Thursday, November 13, 2008

Why Performance Management and Business Intelligence are Crucial at this Moment

Now that the US elections are behind us, we can start to refocus on the biggest single issue facing businesses (and individuals) right now – the economy. In January, I started talking about an economic recession:January blog posting

I think it’s now unanimous that a global recession is upon us with more bad news emerging each day. In fact, today the OECD issued a statement saying that its 30-nation member area “appeared to have entered recession”: OECD Press Release

Even Asia is not immune, with China announcing that annual industrial output growth has slowed to 8.2 percent for October. And, I think we’re just getting started! All signs point not only to a meager Q4 but a Q1 that likely won’t be much better.

In the corporate world, we’re seeing many respond with a “kneejerk” reaction to this malaise: budget cuts, RIFs, financial guidance reduced, assets sold, bankruptcies, etc. These organizations have adopted a sort of “bunker mentality” to face the threat. As a result, they overreact, shedding more “ballast” than they need to stay afloat. By exaggerating the challenge and overcompensating, they weaken the enterprise for the future. One doesn’t have to look far to find these sorts of companies – for example: a number of companies in the auto and telecommunications industries. A friend of mine, who works for a large telco, shared with me extreme frustration concerning ongoing and across-the-board RIFs. Seasoned employees have been eliminated in favor of cheaper, less experienced labor, making it hard, if not impossible to get important work done. While this may please Wall Street (in the near term), this sort of tactical approach doesn’t bode well for their future.

In contrast, the wise organization carefully analyzes the current threat, developing multiple scenarios for the future and creates suitable short and long term plans. This forward-thinking approach allows management to proceed strategically, with an eye to the future, but still grounded in the present. Of course, organizations may still have to take measures to reduce costs – perhaps dramatically. However, they will do so with greater precision – ensuring they haven’t seriously hampered their future ability to execute. It’s also reasonable to expect that this sort of sober, yet visionary direction will expose new opportunities to invest in, which will have been obscured to less sophisticated organizations. A good example of this, in my opinion, is Alcoa. Hit with an industry-wide surplus of aluminum (and a dramatic decline in price), it took aggressive action to reduce costs, employing “a four-part model that spreads the curtailments across [the] global system and minimizes the costs associated with plant shutdowns and re-starts and, in turn, minimize the impact on plant communities.” You can read their press release here: Alcoa Press Release

Of course, the title of this posting has already given away my core message – that EPM and BI are critical during this time. This is true. However, I don’t mean just the technology. I mean the philosophy! This begins with transparency and accountability. Without those as core tenets of an organization, the best technology won’t help. However, under the right conditions, BI and EPM can work wonders – allowing an organization to quickly develop perspective, to assess strengths, weaknesses and capabilities. To plan, execute, analyze, re-plan, alter strategy, and plan and execute again in a continuous cycle – matching the changing dynamics of the real world.

So, I encourage organizations to avoid the reactive and tactical approach to a worsening economy and take a more strategic outlook – embracing transparency and accountability - with BI and EPM as enablers – delivering true perspective, precision of execution and agility and a better chance to survive and see the next era of growth.



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  1. Hi Howard,

    I had the privilege of taking economics courses in college from the late Hyman Minsky. Decades after its publication and 12 years after his death, "Stabilizing an Unstable Economy" is now the #1 book on macroeconomics on Amazon. As the Wall Street Journal, "The Minsky Moment has arrived."

    I'd highly recommend it. Contrary to the current favored thinking on the economy from the Chicago Scool, Market Fundamentalism, Minsky shows how economies are inherently unstable and subject to periodic boom/bust cycles. Here's the clincher - cycles always start with an abuse of credit policy.

    Another good source on this topic is Charles Kindleberger's "Manias, Panics and Crashes."

    You're of course right that many organizations will take the knee-jerk approach and cut expenses. Despite all of our exhortations, '09 will probably be a weak year for BI/EPM software. I hope I'm wrong.

    Best regards,
    twitter: nraden

  2. The major premise here is absolutely spot on, we have a crisis of visibility within many corporations. They are frozen in the current macro environment. Proper information would allow focused tactical decisions to be made quickly to both cut losses and feed growth. These decisions themselves would move the economy forward out of stasis. EPM and BI are wonderful products for mature corporations, but it bears thinking how much benefit could be gained through improvement of simple baseline reporting for those less fortunate as that process is a data cleansing precursor to the proposed endgame, EPM.

  3. Howard is so on target. It baffles me why some organizations hesitate to apply business intelligence (BI) tools and the performance management methodologies that convert BI’s potential into realized results. The use of strategy maps, causally linked scorecards, activity-based costing principles, optimized marketing campaigns and the rest of the performance management portfolio just makes good sense. It is not a faith-based decision but rather reasoned logic compared to what managerial and decision support practices most organizations use today such as spreadsheets, intuition, flawed standard cost accounting and politics.