Ian Campbell talks to a leading expert Gary Cokins about what it takes for organisations to make the most of performance metrics and why they are essential for survival.
When two Harvard professors developed the idea that “measurement motivates” in the early Nineties, it set in motion an approach to business performance management (PM) that is still evolving today. Robert Kaplan and David Norton created the concept of the ‘balanced scorecard’, a measurement system that can be integrated with the wider business strategy. It has been used by thousands of organisations worldwide.
While Gary Cokins acknowledges the significance of their work he argues that performance management had been around for decades before as a set of well-established methodologies. A strategist with business intelligence software specialist SAS, he says that integrating the methodologies is what makes all the difference. “Most organisations have been implementing them in isolation of each other, but you get real synergy when you bring them together and spice them up with analytics, particularly predictive analytics,” he says.
Foresight is becoming critical for organisations, which means PM analysis needs to be integral to strategy. “KPIs [key performance indicators] and balanced scorecards don’t link strategy to performance, they are just feedback mechanisms. Strategy maps are much more important but very few organisations have them.”
The upshot, according to Cokins, is that strategic goals are all too rarely achieved. Nine out of 10 organisations fail to implement strategy and empirical evidence suggests that executives pay the price, certainly in North America where there have been record levels of firings in recent times. Everyone is under more scrutiny and PM plays a role in the new culture. “There is increased accountability for employees. The days of hanging out at a company for 30 years before getting a gold watch are over. There is no place to hide. If you’re not producing, the likelihood of getting a raise or promoted is at risk,” he said.
Another sea-change is that decision-making is much more rapid that it was four or five years ago. “Before, people could test something out, learn, and have meetings about it. Now you have to snap you fingers and make the call.”
Over from the States to host a seminar in Dublin, Cokins is a recognised authority on the subject and has been in the game long enough to distance himself from the current hype around PM. “The reason we’re starting to see it as a buzz word is because the IT research firms began to detect that software vendors like SAS, Hyperion, Cognos and Business Objects were beginning to integrate these methodologies. But I look at PM more broadly than Gartner and Forrester who don’t see it as an end-to-end solution because it doesn’t fit their quadrants.”
He talks about PM encompassing everything from customer intelligence to marketing automation. It is a strategic approach that is still to gain real traction. “If 10 is the ultimate PM environment, most organisations are around two,” he says. “There is still a long way to go.”
He is also concerned that the role of IT in PM can be misunderstood. “The technology supports the methodology. It provides models and representations of an organisation’s behaviour. If senior executives buy in to the vision of integrating the methodologies they realise they need some sort of enablers and that’s the space for the tools. They are absolutely essential,” he says.
The stepping stones that accomplish a strategy that integrates effective PM starts with a fundamental change to the business. “It’s about integrating operational information and ultimately being able to monitor it,” says Cokins. “Organisations need to refresh their operational forecasts and have them available at more frequent intervals.”
Too much emphasis on quarterly financial results negates a more proactive approach. “Organisations need to shift towards non-financial metrics that can be measured regularly. If you can automate the process and produce a new rolling forecast, you can start to have a proactive approach, pre-empting problems around shortages of inventory, a new product release, or bad financial results at the end of a period.”
Cokins says the biggest challenge in attaining an ideal environment for PM is culture change. “A lot of the work is around change management and behaviour modification, getting buy-in, overcoming resistance. It’s social engineering,” he says. “I tell project managers that they need to be sociologists. A lot of project management is craft-based around maps, the selection of KPI and activity based cost-drivers, but the biggest challenge is about getting buy-in.”
Project champions within the organisation are key but the impetus is unlikely to come from senior executives, according to Cokins. They are too preoccupied with their objectives at the boardroom level. It is up to individuals to drive change by instigating pilots and quick wins and through the coalition of others in the organisation who share the vision.
“It is social engineering, about iteratively moving ahead and getting the change institutionalised,” he says. He is a big believer in rapid prototyping, focusing on simple models rather than trying to build big systems. “Around 1992-94 the big six [consultancies] were taking nine to 18 months to build models that were so big that they would collapse under their own weight because no-one could understand them.”
The one proviso in his piecemeal approach is that new models are small but enterprise-wide. “You have to have the whole resource in the model or it will distort the level of cost. Start with five or six people in the room, then do it again with more people involved. It gives a vision of what it can look like when it’s disaggregated and deepened.”
Ultimately a new PM culture will emerge that is also enterprise-wise. Cokins quotes consultant and leading business academic Tom Davenport who argues that organisations will ultimately be competing with each by how far they go with analytics. “The differentiator will be their competence in having many managers and employees able to do analytical things. If you are not analytical as part of your culture you will have difficulty surviving,” says Cokins.