Cokins, Gary. Performance Management: Integrating Strategy

Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
Contents
About the Author
Preface
xi
xiii
PART ONE
INTRODUCTION
1 Rules for Assuring Poor Performance
1
3
2 Performance Management: Myth or Reality?
7
3 What Will Be the Next New Management
Breakthrough? 25
4 The Future: Enterprise Risk-Based Performance
Management 31
PART TWO
PERFORMANCE MANAGEMENT OVERVIEW
39
5 Why the High Interest in Performance Management Now?
41
6 Human Capital and Workforce Management:
Art or Science? 47
7 Tipping Point for Performance Management
51
8 An Interview with a CEO You Might Want to Work For
55
9 Does ‘‘A Word to the Wise’’ Mean Ignore the Dummies?
59
PART THREE
PERFORMANCE MANAGEMENT SUPPORTS BUSINESS
INTELLIGENCE AND DECISION MAKING
61
10 How Do Business Intelligence and Performance
Management Fit Together? 63
11 CEO’s Targeted Financial Return: A Goal or a Wish?
67
vii
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
viii
Contents
PART FOUR
IMPLEMENTING PERFORMANCE MANAGEMENT
69
12 First Barrier to Performance Management: How Do We
Get Started?
71
13 Where Do You Begin Implementing Performance
Management? 75
14 The Many Rooms of the Organization Mansion
79
15 Accountability and Incentives for Rewards: How Disconnected
Are They? 83
16 Why Do You Have to Be a Sociologist to Implement
Performance Management? 89
PART FIVE
STRATEGY MAPS, THE BALANCED SCORECARD,
AND DASHBOARDS
17 The Promise and Perils of the Balanced Scorecard
91
93
18 How Are Balanced Scorecards and Dashboards Different?
19 When Performance Management Becomes Surgery
103
111
PART SIX
FINANCIAL PERFORMANCE MANAGEMENT
20 Do Accountants Lead or Mislead?
117
21 Confusion with Managerial Accounting
22 What Is Broken about Budgeting?
115
121
139
23 Put Your Money Where Your Strategy Is
145
PART SEVEN
CUSTOMER VALUE MANAGEMENT
153
24 From Working for the Boss to Working for the
Customer 155
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
Contents
ix
25 How Profitable to Us Is Each Customer Today—and
Tomorrow? 159
26 Optimizing Customer Lifetime Economic Value 169
PART EIGHT
PERFORMANCE MANAGEMENT AND SHAREHOLDER
WEALTH CREATION
183
27 Can Performance Management Accomplish What Einstein
Could Not? 185
28 Why Do Capital Market Organizations Underachieve Their
Planned ROI? 189
29 Will Private Equity Funds Turbocharge Applying
Performance Management? 195
PART NINE
ENVIRONMENTAL PERFORMANCE MANAGEMENT
30 Social and Environmental Performance Management
201
203
31 How Is a Chief Financial Officer Affected by the Sustainability
Movement? 207
PART TEN
CONCLUSION
32 Christmas Gift Letter to Santa Claus
213
215
33 Performance Management from Future Diaries
217
34 A Dear-CEO Advice Column You Might Want to Read
221
35 From Nag to Wag: Why Performance Management Now?
Index
225
229
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
Chapter 1
Rules for Assuring Poor
Performance
In 1773, Benjamin Franklin, one the founding fathers of the United States, wrote a
pamphlet aimed at the royalty of England, titled Rules by Which a Great Empire
May Be Reduced to a Small One. Satire is one way to get your point across. I apply
my own style of satire in this chapter to appeal to organizations to cease their hesitation and skepticism and embrace the benefits of performance management. I
apologize in advance if I offend anyone, but sometimes there is truth in humor.
* * *
Imagine I took over the management of a poorly performing organization and
wanted to keep it that way. For example, I might not want it to grow so quickly
that it would leave me less time to pursue my hobbies. What steps would I take?
First, I would ensure that all of the managers and employees are totally ignorant
of the executive team’s strategy. That way, no one will understand how the work
they do each week or each month contributes to successfully achieving the strategy.
Next, I would figure out ways to ensure that managers and employees do not trust
one another. I would discourage dissent and debate. It would be tricky to preserve
some level of harmony by not allowing healthy conflict among managers who are
already distrustful of each other, but I think I could do it.
