Bk Performance Manager

by Roland Mosimann, Patrick Mosimann, and Meg Dussault
Proven Strategies for
Turning Information
into Higher
Business Performance
ThThe
PERFORMANCPERFORMANCE
ManageManager

The PERFORMANCE Manager
Proven Strategies for Turning Information into
Higher Business Performance
Edited by
John Blackmore
Production and Launch Team:
Carrie Bendzsa
Steve Hebbs
Lars Milde
Randi Stocker
© 2007 Cognos Incorporated. All rights reserved. No part of this book may be used or reproduced in any manner whatsoever
without written permission, except in the case of brief quotations incorporated in critical articles and reviews.
Published by Cognos Press, 3755 Riverside Drive, P.O. Box 9707, Station T, Ottawa, Ontario, Canada K1G 4K9.
Cognos and the Cognos logo are trademarks or registered trademarks of Cognos Incorporated
in the United States and/or other countries. All others are the property of their respective trademark holders.
The DecisionSpeed®
Framework, the Decision Areas and its core content, and all intellectual property rights therein, are proprietary to
BI International, and are protected by copyright and other intellectual property laws. No part of the DecisionSpeed®
Framework,
the Decision Areas and its core content can be reproduced, transferred, distributed, repackaged, or used in any way without
BI International's written permission. DecisionSpeed®
and Decision Area are trademarks of BI International.
Printed in Canada, 2007. ISBN 978-0-9730124-1-5

Introduction ..................................................................................................................................... 5
Promise: Enabling Decision Areas that Drive Performance .............................................................. 9
Finance: Trusted Advisor or Compliance Enforcer? ....................................................................... 17
Marketing: Investment Advisor to the Business ............................................................................. 29
Sales: Your Business Accelerator .................................................................................................... 41
Customer Service: The Risk/Reward Barometer of the Company’s Value Proposition ................... 53
Product Development: Developing the Right Product, the Right Way, at the Right Time .............. 65
Operations: Winning at the Margin ............................................................................................... 73
Human Resources: Management or Administration of Human Capital?.........................................85
Information Technology: A Pathfinder to Better Performance ....................................................... 95
Executive Management: Chief Balancing Officers ........................................................................ 113
Summary ..................................................................................................................................... 139
About the Authors ....................................................................................................................... 141
T A B L E O F C O N T E N T S
3

The Performance Manager continues an exploration that began more than ten years ago with the
publication of The Multidimensional Manager. Both books examine the partnership between
decision-makers in companies worldwide and the people who provide them with better information
to drive better decisions.
More than a decade ago, the focus was on understanding an exciting new transformational trend—
companies were becoming more customer- and profit-centric. What drove that trend? Companies
were relying more and more on information assets such as business intelligence.
Today, that focus has become even sharper and more important. Global competition and
interconnected global supply chains have further intensified downward pressures on cost.
Technology and the Internet have transformed the knowledge economy from the equivalent of a
specialty store into a 24/ 7/365 big-box retailer. Vast amounts of content are accessible anytime,
anywhere.
Today, companies are expected to have a depth of insight into their customers’ needs unheard of ten
years ago. And yet market uncertainty is greater than ever. The pace of rapid change does not allow
for many second chances. In other words, if being customer- and profit-centric was important then,
it is critical now.
To better support the decision-maker/technology professional partnership, The Multidimensional
Manager introduced 24 Ways, a set of business intelligence solutions used by innovative companies
to drive greater profitability. These solutions were organized by business function and reflected the
insight that the most valuable information in corporate decision-making is concentrated in a
relatively small number of information “sweet spots”, nodes in a corporation’s information flow.
The book also introduced two further insights. First, the emergence of a new breed of manager—the
multidimensional manager, who could effectively navigate and process these information sweet spots
and thus make better, faster decisions. Second, the maturity of the enabling technology—business
intelligence.
The book launched a fascinating dialogue. Demand led to the printing of more than 400,000 copies.
People used it to help understand and communicate the promise of business intelligence. The pages
often dog-eared and annotated, it became a field manual for business and IT teams tasked with
developing solutions for their companies. Cognos (which commissioned the book), BI International
5
INTRODUCTION

(which co-authored it and developed the 24 Ways), and the company PMSI (which partnered closely
with both), maintained a dialogue with hundreds of companies over the years, collecting and
synthesizing the many common experiences and refining them into a body of best practices and
solution maps.
Ten years on, The Performance Manager revisits this dialogue and the underlying assumptions and
observations made in the first book. We share our conclusions about what has changed and what
has been learned by successful companies and managers in their attempts to drive profitability with
better information. While the core principles originally presented have evolved, they are still largely
true. After all, businesses exist to serve customers, and notwithstanding the tech boom’s focus on
market share, profit is the ultimate measure of success. The Performance Manager is not a sequel;
though related, it stands on its own. We hope it will launch a new dialogue among those ambitious
and forward-looking managers who view information not as a crutch but as a way to both drill
down into detail and search outward into opportunity.
The Changing Value of Information
McKinsey Quarterly research since 19971
has followed an interesting trend that relates directly to the
dialogue we started a decade ago. Based on this research, McKinsey distinguishes between three
primary forms of work and business activity:
1. Transformational work – Extracting raw materials and/or converting them into finished goods
2. Transactional work – Interactions that unfold in a rule-based manner and can be scripted or
automated
3. Tacit work – More complex interactions requiring a higher level of judgment involving ambiguity
and drawing on tacit or experiential knowledge
In relation to the U.S. labor market, McKinsey drew several conclusions. First, tacit work has
increased the most since 1998. It now accounts for 70 percent of all new jobs, and represents more
than 40 percent of total employment. The percentage in service industries is even higher—for
example, it’s nearly 60 percent in the securities industry.
Second, over the same period investment in technology has not kept pace with this shift in work.
Technology spending on transactional work was more than six times greater than spending on tacit
work. This reflects the past decade’s efforts in re-engineering, process automation, and outsourcing.
It makes sense: linear, rule-based transactional processing is the easiest to improve.
6
I N T R O D U C T I O N
1
Bradford C. Johnson, James M. Manyika and Lareina A. Yee: “The next revolution in interactions,” McKinsey Quarterly (2005, Number 4), and
“Competitive advantage from better interactions,” McKinsey Quarterly (2006, Number 2).

But McKinsey’s third finding is the most important: competitive advantage is harder to sustain when
it is based on gains in productivity and cost efficiency in transaction work. McKinsey’s research
found that industries with high proportions of tacit work also have 50 percent greater variability in
company performance than those industries in which work is more transaction-based. In other
words, the gap between the leaders and laggards was greatest in industries where tacit work was a
larger proportion of total work.
This fascinating research confirms what most of us have known intuitively for some time. Our jobs
have become more and more information-intensive—less linear and more interactive, less rule-based
and more collaborative—and at the same time we are expected to do more in less time. While
technology has helped in part, it hasn’t achieved its full potential.
The Performance Manager can help this happen. It offers insights and lessons learned on leveraging
your information assets better in support of your most valuable human capital assets: the growing
number of high-value decision-makers. Given the right information-enabling technology and
leadership, these decision-makers can become performance managers. Such managers deliver
sustainable competitive advantage by growing revenue faster, reducing operational expenses further,
and leveraging long-term assets better. The companies whose experiences we share in this book have
validated this promise with hard-earned victories in the trenches.
I N T R O D U C T I O N
7

Enabling Decision Areas that Drive
Performance
This book synthesizes countless, varied company experiences to construct a framework and
approach that others can use. The information sweet spot was the cornerstone concept of The
Multidimensional Manager. Sweet spots, business intelligence, and multidimensional managers were
the keys to the book’s profitability promise.
These three insights are still fundamental to the promise of The Performance Manager and the need
to leverage information assets to make high-value decisions that:
• Enable faster revenue growth
• Further reduce operational expenses
• Maximize long-term asset returns
➔ and therefore deliver sustainable competitive advantage.
If anything, these three insights are even more critical to success today.
Insight 1 revisited: The information sweet spot ➔ More “sweet” required today
In 1996, we wrote that “the most valuable information for corporate decision-making is
concentrated in a relatively small number of sweet spots of information that flow through a
corporation.” The driving logic was the relative cost of acquisition and delivery of information
versus the value and importance of that information. While this cost/benefit consideration is still
valid, four factors require today’s decision-making information to be defined, refined, and
repackaged in even more detail than ten years ago:
1. More: There is simply much more information available today. The term “data warehouse” is no
accident. Companies collect massive amounts of transaction data from their financial, supply
chain management, human resources, and customer relationship management systems. Early on,
often the problem was finding the data to feed business intelligence reports and analytics. Today,
data overload is the greater challenge.
2. Faster: Information flow has become faster and more pervasive. The Internet, wireless voice and
data, global markets, and regulatory reporting requirements have all contributed to a 24/7/365
working environment. Today’s company is always open for business. Managers are always
connected. Time for analysis, action, and reaction is short, especially in the face of customer
demands and competitive pressures.
9
PROMISE

3. Integrated: Work has become more interactive and collaborative, requiring more sharing of
information. This means integrating information across both strategic and operational
perspectives as well as across different functional and even external sources.
4. Enrichment: Effective decision-making information requires more business context, rules, and
judgments to enrich and refine the raw transaction data. Categorizations and associations of this
data create valuable insights for decision-makers.
Insight 2 revisited: Managers think multidimensionally ➔ Managers perform within iterative and
collaborative decision-making cycles
Ten years ago, many multidimensional managers tended to be “power users” who were both willing
and able to navigate through a variety of information to find the answers they needed. These users
were adept at slicing and dicing when, who, what, and where to better understand results.
The ease of ad hoc discovery was incredibly powerful to managers previously starved for information
and, more important, answers. This power of discovery is still highly relevant today, but the need for
decision-making information has evolved: analysis by some isn’t enough—what is required is
interaction and collaboration by all. As the research by McKinsey shows, more and more tacit work
is required to drive innovation and competitiveness. Today’s performance managers include more
executives, professionals, administrators, and external users, and are no longer mainly analysts.
Iterative and collaborative decision-making cycles result from more two-way interaction in common
decision steps: setting goals and targets; measuring results and monitoring outcomes; analyzing
reasons and causes; and re-adjusting future goals and targets. These two-way interactions can be
framed in terms of different decision roles with different work responsibilities and accountabilities
for a given set of decisions. These job attributes situate performance managers in a decision-making
cycle that cuts across departmental silos and processes. This cycle clarifies their involvement in the
information workflow, helping define the information they exchange with others in driving common
performance goals. A decision role can be derived from a person’s work function (such as
Marketing, Sales, Purchasing, etc.) and/or their job type (such as executive, manager, professional,
analyst, etc.).
Work responsibilities can be divided into three basic levels of involvement:
1. Primary: Decisions at this level are required to perform particular transactions or activities and
are made often. Typically, this employee is directly involved, often in the transaction itself, and
his/her activity directly affects output and/or cost, including for planning and control purposes.
He/she has access to information because it is part of the job requirement.
2. Contributory: Information supports decisions made with indirect responsibility. Decisions are
more ad hoc and may add value to a transaction or activity. The employee at this level may have
to resolve a problem or, for example, adjust a production schedule based on sales forecasts.
3. Status: Information supports executive or advisory decisions. These people receive status updates
on what is going on. Sometimes they manage by exception and get updates only when events fall
outside acceptable ranges.
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P R O M I S E

