to be collected, consolidated, harmonized and made comparable. ABC Ltd. would need to get access to market share information; if they are advertising through television, they will need access to TRP ratings and even stock-out information to judge availability. The real challenge then would be to integrate these diverse data sets together to facilitate analysis
Interpretation of Results: The analysis of the data will help ABC Ltd. determine if they are on the right track to achieve the 10% growth in market share. In case of negative variances, the causal relationship will facilitate the management in identifying potential root-cause that is preventing them from achieving their goal.
Re-Alignment of Initiatives: If the analysis demonstrates that there have been frequent stock-outs in the market, then instead of focusing heavily on promotions and recall, ABC Ltd. would do well to ensure that their logistics network and maybe the available pipeline is geared up to meet the demand.
EPM -- The Technology Perspective
In the current environment, it is necessary but not sufficient to have such a process in place. Agility in responding to changes in external environment plays a crucial role in determining corporate performance. This is facilitated through the use of the right technology.
In spite of ERP and data warehouses having been implemented in multiple organizations, in most cases planning is carried out mainly through a process that is dominated by spreadsheets. While spreadsheets provide flexibility to the individual users, it severely constrains agility. A robust planning tool not only provides the requisite flexibility to the users but also helps weave the individual plans to the larger enterprise plan and thereby helps maintain consistency across the board. Presence of a data warehouse helps in establishing a process to collate and integrate the required data. For a quick monitoring and interpretation of results, visualization of the information plays an extremely important role. A visual dashboard displaying integrated information across the enterprise is a very effective tool to take the necessary information right to the executive management level thereby providing for a quick turnaround time in decision making and responding to market changes.
In summary, a simple six-step process supported effectively with the right tools and technologies in place would go a large way in helping an organization manage its performance and deliver effectively.
Dipanjan Majumdar is Program Director at MindTree Limitedm which is a global IT Solutions company specializing in IT Services, Independent Testing, Infrastructure Management and Technical Support (IMTS), Knowledge Services and Product Engineering, which comprises R&D Services and Software Product Engineering. www.mindtree.com
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