IBM Cognos TM1 is like a Swiss Army knife – it has capabilities to do a
lot of different things extremely well. One of the practices it’s
being utilized for with incredible results is an emerging, but no so
well understood, practice entitled profitability modeling and
optimization. The power of IBM Cognos TM1 is the primary reason this
practice has emerged. Companies adopting IBM Cognos TM1 as the
technology of choice for this practice is the primary reason they’re
thriving moving from ‘also rans’ to industry leaders. Still, this post
is less about IBM Cognos TM1 and more about the process, Profitability
Modeling & Optimization.
When talking about profitability modeling & optimization it’s
more illustrative to start with the ever-important strategic element of
price. It’s that set amount that can make or break a product or service
or even the company’s acceptance by the marketplace. Price, of course,
is most often set by what the market is willing to pay for this product
or service. A lot of factors can go into your pricing strategy
including things like the brand equity and image of the product or
service (Think Tiffany’s), expected sales volumes (Think economies of
scale), competitive factors (Only game in town?), or if it’s a new
category being created. Of course, we know that companies profit by
selling this product or service at a margin greater than its cost.
Then, a profit is turned.
Now, what you do with those profits is then up to the company to
decide. Do you reinvest those profits? Most do. If so, how do you
allocate them across the business for the most profitable return?
Maybe you even want to release some of them to shareholders via
dividends? What about making acquisitions? These are important
decisions to make based on what the future needs of the business are.
This is a good problem to have.
Enter Profitability & Optimization.
To sustain competitiveness in the marketplace organizations must be able to model their profitability to maximize profits and optimize the components to profitability that incur costs.
Most companies are performing some form of profitability and
optimization activities everyday. The BIG difference is that some are
much better at it than others. Why is this? What separates them from
the others? It comes down to the best-in-class organizations investing
in their people, the related processes, and a capable technology.
Ask yourself the following questions:
- What degree of insight do you have into product, customer, and market profitability?
- How timely and reliable is this information?
- Is the information in one system or do you have to make phone calls,
send emails, query multiple databases and compile it together into a
spreadsheet to make sense of it and even then it’s incomplete?
- Can you perform ad hoc analysis on that information to answer
questions about the data to complete a thought process or run a
- Are you able to quickly understand anomalies/outliers in historic data?
- Are you able to quickly explore cause and effect?
- Do you understand the drivers that both impact and are impacted by price & cost?
Now, how would your colleagues in Sales, HR, Marketing, IT, Operations, etc. answer these questions?
It’s critical to know that every area of the business is looking at
some element of profitability. Running scenarios, what if, and
profitability analysis with a 360-degree viewpoint of the data is the
lifeblood of value-added analysis for making smarter decisions which, if
done effectively, translates into better corporate performance.
Without better insight and understanding of the information derived from
profitability modeling and optimization, business users are forced to
go on their gut and/or out of date information — or, worse, they’re
waiting until they do get the information they need before they can
act…tick, tick, tick. Time is money.
If you and the rest of the workforce don’t have this information at
your fingertips don’t fret because you’re not alone. However, things are
changing. Companies today are investing more and more into this
practice area as technology has caught up in a way that’s allowing for
massive data volumes to be sliced-and-diced in seconds for this very
Now is the time to act. The technology is there so I’d ask why isn’t
your organization there too. Hustle up. I know a lot of companies
that are doing this practice very well – and some that aren’t
unfortunately. They’re the ones looking to leverage IBM Cognos TM1 to
put them on the path to better PM&O.
If you want to know more about this subject feel free to email me to discuss further.
Click here to see more resources on IBM Cognos TM1.
More Blog entries @ http://ibm-business-analytics.com
Whoever said, “you can’t take it with you” definitely wasn’t thinking of IBM Cognos Mobile. IBM Cognos Mobile offers the same simple, easy-to-consume, reliable and secure capability of IBM Cognos Business Intelligence with the equally powerful and visual on- and off-line experience. Yes, users can view, analyze and share reports from anywhere just like they can with IBM Cognos BI only now it’s on a mobile device. Whether you’re traveling, in a meeting, away from your computer, or at home these actionable reports go with you and your device of choice which allows you to seamlessly view and interact with any report or dashboard, while providing capability for deeper analysis and much more—anywhere you happen to be. So, you can take it with you.