These different levels mean that securing sweeter information sweet spots is not enough. Information
must be tailored to a person’s decision role, work responsibility, and accountability for a given set of
decisions. In the past, many business intelligence efforts stumbled precisely because of a one-size-fits-
all approach to user adoption. Information must be packaged according to use and user role.
Insight 3 revisited: The reporting paradigm for managers has changed ➔ Performance managers
need integrated decision-making functionality in varied user modes
Business intelligence was an emerging technology in the mid 1990s. Today’s business intelligence has
matured to fit the notion of performance management. To fully support sweeter information sweet
spots and collaboration within decision-making cycles, you need a range of integrated functionality.
For performance managers with varied roles and responsibilities and those making decisions based
on back-and-forth collaboration, functionality can’t be narrowed to just one kind, such as scorecards
for executives, business intelligence for business analysts, or forecasting for financial analysts. In
practice, performance managers need a range of functionality to match the range of collaboration
and interaction their job requires.
Every decision-making cycle depends on finding the answers to three core questions: How are we
doing? Why? What should we be doing? Scorecards and dashboards monitor the business with
metrics to find answers to How are we doing? Reporting and analysis provides the ability to look at
historic data and understand trends, to look at anomalies and understand Why? Planning and
forecasting help you establish a
reliable view of the future and
answer What should we be doing?
Integrating these capabilities allows
you to respond to changes
happening in your business.
To ensure consistency in answering
these fundamental performance
questions, you must integrate
functionality not just within each
one, but across them all. Knowing
what happened without finding out
why is of little use. Knowing why
something happened but being
unable to plan and make the
necessary changes is also of limited
value. Furthermore, this integrated
functionality must be seamless across
the full network of performance
managers, whether within a
department or across several. In this
sense, the new paradigm today is the
P R O M I S E
11

platform. Just as the questions are connected, the answers must be based on a common
understanding of metrics, data dimensions, and data definitions, as well as a shared view of the
organization. Drawing answers from disconnected sources obscures the organization’s performance
and hampers decision-making. Real value means providing a seamless way for decision-makers to
move among these fundamental questions. The integrated technology platform is vital to connect
people throughout the system to shared information. Its core attributes include the ability to:
• Integrate data from a variety of data sources
• Supply consistent information across the enterprise by deploying a single query engine
• Restrict information to the right people
• Package and define the information in business terms
You must also be able to present the information in a variety of user modes. Today many decisions
are made outside the traditional office environment. The system must support the shifting behaviors
of the business consumer. Decision-makers must be able to:
• Use the Internet to access information
• Use text searches to find key information sweet spots
• Create the information they need by using self-service options
• Set up automatic delivery of previously defined snippets of information
• Have guided access to the information they need so they can manage by exception
The 24 Ways Revisited: Decision Areas that Drive Performance
Perhaps the single most powerful idea in The Multidimensional Manager was the 24 Ways.
Organized by functional department, these proven information sweet spots became a simple road
map for countless companies to deploy business intelligence. This system was easy to communicate,
notably to a business audience, and showed how operational results ultimately flowed back to the
financial statements. Through hundreds of workshops and projects that followed the release of The
Multidimensional Manager, BI International and PMSI became informal clearinghouses for ideas and
feedback on the 24 Ways. This was most notable in the BI University program, developed and
launched by BI International and then acquired and operated by Cognos.
Starting in 2000, BI International and PMSI synthesized these experiences into a new, more refined
and flexible framework to address the revisions to each of the insights noted above. Known as the
DecisionSpeed®
framework, it enables faster business intelligence designs, deployments, and
ultimately decisions.
Expanded to include roughly twice as many sweeter information sweet spots as the 24 Ways, these
decision areas are common to most companies. The framework is highly flexible, and circumstances
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P R O M I S E

will dictate how to best design and develop specific information sweet spots. You may require more
detailed variations, in particular, other decision areas to meet specific needs. But the logic of each
decision area is the same: to provide a simple, easy-to-understand way to drive performance—and
also to measure, monitor, and analyze it, report on it, and plan for it.
The specific industry is also a key factor in the number and definition of decision areas. For this
book, we chose and adapted a generic manufacturing industry model because it is the most common
and broadly recognized.2
While other industries may present a different set of specific decision areas,
the business fundamentals in this book apply across most companies.
Decision areas are organized by the eight major functions of a company that drive different slices of
performance. Though this is similar to the 24 Ways functional map, there are some significant
differences. An enlarged Operations function now combines the purchasing, production and
distribution areas, reflecting the decade-long effect of integrated supply chains and business process
improvement. Human Resources and IT now each have their own focus, as does Product
Development.
These eight functions provide the core structure of the book. Starting with Finance, each chapter
introduces some key challenges and opportunities that most companies face today. A recurring theme
is that of striking the right balance among competing priorities. How to weigh different options, how
to rapidly make adjustments—these are often more difficult decisions than coming up with the
options in the first place. The decision areas for a particular function represent the information sweet
spots best suited to it, for the balancing act required to meet challenges and exploit opportunities. In
this book we have focused on some 46 decision areas, ranging from three to seven per function.
P R O M I S E
13
PERFORMANCE Operations
Product
Development
Human
Resources
IT / Systems
Customer
Service
Marketing
Sales
Finance
PLANNING
MEASURING
& MONITORING
REPORTING & ANALYSIS
2
Other industry models of the framework will be available in various follow-on programs and initiatives.
Market opportunitiesCompetitive positioning
Product life cycle management
Pricing
Driving demand
Cust.ServiceMarketing
Sales

We introduce each decision area briefly, giving an illustration of the core content of the
corresponding information sweet spot. These are organized into two types of measures: goals and
metrics, and a hierarchical set of dimensions. While performance can be measured both ways,
metrics typically offer additional detail for understanding what drives goal performance, especially
when further described by dimensional context. A map of which performance managers are likely to
use this decision area is included, showing relevant decision roles and work responsibilities.
The DecisionSpeed®
framework is more than a list of sweeter information sweet spots. As the bull’s-
eye graphic implies, decision areas and functions are slices of a broader, integrated framework for
performance management across the company. You can build the framework from the bottom up,
with each decision area and function standing on its own.
Over the past ten years, we have learned that you need a practical, step-by-step approach to
performance management. Overly grand, top-down enterprise designs tend to fail, or don’t live up to
their full promise, due to the major technical and cultural challenges involved. This framework is
designed for just such an incremental approach. You can select the one or two functional chapters
that apply, much like a reference guide. Decision areas empower individual performance managers to
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P R O M I S E

achieve immediate goals in their areas of responsibility. As you combine these goals across decision
areas, you create a scorecard for that function. Then, as you realize performance success, you can
build upon it to solve the greater challenge posed by cross-functional collaboration around shared
strategies and goals.
A key factor that makes this step-by-step approach work within a broader company perspective is
the direct tieback to the financials included in the design. While each decision area can provide
integrated decision-making functionality around its own set of issues, it also provides answers that
impact financial results. Goals and metrics in non-financial decision areas, such as Sales, Marketing,
or Operations, provide answers to financial statement numbers in the income statement, balance
sheet, and cash flow, and help set future plans for growing revenue faster, reducing operational
expenses further, and leveraging long-term assets better.
At the end of each chapter, we illustrate how each function can monitor its performance and
contribute plans for future financial targets. Key goals and metrics for the function are shown for
two decision areas outlined in the chapter. The planning process links them with the relevant
dimensions, ensuring that resources are allocated and expectations set against financial and
operational goals. For instance, “Company Share (%)” is planned out using the dimensions of time,
region, market segment, and brand. This process changes the objective from an aggregate percentage
share increase to a specific percentage share increase for a particular quarter, region, market
segment, and brand. In this way, the planning process ties back from decision-making processes
through the organization to the financials.
P R O M I S E
15
Market Opportunities
Company Share (%)
Market Revenue ($)
Market Growth ($)
Profit ($)
Sales ($)
Demand Generation
Marketing Spend ($)
Non-Promoted Margin (%)
Non-Promoted Sales ($)
Promoted Margin (%)
Promoted Sales ($)
Dimensions
Year
Region
Market Segment
Brand/Product Line
Marketing Campaign Type

The Executive Management chapter outlines how different decision areas across multiple functions
combine to drive shared strategic goals in the areas of financial management, revenue management,
expense management, and long-term asset management. It also provides the top-down narrative for
the overall framework.
A further objective of the DecisionSpeed®
framework is to help define the decision-making process,
or tacit work, described in the introduction. You can think of decision areas as a layer of
information sweet spots that sit above the transaction flow in a related but non-linear fashion. As
described in the Executive Management chapter, performance decisions often must combine input
from across multiple processes, and do so in an iterative and non-linear fashion, in contrast to core
transaction processes.
Here the framework is anchored in three back-to-basics concepts:
1. How does this tie back to the financials? (the so what question)
2. How does this tie back to organizational functions and roles? (the who is accountable
question)
3. How does this fit with business processes? (the where, when, and how question)
Our jobs have become less linear and more interactive, requiring iteration and collaborative decision
making. This requires the kind of information that drives high-performance decisions. This
information is aggregated, integrated, and enriched across processes in a consistent way. It is
grouped and categorized into information sweet spots designed to drive performance decisions.
This is the information framework outlined in this book.
16
P R O M I S E
PLANNING
Financial
Management
Revenue
Management
Expense
Management
Long-Term Asset
Management
MEASURING
& MONITORING
REPORTING & ANALYSIS
PERFORMANCE

17
Trusted Advisor or Compliance Enforcer?
Can anybody remember when the times were not hard and money not scarce?
Ralph Waldo Emerson
Of all the various roles Finance can play in a company, the two most necessary to balance are
complying with legal, tax, and accounting regulatory requirements and dispensing sound advice on
the efficient allocation of resources. In the first, Finance must focus on checks and controls. In the
second, it leverages its extensive expertise in understanding what resources are required to generate
which revenues. It is uniquely positioned to play this second role because, while most business
departments push as far as they can in a single direction, Finance must evaluate the company’s
contrasting realities.
How Finance strikes this balance (and many others) to a large measure determines the success or
failure of the company. Is your budget a tool to control costs, or to sponsor investment? Depending
on your industry, and where your company is in the market life cycle, one choice is better than
the other.
Finance is the mind of the business, using a structured approach to evaluate the soundness of the
many business propositions and opportunities you face every day. Information feeds this process,
and Finance has more information than most departments. As it fills its role of balancing—aligning
processes and controls while advising the business on future directions—Finance faces a number of
barriers when it comes to information and how to use it.
F I N A N C E

Barrier 1: Lack of information needed to regulate what has happened and shape what will happen
Finance requires new levels of information about past and present processes and events to meet its
regulatory compliance responsibilities. Did the right employee or department sign off a particular
expense item? Did customer credit checks take place before accepting and shipping an order? For
some companies, the information demands of compliance and control have forged better
relationships between Finance and IT. They have led to changes in information gathering and
collaboration methods (such as linking disconnected spreadsheets, for example), lowering the control
risks these represent.
But while Finance works to manage these issues, it must also ensure the information investment
helps drive its other key responsibility: helping guide decisions that make a difference to the future
bottom line.
The executive team and sales reps both look to Finance to help the business plan its future with
confidence, not simply manage money in and money out. Finance must pay attention to the drivers
that make profit, using value-added analysis to extrapolate the impact of these drivers on
tomorrow’s results—and anticipate them when necessary.
Valuing, monitoring, and making decisions about intangible assets exemplifies the interconnection
and sophistication of the information Finance requires. Regarding human capital, for example,
Human Resources and Finance must work together to identify the value-creating roles of individuals,
reflect their worth, and manage their growth, rewards, and expenses.
Without information sweet spots that show both the status of control and compliance and the
impact of drivers on future business opportunities, Finance can’t strike the necessary balance.
Barrier 2: The relevance, visibility, and credibility of what you measure and analyze is designed for
accounting rather than business management
Finance collects, monitors, and reports information with distinct legal, tax, and organizational
requirements to fulfill its fiduciary role. But Finance also needs an integrated view of these and other
information silos to fill its role of advisor. This role requires not simply reporting the numbers but
adding value to those numbers.
For example, international companies that operate across several countries usually separate sales and
production entities. Without see-through profit, a local sales office may cut products that appear to
be loss-making but in fact still make a marginal contribution to the production company’s profit.
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F I N A N C E

