While the deadline to comply with Sarbanes-Oxley’s new rules and regulations is looming for any American company with a fiscal year ending on November 15 or later, independent auditors and experts say many companies will not be ready by year’s end.

The deadline has already been moved back twice and it’s unlikely that it will be extended again. It is estimated that 10-20 percent of publicly-traded companies will have to report shortcomings in their internal controls and thus, be technically non-compliant with SEC rules.

Thus, we have decided to dedicate this issue of BPM Brainwaves to helping you and your company deal with the pressure of the looming deadline. In our “Industry Insights” feature, you will find articles about avoiding Sarbox pitfalls and tips of the trade. In our “Member Mindset” feature, Raj Aggarwal tells us how companies can make business performance management work for them and Tom Phelps’ white paper tells us how people, systems and processes need to interact for optimum BPM success.

We hope you enjoy this issue of BPM Brainwaves. Please share with us any insight or questions you may have about business performance management.

The BPM Brainwaves Staff
www.bpmforum.org

• The “Engine Parts” That Power BPM Success
• Making BPM Work

The "Engine Parts" That Power BPM Success, By Tom Phelps
Copyright © 2004 by BPM Forum. All Rights Reserved.

Only when its inter-locking parts work perfectly in sync can an engine generate optimal power. The same holds true for the inter-related organizational components that drive the design and implementation of a Business Performance Management (BPM) initiative.

Many companies have sought our assistance in designing enterprise approaches to BPM. In each situation, our planning was based on evaluating three synergistic components:

• Processes
• People
• Systems

A BPM implementation strategy can be developed by focusing on these three “engine parts” that point up crucial BPM issues and action items — and which power BPM success when they are closely aligned.

Let’s now look at the planning issues relative to each BPM component. The goal is assessing the strength and “working condition” of each one, individually and collectively.

• Processes – BPM planning requires that you are first able to articulate your high-level corporate business strategies. This may sound obvious. But many executive teams are not always in complete agreement about their core strategic imperatives or how to map these strategies into quantifiable performance metrics. Thus, an important BPM planning question pertains to strategy — but the true critical success factor actually relates to the efficiency of the specific business activities and processes supporting it. Implicit in this assessment is the issue of business-drivers and Key Performance Indicators (KPIs). Each relates to a discrete measurable variable or outcome. Consequently, process-related questions center on identifying your core strategic objectives and then accessing the business drivers underlying business processes that gauge your progress against them. This is a foundational element of BPM. No progress relative to BPM design or implementation can be attained without first identifying and prioritizing your main performance objectives, the key business drivers for the BPM initiative and assessing the effectiveness of the supporting business processes.


• People – Wide-reaching organizational projects — such as introducing Business Performance Management — can never succeed without the active involvement and buy-in of a company’s people. BPM planning questions relative to the “people” component are twofold. First, they assess how cohesive the organization is in terms of its ability to implement broad and complex improvement initiatives like BPM. (In short, is the corporate strategy clearly communicated and comprehended by its people? Are key performance indicators relevant and actionable at all levels of the organization? And, are individual compensation plans linked to those KPIs?) The second line of questions relates to how truly aligned your people are from a cross-functional standpoint? Certainly, every CEO says that the departments in his or her company all pull together as a team moving in the same direction. Is this honestly the case in your company? It must be if you are to realize optimal returns from your BPM investment.


• Systems – Although BPM is not a technical term, the systems component is central to Business Performance Management given BPM’s technology-intensive nature. The complexity of BPM information-processing requires the proper technology and systems architecture to coordinate enterprise-wide data collection and analysis. The tools used have to be able to support a wide variety of underlying business intelligence (BI) applications, a diverse set of user skills, and scale as the number of users grows and data volumes increase. Yet this is not to suggest that BPM implementation requires ripping out existing IT installations and starting from square-one. On the contrary. It’s important to ask a fundamental question: “What’s working and what’s not working?” from an IT systems standpoint. Unquestionably, BPM implementation will proceed most smoothly if you can utilize an integrated BPM product suite that fits in well with your existing IT infrastructure – one that can readily automate the acquisition, staging and delivery of real-time management information. Above all, your BPM suite must be architected to deliver information through an interface that is most appropriate for the varying user needs. This may be Excel spreadsheets, a Balanced Scorecard©, or other BI applications. Where does your IT infrastructure stand vis-a-vis these questions? Having the answers is essential to determining the viability of the crucial systems component.