Sidebar: In 1936, when George S. Kaufman and Moss Hart wrote the play, You Can’t Take It With You, they had a totally different concept in mind than mobile reports. Regarding this play, which, by the way, was subsequently turned into a major motion picture of equal caliber to the play, I can only offer this simple advice: See the movie. Yes, it’s old and in black-and-white which might be a turnoff for some of you. But, still, the writing holds up so well you won’t even notice anything but yourself laughing throughout. It’s a winner. Trust me if you can. If that’s not enough the play won a Pulitzer Prize and the movie won an Academy Award for Best Picture. Pretty good endorsements there.
Okay. Back to IBM Cognos Mobile.
Of course, a lot of the same features you get with IBM Cognos BI you also get with IBM Cognos Mobile including Drill up and drill down, drill through, zoom in and out, and cell highlights not to mention search capability.
Another thing about IBM Cognos Mobile. Check out the location-aware technology too. It’s one of the nicest features of IBM Cognos Mobile. Imagine the possibilities with this feature as it allows you to quickly get access to the most relevant data points based on your specific location without having to search for it. It automatically brings up the location-specific information based on your physical position. Very cool. Think that if you’re in Seattle, Washington meeting with a key customer and they want to know about other customers in the area you have that ready for them. Simple. Pull up your global customer report which will quickly filter it down to only show you the local accounts. Not bad. That’s just one simple scenario and there are tons of others being utilized by IBM Cognos customers right now.
Click here for the IBM Cognos Mobile demo!
There are many other features to IBM Cognos Mobile but I’ll leave the demo to show you all of that. Check it out. It’s only about a minute and worth giving it a look.
…oh, and don’t forget to check out the movie, You Can’t Take It With You.
When I think about the capabilities of our IBM Cognos FSR solution it
reminds me a lot of Aesop’s fable about the Ant and the Grasshopper.
It’s about preparing today for more challenging times. If you don’t know
this fable I’ve included it below as it’s so short it’s not worth
paraphrasing. The story goes like this:
I think about the capabilities of our IBM Cognos FSR solution it
reminds me a lot of Aesop’s fable about the Ant and the Grasshopper.
It’s about preparing today for more challenging times. If you don’t know
this fable I’ve included it below as it’s so short it’s not worth
paraphrasing. The story goes like this:
One summer’s day, a merry Grasshopper was dancing, singing and
playing his violin with all his heart. He saw an Ant passing by, bearing
along with great toil a wheatear to store for the winter.
“Come and sing with me instead of working so hard”, said the Grasshopper “Let’s have fun together.”
“I must store food for the winter”, said the Ant, “and I advise you to
do the same.”“Don’t worry about winter, it’s still very far away”, said
Grasshopper, laughing at him. But the Ant wouldn’t listen and continued
When the winter came, the starving Grasshopper went to the Ant’s house and humbly begged for something to eat.
If you had listened to my advice in the summer you would not now be in
need,” said the Ant. “I’m afraid you will have to go supperless to bed,”
and he closed the door.
Get your house in order so that when the onslaught of work comes you
can focus on the right things. IBM Cognos FSR is one of those solutions
that helps with that “preparation” and the FSR solution can grow with
those changing regulatory, compliance, and performance reporting
requirements. I spoke with our Product
Marketing Director, Dan O’Brien, about IBM Cognos FSR and how he
explains the capabilities to our customer base. He said the hardest part
is explaining how transformational this software is for finance
departments. It’s almost like “selling cars to people still
using a horse-and-carriage. This solution is so far advanced that a lot
of customers find it hard to believe that it can really work that
seamlessly.” No buggy whips required. I’ve seen the technology in action
and its pretty incredible.
Look, we all know that today’s hyper kinetic, ingloriously
competitive business climate is calling for organizations to react and
respond more ably than ever before while at the same time these
organizations are being asked to comply with increased regulatory,
compliance, and external reporting requirements showing no signs of
Analytically-driven organizations are not wasting time while these
ever-changing, always demanding disclosure management-related processes
spiral out of control. At risk is more time robbed by these lower value
activities from the real analytical and predictive research finance
needs to be doing that’s the most value added. Also, we know the
outcome of reporting late or reporting the wrong numbers. Why not take a
look at IBM Cognos FSR???
Top performing companies have found a way to manage these additional
regulatory and external reporting requirements through the use of IBM
Cognos FSR. This solution has raised the bar in not only managing the
disclosure process, including XBRL capabilities, but this solution also
has assisted organizations with their performance reporting needs too.
This solution can automate and manage the complex tasks of collecting,
editing and reporting various performance and financial data for
finance, treasury, reconciliations, portfolio and asset management,
audit, and risk management, etc.
