EPM, predictive, and the failure to execute - a post-keynote chat with Gary Cokins
- Summary:
- EPM expert Gary Cokins has some provocative views on why companies fail to execute. After a recent keynote, I caught up with him to find out if analytical tools like predictive can bridge the performance gap.
This is done through activity-based costing, a costing methodology which traces resource consumption by work activity. The result? Visibility into profit-and-loss by customer. But all is not well in Cokins' world: too many organizations have failed to adopt these approaches.
That adoption gap bothers Cokins greatly. He wants organizations to move faster, so he semi-jokingly threatens to call companies out via "management by embarrassment". That reflects Cokins' conviction that not providing managers access to proper information borders on irresponsible. He also slams enterprise budgeting:
Gary Coker going OFF on enterprise budgeting as failed exercise, mocking "executive tweaks". "Will be obsolete in 2 months" #sapcontrolling
— Jon Reed (@jonerp) September 22, 2015
After the keynote, I taped a podcast with Cokins, The Rise of EPM and Predictive Analytics. Cokins is the author of several books on Enterprise Performance Management (EPM, or as it's sometimes referred to, CPM). He's also co-authored a book on Predictive Business Analytics.
This was an excellent chance to ask a seasoned predictive expert about the hype-drenched predictive analytics space, so we grabbed the microphones and found a quiet space to tape. Cokins also had plenty to say on the resistance to change, and why EPM is gaining momentum as a way of addressing management execution failures. For Cokins, analytics represents the best response to an era of business disruption, when decisions-by-gut won't get it done.
On execution failures, and why interest in EPM is growing
Cokins doesn't think EPM has been defined accurately:
Jon, there's a lot of confusion and lack of consensus about what enterprise and corporate performance management are. Most view it very narrowly, as a CFO initiative with a bunch of dashboards. It's much broader.
The good news is this. Enterprise performance management is not a new system or process that people have to learn. Rather, it is the integration of existing methods that many are already familiar with. It's strategy maps in a balanced scorecard with KPIs. It's product, channel, and customer profitability using activity-based costing principles. It's a move from the annual budget to driver-based rolling financial forecasts. All of these moving all somehow fit together... There is even more power when you embed analytics of all flavors into them, like correlations, segmentation, clustering, regression and the like.
Many of these methods go back early in modern tech - some pre-date computers. So why is there big interest in EPM now? Cokins believes it's because corporate shakeups have put executives on notice. He outlined a slew of them:
Failure to execute - "Executives are pretty good at formulating strategy. They'll bring in high-end consulting firms. The big frustration is the failure to successfully execute. CEO turnover rate is at all time record. Boards of directors are pretty much not tolerant with the failure to implement. That's led to the method of the balance scorecard."
Increased accountability - "Today, in organizations, there's no place to hide. The people are going to be monitored and measured. It doesn't mean their job is at risk, but it's certainly going to impact their promotability."
Rapid decision making - Cokins sees a much more intense pace of decision-making compared to a decade ago: "Today, people will be on the phone, 'Go or no go', 'yes or no.' That means they need to know, 'What would the executives do if they're sitting in my chair?'"
Distrust in management accounting - "A lot of the blind managers don't really trust the numbers that the accountants produce. They know they may reconcile and pass the outside audit. But when it comes to allocations, they know that these allocations are pretty misleading. Therefore, products are either over costed or under-costed."
From product-centric to customer-centric - "Today, customers view all suppliers basically as commodities. I may be over-exaggerating, but banks all have the same services and products. What suppliers really have to do today is provide differentiated services to different types of customers. That means there has to be much more visibility of understanding how profitable different types of customers are. Sales volume is not necessarily reflective of the level of profitability, because you have high maintenance customers and low maintenance customers and the like."
The annual budget is broken - "The annual budget in my mind is really almost broken. It's pretty much obsolete in a couple of months after it's produced, and has a lot of other flaws. There is a move towards what's called driver-based rolling financial forecast."
The ROI challenge of large-scale CRM and ERP systems - "I'm not trying to take a cheap shot at the ERP software vendors, but when you ask a CIO after they've spent several years implementing a large ERP system, 'How satisfied are you that it met that exceeded the ROI that the salesperson promised you?' Many would say, 'I'm not sure.' It's important to implement those ERP systems. It's just that the ROI is latent. It's in that data. It's like seeds in the ground. What enterprise performance management methods do is releases the ROI through better decisions and insights."