Another example: Marketing must understand spending on various activities. Finance must
categorize relevant expense accounts across a wide range of detailed and hierarchically complex
general ledger accounts. Without this comprehensive view, the same expense may be classified in
different accounts by different individuals.
Barrier 3: Finance must balance short term and long term, detailed focus and the big picture
Finance balances different and contradictory requirements. It must deliver on shareholder
expectations every 90 days; it must also determine a winning vision and a strategy to achieve that
vision over quarters and years. Companies can cut costs and investments to meet short-term profit
objectives, but at what point does this affect long-term financial health? A well-informed executive
team is able to understand the drivers, opportunities, and threats when balancing short- and long-
term financial performance.
Executives and financial analysts define performance in terms of shareholder value creation. This
makes metrics such as earnings per share (EPS) growth or economic value added (EVA) important.
However, these distilled financial measures tell only one piece of the story. You need to augment
them with more detailed measures that capture sales, market share gains, and revenue growth targets
to understand the real health of the company, and strike a good balance between long- and short-
term growth.
Barrier 4: Finance must find the path between top-down vision and bottom-up circumstances
To what extent should goals be set top-down versus bottom-up? If the executive team mandates
double-digit profit growth, does this translate into sensible targets at the lower levels of the
organization? Does it require a double-digit target at the lowest profit center? Top-down financial
goals must be adjusted to bottom-up realities. Finance must accommodate top-management vision
while crafting targets that specific business units can achieve.
This barrier in particular illustrates the importance of engaging frontline managers in financial
reporting, planning, and budgeting. The need for fast and relevant information requires an
interactive model. Frontline managers must assume some budgetary responsibility and feed back
changes from various profit or cost centers as market conditions change. This decentralized model
engages the business as a whole rather than relying on a centralized function to generate
information.
F I N A N C E
19

Besides freeing up Finance for value-added decision support, bottom-up participation generates an
expense and revenue plan that overcomes hurdles of relevance, visibility, and credibility. Individuals
who engage in the process take responsibility for delivering on expectations. This helps expose
drivers of success and failure that are otherwise lost in a larger cost calculation or financial
“bucket”—for both the frontline manager and Finance.
Balancing Short Term and Long Term, Past and Future, Compliance and Advisor
The information Finance uses to report what has happened and shape what will happen is critical to
the rest of the organization. Dynamic tools that allow Finance to balance compliance and
performance, accounting and business structures, short term and long term, top-down vision and
bottom-up reality are more important than ever. Information sweet spots can support Finance’s
responsibilities and decision areas.
A Balanced Financial Experience
Finance decision areas:
• Income statement ➔ How did the business team score; where was performance strong or weak?
• Drill-down variance ➔ What causes changes in financial performance?
• Operational plan variance ➔ How do we best support, coordinate, and manage the delivery of
meaningful plans?
• Cash flow and working capital ➔ How do we manage working capital, collect accounts
receivables, and monitor cash use effectively?
• Balance sheet ➔ How do we balance and structure the financial funding options, resources, and
risks of the business?
• CapEx and strategic investments ➔ What are the investment priorities and why?
• Treasury ➔ How can we efficiently manage cash and liquidity requirements?
20
F I N A N C E
FINANCE
Income statement
Drill-down variance
Operational plan variance
Cash flow and working capital
Balance sheetCapEx and strategic investments
Treasury

F I N A N C E
21
Income Statement
This decision area represents the bottom line. It is the cumulative score achieved by everyone in the
business for a set period. Everyone needs to understand his or her individual contribution and
performance measured against expectations.
You must understand where
variances above budget occur so you
can correct the course. If costs are
increasing too quickly, you risk
damaging future profits unless you
control them, adjust selling prices, or
develop new markets. Unexpected
revenue spikes can mean additional
resources are required to continue
future growth. Adjustments such as
these take time: the sooner you take
action, the sooner you improve
margins and realize the full potential
of a growth opportunity. The ability
of Finance to quickly identify,
analyze, and communicate important
variances has competitive
implications for your company. How
quickly the business capitalizes on a
new situation is determined by how
quickly it discovers budget variances.
Each month, about 1.2 million records of financial information—income statements,
invoice lines, and balance sheet analyses—from 80 sites are loaded into the system. Users
feel encouraged to perform analyses without bothering about the nature of the original
data source.
Nicolas Mathei, International IS Project Manager, Vesuvius Group

22
F I N A N C E
Drill-Down Variance
Once you identify a difference between actual and plan, you need to drill down into the details to
understand what caused it. If sales increase by five percent between two time periods, was the cause
greater volume, higher price, or a change in the product mix? Did your competitors have the same
increase in sales? If profits increased, was it due to increases in the cost of goods, a change in
product mix to lower margin products, or a reduction in discretionary spending? Did your
competitors experience the same increase?
Finance needs to understand the why behind changes. Knowing what drove changes in revenue and
profit provides a more complete picture to help guide the company.

F I N A N C E
23
Operational Plan Variance
Once Finance understands what caused
performance variances, it can lead
discussions about future operating
plans. The ability to advise and push
back on management plans is
important. Knowing the why behind
variances from plan helps companies re-
evaluate and improve the next plan.
Without this information, plans lose
their purpose and become academic
exercises to please senior management.
Ideally, Finance offers input and
feedback that other business areas can
use for guidance. At the same time,
these other areas provide frontline
information to Finance that helps
improve the plan. Such cross-functional
and coordinated effort lets you test the
roadworthiness of existing business
plans.
Because all the processes are connected to each other at different levels, we are able to
check the various plans for reliability on a regular basis, while at the same time adhering
to the strategy and taking action quickly when necessary. We have a much better view of
where and when deviations from the trends will occur. This is a key indicator of what
action we have to take.
Eelco van den Akker, Business Planning Manager, Philips

24
F I N A N C E
Cash Flow and Working Capital
Effective collection of accounts receivable fuels better performance. The cost of delay is high;
managing the profiles of aging accounts receivable or the days of sales outstanding (DSO) is a key
priority for any company. The flip side of the coin is that delaying your own accounts payable is
good for cash flow. In both cases, Finance must have insight into customer and supplier preferences
to ensure the bottom line does not damage valuable relationships.
Investment analysts scrutinize working
capital requirements as one factor in
determining financial performance.
Is the business managing its valuable
cash resources? How does the ratio of
debtors (accounts receivable) to sales
or the DSO compare to the industry
average? Are stock days increasing,
meaning more cash is being diverted
to holding stock? Are the accounts
payable days increasing?
Working capital requirements have a
direct impact on the market valuation
of a business. They are a critical area
for Finance to monitor.
Thanks to the colour codes and other alerts provided, our users can easily keep track of
outstanding debts. We are also better at credit control, with indicators clearly highlighting
our clients’ outstanding balances. In addition, the local office managers now have access
to tools for monitoring their sales figures. More generally, the whole way that the business
is managed has clearly been improved.
Mikael Perhirin, Head of Decision Support and Infocentre Unit, Générale de Protection

F I N A N C E
25
Balance Sheet
This decision area balances the financial structure and resources of the business. How much debt,
long and short term, can the business safely take on? For shareholders, a higher debt-to-equity ratio
means higher rewards and greater risk. A highly leveraged business will generate attractive financial
rewards, but if operating profits fall this may jeopardize the company’s ability to deliver on interest
and debt repayments. The company’s financial structure is a balancing act that must be based on
business fundamentals. Are future market conditions likely to be favorable? Are sales increasing or
decreasing? Is more cash investment needed in the company’s future assets? Depending on the
strategy and future direction, Finance has to accommodate such demands while maximizing returns.
Capital employed—working capital
plus fixed assets—and return on
capital employed (ROCE) are critical
factors that influence how lenders and
shareholders value a business.
Investors perceive an intensive and
high-capital-employed industry as
more risky. A high fixed-assets-to-sales
ratio is more difficult to manage in an
economic downturn, as for example in
steel production. ROCE reflects how
well the business can convert
investment into profit.
Selling the financial attractiveness of
the business to new investors is an
important Finance function. ROCE is
a benchmark that reflects positively or
negatively on senior management and
Finance. It highlights the importance
of managing future investments and
having a clear understanding and
sense of priority about which
investment projects generate better
returns. This understanding leads to
the next decision area.

26
F I N A N C E
CapEx and Strategic Investments
Since capital expenditure (CapEx) has an impact on ROCE performance, businesses must evaluate
and monitor investment decisions carefully. Asset investments can range from minor to strategically
significant: from a new computer to a new production plant in a new country. Finance must ensure
that CapEx and investment requests don’t simply become wish lists.
Finance must establish the basis for
prioritizing and justifying capital
expenditure. This means coordinating
with different function areas. For
example, Finance must understand the
impact of both yes and no before
agreeing to new investments in plant
and equipment. Will the business lose
sales if you don’t build the plant? Will
this action fix product quality
problems? Will production costs
increase or decrease?
Mergers and acquisitions represent the
strategic dimension of investments.
What are the potential cost savings
from combining these two businesses?
If the companies serve the same
market, will customers be concerned
about high supplier dependency and
reduce orders? If the businesses are
complementary, what is the volume of
incremental sales?
Understanding upside and downside
impacts from potential investments is
part of the evaluation process. Finance
arbitrates such decisions, and requires
detailed financial scenarios that
forecast investment ROI and payback.

Treasury
Moving beyond the strategic finance structure of the balance sheet, there are regular day-to-day
liquidity management concerns that require constant attention. Treasury is concerned with the
effective management of cash and liquidity, financing, bank relationships, and financial risks. What
are the options for short-term borrowing and cash requirements? Should any surplus cash be placed
in the money markets or into a bank account—and if so, at what rate of return and for how long?
Effectively managing these liquidity options and dealing with bank relationships requires constantly
updated information. Having access to current market information and aligning it with future
business requirements is the key to effectiveness.
F I N A N C E
27

28
F I N A N C E
Income Statement
Net Sales ($)
Operating Profit / EBIT ($/%)
Gross Profit ($/%)
Marketing Costs ($/%)
SG&A ($/%)
Balance Sheet
Capital Employed ($)
Assets ($)
Debit ($)
Equity ($)
Fixed Assets ($)
Liabilities ($)
Dimensions
Fiscal Month / Quarter
Organization / Department / Division
Product Line
Balance Sheet Lines / Class
The Income Statement and Balance Sheet decision areas illustrate how the Finance function can
monitor its performance, allocate resources, and set plans for future financial targets.