Reporting now requires structured and unstructured information which
is highly susceptible to errors, especially when handled manually to
edit, review, and publish that data into narrative management reports.
So get out ahead of these manual intensive, error-prone processes and
leveraging an integrated solution that can automate and effectively
manage these tasks because the pace of change for what’s being expect of
the office of finance and it isn’t slowing.
I encourage you to take a look at IBM Cognos FSR and see what it can
do for your organization because there’s only more changes coming. Be
prepared for it with IBM Cognos FSR.
“The art of war teaches us to rely not on the likelihood of the
enemy’s not coming, but on our own readiness to receive him; not on the
chance of his not attacking, but rather on the fact that we have made
our position unassailable.” – Sun Tzu
For more information on IBM Cognos FSR, click here.
Hope you enjoyed.
Business Analytics Software
More of my blogs @ http://ibm-business-analytics.com
If asked to describe their financial consolidation process most corporate finance teams might spit out a few unprintable adjectives as they attempt to explain their effectiveness in harnessing all of the moving parts in this bear of a process. The primary issue they have is managing all of the inputs and one-offs throughout each step, making it difficult to track or audit it because of their lack of transparency, visibility and ultimate control over it. Riddled with disconnected systems that have major control risks requiring manual intervention and maintenance (Think spreadsheet-based systems) and other standalone technologies lacking any audit control make it an administrative nightmare. Financial consolidation isn’t a stationary target either given the ever-growing mountain of new regulations, report filings, and financial governance procedures required to which they need to adapt. (Think Dodd-Frank, IFRS, and XBRL to name a few.)As I mentioned in another blog post, “Close, Consolidate, Report & File: Automation & Embedded Controls Else It’s A House of Cards“, there’s so much to manage throughout the FInancial Consolidation process including manual inputs, offline adjustments, in-process reports, and stakeholders to keep a handle on it all. We’re not talking about nice-to-have reports here. We’re talking about reported Balance Sheets, Cash Flow Statements, 10Ks and 10Qs and other monthly, quarterly, and annual reports that go to shareholders, The Street — and, oh, by the way, these results are the primary drivers of business decisions being made across the organization to run the business. Hard to believe more organizations haven’t adopted an end-to-end solution to produce credible, timely, and reliable results while allowing finance teams to really focus on the important stuff like analyzing the results, not compiling them.
To set a little context I’ll briefly walk through a sample consolidation and reporting process. See if any of this sounds familiar.
Simplified Global Consolidation Process
Imagine we’re dealing with a North American-based organization in Milwaukee, Wisconsin that has subsidiaries and international operations throughout the world. The consolidation process starts with this corporation’s subsidiaries and country-specific operations consolidating their data and producing financials for their own legal entity relationships for their local reporting and local ownership and tax purposes. These same entities capture their ‘local’ data in their ‘home’ currency through their own general ledger systems and/or receive data from manual inputs and manual processes via tools like spreadsheets. At this point the subsidiaries and countries will prepare trial data submissions in local currency which will then be fed to the corporate finance department in Milwaukee. Typically, files are securely sent to corporate as uploaded to a common repository for corporate handling. Usually, there’s a lot of back-and-forth communications with these entities and corporate while they’re preparing their data.
Corporate finance receives these data submissions from all of the subsidiaries, country operations, and/or legal entities and consolidates this information into a common reporting currency; in this case, US Dollars. From there, corporate finance will perform additional consolidation activities including inter-company eliminations, group adjustments, such as investment eliminations between subsidiaries, and, ultimately, they will perform the final financial consolidation. Once these activities are completed they will then go through the process of analyzing the financial results and circle back with different participants in the consolidation, i.e. subsidiaries, legal entities, regions, etc. and relevant stakeholders in the process where variances are to be explained. Comparative reporting is then done across periods (last year vs. this year) or against plans (budget vs. actual) or even against budget foreign exchange rates to take out any f/x anomalies which might skew the data. These results are then fed into the management reporting and corporate planning process where the real analytics and decision making ultimately takes place. Then, for financial governance, statutory financial results need to be prepared and signed off for external reporting for investors, analysts, and regulatory agencies.
Phew…and that was a VERY simplified version of this process. Believe me, there’s a lot more to this process.
AUTOMATE WITH EMBEDDED CONTROLS THROUGHOUT: ENTER IBM COGNOS CONTROLLER!
Cognos Controller is a comprehensive, Web-based solution that offers power and flexibility for streamlined, best-practice financial consolidation and reporting – all in one solution. Its full suite of capabilities delivers a complete portfolio of financial results and provides an integrated platform for financial and management reporting. Cognos Controller makes it easy to deliver financial statements and reports to finance stakeholders, as well as managers, line-of-business executives and regulatory bodies. It also provides the de facto starting point for planning, budgeting and other performance management processes.
