EPM Reclaims Lost Profits
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Back to the Future: Forward EPM Reclaims Lost Profits In the information age consumer goods and retail need to catch up in technolo- gy,and management strategies, harnessing the power of data management, in order to truly cross into the 21st century. EPM is a solid step in that direction. Brian Queenin | Xtropian am Walton, founder of Wal-Mart, once said: the data management world is software that is S“There is only one boss – the customer. The cus- designed specifically to sift through mountains of data tomer can fire everybody in the company, from the and provide instant, online, accurate and actionable chairman on down, simply by spending his money data that can spell the difference between lines of black somewhere else.” It’s no secret that the success of any or red ink. That’s what decision makers really need – business depends on performance. In fact, a company the capability of organizing and analyzing financial, will exist only as long as its customers are satisfied with operational and external information to enable them to its performance. understand and act before their competitors do and to Walton, like most visionaries, knew that the key to create a competitive advantage yielding sustainable great performance was information, although the nature shareholder value. and environment in which businesses gather and Companies consider the management of such process information has changed significantly since information critical and challenging. Forrester Research The management of critical information in the consumer packaged goods (cpg) industry, where information is as much a commodity as cereal or soap, is particularly challenging. Walton’s time. He did not live to witness it, but we are has reported, based on a survey of 40 financial and more sensitive to change now because of the speed at operational managers at Fortune 500 U.S. and which we receive information. In 1805 it took six weeks for European firms, that 63 percent of C-level executives the news of British Admiral Nelson’s victory at the Battle are unable to make the right strategic decisions of Trafalgar to reach New York. Today, in the “information because of poor visibility into internal operational data. age,” any news in some remote place in the world is The management of critical information in the con- flashed across the globe in a matter of seconds. sumer packaged goods (CPG) industry, where informa- But speed alone isn’t enough. To capture the right tion is as much a commodity as cereal or soap, and data and take action with the right corporate informa- where consumer preferences shift rapidly, is particularly tion, companies need information-gathering tools that challenging. More and more, CPG companies are rely- are specifically designed to provide management and ing on enterprise performance management (EPM) its workforce with the most relevant and timely informa- strategies, coupled with business intelligence (BI) tools, to tion. They can then use it to squeeze every last drop of help them grapple with global outsourcing, redefine the performance and productivity necessary to thrive and supply chain, master new manufacturing processes and win in a competitive global economy. The Holy Grail in prime the marketing pump. In doing so they’re reaching Back to the Future: EPM Reclaims Lost Profits Leverage Integrated Infrastructure Forward rategy cedures Define Ke Create the St Decide on y Objective d Policies & Pro ss Linkage Plan Measures s Write Strategic Plan Understoo abases IT & Busine Aligned Incentivezed Dat Harmoni Communicate Str ategic Plan Performance Plan Iteration/Creation Management Address Exceptions s Develop Business Plan Assess Perfor & Responsibility Prepare Reports/Finanmance on Targets Agree ss Plan oals te Busine Distribu G ort-Term cial Consoli Create & dation Track and Report Result Balance Resources Monitor Sh Monitor Execute Plan to Meet Strategy Run the Business Figure 1: Performance Management Pentagon the highest goals of information management – improved a performance management initiative. This allows the productivity, decreased costs, avoided risks and the rein- development of relevant strategies for today’s business forcement and definition, of their brands with consumers. environment and provides the foundation for modifica- tion as the organization becomes more mature in its EPM Defined EPM capabilities. By using the performance manage- So what is enterprise performance management? ment pentagon organizations can quickly assess where Enterprise performance management encompasses the they currently stand in their maturity in the deployment processes and capabilities required to manage business of EPM (see Figure 1). performance across the entire business. EPM includes EPM especially allows for the use of performance the identification and definition of strategies that will measurement to effect positive change in organization enhance performance both today and into the future, the culture, systems and processes. How so? By helping understanding of key business drivers that actually move management set agreed-upon performance goals, allo- the business, how those strategies and drivers are opera- cate and prioritize resources, inform managers to either tionalized and how strategy execution is tracked from a confirm or change current policy or program directions forecasting, reporting and analytical perspective across to meet those goals. Allowing management the oppor- financial and operational dimensions into the next plan- tunity to test the strategies, monitoring performance in ning cycle. It is critical to understand the starting point of faster cycles than before is vital for EPM success. Not Consumer Goods & Retail Report allowing the strategy to sit on the shelf for a year, but administrative expenses have been inching upward to Forward rather allowing review and modification in faster and about 5 percent annually. Economic pressures have not faster cycles provides for adaptive change and market helped the consumer goods industry along its path to responsiveness. Perhaps more importantly, EPM helps increased profitability. Commodity prices have sky- managers share performance results in pursuing those rocketed since 2000, increasing the price of foodstuffs, goals – with the knowledge-holders in the best position chemicals, packaging and energy. With oil prices hov- to use that data to reach those performance goals. ering around $60 a barrel, simply delivering those EPM is a set of an intensely strategic data-driven goods has grown significantly more costly. It was only and statistically oriented processes, software tools a few years ago that a consumer goods firm could and internal processes that more and more companies pass along higher costs to its customers. Not anymore. are taking a hard look at in an effort to improve overall With the growth of mega-retail chains such as Best operational effectiveness from strategy to execution. Buy, Costco and Wal-Mart, much of the industry’s pric- AMR Research estimates the performance manage- ing power has dissipated. Squeezed by cheaper options ment market to grow over 6 percent through 2008. both at home and abroad, U.S. consumer goods com- Proving to be more of a necessity than a luxury, EPM panies are starting to realize that they must capture crit- adoption is expected to steadily increase over the next ical business and consumer data and use it to provide several years as the pressure for organizations to become superior products, stronger promotions and more more efficient and agile continues to move up on the cor- effective marketing execution with higher profits. porate agenda. Executives get rewarded on “gut feelings Recognizing which customers and consumer profiles and hunches.” Testing those hunches faster than the com- generate the most profits with which products will be petition yields better business results and a real strategic the key to profitable growth. Unlocking this door is an advantage. Research firm Gartner estimates that fewer absolute must for CPG and retail companies to com- than 10 percent of enterprises had implemented enter- pete in an increasingly brutal market environment. prise performance management by the end of 2002. Enterprise performance management tools help However, 40 percent plan to adopt it by the end of 2005. consumer goods companies by giving decision makers a real-time view of performance metrics as the busi- CPG Embraces ness is running, providing managers with the insights Performance Management they need to monitor and take corrective action in the The consumer packaged goods industry is harnessing marketplace. There is a difference, reflected in bottom- EPM just as trend indicators point to a seismic shift in line results, between “running” and effectively “manag- the consumer goods industry’s market dynamics show- ing” the business. ing significant profit pressures on industry companies. For example, ready-to-use and customized reports Trends like discount retailing and the rise of private- that leverage critical retailer data – including radio fre- label products are placing enormous strain on the price quency identification (RFID) and point-of-sale feeds on of branded consumer products. Increased global com- inventory and pricing information – arm managers with petition has fueled a tougher economic trend where the information necessary to effectively execute both each new brand costs more to develop and market, internally and externally with their retail partners. Being but has a shorter life cycle and thus