29
Investment Advisor to the Business
Successful investing is anticipating the anticipations of others.
John Maynard Keynes
These are the facts every Marketing professional understands:
• There are more and more competitors in your market
• Your competitors are constantly changing their business models and value propositions
• Your customers can access massive amounts of information, making them aware of their
options, tough bargainers, and fickle
• At the same time, consumers’ appetite for products and services continues to change and grow
Your competition and customers will continue to increase in sophistication. Marketing must do so as
well if it is to serve the company and help it compete and win. This means its role must evolve.
Marketing must become an investment advisor to the business. As that investment advisor,
Marketing must define:
• The overall investment strategy—what is sold, where, and to whom
• The strategic path for maximizing return on the company’s assets (ROA)
• The cost justification for the operational path required to get there (i.e., support of return on
investment (ROI) numbers for scarce marketing dollars)
Marketing must be present in the boardroom, offering business analysis coupled with financial
analysis. It must connect the dots among strategic objectives, operational execution, and financial
criteria. It can provide the necessary alignment between strategy, operations, and finance.
M A R K E T I N G

Marketing must overcome three important barriers to provide this alignment and become an
investment advisor. Each barrier underscores the need for information sweet spots, greater
accountability, and more integrated decision-making.
Barrier 1: Defining the “size of prize” has become more complex
In the days of homogeneous mass markets, companies assessed value based on market share of
major product lines, counting on economies of scale in marketing spending and healthy margins to
deliver profits. Ten years ago, the challenge evolved from mass markets to defining and improving
customer profitability. Companies began to include customer information in their data. Many
companies have successfully developed this information sweet spot and now can group customers
into meaningful segments.
Today, this trend is evolving as customer requirements and characteristics are divided into smaller
and smaller micro-segments, which requires organizations to become responsive to the needs of more
and more customer categories.
Size of prize marketing requires the company to do two things well. First, it must pool customers
into meaningful micro-segments that are cost-effective to target, acquire, and retain. Second, it must
determine the profitability potential of these micro-segments in order to set company priorities.
These profit pools allow Marketing to recommend the best investment at product/brand/segment
levels. This is of particular relevance when considering different channel strategies: the more detailed
the understanding and mapping of micro-segment profits, the more the marketing and sales
propositions can be refined.
Barrier 2: Lack of integrated and enhanced information
Without appropriate context (where, who, when), Marketing can’t define or analyze a micro-
segment. Without perspective (comparisons), Marketing can’t define market share or track trends at
this more detailed level.
As an investment advisor, Marketing must merge three core information sources: customer
(operational), market (external), and financial. To gain the full value of large volumes of customer
data—electronic point-of-sale (EPOS), click-stream data, and feeds from CRM and ERP sources—
the information must be structured thoughtfully and integrated cleanly. Marketing’s judgments and
assessments must be supported by the capability to categorize, group, describe, associate, and
otherwise enrich the raw data.
Companies need easy, fast, and seamless access to typical market information such as product
category trends, product share, channels, and competitor performance. They also need financial
information from the general ledger and planning sources to allocate cost and revenue potential in
order to place a value on each profit pool.
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M A R K E T I N G

31
Barrier 3: Number-crunching versus creativity
Companies create marketing strategies to win customer segments and the associated “prize”.
Marketing’s work now really begins, and it must justify the marketing tactics it proposes, set proper
budgets, and demonstrate the strengths and limits of those tactics. Drilling down into greater detail
and designing tactics around this information will help satisfy Finance’s requirements. In the past,
such detailed design has not been the marketing norm, but it is what is required to generate the ROI
that Finance wants to see.
However, the right information is not always easy to get. And some departments contend that good
ideas are constrained by such financial metrics, stifling the creativity that is the best side of Marketing.
Marketing’s traditional creativity should not abandon finding the “big idea”, but must expand to
include formulating specific actions with a much clearer understanding of who, why, and size of prize.
This is not a loss of creativity, simply a means to structure it within a more functional framework.
A Guidance and Early Detection System
As investment advisor, Marketing guides strategic and operational activity, which focuses on the
potential of specific markets and how the organization can meet these markets’ needs. In this role,
Marketing can also be an early detection system for how changes in the market lead to changes in
products and services, selling strategies, or even more far-ranging operational elements of the business.
Many marketing metrics are important indicators for a company scorecard. Sudden drops in
response rates for traditionally successful marketing efforts could mean competitor pressure, market
shifts, and/or revenue trouble down the road. Good marketing departments see the big picture. They
notice and interpret trends that are not readily apparent on the front line and provide the business
context for what is being sold, or not, and the associated value proposition.
Marketing has the responsibility for defining, understanding, and leading five core areas of the
company’s decision-making:
• Market opportunities ➔ What is the profit opportunity?
• Competitive positioning ➔ What are the competitive risks to achieving it?
• Product life cycle management ➔ What is our value proposition?
• Pricing ➔ What is it worth?
• Demand generation ➔ How do we reach and communicate value to customers?
M A R K E T I N G
MARKETING
Market opportunities
Competitive positioning
Product life cycle management
Pricing
Demand generation

Marketing Opportunities
Making decisions about marketing opportunities is a balancing act between targeting the possibility
and managing the probability, while recognizing the absence of certainty. This decision area is
fundamentally strategic and concerned with the longer term. It manages the upfront investment and
prioritizes the most promising profit pools while dealing with a time lag in results.
Understanding the profit potential in opportunities requires a detailed assessment of pricing, cost to
serve, distribution requirements, product quality, resources, employees, and more. The most obvious
market opportunities have already been identified, whether by you or the competition. You are
looking for the hidden gems buried in the data missed by others. These are the micro-targets that
need to be identified, analyzed, and understood.
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M A R K E T I N G

Competitive Positioning
Effective competitive positioning means truly understanding what you offer as products and/or
services to the segments you target, and how they compare with those of other suppliers. As an
investment advisor, Marketing must clearly define the business and competitive proposition:
In which market segments are you competing, and with what products and services?
Marketing must define and invest in
specific information sweet spots that
give it insight into how its customer
selection criteria compare to those of
its competitors. Marketing must
understand the customer-relevant
differentiators in its offerings and
the life span of those differentiators
based on, for example, how difficult
they are to copy. It also needs to
understand the pricing implications
of this information.
• Are our price points below or
above those of key competitors,
and by how much?
• If below, is this sustainable
given our cost profile, or is cost
a future threat?
• What premium will customers
pay for value-added
propositions?
M A R K E T I N G
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34
M A R K E T I N G
Product Life Cycle Management
Products are born, grow, and die. Marketing organizations must manage the product life cycle and
maximize the return at every stage by adapting or retiring unprofitable products and introducing
new ones. Life cycles vary significantly between industries and market segments. For example,
computer technology evolves over a 12-month cycle; cars have a three- to five-year cycle. This pace
of innovation (which is subject to sudden change) sets the context in which management needs to
bring “new news” to your markets. New news fuels the marketing machinery, a significant way to
excite and capture customer mindshare. It is also tied to financial performance, as product
innovation may point to future earnings.
Innovation may mean small or significant changes to existing products as well as the introduction of
completely new products. For example, based on its understanding of existing and new segments,
Marketing can drive changes in packaging and pricing to target new opportunities. These changes
can be achieved in the short term or the long term and are part of Marketing’s role in defining
profitability targets and predictions.
Companies have portfolios of products/services, each in its own stage of the product life cycle. The
classic practice of defining products/services as stars, cash cows, and dogs forces product review with
dimensions of time, profitability, and competitive advantage. Product life cycle management
continues the process of competitive positioning and market opportunity definition. Marketing
identifies new opportunities, is aware of the competitive landscape, and then looks into what
products and services will best do the job.

Marketing should understand what proportion of existing sales comes from new products and
compare this percentage with that of competitors. This measure helps the organization judge the
impact of investing more or less in innovation. As an investment advisor, Marketing is in a position
to counsel the company on how to forecast changes in market share if the company does not
introduce new products in a given time period. In-depth analysis allows the company to segment
products by their various life cycles and corresponding expectations, so the company can plan new
product introductions.
M A R K E T I N G
35

36
M A R K E T I N G
Pricing
Companies once defined their product proposition broadly to cast the widest net possible in
homogeneous mass markets. The downside of this practice was that as a product became a general
commodity, it became subject to price sensitivity. Smart marketers today see micro-segment markets
not as a challenge, but as an opportunity to define smaller, more customized offerings that are less
price-sensitive. The more your product proposition is tailored to solve a specific customer’s problem,
the easier it is to protect your price and margin.
Tailoring the product proposition requires more detailed information. Simple reports from
transactional systems can provide enough information to support homogeneous mass-marketing
strategies. Targeting micro-segments means modeling price implications and tracking results at many
levels.
• What product and service bundling opportunities are possible for given market segments and
customers?
• Does the product portfolio offer a combined value and convenience advantage that can be
priced tactically?
• What impact will an increase/decrease in price have upon volumes (a measure of price
elasticity)?
• To what extent should pricing be used as a defensive versus aggressive tool, and what are the
relative cost benefits? For example, where a business has only a small market share, does it pay
to be aggressive in its competitor’s back yard?
Setting prices based on well-thought-out models is one thing, but companies also must monitor how
flexible local offices and sales teams need to be. Centralized pricing ensures margin stability, but can
be counterproductive in a fast-moving, competitive situation. As a compromise, companies typically
offer pricing guidelines and a pricing floor. This lets local sales reps respond to competitive pressures
but protects the business from dangerously low price levels. Good marketing systems monitor this
data to test the validity of pricing assumptions, as well as to gain early warning of competitor
attacks on pricing.
Particularly useful are product-specific analyses—according to customer segment, product
group, or packaging type. This allows the company to focus on units that best suit the
market whilst at the same time providing the most attractive option to the company in
terms of cost.
Andreas Speck, Head of Information Management, Kotányi GmbH

Well-designed sales incentives can help avoid price erosion, but experience shows that these can also
encourage unintended behaviors. Developing sales incentives without implementing a reporting
system on those incentives is a recipe for wasting money. The ability to manage pricing guidelines
while offering local sales reps the flexibility they require depends on the use of information from
business intelligence and planning tools.
M A R K E T I N G
37

Demand Generation
Driving demand is where Marketing
rubber hits the road. All of Marketing’s
strategic thinking and counseling about
micro-segments, profit potential, the
offer, and competitive pressures comes to
life in advertising, promotions, online
efforts, public relations, and events.
Marketing manages its tactical
performance by analyzing promotions,
communications, marketing campaigns,
below-the-line support, internal
resourcing, response rates, and cost per
response. At the same time, Marketing
must understand whether or not the
company is acquiring the right customers
for the ideal future portfolio. This is key
to understanding the results of a micro-
segment marketing effort.
Improving Marketing tactics is not
simply about designing more detailed
and specific activities; it also means
understanding what elements work
better than others. Marketing must
understand the health and vitality of its
various decision areas, including pricing,
promotions, packaging changes, and
consumer communications. What
provokes a greater response? At what cost? With a wide variety of options for online, direct
response, and traditional advertising, Marketing needs to know which tools work best for which
groups.
Understanding and analyzing this information is key to alignment and accountability. Driving
demand requires close alignment with Sales, and Marketing tactical teams continually fine-tune their
aim and selection of tactical “arrows” until they hit the bull’s-eye.
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M A R K E T I N G
Sales managers can implement the plans as agreed with customers, and promotions can be
planned at both market and consumer level. Furthermore, there is a much greater
understanding of the impact that developments have on the profitability of products.
Eelco van den Akker, Business Planning Manager, Philips

M A R K E T I N G
39
The Marketing Opportunities and Demand Generation decision areas illustrate how the Marketing
function can monitor its performance, allocate resources, and set plans for future financial targets.
Company Share (%)
Market Revenue($)
Market Growth ($)
Profit ($)
Sales ($)
Demand Generation
Marketing Spend ($)
Non-Promoted Margin (%)
Non-Promoted Sales ($)
Promoted Margin (%)
Promoted Sales ($)
Dimensions
Year
Region
Market Segment
Brand / Product Line
Marketing Campaign Type