Just a few reasons why IBM Cognos Controller 10.1:
- Accelerates the close process;
- Automates financial consolidation processes and accounting
- Prepares and seamlessly delivers financial statements, financial reporting and analysis
- Consolidates financial information in a centralized, controlled and compliant environment
- Delivers a complete range of local and global consolidation and reporting requirements “out of the box” – integrated into an application framework
- Provides capabilities include data collection, validation, currency conversion, minority interest calculations, inter-company eliminations, group closing adjustments, management adjustments, allocations, advanced formula calculations and compliance testing.
- Provides support for consolidated financial reporting for all local jurisdictions and multilingual reporting;
- Flexible processing of modifications to corporate and account structures and group histories
- Integrated scenario manager for simulation and modeling
- Prepares all financial statements and in-process closing reports for either validation or reconciliation;
- Includes ability to configure, track and audit data flow within the consolidation process
- Enables omplete self-service application, finance owned & managed solution
- Supports IFRS, FASB, Basel II and Sarbanes-Oxley requirements and can handle any GAAP or regulatory environment;
- Low total cost of ownership
- Real-time analysis, modeling, forecasting with drill-thru to transactional detail
- 200+ standard out-of-the-box reports built into the solution
- Both quantitative and qualitative data can be entered automatically or manually
- Easy to create and manage individual data entry forms and templates
- Flexible to adapt and extend to custom requirements and multiple structures/dimensions/business rules
- Enables attaching documents to reported figures with text notes and reporting manuals
- Scalable to meet large user and data volumes
- Global list of empowered customer champions
- Built in integration with IBM’s performance management solutions, including IBM Cognos TM1 for extended analytical reporting and business planning for further viewing of financial and operational results, comparative plans, and extended Financial/Management reporting;
- Real-time link to your consolidation with IBM Cognos Business Intelligence dashboards and other production reporting tools you might use in our overall product suite;
- Offers a choice of interfaces. The familiar Web browser or Microsoft® Excel® both give users secure, ready access to data. Full Microsoft Excel functionality streamlines financial data input and formatting.
- Compatible with MS SQL Server, DB2 or Oracle databases;
- Up to date with latest MS Windows and Office releases;
- Supports global deployments through support of most popular languages in Europe, Asia, North America and Latin America;
…and these are just some of the features of IBM Cognos Controller 10.1!!!!
Value Thru Cross-Enterprise Adoption
For external financial statement production & XBRL, IBM Cognos Controller data and reports are directly available within external financial documents developed in our IBM Cognos Clarity Financial Statement Reporting (FSR) solution.
IBM Cognos FSR is the market leading solution to control, automate and audit the “last mile” of finance, the challenging collaborative collection and assessment of data from multiple sources that must be brought together into important external documents such as 10Q, 10K or annual reports, or highly confidential documents such as board books. IBM Cognos FSR documents can access IBM Cognos Controller data and text directly, enable collaborative approval, and embed the financial information into any report. The connection is permanent, providing for automatic updates as required, including new versions of the document in future years.
To learn more about IBM Cognos Controller 10.1 here are some additional info for your reference:
IBM Cognos Controller Web Page
IBM Cognos Controller Demo
IBM Cognos Controller White Paper
Related White Papers & Best Practices
Financial Consolidation and Reporting is part of a larger end-to-end process fully-enabled by our IBM Financial Performance Management solutions. In the illustration below you can see how our solutions work together to solve this larger process we call, “Close, Consolidate, Report & File”.
- IBM solutions seamlessly integrated can automate all of these critical Close, Consolidate, Report & File Activities
For more information on this or other Business Analytics topics, feel free to contact me at your convenience.
Blog @ http://provenpractices.wordpress.com
“Get your house in order.” This expression is referenced everywhere. I hear politicians repeatedly using it: “Before we start talking new taxes or entitlement reforms we gotta get our house in order.” Sports figures too: “We had a great practice today but, before we think about competing for the division title, we gotta get our house in order.” Celebrities aren’t immune from invoking it either: “Like, I totally want to hit the party scene again but, since I like just got out of rehab, I like think I need to lay low and totally like get my house in order first. One more thing…do you know where I can get a drink around here?” Okay. Maybe that last one’s a stretch.