The Evolutionary Nature of BPM
By right, BPM is not a destination per se. Rather it is a path to be traveled toward corporate achievement in light of changing strategic mandates and imperatives. This is a key point to keep in mind. A critical component of any BPM initiative is having a clearly defined roadmap recognizing that, once a BPM program is launched, it will then continue to grow and create an organizational momentum and energy all its own.

The evolutionary nature of BPM raises another critical success factor: planning for growth.

As BPM is deployed throughout the company, more people across the enterprise will become involved, expanding the information required, user support and training. Best practices call for the formulations of a BPM competency center, which combine technical, analytical and business skills to most effectively support the evolution of a BPM initiative. New BPM initiatives will spawn new processes and management practices; your BPM infrastructure must be scalable to accommodate these new ways or working. With BPM’s evolution will come new technology requirements; your BPM systems must be leveraged and integrate with new IT requirements.

Clearly, BPM is all about providing information to manage strategy execution. Thus, designing and implementing BPM requires understanding the activities that drive strategy and amassing and monitoring the right information that will drive execution. By collecting the right information at the right time — relative to the organizational engine components of processes, people and systems — you will able to maximize the long-term benefits you seek from BPM.

The Author : Tom Phelps is the founder and president of ThinkFast Consulting, a leading professional services firm dedicated to Business Performance Management applications. He is a member of the Business Performance Management Forum ( http://www.bpmforum.org ) — an important independent organization helping to advance the understanding of business performance management techniques, technologies, and processes in global enterprises.

Making BPM Work, By Raj Aggarwal
Copyright © 2004 by BPM Forum. All Rights Reserved.

Business performance management (BPM) collectively represents all the processes, methodologies, metrics and systems designed to manage performance. It is, by nature, an information-driven management function.

Software is obviously a central tool in successfully implementing BPM initiatives. However, early adopters of BPM are finding that without addressing the so-called “soft” issues related to corporate culture, companies will be challenged to maximize the return on their BPM investments.

The essential planning steps involved in implementing BPM must focus on identifying key performance metrics and information technology requirements. Yet to truly make BPM work, the planning process must also address communication and corporate culture issues that will enable employees to understand, embrace and directly support the BPM initiative.

BPM champions are finding that there are three key culture-related factors that are necessary preconditions to create a performance-driven organizational mind-set. We will examine these in a moment. First, let’s look at a critical aspect of BPM, which ties directly to the cultural considerations central to achieving BPM success.

The Fundamental Nature of BPM
BPM is founded on the process of amassing and strategically disseminating organizational data and intelligence. Specifically, this involves two core steps:

• Identifying the unique financial and operational information that relates to the key value drivers for the business and gauge a company’s business performance.
• Making sure that data is channeled to the people and departments who need it for budgeting, supply chain analysis, pricing analysis, promotional performance and forecasting purposes (to name just a few BPM applications).

However, information never flows automatically in a corporate context, nor do institutional knowledge and intelligence. They must be collected and actively moved through the enterprise. This holds true in any managerial milieu. It is particularly crucial in the context of BPM.

Adopting BPM requires creating a new organizational mind-set – one that is decidedly information sharing-oriented. While there are many important considerations, successfully forging this mind-set at all levels of the enterprise entails focusing on three cultural variables. They relate to the following:

1. Open-book management.
2. BPM-focused learning and development.
3. Management’s orientation to risk-taking and failure.

As the defining trait of BPM, information sharing starts at the top of an enterprise. If management wants employees to proactively exchange knowledge and organizational intelligence, it must first show a willingness to do so itself.

Open-book management is predicated on senior management’s ongoing dissemination of strategic and financial information. Leaders regularly communicate how the business is doing – regardless of whether the news is good or bad. This contrasts with organizations whose leaders do not communicate such information because it is deemed proprietary to the executive suite or irrelevant to the general employee population.

Maintaining an open-book policy is crucial in a BPM-focused organization. Senior executives must deliver detailed reports on how the business is performing vis-á-vis precise business drivers and strategic goals. It is this exact information that managers need to implement BPM.