41
Your Business Accelerator
Things may come to those who wait, but only things left by those who hustle.
Abraham Lincoln
Not Enough Time, Not Fast Enough
Customers are increasingly educated and competent. To close a sale, reps must be able to react,
adjust, and satisfy customer demands on the spot. Understanding customer needs and credibility in
offering a solution are prerequisites for even being in the running. New customer demands mean
sales conversations have become far more complex, demanding a wider range of product knowledge,
sales techniques, customer insights, and company-wide awareness. And the customer expects an
immediate response. This is the key challenge facing today’s sales rep: how to balance the need for
immediate customer response with gaining the right information to satisfy the customer and close
the sale.
The ability to close deals efficiently and the knowledge needed to invest your time in the right
customers are critical factors driving your company’s success. Both depend on a timely, two-way
flow of information. Accurate and speedy information can help improve sales results and reduce
selling costs. Information flowing through Sales can affect every other department in the company:
for example, high demand forecasts drive greater future production. The slower the
two-way flow of information, the less responsive the organization.
This viewpoint brings together the three core insights in this book (see Introduction). Sales has clear
accountability for results, requires information sweet spots, and thrives on the most integrated
decision-making capabilities. A sales force with the right information, at the right time, driven by the
right incentives, is formidable. Unfortunately, many Sales departments do not optimize time and
speed of execution due to three barriers.
S A L E S

Barrier 1: You don’t set sales targets and allocate effort based on maximizing overall contribution
How you measure performance and set compensation drives how Sales allocates its time. If you
define sales targets in terms of potential profit and contribution, Sales will invest time where it
maximizes sustainable company returns. Customer relationships that secure today’s orders and
tomorrow’s sales are a strong competitive advantage. If focusing Sales on customer and product
profitability isn’t a new thought, and it’s not difficult to see the benefits—why is it still rare in terms
of implementation?
There are several reasons. In some cases, integrated profitability information is unavailable or is too
sensitive to distribute. Determining how to allocate costs may be complex or politically charged.
More frequently, the company’s focus on short-term revenue means Sales does not have or need a
perspective on long-term customer contributions. As a result, it neglects to measure cross-sell and
up-sell revenue paths or the estimated lifetime value of a customer.
The customer’s potential lifetime value is not static: it changes over time. A good Sales professional
can positively affect the change. Effecting positive change requires that reps understand:
• The cost benefit of maintaining versus acquiring customers
• Relative weighting of various opportunities based on the “cost” of expected effort
• Longer-term planning as opposed to a single sales opportunity
• A multi-tiered portfolio approach to opportunities
Without these sweet spots, your time may be poorly invested. Or worse, you won’t know if it is
or isn’t.
Barrier 2: There is no two-way clearinghouse for the right information at the right time
Procurement departments are more precisely benchmarked and more subject to internal scrutiny.
These departments expect reliable company-to-company relationships, where vendors are business
advisors and valued solutions experts. Sales, too, is becoming more and more about information
rather than just products and relationships.
However, turning sales professionals into experts on every topic is not the answer. There is simply
too much customer information required to process, distill, and communicate for reps to be fully
educated on every possible buying scenario. Instead, Sales needs to become an efficient clearinghouse
of the right information at the right time.
What’s missing in most companies is an effective two-way flow of “smart facts” between the
customer and the company. Smart facts are focused information packages about customer needs and
challenges, company advantages, and important interaction points between both entities.
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S A L E S

The two-way nature of this information is critical. The entire organization (Marketing and Product
Development in particular) needs customer insights into what works, what doesn’t, and what is of
greatest importance. Without this, your response to important concerns is impeded, and you won’t
understand the customer perspective, which is necessary for sustainable relationships.
Smart facts let Sales:
• Build on customer success stories and best
practices
• Link understood company values to what the
customer requires
• Proactively deal with issues between the
customer and company (such as late deliveries,
etc.) and stay on top of the account
Sales reps—your front line with customers—are at
a disadvantage when trying to build reliable
company-to-company relationships and loyalty if
you do not provide them with these smart facts in
a timely fashion.
Barrier 3: You don’t measure the underlying drivers of sales effectiveness
What type of input drives the most output, as measured by sales success? This is rarely evaluated or
understood, and yet it is one of the most critical areas for a company to master.
Lead generation, customer preparation, sales calls, and collateral material are all familiar tactics of
the sales process. The missed opportunity comes from not tracking what expectations were set
around these tactics and not monitoring what actually happens. Despite significant investments in
sales force automation and customer relationship management systems, companies miss this
opportunity when they see setting targets as a complicated planning exercise or when it conflicts
with a company bias to rely more on intuition.
The choice doesn’t have to be either/or. Experience and intuition can guide the initial tactical choices
and outcome expectations—but monitoring these outcomes lets you make informed decisions to
improve your results. Your goal is to increase sales productivity and adjust tactics when something
doesn’t work. Without set expectations and a means to monitor the underlying drivers of sales
effectiveness, you will likely suffer both higher selling costs and missed sales targets.
S A L E S
43
Sales: two-way clearinghouse of
smart, fast facts

Continuous Accelerated Realignment
The five decision areas described below can improve the speed of sales execution and enable a more
effective use of time. They rely on the two-way flow of vital information between customers and
company. This sharing of information can accelerate the speed of adjustments and realignments of
product, market, message, service, and other elements of the business.
Decision areas in Sales:
• Sales results ➔ What is driving sales performance?
• Customer/product profitability ➔ What is driving contribution
performance?
• Sales tactics ➔ What is driving sales effectiveness?
• Sales pipeline ➔ What is driving the sales pipeline?
• Sales plan variance ➔ What is driving the sales plan?
The order of these decision areas reflects a logical flow of analysis and action. They start with
understanding where Sales is achieving its results, first in terms of overall sales performance and then
in terms of net contribution. This is followed by drilling deeper into how Sales is using its time and
to what effect. Finally, the insights gained are applied to revising the planning and forecasting
process. In this way, Sales can drive a continuous and accelerated re-examination and realignment of
the organization. This cycle is anchored by the organization’s strategic objectives (profitability and
net contribution) and incorporates frontline realities for an accurate view of Sales performance.
44
S A L E S
Sales
Results
Sal
es
PlanV
ariance
Custome
r/
ProductProfitabilit
y
Sales
Tactics
Sal
es
Pipel
ine
SALES
Sales results
Customer / product profitability
Sales tactics
Sales pipeline
Sales plan variance

Sales Results
Sales results are one of the most basic and important information sweet spots. They are one of the
two foundations of Sales management, the other being Sales planning. They provide a consistent
overview of actual revenue across the five basic components of the business—product, customer,
territory, channel, and time.
Accurate understanding of these components suggests why results diverge from expectations. Are
sales trending down in certain territories? Is this consistent across all products, channels, sales reps,
and customers?
Sales results should not be confined to managerial levels but should be shared at various levels of the
organization. You can empower frontline sales reps with appropriately packaged analytic
information, adapted for individual reps with specific product portfolios in specific territories.
Beyond immediate operational analysis, sales results let you recognize broader performance patterns
to see if strategies and management objectives are on track and still making sense. With a consistent
flow of information over time, you can make more strategic comparisons, interpretations, and
adjustments. For example, if sales are flat in the premium customer segment, you need to know: Is
this a tactical problem or a strategic one—i.e., should this lead to a full re-evaluation of the
company’s future in the premium segment? Are significant resource investments necessary to revive
this segment? Has the product proposition been outflanked by the competition? These questions are
part of an accurate assessment of sales results.
Sales results information also connects time spent, level of responsibility, strategic decision-making,
and operational activities. If you identify a weakness in a commodity segment of the market, the
business has a number of time-related options to deal with it. A drop in such sales in the short term
may cause serious competitive damage, leading to long-term difficulties. The short-term solution
might be a series of sales push activities, such as more promotions and discounts. Given the impact
of this on margin, however, management may choose to look at the overall product portfolio to find
opportunities to cut product costs. This may require long-term strategic decisions at the highest level
of the organization involving Marketing, Product Development, Operations, and Finance. Sales
results are one of the main contributors of information for this decision. The speed and accuracy
with which Sales provides this information to the company is critical. More of this dynamic will be
covered in the Executive Management chapter.
S A L E S
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46
S A L E S
Planning is pointless if it isn’t translated into action plans that are actually delivered and
analysed. At the same time, there’s no point in automating your sales force if you can’t
direct them towards achieving the relevant goals.
Vincent Meunier, Information Systems Director, Pernod

Customer/Product Profitability
The key to this decision area is recognizing which customers and products are making the largest
contributions. A basic gross profit view is possible using a “sales minus discounts and standard
costs” formula for customers and products. Once this is calculated, you can develop more complex
views by allocating direct costs using certain drivers to determine either effort or activity plus related
costs. This allows you to recognize net profit at the relationship and product levels by applying
expense and allocation formulas.
Using a phased approach when
moving from gross to net profit
enables learning by successive
iterations, and the benefit of
gaining wins and proof of value
before tackling more complex
cost allocations. The sales force
must adopt the profit goals and
work with the rest of the
organization on achieving them.
Understanding customer lifetime
profitability is vital to a business.
It focuses the organization on the
value of the long-term customer.
Customer/product profitability is
a powerful tool that is used at
senior levels of marketing and
corporate strategy. The
sensitivity of this information
dictates that it cannot be widely
distributed, but by indexing
some of this information for the
sales force, you ensure Sales
understands its profit priorities
and is ready to put that
knowledge into action.
S A L E S
47
The development and profitability of each product group can be analyzed separately. The
same goes for strategic analyses of customer segments. In other words, the management of
the holding company can examine the profitability figures for each individual product
group or customer segment and link these groups or segments together, an efficient way to
obtain the management information it needs.
Michael-Hagen Weese, Controller and Project Leader, Raiffeisen International Bank-Holding AG

Sales Tactics
This decision area evaluates the sales process to determine which activities and mechanics are most
effective. The key is to understand what resources, activities, and tools you need to achieve targets
for specific channels and accounts. This decision area continually monitors and reviews the what
(resources) versus the how (mechanics).
The what includes understanding the
following: How many prospects are
available for sales visits? How many cold
and warm calls do you make? How
much time is spent on research? How
much time is spent with existing
customers versus time with new
customers? What is the proportion of
direct sales to indirect sales? You require
insight into all these areas to optimize
time and resources.
The how includes understanding how the
cost and time spent on activities like
pricing, promotions, demonstrations,
catalogs, leaflets, and free samples will
drive sales.
By combining these two viewpoints, Sales
departments are able to guide greater
sales effectiveness.
Sales tactics are a direct extension of the
Sales performance decision area. You need
a structured and coordinated
understanding of sales tactics to manage
your customers and sales effort effectively.
This information must be accessible by
your frontline Sales reps to direct their efforts and help them learn from the success of others.
48
S A L E S
We have a comprehensive view of customer behavior—which products they buy, how they
pay, whether they are likely to switch, etc. This will yield large financial rewards, since we
know precisely which customers are the most valuable to us and how we can best adapt
our activities to satisfy them.
Ton van den Dungen, Manager, Business Intelligence and Control, ENECO Energie

Sales Pipeline
This is more than a sales forecast; it is an opportunity to see into your company’s future and change
it. The Sales pipeline is critical as an early warning system of future opportunities, growth, and
problem areas.
By defining and monitoring
the phases of the sales
pipeline, you can derive
metrics that let you establish,
follow, and manage business
trends. Your pipeline
intelligence can become even
more sophisticated by looking
at details such as new versus
existing customers, territories,
product groups, markets,
and more.
Each metric suggests useful
business questions that can
lead to positive functional
change: Why do only 10
percent of customer visits
lead to inquiries? How does
this compare with the
competition’s experience?
What would it take to
increase this ratio to 20
percent (for example, a lower
list price)? Why are some
orders lost?
The sales pipeline should tie into operations, typically to production and purchasing plans. The more
predictive and accurate the sales plan is in terms of product, the more efficiently production can
manage its processes, reduce changes to production schedules that are due to selling out of products,
and stop expensive reactive purchases due to short-term shortages.
S A L E S
49
Thanks to this solution, company executives can plan out sales, costs, and deployment of
staff, modify these on an ongoing basis, and use these plans to identify strategic, tactical,
and operational measures.
Marina Glodzei, Project Manager BI Applications, Coloplast GmbH