Next, I would avoid holding anyone accountable. That would be fairly easy,
because I would disallow reporting of performance measures. Anyone mentioning
the phrase ‘‘the balanced scorecard’’ would be summarily fired. I would allow
employees to measure their local processes and results in dashboards. After all, I
do not want the organization to go bankrupt; I just want poor performance. But I
would restrict any measures from being key performance indicators (KPIs) because
we would not want to monitor our progress toward any targets that are strategic.
I would try to disallow setting of targets, but some managers have a nasty habit
of liking them. I think those managers believe that if they could make it appear
that they are better performers than others, then I would reward them with a ‘‘payfor-performance’’ bonus system. If I allow people to be motivated this way,
performance might improve. I am not going to fall for that trick.
I would freeze our managerial accounting system to remain in its archaic state.
It probably was designed in the 1950s, but our external financial auditors would
always be giving us an OK grade. I would allow managers to hire more support
overhead to manage the resulting complexity, but I would preserve the primitive
overhead cost allocations to processes and products using those distorting and
3
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
4
Performance Management
misleading broad averages, such as product sales volume or number of units produced. Most employees would already know that these cost allocations cause big
cost errors, but I would want to keep them guessing about which products make or
lose money and what it actually costs to perform our key business processes. I do
not think my financial controller will correct this, but I need to keep a watchful eye
because my accountants are getting much smarter about how to improve operations
and serve as strategic advisors to me.
We would need to be careful about how much information we collect and report
about our customers. Obviously, we would report their sales volume data, but I
would not segment our customers into any groupings. I would keep sales reporting
at a lump-sum level. I do not want anyone asking questions such as, ‘‘Which types
of customers should we retain, grow, acquire, or win back from competitors?’’ To
keep our company from tanking, I would encourage sales growth by putting
big signs in the marketing department, saying, ‘‘More sales at any cost!’’ I would
prevent my chief financial officer (CFO) from harboring any thoughts of measuring
customer profitability. That would be easy, because our arcane cost accounting
system would not be capable of calculating that information. The marketing people
typically spend their budget with a spray-and-pray approach, anyway. Targeting specific types of customers and getting a high-yield payback from our marketing spend
would be beyond their level of thinking. I would maintain our advertising spending
as the black hole that no one understands.
I would, of course, implement an enterprise resource planning (ERP) system. I
would not want to be at a cocktail party with other executives and admit I do not
have one. That would be too embarrassing, like a teenager without an iPod. Luckily, ERP systems alone will not improve performance; they produce mountains of
transactional data for daily control, but not meaningful information from which
anyone could make wise judgments or good decisions.
Our budgeting system would be another way to assure our poor performance.
Since the budget numbers are obsolete a couple of months after we begin the fiscal
year, assembling the budget for six months during the prior year would provide a
great distraction and prevent anyone from working on more important things. Plus,
I would love to send the budget back down a few times to be redone to lower the
budgeted costs. Everyone would moan. I would be very stingy about giving managers any budget for one-time projects. When those kinds of initiatives sneak in, companies always get a jolt of productivity improvement, which is counter to poor
performance.
We would squeeze our suppliers. We could talk about partnering and collaboration, but any attempt to actually do so would be squashed immediately. Never trust
a supplier. If you drive one out of business, you can always find another.
I do not think I could stop employees from using spreadsheets. They are contagious. But since every department would have its own spreadsheets, it would be
like a Tower of Babel. Employees would waste a lot of time trying to make their
numbers match. I might allow a few departments to purchase a common database
to warehouse their information. Fortunately, there would be lots of incorrect input
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.
Note
5
data in it, so that bad experience would burst their bubble. Those employees with
spreadsheets might want to use them for forecasting and planning. I would put a
stop to that by calling it gambling and promote our company as being conservative.
Gambling is for fools, so I would set a policy forbidding risk taking.
I know that operating a poorly performing business is an extremely difficult job,
but I think I would be up to the task. Suppressing the efforts of all those employees
and managers who want to think, contribute, and make the business successful
requires constant vigilance. The business world is full of subversive ideas that
could hamstring my efforts to keep the business floundering aimlessly.
I am particularly concerned about this new concept called performance
management. Whatever it is, I will stop it from happening. I believe that with hard
work and dedication, I could keep any company from reaching its profit-making
potential.
NOTE
1. Oliver Wendell Holmes, ‘‘The Path of Law’’ (1897), as quoted in George Seldes, The Great
Thoughts (New York: Ballantine Books, 1985).
Cokins, Gary. Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. Copyright © 2009, SAS Institute Inc.,
Cary, North Carolina, USA. ALL RIGHTS RESERVED. For additional SAS resources, visit support.sas.com/bookstore.