Relating this expression to the processes owned by the finance functions at corporations, the house that most often needs to get in order is the Close, Consolidate, Report & File process, or CCRF. The timeliness and accuracy in this process is pivotal for company survival. Still, many companies struggle with this process for many reasons. Some of these reasons are that businesses are still using multiple opaque and rigid systems lacking any integration capabilities to seamlessly align each of the activities like the required disclosures and governance of financial statement reporting. Also, and most frequently, there are poorly trackable and error-prone manual inputs or overrides to the data as spreadsheets and stand alone documents are often used in this process. A lot of companies are using out-of-date and misappropriated tools without any audit-able workflow management system. This time consuming, labor intensive approach leads to unnecessary delays completing the CCRF process in a timely and reliably accurate manner. As a result, there’s little trust from the business users that these performance results are indeed accurate. Therefore, the figures become largely ignored by the business users rendering them useless for business insight. This leaves the workforce normally relying on these results to help make their strategic decisions forced to act on their gut or intuition. Not good….and I haven’t even gotten into the ramifications of disclosing incorrect information to regulators or shareholders!
The Close, Consolidate, Report & File Process
FINANCE: LIKE THE MYTHOLOGICAL ATLAS THEY’VE GOT THE WEIGHT OF THE WORLD ON THEIR SHOULDERS BUT LACK THE MUSCLE TO HOLD IT UP
Finance departments are already overburdened with newfound regulatory, compliance, and financial reporting requirements not to mention new disclosure expectations and the forthcoming global XBRL initiative while being pushed to be more analytical and insightful about “what the data is telling them” in regards to critical business impacting activities like market analytics, customer profitability, predictive analytics, scena
rio planning, etc. Yes, the rising water level of requirements falling under their purview shows no signs of abatement. Yet, empirical research backed up by the likes of The Hackett Group, APQC and the IBM Global CFO/CIO Studies, shows that these finance departments continue to shrink in size relative to revenue at a time when they should be growing. What’s wrong with this picture???
In summary, Finance is facing external pressures from the following:
- Volatile and uncertain economy,
- Compliance with new regulatory and financial reporting requirements means increased workloads,
- New disclosure requirements and global XBRL mandates means more work within tight time frame,
while having to respond to internal pressures from the following:
- Evolving role of CFO and the Office of Finance
- Need to liberate finance professionals from manual and complex processes
- Executive management needs timely and accurate reports to respond to market opportunities in very short time
Changing Events & Regulations Since 1999
THE ANSWER: AUTOMATION THROUGH AN INTEGRATED SOLUTION
A controlled, automated, audit-able CCRF practice is required for finance to be doing the right things. Finance teams are re-engineering their financial close processes to individual close, consolidate, report & file activities. To manage and monitor these processes, they’re investing in integrated solutions that can automate these activities into a unified, secure solution. Implementing this integrated CCRF solution provides instant benefits by automating administrative tasks with embedded controls to allow finance to focus on analysis and other high-value activities. CCRF practices are no longer simply about closing the books, consolidating the data while running inter-company eliminations, minority interest calculations, and currency translations to come up with ‘the numbers’ before finally publishing them out on some financial reports. No, there’s additional disclosures and financial governance required. To get ahead of this one you’ve got to implement a CCRF system to manage it all else the levee will break and we know what happens then.
Find out more about how to automate this process because it’s not going to shrink in requirements. So, get that house in order or I’ll invite that celebrity I referenced earlier over to your house for dinner. :)
IBM Cognos Controller, IBM Cognos Clarity FSR, and IBM CognosBI solutions seamlessly manage this entire CCRF process end-to-end. Take a look.
The core FPM processes are:
- Close, Consolidation, Report & File
- Profitability Modeling & Optimization
- Planning, Analysis & Forecasting
- Performance Reporting & Scorecarding
- Governance, Risk & Compliance
Next in this series covering Financial Performance Management we’ll focus on #2 above, Profitability Modeling & Optimization.
Director, Customer Programs, FPM
Business Analytics Software
Blog @ http://provenpractices.wordpress.com
Ever sat through a presentation and thought to yourself, “I have no clue what that person just said for the past 45 minutes!” It’s the ‘you lost me at hello’ problem. Between all of the business buzzwords, consulting jargon and vendor speak it’s at times difficult to comprehend what’s really important in all of that gobbley-gook presentation schtuff. Unfortunately, a subject like Financial Performance Management is susceptible to falling into that trap. I suppose Hollywood would be making movies about it if it was that entertaining a topic. Still, this doesn’t mean there’s nothing to it. I encourage you to read on and learn more about Financial Performance Management. It’s transforming the way business is run today creating a dynamic, knowledgeable, and nimble workforce with access to the right information to make smarter decisions everyday.