Sales Plan Variance
Sales planning is a control mechanism, tightly linked to the budgeting and planning process. But it is
also a way to manage change and understand the ebb and flow of your business. Unfortunately, the
control side tends to dominate.
A top-down budgeting process, where
corporate objectives must be achieved
(e.g., double-digit revenue growth),
emphasizes planning over the actual
situation. This leads to companies
identifying and plugging revenue gaps
with short-term revenue solutions,
usually at the expense of long-term
strategy—milking the future to get
results today.
More useful revenue plans work from
the bottom up. Alignment and
accountability must be organizational
values. Every department provides
feedback on revenue objectives,
markets, customers, channels, and
products. Iterations of this process
may be needed to fit with top-down
corporate objectives, but it allows
individuals across the organization to
own their numbers and be fully
accountable.
When the entire business is engaged in
monitoring under/overperformance,
frontline levels of the organization can
answer questions regarding the where
and why of existing revenue targets.
The sales rep responsible for a missed
customer revenue target can explain the why and suggest ways to correct the gap.
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S A L E S
We believe that best practice planning should not be in the hands of a small group and we
are committed to changing this at Ricoh to make planning more participative and
collaborative.
Nur Miah, Senior Business Analyst, Ricoh

S A L E S
51
The Sales Tactics and Sales Pipeline decision areas illustrate how the Sales function can monitor its
performance, allocate resources, and set plans for future financial targets.
Sales Tactics
Discount (%)
Sales Calls (#)
Net Price ($)
Rep T&E ($)
Sales Rep Days (#)
Sales Pipeline
Pipeline Revenue ($)
Sales Order Conversion ($)
Inquiries ($)
Sales Orders ($)
Dimensions
Billing Customer / Category / Name
Customer Location / Region
Fiscal Week / Fiscal Year
Market Segment
Product Brand / Product Line / Product Brand
Manufacturing Product Component / Product Line
Sales Channel Partners / Sales Channel Type / Sales Partner
Sales Organization / Sales Region

53
The Risk/Reward Barometer of the
Company’s Value Proposition
There is only one boss. The customer. And he can fire everybody in the company from the
chairman on down, simply by spending his money somewhere else.
Sam Walton
The rewards of good customer experience are straightforward: a satisfied customer is more likely to
be loyal and generate more repeat business. There are related benefits:
• Customer retention is far cheaper than customer acquisition.
• A loyal customer is a strong competitive advantage.
• A satisfied customer can become “part of the team”, helping to sell your value internally and
even identify cross-sell and up-sell opportunities, as well as generate word-of-mouth referrals.
• Such customers are also a great source of new product ideas, competitive intelligence, and
industry credibility.
Taken as a whole, the benefits of achieving great customer satisfaction are like a multi-tiered annuity
stream. Wall Street rewards annuities because they reduce uncertainty and volatility.
The risks of poor customer service are greater and more insidious because they are less visible. For
every unhappy customer you hear from, there are countless more. Negative word of mouth can
damage years of good reputation and ripple through countless prospects who never become
customers. Ultimately, unhappy customers become lower sales for you and higher market share for
your competitor.
Customer Service is both an advocate for the customer within the company, and an advocate for the
company with the customer. It generates unique insight into the customer experience, providing an
outside view on the company value proposition.
C U S T O M E R
S E R V I C E

However, many companies pay little more than lip service to customer relationships. They view
Customer Service as a necessary expense, as opposed to a critical barometer of the company’s
sustainable value.
Three significant barriers must be overcome to change this view.
Barrier 1: Insufficient visibility of the risks to customer loyalty uncovered by Customer Service
Customer service can be thankless and hectic. Picture a room full of service representatives juggling
calls from frustrated customers, often in outsourced and offshore call centers. In such a volume-
driven environment, it is difficult to determine the context and pattern of the calls received.
Some companies have made major investments in customer relationship management, specifically in
call center software. While these technologies make call centers more efficient, they generate vast
amounts of transaction detail that can obscure meaningful patterns and root causes.
Finding patterns in problems such as delivery delays, information requests, complaints, and claims
can lead to proactive solutions. Categorizing the types of complaints by quality, order error, response
time, and resolution time can reduce service costs and identify the causes of dissatisfaction. Informed
companies can address problems at the source and understand the pattern and context of the calls
they receive.
Even when you can’t eliminate the root cause, better categorization of issues can speed up the time
taken to resolve problems. Timely responsiveness can salvage many frustrated customer
relationships. As one executive of a major airline said: “Customers don’t expect you to be perfect.
They do expect you to fix things when they go wrong.” Achieving this requires that problems and
their causes be grouped and studied so that effective action can be taken.
Barrier 2: Poor visibility of the benefits of a good customer experience, especially when grouped by
who and how
While many companies know how much they save by reducing customer service, few can project the
cost of lower service levels. In particular, you need to understand how customer service levels affect
your key and most profitable customer segments. If you don’t, you may understate—or overstate—
the risk. Overstating the risk leads to an inefficient allocation of resources, which reinforces the view
that Customer Service is an expense. Understating the risk can be even worse, leading to the loss of
your most valuable customers—the ones your strategy counts on—and the marketing impact of
negative word of mouth on other customers.
Good Customer Service departments take into account the absolute and relative lifetime revenue of
customer segments, and prioritize service efforts for high-reward customers. Beyond direct future
benefits, you may also segment strategic customers that represent new markets or product
54
C U S T O M E R S E R V I C E

55
champions. The key is to segment Customer Service issues by who—the customers that matter most
to your current and future bottom line.
Once companies understand which customer segments are most important, they must gain insight
into how the relationship works. In complex customer-company interactions (for example, with your
doctor, or with technology and software vendors) the relationship depends on expertise. This is a
clear market differentiator. If the customer-company interaction is more basic (for example, with a
department store), then the day-to-day efficiency of the relationship becomes more important for
both parties.
Segmenting customer relationship channel interaction
helps to clearly define the relative value of great service.
When you include the relative value of the customer, you
have a useful framework to maximize the rewards of
service for you and the customer. For example, if your
expertise in complex channels is a differentiator, you may
want to offer it free to high-value customers in return for
greater loyalty. At the same time, you may want to
charge low-value customers extra for this service.
Whatever metrics you choose, you must align them with what the customer perceives as important.
Does the customer value quality above price? Is order accuracy more important than speed in
delivery? What are acceptable lead times? Customers may always want delivery yesterday, but are
shorter lead times worth a premium? Understanding the relative importance of such elements will
make customer service monitoring more relevant.
Barrier 3: The absence of a customer advocate and direct accountability
Ideally, your entire organization has common customer service performance goals. You should back
up this alignment with accountability and incentives, especially when the different drivers of those
goals span different functions. The lack of these is a barrier to achieving better customer service.
Overcoming this barrier requires clear, credible, and aligned customer service metrics—and the
political will and organizational culture to rely on them for tough decisions. Do you incur higher
costs in the short term to secure long-term customer loyalty? Only companies that understand the
risks and rewards of customer service can make informed decisions on such questions.
Customer Service has a key role in generating and sharing this information. Beyond being the
handling agent, it can become an effective customer advocate to other departments, and an expert
on customer performance metrics and their drivers. It has to understand the problems and the
operational solutions. Most important, Customer Service must effectively communicate these metrics
to the rest of the organization so that other departments can resolve the root causes of customer
experience issues.
Efficiency for
Loyalty
WHOisthecustomer?
HOW does the relationship channel operate?
High-Value
Reward
Low-Value
Reward
Basic Complex
Efficiency for
Service Fees
Expertise for
Loyalty
Expertise for
Service Fees

This works both ways. Not only must Customer Service bring in other functions to resolve
problems, it should offer useful information in return. For example, trends in the type of complaints
or problems can suggest quality improvements and operational efficiencies in production.
Forewarning a sales rep about service issues before that rep meets with the customer allows Sales to
craft an appropriate message and offer assistance. Mutual cooperation like this demonstrates the
responsiveness of the organization and can salvage troubled relationships.
Excellence in Customer Experience
The four decision areas described below equip Customer Service with the critical risk and reward
information they need to be more effective customer advocates, bringing excellence to the customer
experience.
Decision areas in Customer Service:
• On-time delivery ➔ What is driving delivery performance?
• Information, complaints, and claims ➔ What is driving
responsiveness?
• Service benchmarks ➔ What is driving service levels?
• Service value ➔ What is driving the service cost and benefit?
The sequence of these decision areas provides a logical flow of analysis and action, starting with
understanding the primary drivers of risk. First and foremost, did you deliver on time what the
customer purchased? Customers do not easily forgive failures in this area; such mistakes therefore
carry the greatest risk.
Beyond this fundamental contract with the customer, there are many issues that customers prefer to
have resolved quickly. These include simple requests for information, complaints, and major claims
on the product or service the customer acquired.
The next two decision areas shift the focus to the benefits of retaining key customers. You start by
benchmarking your company against industry standards. What criteria are you measured against,
and how good is your performance compared with the competition? The last decision area brings
everything together into a relative cost/benefit analysis of each customer relationship. Are you
reaping the rewards of Customer Service, what are they, and how much has it cost?
56
Service
Value
Service
Benchmark
s
I
nformation,
On-Time
Delivery
Co
mplaints&
Claims
Reward Insights
Risk Insights
CUSTOMER
SERVICE
On-time delivery
Information, complaints, and claims
Service benchmarks
Service value

On-Time Delivery
One of the biggest obligations a seller has
to a buyer is to deliver on time what was
purchased. Customers negotiate a due
date and expect that it will be met,
without exception. This is why delivery is
a key performance criterion. Reducing
time-related bottlenecks is critical in a
just-in-time economy. Monitoring on-time
delivery and order fill rate percentages
can flag negative trends and enable faster
customer service responses. It also
provides Sales with information to solve
potential issues before going on customer
calls. Unfulfilled delivery expectations can
also be important information for
Accounts Receivable when checking on
late payments from customers. This
decision area can also uncover root
causes of supply chain problems.
Tracking delivery timeliness by product,
plant, and carrier will highlight potential
deficiencies in key hand-off steps in the
supply chain process. With better
information, you can categorize different
levels of timeliness and compare them to
different customer delivery thresholds for
a more detailed view of risk and
recommended action.
57
In logistics, delivery times play an important role. For example, it is possible to determine,
at any time, what percentage of orders a customer has received in the period X. It is also
possible to identify which products are affected by a delayed delivery and also the reason
for the delay. This is an important piece of information for customer support purposes,
and it also helps trace the causes of processing problems or difficulties in the procurement
chain. Another benefit is the detailed monitoring and control of warehousing, which is
even more important when dealing with foodstuffs.
Andreas Speck, Head of Information Management, Kotányi GmbH

