By Gary Cokins, Founder of Analytics-Based Performance Management LLC
In part 1 of this blog I questioned why EPM was receiving such popularity at the executive level, and posited some theories. Here in part 2 I give my view of some deep root cause effects.
Deeper root cause forces spurring interest in EPM today
There is a more deep-seated root cause than the forces described in part 1 of this blog. It involves a growing gulf related to (1) the ability of an organization’s managers to have consensus and agree with each other, and (2) the uncertainty of future external influences impacting their organization.
The figure below is a modified and simplified framework developed by Ralph D. Stacey, Ph.D., a scholar in organizational management.[1] The framework proposes that different managerial approaches are required based on where a problem resides in the two dimensional matrix with the axis “level of managers’ agreement” and “degree of uncertainty.”
The lower left and upper right zones of the matrix are easiest to understand:
The widening of the zones “in between”
As we move from the lower left to the upper right zone then politics and coalition building occurs. This is because there are broad differences about “how to get there” rather than the expected outcomes. Cause-and-effect relationships are rarely known or understood, so this is where a shared vision of the future state is more important than project planning. What is needed in this area of the matrix are the executive team’s ability to lead and inspire their employees and to continuously sense-and-respond to unexpected factors.
My belief as to why there is an accelerating interest in EPM is due to expanding gulf in this “in between” zone. This “in between” section of the matrix involves increasing complexity, uncertainty and change. In this section there is a gathering storm threatening all organizations. This is where agenda building overrides fact-based decision-making. This is where blind muddling by managers unfortunately overrides something more desirable – vision, inspiration, and good enterprise risk management (ERM) practices from the executives. As markets become more intensely competitive, managers are faced with more high-stakes decisions. As a result success in this “in between” area of the matrix requires both making the right decision in the first place and then executing on that chosen path direction.
The collective suite of integrated methodologies that comprise EPM (e.g., strategy mapping, scorecards, customer profitability management, rolling driver-based financial forecasts, enterprise risk management, etc.) provide the solutions for this “in between” section. EPM shifts problems and decision making from this “in between” section toward the lower left zone – making them simpler problems. Here is how and why technologies become essential enablers:
Organizations need top-down guidance from its executives with bottom-up execution. Effective EPM, not simply the narrow CFO financial view of better budgeting and control, shifts decisions that are currently waffling in the “in between” section of the matrix – and away from the dreaded upper right zone of high uncertainty and lack of managers’ agreement. Complexity is expanding due to the forces described earlier, and EPM software brings rational thinking to convert once perceived complicated problems from the upper right into simpler and solvable problems in the lower left.
Understanding what EPM does is more important than trying to define what it is.
[1] Stacey, Ralph D.; Complexity and Creativity in Organizations; Berrett-Koehler Publishers, Inc.; 1996.
About the Author: Gary Cokins, CPIM
Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.
gcokins@garycokins.com; phone +919 720 2718
Linkedin.com contact: http://www.linkedin.com/pub/gary-cokins/0/15a/949.