By Gary Cokins, Founder of Analytics-Based Performance Management LLC
What trends have developed over the past century for enterprise and corporate performance management (EPM/CPM) methods and business analytics?
One way to find an answer is if we performed research using a Google database that was unveiled in 2011. It includes 5.2 million books published between 1500 and 2008. With this database, one can input search words and phrases and discover how frequently those different terms were used during different past time periods.
With this Google database, researchers have been learning about interesting and possibly relevant shifts in social values or cultures. For example, one study revealed that between 1960 and 2008 self-centered phrases about an individual increased while group-related communal phrases declined. That is, phrases like “I come first” increased as “community” and “common good” decreased.
What Might Words Tell Us?
Imagine that we had access to this massive database of books to investigate shifts over time in what organizations, especially for commercial businesses, emphasize and pay attention to.
Here are my best guesses:
- “Big data” up and “IT department” down. This shift is a no-brainer. References to big data are recent and growing. The simple explanation of big data is with the five Vs – volume, variety, velocity, value, and veracity. Regarding an “IT department,” users of technology are increasingly self-sufficient. The IT department of the past is today viewed by analysts more as a back office service. What analyst users want is easy and flexible access to data and the ability to manipulate it.
- “ROI on customer” up and “sales reporting” down. Companies are realizing that it is no longer their objective to just increase their market share and grow sales but rather to grow profitable sales and maximize the return on investment from their marketing efforts. There is a trend for customers to increasingly view suppliers’ products and standard service-lines as commodities, resulting in customers who seek special services and differentiated treatments. Consequently, many suppliers have actively shifted their sales and marketing functions from being product-centric to customer-centric. This shift is accomplished through analytics – specifically through the use of data mining, business intelligence and analytics tools to understand their customers’ behavior. These include their preferences, purchasing habits and customer affinity groups. “Sales reporting” does not reflect the trend of viewing customers as investments like in a portfolio. Maximizing the ROI on customers leads to maximizing a company’s shareholder wealth creation.
- “Balanced scorecard” up and “management by objectives” down. I was fortunate in my career to have been trained by (and to have become friends with) two luminaries in the management sciences, Harvard Business School Professor Robert S. Kaplan and Dr. David Norton. They are the co-creators of the balanced scorecard[1]. They will likely agree that their strategy map diagraming method of linked and causally related strategic objectives is relatively much more critical than the balanced scorecard instrument. The balanced scorecard display merely serves as a feedback mechanism. The more important navigation resides in the strategy map. The balanced scorecard’s KPIs monitor the progress toward accomplishing the strategic map’s typical 10 to 25 strategic objectives defined by the executive team. On the other hand, the “management by objectives” phrase has declined because in its heyday there was no conscious integration of each manager’s or employee’s MBOs. Each manager’s objective was like a random piece of a jigsaw puzzle thrown on to a table. The strategy map and its companion balanced scorecard bring order, structure and, most importantly, alignment of the KPI measures for the primary purpose of strategy execution. An executive’s biggest frustration is strategy execution. Executives are well-skilled with strategy formulation but have substantially lower control with its execution. The achievable targets of KPI measures align employees’ priorities and work activities to achieve the executive team’s strategy.
- “Driver-based rolling forecasts” up and “annual budgets” down. This shift may not be that apparent. Does it surprise you that organizations are increasingly frustrated with the annual budgeting process? Many are backing off from the cumbersome task (which is arguably of decreasing value) of producing the annual budget due to a number of reasons. One is that the budget is often obsolete a few months after it is completed and approved by the senior management team. Also, the budget is often a fiscal exercise performed by the accountants, but is not connected to the strategy-related required projects and initiatives. The budget method often simply increments each department’s expenses up or down a few percentage points with little or no consideration for valid estimated demand volume changes in future periods. In contrast, driver-based financial projections start with forecasts of the demand volume and mix of products and services placed on an organization’s processes and workload. The forecast is the primary independent variable to project the required capacity, workforce headcount and spending – which are dependent variables. When analysts have constructed reliable models with reasonably accurate unit level consumption rates based on recent performance and outcomes, then the accountants can calculate and project the estimated required capacity, workforce headcount and spending levels with suppliers.
- “Risk management” up and “contingency planning” down. Stock market equity share prices of publicly owned companies have become more volatile and sensitive to every new bit of information that might even modestly affect a company’s future cash flow. With financial scandals like Enron, WorldCom and the JP Morgan substantial write-offs from bad financial derivative investment bets, systematic enterprise risk management (ERM) is now becoming institutionalized in organizations. ERM attempts to identify every possible type of risk event, its probability of occurrence, and its impact if it were to occur. Deep analytics are now pervasive in assessing various types of risks, such as bank loan credit scoring of individuals and companies. Incontrast, “contingency planning” had temporary popularity in the past, typically based on a brief exercise to describe the reactions to a few unplanned but potentially possible adverse events, such as a fire at a primary production facility.
Words and Phrases as Indicators of Interests
These are my best guesses of how shifts in the references to words and phrases in books might indicate changes in what organizations pay greater or less attention to manage. Use of analytics is central to each word or phrase shift that I mentioned.
Are my guesses correct? You may have some thoughts on this yourself, and if so I’d be delighted to hear them. Perhaps a researcher might analyze the Google book database and surface the truth. That is what analysts are known for; Facts, not guesses.
[1] Kaplan, Robert S; Norton, D. P. (1992). “The Balanced Scorecard – Measures That Drive Performance”. Harvard Business Review (January–February): 71–79.