BPM champions must assess the extent to which an open-book orientation exists in their culture. If it doesn’t, they must determine what management information employees need to know to support BPM processes. Then, they must ensure that those employees start to receive and understand said input on a regular basis.

BPM-Focused Learning and Development
A company’s practices in the realm of learning and development are another important cultural consideration for BPM.

The foregoing points have focused on the internal distribution of information tied to business performance metrics – information that needs to be channeled to employees at all levels. Unfortunately, there’s no use in giving people information if they don’t understand what it means.

Certainly, most mid-level and senior managers understand the principles of operations and finance. They know what their company must do to develop and deliver its offerings profitably. However, the fact is that the largest group of employees – the employees with the greatest impact on the daily operations of the business – are workers in the trenches. These are the people who, by and large, are unlikely to have a grasp of core financial concepts, performance improvement practices and the tenets of operational excellence. Yet, it is these factors that characterize BPM’s philosophical foundation.

Skilled individual contributors who occupy the lower levels of the management hierarchy may need help in understanding those concepts in terms they can relate to and grasp. Herein lies the essence of BPM-oriented employee training, which may be necessary. Without a firm understanding of the determinants and drivers of corporate value, employees – at all levels of the enterprise – cannot productively channel their energies and motivation accordingly.

Companies embracing BPM must ask this question: Do the people at every level of our organization understand what our strategic drivers are and what they personally need to do to help ensure their attainment? If the answer is no, specialized training initiatives may need to be instituted for select employee groups.

Management’s Orientation to Risk-Taking and Failure
BPM represents a broad new way of looking at business planning and monitoring. With such an orientation comes a new way of developing enterprise-wide programs and executing core business activities. Tried and true practices may no longer be appropriate; that is, they may not support BPM systems and protocols. When that is the case, managers and supervisors must change how they plan, set priorities and execute tasks.

As they work to institute new BPM methods, managers are, in fact, taking chances. It invariably becomes a case of trial and error. Importantly, the issue here relates not to “error” but rather to the punitive “trial.” Mistakes will be made by employees. The cultural question is this: How are mistakes typically viewed and acted upon by management?

A company’s fundamental orientation toward risk-taking and its subsequent response to employees’ mistakes is a noteworthy cultural characteristic. Does management actively promote and reward risk-taking? Or, does it espouse risk-taking behavior but actually reward risk-averse behavior? This is a key culture-related question to ask in light of the fact that BPM is an evolving discipline and, more importantly, its implementation involves changes in business processes. Missteps will be taken on the road to BPM excellence. Management must recognize that this is inevitable. To foster change (in this case, BPM-focused change) requires encouraging people to pursue new methods without fear of undue reprisal.

By all accounts, BPM generates information that is widely accessible by employees and empowers them to make decisions – including ones that may be deemed risky by senior management. Fortunately, with BPM, employee decisions will be based on data and analysis, not on subjectivity and the proverbial “gut feel.” Nonetheless, for executives implementing BPM, it is necessary to assess their organizations’ true orientation to risk-taking and their response to failure – and to then take this into account when establishing BPM policies and evaluative criteria.

With BPM, all levels on an enterprise must function as interdependent conduits of business data and intelligence. Introducing specialized systems and processes to do so is only the first phase of a longer-term challenge that involves addressing critical culture-related issues.

The best BPM tools and systems will never yield the desired benefits if the right organizational climate isn’t present. Focusing on cultural considerations will help ensure the success of BPM programs by effecting widespread understanding, appreciation and adoption of BPM by employees.

The Author : Raj Aggarwal is the Firestone Chair and Academic Director of the Finance Ph.D. program at Kent State University and an advisory board member of the BPM Forum (www.bpmforum.org). He is a member of the board at Manco Inc. (Loctite, Lepage and Duck brands) and the Flood Company Inc. (CWF and other brands). Aggarwal may be contacted at 330-672-1219 or raggarwal@bsa3.kent.edu.

Industry Insights

• Sarbanes-Oxley: Avoiding Its Pitfalls
• Sarbanes-Oxley Compliance Is Ongoing, So Prepare For Now And In Future
• Hardly Ready for Sarbanes-Oxley
• Sarbox: Spur to Foreign-Company Flight?