Information, Complaints, and Claims
Every complaint is also a proactive customer statement that you are not meeting expectations. It is
an opportunity to listen to your customer, whether to a simple request for information, a complaint
about product quality, or even a financial claim on returned goods. Experience shows that each call
can be the tip of an iceberg—the one frustrated customer who calls may represent many more who
don’t bother. By tracking and categorizing these calls, you can gauge the severity of various risks and
prevent them in the future.
There are three dimensions to monitoring the customer voice: frequency, coverage across customer
segments, and type of issue. Simply counting complaints will not adequately reflect the nature or risk
of a problem. For example, you may receive many complaints about paperwork and order
identification errors, but these represent lower risk than a few product quality complaints that may
lead to production delays for one or two large customers. In this example, a count of complaint
frequency will not adequately reflect the risk of losing critical customers.
Claims are complaints that have been monetized. Perhaps goods have been damaged and the
customer now needs compensation or replacement. Claims are a direct cost to the business, have a
direct impact on customer profitability and, if poorly handled, lessen customer loyalty.
58
We have even made it possible to distribute calls in the Customer Contact Center using
Skill Based Routing. In particular, this routes specific types of inquiries to those of our
employees best able to deal with them effectively and efficiently.
Ton van den Dungen, Manager, Business Intelligence and Control, ENECO Energie

59

Service Benchmarks
Service benchmarks help evaluate how your customer service stacks up against industry standards.
They measure response times and gaps affecting customer satisfaction.
Understanding the link between service benchmarks and customer sales/profitability is a key goal.
For example, we may find that many small orders lead to complaints about incorrect order
fulfillments and product returns. The high proportional cost of delivery for small orders, combined
with the order errors, should make us question our value proposition. Perhaps by increasing the
minimum order value we would solve two problems. First, there would be a reduction in per dollar
workload, an improvement in order performance, and a reduction in returns. Second, the customer’s
perception of value may improve since delivery costs would be proportionally lower.
Internal metrics may include number of orders, sales order amount, number of service calls, and
units shipped. External performance metrics may include delivery performance, problem resolution,
customer satisfaction, response time, claims, and returns. Using standard industry criteria allows
managers to compare external information from third-party assessments with internally driven
customer surveys. Gaps in external information can uncover risks not picked up by internal
monitoring. Such information can also identify the need for better external communications.
Combined with skilled analysis, service benchmarks can be used to adjust the business and customer
proposition. You can summarize customer benchmarks by region and customer segment, and thereby
offer a high-level overview or drill down into Customer Service performance.
60
Our customers are increasingly requiring immediate, direct access to their health
transaction data in order to reduce healthcare costs while maintaining a high level of
quality of care for their members. They also want to compare their actual experience to
benchmark data that will add meaning and relevance to their own scores. Our ability to
deliver that type of solution through a variety of Web-based reports and cubes has become
a key differentiator between us and our competition. This capability is now a major tool
in acquiring new business and retaining existing accounts and has also allowed us to
reach our information management goal of becoming the pre-eminent healthcare
information broker in the State of Tennessee.
Frank Brooks, Blue Cross Blue Shield, Tennessee

61

Service Value
This decision area combines costs and benefits to evaluate the value of the customer relationship. It
segments customers by who they are and performance by how the company provides the service.
Quantifying customer risk issues and the efforts required to resolve them provides the cost overview.
Some issues can be financially quantified, such as the number of calls received, cost per call, and
dollar value of claims processed. Others, such as late deliveries or complaints, can be categorized
through a service level index.
When determining cost, it is also important to understand how the relationship operates. Does the
customer communicate with you through efficient electronic means and direct access to internal
support systems, or use less efficient means such as phone or fax? Customer conversations that can
be captured as data (i.e., electronic means) tend to indicate more efficient relationships. You can
define sub-categories of complexity based on customer and transaction knowledge: for instance,
by tagging relationships based on how many separate steps and hand-offs are required to complete
the transaction.
At the same time, you need to categorize the benefits: for example, using a lifetime revenue metric or
strategic value index based on expected revenue.
When Customer Service can analyze value and cost, it can avoid trading one for the other by setting
more accurate priorities for use of resources. Poor service performance in simple channels implies
that Customer Service should invest more in process automation and improved efficiency.
Performance issues in complex channels point to increasing investment in skills, expertise, and
decision-making support when analysis shows that the investment is worth it.
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As an organization, we needed a solution that allowed us to report on KPIs in relation to
key areas including customers. The index allows us to benchmark and report on
performance in the customer service area.
Alex Mongard, MIS Analyst, Suncorp Metway

63

64
On-Time Delivery
Average Lead-Time Days (#)
On-Time Unit Delivery (%)
Units Delivered On Time (#)
Average Quoted Lead Days (#)
IT Project Cost ($)
Service Value
Service Cost (%)
Customer Retention Cost ($)
Customer Service Cost ($)
Customer Visits (#)
Dimensions
Billing Customer Category
Distributor / Carrier Type
Fiscal Year
Product Line
Shipment Type
Ship-To-Location / State / Province
The On-Time Delivery and Service Value decision areas illustrate how the Customer Service function
can monitor its performance, allocate resources, and set plans for future financial targets.

65
Developing the Right Product,
the Right Way, at the Right Time
Innovation is not the product of logical thought, although the result is tied to
logical structure.
Albert Einstein
Product Development and its innovations are critical to your business and competitive ability. They
represent the lifeblood of future business success. Moving into a new market area with a new
product is a high-risk activity, and success is rare. Equally rare is successful development of a
product that fundamentally changes the value proposition within an industry. Such new product
investments require deep financial commitment.
Economic and industry cycles set the context for the importance of innovation, and therefore of
Product Development. In fast-growing market sectors, product change is part of the competitive
race, and significant investments are made in Product Development. In mature markets, where
growth has slowed, investors rely on Product Development to assess the organization’s future
potential. New product developments can help slow the rate of market commoditization and protect
margin erosion. In these mature market sectors, new developments are likely to be incremental, and
small advantages can differentiate a leader from less successful followers.
Product Development delivers a pipeline of new products that determine the organization’s future
financial performance and signify confidence in the future of the business. Three significant barriers
prevent it from delivering the required product changes in the most effective way.
PRODUCT
DEVELOPMENT

66
P R O D U C T D E V E L O P M E N T
Barrier 1: Lack of information to determine strategy requirements
Product Development embraces risk. The odds are stacked against continual success, especially if the
business expects a BIG new product idea. Companies typically define Product Development success
by sales or profit growth and the ROI expected within a given time period. Measuring financial
performance is vital, but interpreting success too rigidly may lead the company to miss innovation
opportunities. It is better to define and measure drivers and development milestones that affect the
pipeline of new products. Similar to a portfolio investment strategy, these metrics allow for more
opportunities (and therefore more failures) but let you know when to “fail fast” to satisfy the
overarching profit or growth goal. Only a few product initiatives make it through to the final
development stage. You can tolerate a calculated and controlled percentage of failure if the overall
portfolio of new product developments is financially successful.
You may employ other aspects of portfolio investment strategy to determine your investment risk
profile. How much money should you invest in new product development for low, medium, and
high-risk ideas? Only a small proportion of investment should be devoted to high-risk big new ideas.
Most investment should be in safer, incremental product development ideas. These will better match
the current product range, and serve the dual purpose of protecting the existing business while
extending the product proposition beyond what is currently offered.
Determining the right mix requires that Product Development benefit from insights into markets and
customers. This means knowing what product features and price points could shift purchasing
behavior, and understanding the operational costs and production implications of these. Only by
integrating all these business inputs and information sweet spots can you achieve a well-developed
new product proposition.
Barrier 2: Product Development lacks the integrated business process information needed to
develop targeted, comprehensive product offerings
Product Development decisions affect and rely on Marketing, Sales, Finance, Operations, and other
business departments. Without appropriate visibility, departmental barriers may get in the way and
stymie the Product Development process. By monitoring the appropriate performance drivers,
combined with appropriate incentives, you can improve the Product Development process from idea
generation to alignment on priorities to engaging Finance, so the value of new products is
understood and forecast.

Barrier 3: Inability to measure and analyze the drivers of Product Development success
New product pipelines depend on timely action. Speed to market paired with insight from “fast
failures” are more important than perfection and indecision. Risk is part of the development process.
“Calculated” failures are not necessarily negative; they may actually assist the development process.
Failures can become stepping stones toward success.
Product Development must understand what drives success and failure. When developments reach a
milestone, the company should test the product proposition in the market. The feedback you require
will determine the means you select: selective customer input, larger external research, or a limited
territorial launch.
No amount of testing guarantees success. Making the “go or no go” decision requires information
sweet spots to allow the business to decide whether it needs more resources to improve the new
offering, or if the cost of delay—either in lost revenue or lost competitive advantage—means the
product must launch now.
From a Gamble to Controlled Product and Portfolio Development
Product Development combines many cross-functional requirements, balances risk, learns from
failures, then generates a pipeline of timely new products. Accurate information is a key enabler of
this process.
The Product Development process combines three key decision areas with associated information
sweet spots.
• Product and portfolio innovation ➔ Which gaps in the product portfolio are addressable with
the available resources, and what are the associated risks?
• Product development milestones ➔ How do we manage priorities and timings, and monitor
risks as they change during the development process?
• Market and customer feedback ➔ What external verification process will enhance and confirm
new product development opportunities?
67
PRODUCT
DEVELOPMENT
Product and portfolio innovation
Product development milestones
Market and customer feedback

68
Product and Portfolio Innovation
The product and portfolio decision area takes potential opportunities identified by Marketing and
examines the practicalities in more depth. This decision area answers questions about the costs and
benefits of adding new product features to fill product portfolio gaps, and how achievable these
additions are given available resources. It also determines how achievable these opportunities are for
the business and the risk of failure.
Innovation runs the gamut from
incremental improvements to
significant product “revolutions”.
Incremental developments include
packaging changes, minor functional
improvements, quality changes, and
brand extensions. These developments
are usually intended to fill gaps in the
product portfolio. For instance, by
improving the design, adding product
capability, making the product more
convenient to use, and increasing the
price, the business may extend its
offering into a profitable new segment.
At the high-risk end of innovation, you
must measure time to market,
implementation difficulty, external
market or technical shifts, future
scenario values, and estimated ROI.
These metrics also help you prioritize
threats and opportunities. For example,
classifying Product Development
activities into life-cycle categories
balances short-term and long-term
priorities. Measuring the difficulty of
implementation ensures you don’t
choose impractical blue sky projects at
the expense of what’s needed in the
short term.
Future scenario valuations with
estimates of the upper and lower limits
of potential sales and profits set the
size of a project. ROI looks at the
whole picture by including upfront investment, operating costs, and sales.
As a decision area, portfolio and product innovation recommends which opportunities are right for
the business by aligning with other departments, particularly Marketing.

Product Development Milestones
This decision area is used to manage the Product Development process. It establishes milestones,
manages and adjusts priorities and timings, and monitors risks as they change. Many companies use
Stage-Gate®
or phase-gate processes involving five stages for Product Development. These are a
preliminary assessment, definition (market), development (product/cost), validation, and
commercialization. Typically, a very low percentage of preliminary ideas pass through the final gate.
Less formal processes still require that you answer questions such as: What new product
development ideas do we have? What is the scale of the identified opportunity? Do we have the
skills in-house? What are the risks? Is the opportunity aligned with our strategic priorities? What are
the likely financial rewards?
Measuring performance
milestones is critical to this
decision area. The number of
preliminary initiatives, how
many milestones are passed
before rejection, and the
number of products ready for
commercialization tell you
about projects and how they
pass through the process.
Logging and evaluating the
reasons for success or failure
through these milestones will
help you improve your Product
Development process.
Regular planning and gap
analysis reviews anchor the
development process with
business priorities. Without this
focus and monitoring, the
process may be sidelined by
day-to-day concerns. It is
critically important to ensure
the success of all phases, from
development to launch and full
commercialization. Information
that focuses and fine-tunes each
stage, and provides incentives,
is imperative to ensuring
successful product launches.
69

Market and Customer Feedback
The market and customer feedback decision area combines an external reality check with internal
understanding of development opportunities and requirements. It is an extension of a product and
portfolio gap analysis, generating external insights to use in gap assessment. There are many
examples of overly engineered products that fail because they do not balance costs and those
features actually valued by customers.
Market feedback and external
verification as part of the
development process are essential for
success. The insights these activities
produce let the organization
understand what investments are
necessary for new product features
and determine if the business can
afford them. In some cases, it may
make sense to pull out of an
opportunity area rather than make
investments with an insufficient
chance of payback. An information
framework that uses this data can
support and confirm Product
Development decisions. This decision
area is also a tool for creating cross-
functional alignment and internal
commitment to new product
commercialization.
70
Our business is driven by customers and our ability to understand what factors influence
them adds incredible value.
Chris Boebel, IT Director, Delta Sonic Car Wash

71
Product and Portfolio Innovation
New Product Sales ($)
New Product Sales Potential ($)
New Products Developed (#)
Products Modified (#)
Project Cost – Plan ($)
Product Development Milestones
Product Development Cost ($)
Product Development Lead Time (#)
New Initiatives (#)
Dimensions
Fiscal Month / Year
Product Line
Project Completion Date / Quarter
Project Management / Project Team
Project Start Date / Quarter
Product Development Milestone
The Product and Portfolio Innovation and Product Development Milestones decision areas illustrate
how the Product Development function can monitor its performance, allocate resources, and set
plans for future financial targets.

