CRM+ERP+S&OP+ … +BI+BA = EPM

There is continuing evidence that there is a lack of consensus and ambiguity about the term “enterprise performance management.” As an example blogger Ann All posted an article titled “BPM + CRM = Improved (not Perfect) Customer Service.” In her article she advocates integrating a company’s customer relationship management (CRM) system with business process management (BPM) tools. The article is a solid piece.

One reason for this myopia is because there is confusion in the marketplace about the term, performance management. Just Google the term and you will see what I mean.

The confusion begins with which phrase should we call performance management? This confusion in part is due to semantics and language. We often see in the press and media the acronyms BPM for Business Performance Management, CPM for Corporate Performance Management and EPM for Enterprise Performance Management. But just like the foreign language words merci, gracias, dunke schein, and thank you all mean the same thing, so do these acronyms. I like the term EPM.

In Ann’s piece BPM refers to “process” not “performance” resulting in two identical acronyms that have a different scope. The former is a subset of the latter. Enterprise Performance Management should not be confused with the more mechanical “business process management” tools that automate the creating, revising, and operating of workflow processes, such as for a customer order entry and its accounts receivable system.

There is also confusion about business intelligence (BI) and business analytics (BA). I clarify this by saying that BI reporting consumes stored information. BA produces new information. Enterprise Performance Management the deploys then business analytics in context for problems, opportunities, and decisions.

CRM+ERP+S&OP+ … +BI+BA = EPM

Additional confusion is that EPM is perceived by many as far too narrow. It is often referenced as a CFO initiative with a bunch of measurement dashboards for feedback and better financial reporting. It is much broader in scope. More recent confusion comes from the term being narrowly applied to a single function or department, such as marketing performance management or IT performance management.

Historically performance management referred to individual employees and was used by the personnel and human resources function such as for employee appraisals. But today, the term is widely accepted as enterprise-wide performance management of an organization as a whole. Clearly the performance of employees is an important element to improve an organization’s performance, but in the broad framework of performance management, human capital management is just one component.

There is good news that can clarify the confusion. EPM is not a new methodology that everyone now has to learn, but rather it tightly integrates business improvement and analytic methodologies that executives and employee teams are already familiar with. Think of performance management as an umbrella concept. It integrates operational and financial information into a single decision-support and planning framework. These include strategy mapping, a strategic balanced scorecard, operational dashboards, product and customer profitability and costing (including activity-based cost, ABC, principles), driver-based budgeting (and rolling projections), forecasting, and resource capacity requirements planning. These methodologies fuel other core solutions such as customer relationship management (CRM), supply chain management (SCM), risk management, sales and operations planning (S&OP), business process management, and human capital management systems, as well as lean management and Six Sigma quality initiatives. It is quite a stew, but they all blend together.

EPM increases in power the greater these managerial methodologies are integrated, unified, and spiced with all flavors of analytics – such as segmentation and correlation analysis. But its ultimate power comes including predictive analytics. Predictive analytics are important because organizations are shifting from managing by control and reacting to after-the-fact data toward managing with anticipatory planning so they can be pro-active and make adjustments before problems occur.

Why the slow adoption rate of EPM?

Unfortunately at most organizations EPM’s portfolio of methodologies are typically implemented or operated in a silo-like sequence and in isolation of each other. It is as if the project teams and managers responsible for each methodology live in parallel universes. But we all know there are linkages and interdependencies; so we know they should all somehow be integrated. However, these components are like pieces of a tabletop jigsaw puzzle that everyone knows somehow fits together; but the picture on the puzzle’s box cover is missing! EPM provides that picture of integration both technologically and socially. EPM makes executing the strategy everyone’s number one job – it makes employees behave like they are the business owners.

Many organizations jump from improvement program to program hoping that each new one may provide that big yet elusive competitive edge like a magic pill. However, most managers would acknowledge that pulling one lever for improvement rarely results in a substantial change – particularly a long-term sustained change. The key for improving is integrating and balancing multiple improvement methodologies and spicing them with analytics of all flavors – particularly predictive analytics.

In the end, organizations need top-down guidance with bottom-up execution. It is the integration of the methodologies spiced with analytics that is the key to complete the full vision of the analytics-based EPM framework.