Includes processes like:
What I thought I would do is write a summary of what Financial Performance Management is, which is captured in this submission, and then in future updates I would breakdown each of FPM’s five components mucxh further one by one. So, here goes…
Ventana Research defines Financial Performance Management as, “The practice of managing the effectiveness and efficiency of Finance by aligning people, processes and systems to a common set of goals and objectives.” Ouch. That sounds nice and straight forward but I still have no idea what the heck it is. Essentially, Ventana is talking about unifying all practices (people, process, and technology) typically owned by the finance department to optimize the output of this function. Still, this doesn’t help much in explaining what the heck it is, does it??? Here’s an idea. Let’s do this….Let’s look at these core Finance-owned processes which comprise FPM. I think this will help explain things better.
Each of these 5 areas are integral to an organization’s sustainability and should be institutionalized as a single practice called FPM. The more seamless these processes work together the more effective not just the Finance function becomes but also the entire organization. Finance may own these practices but every function of the organization benefits from an FPM solution because when the FPM solution is deployed properly the workforce in marketing, sales, development, operations, finance, IT and the executive team are able to view critical information about how well the business, the competition, and the suppliers are performing while, at the same time, this information is being used to provide all of the compliance and regulatory filings necessary. Yes, a single version of the truth yielding benefits for your risk management practices, your forecasting practices, your profitability modeling and, of course, your corporate reporting requirements.
Here is a breakdown of the 5 key Finance-owned processes:
1. Close, Consolidation, Report & File
Includes processes like:
- Account Analysis
- Close Analytics
- Financial Consolidation
- FInancial Controls
- Corporate & Financial Reporting
- Regulatory Filing (e.g. 10K/Q, XBRL)
2. Profitability Modeling & Optimization
Includes processes like:
- FInancial Analytics
- Spend Analytics
- Profitability Analytics
- Product, Market, Channel Analysis
3. Planning, Analysis and Forecasting
Includes processes like:
- Revenue Planning and Forecasting
- Expense Planning & Control
- Workforce Planning
- Capital & Initiative Planning
4. Performance Reporting & Scorecarding
Includes processes like:
- Scenario modeling, what if analysis
- Alerts, data exploration, drill-thru capability
- Scorecards & dashboards
- Predictive Metrics
- Real-time reporting
5. Governance, Risk & Compliance
- Financial Controls
- Operational Risk
- Policy & Compliance
- IT Governance
- Internal Audit
More to come on this subject in future blogs individually detailing each of the five areas of FPM.
Books. There’s all genres. Business. Nonfiction, Fiction, History, Current Events, Biographies, Mysteries and on and on. Whatever the genre there’s nothing like a great book. They can entertain you, inform you of information you’d otherwise never know, challenge your thinking, and even change your life. Many people like to read so much that they’ll take on multiple books at a time each serving a different purpose: one, current events; another, fiction; a third, history; a fourth, humor, etc. I suppose the thinking is that depending on their mood they’ve got a book to satisfy that moment’s interest. If you’re in this camp then you know you can easily end up bouncing from book to book, day to day slowly chipping away at each one.
Sound familiar to anyone?
The only problem is that over time you end up adding more and more new books to the already ‘in progress’ collection. As more and more books are added to your bedside collection eventually as Robert Plant from Led Zeppelin sings, “when the levee breaks” you sheepishly put one unfinished book after the other back on the bookshelf because you can’t possibly ready all 20 or 30 books at once!!! At this point you’ve safely returned to your 3-books-at-a-time maximum only to repeat the overload cycle again in no time.
A funny and clearly harmless situation that happens to a lot of us. This is what can happen when someone is left to their own devices unchecked without any accountability. What if there were larger consequences for not completing these books? Maybe there were some higher priority books that needed finishing over others? Maybe one of the books was a library book or a borrowed book with a timeline associated with it? Maybe some books were started because they were more fun to read than the less interesting ones with a time sensitivity attached to them? Maybe one was for a book club where there was a shared interest in its completion so they reader could add value to the reading group? If any of these situations applied we are probably more likely to become extremely serious about one book over the other so we’re essentially prioritizing our reading. Again, a harmless example but I think it’s illustrative of the competing priorities we might have in our jobs too.
Well, why should it be any different when we’re talking about our job-related actions? We are constantly having to prioritize our most important tasks or objectives, both long and short term. If the organization places critical importance on certain goals and objectives whereas everything else is considered less critical wouldn’t the organization want to ensure the workers and the entire workforce is being measured against those goals and objectives on an ongoing basis so ‘every chapter is read’?