Can analytics really solve these problems?
That's a veritable laundry list of leadership woes. But under the analytics and big data hype, is there a viable solution? Cokins says yes:
My undergraduate is operations research and industrial engineering. I've always been analytical. I think analytics is going to be the ultimate competitive edge.
Cokins doesn't think that pursuing a "generic" business strategy, such as the low-cost, low-price Walmart approach or the early adopter style of Apple is sufficient today. Nor does he think a narrow customer segment focus such as Tiffany's for high-end retail is enough: "I think they're all vulnerable."
Why aren't these strategies sustainable? Cokins sees competitors moving much more quickly now, lowering costs using "agile techniques" that just didn't exist ten years ago. He cites Amazon: "They started off as basically selling books then it was selling all sorts of other stuff. Now, they're in cable TV. It's just amazing."
Cokins acknowledges that big data may be over-hyped, but that doesn't change the necessity of analytics:
Maybe it's not a strategy, but to have long-term success, you need capability and skillsets for analytics, a culture for analytics inside organizations.
As for predictive analytics, Cokins isn't a fan of endorsing one technical solution over another. He sees technology as an enabler. Predictive is a mile marker in the evolution of analytics:
- descriptive analytics - a historical view
- business/diagnostic analytics - still historical, e.g. identifying outliers
- predictive analytics - "the future coming at you," gaining insight and foresight via scenario analysis, e.g. changing variables and assessing shifts in predicted outcomes.
- prescriptive analytics - still embryonic, but will use intelligent machines to recommend the best of all scenario options.
Prescriptive analytics may be early stage, but Cokins sees automated business rules right around the corner:
For example, if a customer sales rep is on a phone call, the inbound telephony system may recognize who that customer is, and what deal or discount or coupon I should offer them. In the future, it's going to be some sort of data scientist who have already done all the equations and algorithms and the customer rep will just read the screen and see, "This is the exact amount to offer."
Overcoming cultural and leadership resistance
If you accept Cokins' view of analytics as an antidote to flawed decisions, the matter of organizational resistance remains. Or, as Cokins puts it: how do you accelerate the adoption of analytics? Cokins doesn't see technology as the impediment anymore, given the power of today's tools, such as in-memory, which he sees as a "game changer" (I know some #ensw executives are smiling right now). He points to the need for change management:
It's really about overcoming resistance to change. That's human nature. People like the status quo. There's other issues. People are concerned about others knowing the truth, and being measured, and being held accountable, this kind of stuff... It's got nothing to do with technology. It's all about people. Few of us are really sociologists or psychologists. We're going to have to learn a little bit more about change management.
Cokins recommended a tactic I did not expect. Instead of selling sexy new tech, create discomfort with existing solutions:
Don't underestimate the magnitude of resistance. You need a couple of things in abundance. One is discomfort with the current state... A lot of people start with, "Oh, here's the great new shiny toy." I try to introduce discomfort, saying: "Do you people understand the executive strategy? Do you know where you make or lose money? Do you have a good forecast of the future?"
But Cokins warns that posing these questions directly to higher-level executives can be "career-limiting," so proceed with caution around defensive/embattled bosses. Which brings us to the topic of inadequate leadership:
I think in the past, the best executive and the best leaders had the best answers. Today, I don't think that's the case. I think the best leaders and executives have the best questions.
There is no way, given all the volatility and uncertainty and change that's going on, that executives can rely on their gut feel or intuition or their past experiences that got them promoted to the levels that they're at today.
If executives want to get the most out of analytics, they better solve their culture problems:
They've got to create a culture for questions and discovery and investigation. That really gets the heart of analytics. It's all about understanding.
That's a good note to end on. If you want to hear the entire podcast, I've embedded it below. You can also download it:
Image credits: Feature image credit, Businesswoman Looking In A Crystal Ball © Andrey Popov - Fotolia.com. Photo of Gary Cokins by Jon Reed.
Disclosure: ERPCorp paid the bulk of my travel expenses to SAP Controlling 2015. ERPCorp is a paid client and I am part of the founding team that launched the SAP Controlling conference. I was compensated for my work at SAP Controlling 2015, including keynote facilitation and panel moderation. However, this article and podcast was produced on my own initiative. ERPCorp produces the SAP Controlling conferences independently of SAP. This year, SAP was a paid sponsor of the conference with a hosted demo lab for attendees. SAP is a diginomica premier partner. Diginomica has no financial relationship with Gary Cokins.