For decades businesses have invested in countless products and services aimed at improving decision making and overall performance and profitability. However, the problem with many business optimisation programs is they tend to be focused on specific outcomes which often don’t translate to broader, enterprise-wide improvements in revenue or cost reduction.
Enterprise performance management (EPM) is now available as an encompassing tool aimed at providing actionable decision-making information above any data source.
Where does EPM sit in the traditional enterprise architecture? If Enterprise Resource Planning (ERP) is the system of record, then EPM is an organisational capability and discipline, enabled by technology, which supports strategic decision-making and translates strategy into action.
Daniel Bruce, National EPM Leader, KPMG, says EPM should not be viewed in the same light as a single business improvement program or tool. Rather, it is creating a paradigm shift in business improvement capability by enabling executives to act on strategic programs with the best information available.
“EPM is more focused on improving revenue and upside rather than taking out costs,” Bruce says. “It is fundamentally about changing the way businesses operate. EPM focuses the business on the right measures and strategic outcomes and aligns the business to deliver those outcomes.”
Bruce says many Australian business are struggling with “what they should measure and how they should measure it”. EPM enables the capability for how to best drive an organisation’s strategy.
“Few people would recognise or respond to the term EPM, but all organisations need it. And CEOs expect more; they say performance is the CFO’s greatest opportunity to contribute to, or impact the value of, the organisation. EPM should be tailored to an organisation’s specific strategy and industry; however, a holistic framework that enables continuous improvement can help ensure sustainable business value.”
John Christopoulos, Director, Technology Enablement, KPMG, describes EPM as a pervasive discipline that can branch across a number of siloes or tiers in the business.
“Low maturity businesses tend to be very manual and siloed with high-level targets to achieve against,” Christopoulos says. “EPM puts the basic discipline in place to drive the performance of the business. It is very much about forward thinking – now I have the information, how can I put a better plan and practice in place with what is available?”
Despite its low maturity, EPM is beginning to deliver tangible benefits for Australian organisations.
At a national sporting association there was a requirement for a new budgeting and planning solution; however, with some 130 events per year, the leadership team elevated the discussion to include which factors actually drive value for the business.
“We set up the drivers with budgets around them and an event calendar to model all the meetings to be run with estimates of how many people will turn up,” Bruce says. “Then we could build a budgeting solution with Tagetik to create a profit and loss budget based on business drivers. This revolutionised how budgeting was performed and now the organisation can do a budget-versus-actual costs and identify revenue gaps.”
In another case of EPM delivering value quickly, a media company needed to forecast revenue based on projected market share and performance of shows and advertisements.
“KPMG implemented Adaptive Insights to cater for this specific and complex scenario – and many others – replacing an ageing legacy system with a modern cloud platform,” Christopoulos says.
If an organisation is underperforming, Bruce says it is best to focus on business need first, rather than the tool.
“A business leader is unlikely to say ‘I need EPM’, so programs usually start by getting the organisation aligned around a set of measures,” he says. “More often the problem statement is ‘we spend too much time on budgeting and planning, and have too many management reports’. This causes arguments over what is being measured and can result in too much measurement, rather than a focus on what will drive the organisation’s strategy in the market. You have to talk the concept before you talk the tools.”
EPM programs are usually driven by the finance team, but should involve all lines of the business.
KPMG Australia has strategic partnerships with EPM tool vendors Adaptive Insights, Tagetik and Oracle.
“An EPM toolset, unlike systems of record, bridges across all existing data sources. These systems provide an elevated view to make the right decisions no matter how data is siloed,” Christopoulos says. “This is why it is important to have the right EPM strategy around your data to understand how the value chain goes through the business.”
According to Christopoulos, EPM uncovers new ways of running an organisation by “driving the right discipline for better performance”.
“Business intelligence delivers an ability to take a data source and report it. With EPM, business leaders can query the definition of a measurement, perform ‘what if’ scenario analysis, and see how planning will change in response,” he says.
EPM tools compare and measure in an aggregated way with the business drivers being engrained in the product.
“The reconciliation and aggregation of data is also done in the EPM tool and is less expensive in terms of customisation work than trying to achieve the same output from a BI tool,” Bruce says. “EPM done right enables collaboration and involves everyone — from the people who set strategy to those who execute strategy and everyone in between. EPM helps ensure behaviors and actions are aligned with strategic objectives and people are held accountable to take action and make decisions that impact performance.”
According to Bruce, EPM starts with the strategy of the business and the bigger picture of “what are you trying to achieve?”
“What are the things we are doing that will impact our ability to deliver those?” Christopoulos says. “We articulate the strategy and develop a driver tree that explains how the strategy can be measured in the real world.
Business leaders are ultimately responsible for delivering the organisation’s strategy based on the information from the EPM tool.
“EPM presents a new opportunity for improving profitability, efficiency and fundamentally changes the way a business operates — for both top line revenue and bottom line expenses. And better performing businesses drive a better performing economy,” Bruce says.
According to a Harvard Business Review study , companies with EPM achieved a 2.95 percent higher return on assets and 5.14 percent higher return on equity compared with companies that did not use causal models.
“There is definitely an innovation by-product benefit of having an EPM program in place,” Bruce says. “Develop a forward-looking mindset for managing the business and enable your business leaders to make the decisions that deliver real value.”
Christopoulos says in addition to financial management capabilities, KPMG professionals bring together multifunctional specialists to create an enterprise-wide picture of performance.
“Our approach shows how EPM can bring real benefits to the bottom line and enhance stakeholder value,” he says. “With in-depth industry knowledge, we can effectively adapt the performance management framework to drive value given unique business challenges, and help implement and optimise the use of leading technologies.”