A common way to measure and monitor this performance is through the use of key performance indicators, or KPIs. A Key Performance Indicator is an industry word for a set of financial and non-financial measurements used by an organization to assess its success or the success of a specific activity in which it is engaged. A KPI is a business metric used to evaluate crucial factors to the achievements of a business objective for an individual employee of the company, a group of employees, or the entire organization. KPIs aren’t a one size fits all thing. They differ for every organization. For example, KPIs may be something like net revenue or some customer loyalty metric. In the case of the government, a KPI might be the unemployment rate.
A KPI allows an organization to monitor whether it is on track or not. KPIs serve to decrease the intricate nature of organizational performance to a small number of key indicators so as to make it more digestible for us. KPIs are used in our personal lives too. Think of a doctor measuring things like blood pressure, cholesterol levels, heart rate and our body mass index as important indicators of our overall health. KPIs we are trying to accomplish the same in the organizations.
Assigning the right KPI’s is less art and more science. A little tip for you…Be careful because what you’re measuring yourself and other individuals in the organization by is ultimately going to reflect how you all behave. For example, if a purchasing manager is being measured only by cost, they’re likely to start ordering in bulk and paying suppliers late. Good for the purchasing manager, bad for business. This is because the purchasing manager may have been ordering a lesser quality material, the inventory resulting from bulk ordering may outstrip any benefits from ordering in bulk, while the supplier relationships may suffer. Bad for business all the way around. The metrics by which people are measured drive their behavior so be careful what KPIs you select.
Selecting the Right KPIs
First, define the success criteria and then choose the best 5 KPIs which the employee will be measured. Involve the employee in question in the process of determining their KPIs. This is critical and will ensure there’s a feedback loop in place which is important as you might have missed a nuance that the employee can shed light on and, besides, you want the buy-in from the employee as the eventual KPI owner and a good way to get it is by collaborating with them about what the KPIs should be. From there the employee will look at ways they can influence those KPIs. If you do this correctly, KPIs can drive the behavior. As Peter Drucker said, “you can’t manage, what you can’t measure.” That said, establishing KPIs will provide that accountability necessary to empower your employees to do the right things and take ownership of them.
First, define your success measures. These might be, how well are we satisfying our customers? How well are we managing risk? …or innovating? …or managing our costs? Then, you will want to define the KPIs that make up that success measure. The KPI might be willingness to recommend, customer retention or loyalty. Those measures can be converted into metrics which can have goals attached and history for comparisons. Once assigned through a collaborative exercise between the individual, their management team, and perhaps an outside consultant they can drive behaviors that foster the team effort companies relish. The employee is most likely going look at the drivers that can effect their measurements and see where the other influencers are in these measurements. It can force greater collaboration among these groups with a sense of “team” that never existed before. Suddenly, programs will spring up to ensure those measures go in the right direction. This is what accountability and ongoing measurement of what’s important will ensure these individuals will focus on the right things and evaluate their priorities as they go about their jobs.
Take a deeper look at the impact of measuring and monitoring performance through KPIs. It can make a difference in getting everyone acting with purpose-driven intent not roving around rudderless.
Organizational discipline around doing the right things (read purposeful action) is critical to outperforming the competition. As Van Morrison sang on his excellent album The Philosopher’s Stone, it’s “not supposed to break down” but a lot of times achieving your goals, personal or professional, do break down because people inevitably get distracted by other non-essential projects because a lot of times they get distracted by doing the things they ‘like’ doing over others just to keep busy. Then, before you know it they’re putting that ‘must be completed book’ back on the shelf with still unread chapters.
Get started with this in your enterprise through small successes. Promote those successes and expand from there. Slow and methodical. If possible, address the most needy area of the business first.Tim O’Bryan/IBMEmail: email@example.com://provenpractices.wordpress.com
What if you knew tomorrow’s winning lottery ticket number? Imagine the possibilities. Quit your job? Travel the world? Buy that convertible Bentley you’ve always wanted? Addition to the house? Pay off those nagging debts? Think about the impact of knowing what a stock price will be next week, or knowing when your car is going to break down, or exactly when your roof is about to start leaking? Better, what about if you had early insight into your future health condition? Now, wait a minute! Something seems different here. With regard to the winning lottery ticket number that seems a lot more unpredictable than say, picking a stock or determining when your car is going to break down not to mention forecasting potential health concerns. It certainly is different. I’m sure you can guess the difference between predicting the winning lottery ticket number and the other examples. I’ll state it anyway. It’s because in these other examples we can draw from historical data, analytical research, individual’s input based on their experience, and a vast array of data to more accurately determine what is likely to happen. Once you know this information you can begin to do some planning for these possibilities or scenarios. Seems pretty logical, right? We know how much information is being captured today by companies about their customers, employees’s insights, internal operations and external market conditions that there’s obviously not a problem with lack of data to do this predictive analysis. Yet, in a lot of companies today this practice does not happen with regularity. Companies aren’t using their most valuable resources available for forecasting – their people and their data – to develop this in-house capability.
Look, I don’t need to tell you the advantages of knowing what’s likely to happen and how an organization can exploit this knowledge. If you’re an investment bank in 2006 and have a large amount of CDO’s and mortgage-backed securities on your books it might have been helpful to hear from these traders and other knowledgeable people in your operations that these speculative instruments were bound to go belly up. In hindsight the information was all there but there wasn’t a culture in place to gather this feedback. Prescience. Only helpful to the enterprise if there’s a platform in place to capture these insights and communicate them up the corporate tree so all are aware. Without this kind of enterprise forecasting platform the enterprise won’t die…not overnight that is. But, in the long run, it might suffer from multiple missed opportunities which could lead to a slow death by a 1,000 cuts.
The more unbiased participation you can glean from the relevant stakeholders and knowledge experts the more likely you’re going to be able to predict what will likely happen. The key is reaching out into your workforce across functional areas, remote operations, corporate support units, to gather feedback as far out into the future as they can most accurately predict with some likelihood which can then be leveraged by business unit managers, executives and other stakeholders to make decisions NOW based on this feedback. If you know something’s likely to happen in the future, say a hurricane, are you going to remain in your home if your home is in the hurricane’s direct path? No, of course not. You’re going to do everything you can to save all of your earthly possessions – maybe even your home, if possible – and get out of there. You’re acting now. Not waiting for the day of the hurricane to do something about it. This is the basis for business forecasting.
Only in obtaining honest, unbiased feedback from your workforce will you be able to trust this information to take action on it. If it’s not unbiased – meaning the figures that are produced from this effort were top-down dictated (think sales manager telling their sales rep what their next quarter’s sales figures MUST be vs. what this sales rep believes the figures WILL MOST LIKELY be – it ends up with little use for decision making. It becomes a performance contract.
This is not your mother’s forecast. You should not be repeating the same process you’ve gone through in your annual budget cycle. This forecast process has a different intention (insights for decision making) than the budget (annual objectives typically tied to performance contracts) and therefore needs to be designed and administered differently than the budget. With a forecast, benefactors of this process include more than just the executive management team but also the actual contributors to the forecast and their managers. This is because there’s now a formal means of submitting honest and real feedback about what’s really coming. Managers can then take that information and have a real discussion about the difference between what the direct report said was likely to happen and what the targets are. That gap between the two is where the real golden nugget of value exists in delivering a forecast. This changes the conversation from “this is your target, now go get it done” to something like “your targeted number which we captured in the annual budget is different than your newly forecasted number for the same thing…let’s discuss this difference and see how/if we can make up the shortfall”.
Think of the Titanic and the benefits of an early detection system. Would it have been helpful to identify that fatal iceberg well in advance of its arrival??? Duh. It was later learned that the captain of the Titanic saw the hulking iceberg well before the actual impact but, because of the sheer size of the Titanic and how much open sea was needed for it to veer off course, it was too late to veer away. This is just like your business. If the Titanic knows that it can only change course with at least 500 yards of open sea in front of it then the captain should at least be forecasting and re-forecasting in increments of 500 yards because that’s the space it needs to react. Otherwise, we know what can happen. Your business forecasting time horizon and the frequency which you update the forecast, or re-forecast, should be planned similarly.
Other related resources:
Execution: The Discipline of Getting Things Done by Larry Bossidy & Ram Charan
Implementing Beyond Budgeting by Bjarte Bogsnes
Switch: How to Change Things When Change Is Hard by Chip & Dan Heath
Lastly, don’t let the perfect be the enemy of the good. There’s no simple way to go about doing this right. Every company is different with its own politics and culture. The key is to get started with some small wins and build from there. I’d suggest you start in an area of the business that could benefit from a forecast more than others. What department needs the most help? Partner with IT and/or Finance depending on where you sit in the organization and make it happen. Get a quick win and expand. Baby steps.
Business Analytics software @ IBM
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