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Winning at the Margin
A man who does not think and plan long ahead will find trouble right at his door.
Confucius
Operations is the delivery mechanism of the business: providing both what the business sells and
how that product gets to market. It is an engine driving the work in purchasing, production,
distribution, logistics, and inventory management. That engine depends on input from the frontline
functions of the business—Sales, Marketing, and Finance.
Of all departments, Operations has dealt the longest with the competitive situation described in Tom
Friedman’s book The World is Flat. Offshore and outsourced production, technology-enabled
process excellence, and supply chain integration are part of the relentless drive for lower costs. After
more than a decade of investment and continuous improvement initiatives, companies have achieved
what major cost savings are possible. Managing and winning at the margins is the new competitive
area for Operations.
Three critical barriers prevent Operations from working these margins to deliver the best possible
performance.
OPERATIONS

Barrier 1: The operational back end can’t see where it’s going without the frontline’s vision
Operations depends on accurate and constantly updated information on what is required by
customers. If you don’t have accurate information about the demand (both volume and variety) for
products in your pipeline, you stand to lose operational efficiency and profit margin. With better
information and plans, you avoid emergency production runs to satisfy unforeseen customer
demand. You reduce the need for production system change-over and setup, and so profit margins
are higher. You can match production volume with customer demand to reduce inventory.
Barrier 2: Process bottlenecks and downtime
Operations continuously competes against time. Can this process be faster? Can workflow processes
be re-engineered and simplified to gain time? The more steps between start and finish, the more
bottlenecks and downtime risk may be hidden in them.
The time to complete a series of process tasks is inflated by waiting periods. In some situations,
actual process time can be as low as five to ten percent of the total time from start to finished
product. When only one-tenth of the time used is productive, reducing such waste is a worthy prize.
You must identify and eliminate predictable process time-wasters. While many solutions may be
internal—such as innovation, changes in materials or equipment, or upgrades to IT infrastructure—
you may decide your business is better served by outsourcing to a specialist with technical and
scale advantages.
Information sweet spots help generate continuous intelligence loops on the real cost of bottlenecks
and downtime, showing you the benefits of increased automation or specialization.
Barrier 3: In a fast-paced, just-in-time economy, cost averages disguise cost reality
With the just-in-time approach to Operations, new and changing customer requirements regularly
affect workflow. It is no longer sufficient to use the standard costing analysis designed for long
production runs. That approach may disguise significant variances in actual process performance
costs. Customers who appear profitable on a standard cost basis may not be in fact.
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O P E R A T I O N S

By breaking down work processes into discrete activities and measuring them with accurate activity
indicators, you can achieve real-time costing. The best indicators will vary with the situation. Some
will be based on labor time used in machine setup. Others may directly measure the raw material
used for a certain production run, or the number of quality tests required for a given customer
product order. The more detailed this activity breakdown, the more accurate your understanding of
actual costs. Understanding and analyzing the information sweet spots lets Operations identify
process patterns and suggest cost savings.
For example, a business prints self-adhesive labels that range in complexity from two to five colors.
A simple description of the work process steps includes:
• Specification
• Artwork
• Proofing
• Order confirmation
• Production planning
• Printer setup
• Production run
• Printer cleaning
• Maintenance
• Quality control
• Warehousing
• Dispatch
• Carrier routing
Analyzing the activity, the company realizes:
• More colors means higher costs
• Shorter runs mean 30 percent downtime
• The most demanding and “important” customer is rejecting and returning 10 percent of total
deliveries while demanding smaller, more complex orders with just-in-time fulfillment
Based on this information, the business now understands that it is losing money on every order made
by its “important” customer. Using a standard costing approach would never have highlighted this
customer-specific cost reality.
Information sweet spots that let you understand what drives the larger cost categories will have an
immediate and sizeable impact on managing actual costs.
O P E R A T I O N S
75

Delivering on the Promise Made to the Customer
For Operations to win at the margins, every day and every shift must balance the need to reduce
costs while staying agile enough to respond to new customer demands.
Operations has the responsibility to lead six core areas of the company’s decision-making:
• Purchasing and procurement ➔ Ensuring timely and cost-effective input of resources
• Production and capacity ➔ Generating timely output in the face of uncertain demand,
complicated processes, and variances in input
• Inventory management ➔ Understanding the balance between holding cash and delivering on
customer service requirements
• Distribution and logistics ➔ Achieving efficient distribution and delivery
• Cost and quality management ➔ Balancing the need to reduce costs with the equal requirement
to deliver quality output
• Process efficiency ➔ Designing a process to monitor and analyze performance benchmarks to
find opportunities for greater efficiency
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O P E R A T I O N S
OPERATIONS
Purchasing and procurement
Production and capacity
Inventory management
Distribution and logistics
Cost and quality management
Process efficiency

Purchasing and Procurement
The purchasing and procurement decision area manages both input costs and supply requirements.
In many businesses, input costs account for up to 50 percent of total costs. Effectively managing
them can bring savings directly to the bottom line. For every one percent gained in input cost
savings, somewhere between 0.25 percent and 0.5 percent typically will be earned as profit. This is a
significant return on investment when compared to other investments and project returns.
In addition to cost, the procurement
personnel must ensure inputs arrive in
a timely manner. Inputs arriving too
late threaten production and customer
delivery; inputs arriving too early
cause unnecessary inventory buildup.
Managers must balance input costs
with the production outputs required
to satisfy customers. In the short term,
your decisions must include how to
respond to shortage problems, price
increases, and delivery delays. For
example, you must decide whether to
tie up cash in five days of inventory to
buffer against recent problems in
delivery. Long-term decisions include
determining your supplier strategy.
For example, how do you balance the
savings and/or better quality from
exclusive supplier agreements against
the risk of creating unacceptable
dependencies?
These decisions require information
on specifications, procurement
tenders, price quotations, and vendor
performance assessments. You cannot
make the necessary purchasing trade-offs without access to information sweet spots. The better you
understand the trade-offs, the more finely tuned is your ability to win at the margins.
O P E R A T I O N S
77

Production and Capacity
Without product, there is no business. Accordingly, this decision area is the backbone of the
business.
Production management
depends on order fulfillment
and expected sales
information. Ideally, you
know product demand well
in advance to be able to plan
capacity and schedule
production runs for given
products. This minimizes
downtime and maximizes
machine loadings. Changing
a schedule, especially for an
urgent customer need, means
rearranging existing
production schedules and
results in extra setup time,
change-over time, idle time,
and lost capacity. The
bottom line? It reduces your
ability to win at the margins.
As with any chain of
interconnected links, changes
in demand affect your input
requirements. The domino
effect of changes spreads
across the whole Operations
process, creating a series of
costly capacity management
responses.
To counter this, you must communicate new information immediately so that Operations can adjust
its schedule in the most effective manner. You must also communicate potential delays to Customer
Service for resolution. Closely monitoring this ebb and flow of changing circumstances through
production information sweet spots lets Operations maximize its use of production capacity.
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O P E R A T I O N S

O P E R A T I O N S
79
Inventory Management
Shipping appropriately bundled products to fill customer orders is the concern of the inventory
management decision area. Balancing customer requirements, speed of order fulfillment, and the
volume of buffer stock you need to hold are key.
The principle of holding buffer
inventory is simple—but the larger your
product range, the greater the
complications. If a business has 5,000
specific product items and 10,000
customers, there are 50 million possible
product/customer combinations to
monitor and serve effectively. [Note:
with bundling combinations, many
more than 50 million.] The fact that
buffer stock ties up cash compounds
the urgency of decisions. If you hold
one month of buffer inventory, one
month of production has not earned a
return—equivalent to more than eight
percent (one-twelfth) of a year’s
production cost.
But inventory management must also
determine the financial and customer
consequences of removing buffer stock
from inventory. Tying up 40 to 50
percent of your inventory with
products that are rarely ordered makes
no sense unless key customers highly
value these products.
Understanding the full implications of
these decisions requires access to
information sweet spots. In the
example above, it means knowing the total annual sales and profit value of each of the 5,000
product items. Most will earn less than one percent of total margin. Which ones? Of these, how
many go to your most important customers, and are they seen as critical components of the order? If
order frequency is low and irregular, the case for culling these product items increases. Even if
significant savings will result from this product cull, you must align the decision with input from
other functions such as Sales and Customer Service. How should you handle the notification, and
what are the contingency measures if key customers complain? Sales does not like bringing bad news
to customers and expects a clear justification for such business decisions. Factual reasons will be
useful when communicating your rationale to customers.

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O P E R A T I O N S
Distribution and Logistics
This decision area includes managing quality, cost, and timeliness of distribution and delivery. Short-
term issues require the handling of customer orders and shipping using the most efficient routing,
scheduling, and equipment. Long-term issues require determining whether you can reduce mileage
costs, improve delivery execution,
and ideally exceed customer service
needs.
The operational infrastructure to
distribute and deliver customer
goods is intricate and costly. Many
companies work with third-party
carriers, distributors, or
wholesalers for their expertise.
Distributors specialize in particular
channels, routes, and/or territories,
and can distribute more quickly
and efficiently than most
manufacturers. Strategically placed
distribution warehouses can be an
advantage to, and extension of,
your sales force.
While outsourcing makes sense on
many levels, it does mean you lose
direct control and have to accept
the risks that come with loss of
control. Managing such risks
requires negotiating and
monitoring distributor agreements
with clear terms and commercial
guidelines.
Identifying, managing, and evaluating the most effective distribution and logistics routes for
customers or prospects draws on the following information sweet spots:
• Order processing ➔ editing, recording, credit control, stock allocation, vehicle route, delivery
sequence, customer delivery requests
• Handling characteristics ➔ ease of handling, and stacking, susceptibility to damage, special
requirements (e.g., temperature)
• Packaging ➔ duration and type of journey, security, insurance
• Routing and scheduling ➔ order size, transport capacity, customer destination network,
delivery frequency

Cost and Quality Management
In cost and quality management, you balance cost savings in one area against potential rework,
rejects, downtime, or customer complaints. Purchasing may find a new, lower-cost supplier but the
consequence may be higher scrap rates. What is best for the business?
You need to understand cost variances
and their impacts. By contrasting cost
differences, you can benchmark
performance, identify patterns, and
understand the root causes of cost
differences. You also need to
understand and analyze the value and
cost of preventative measures that
ensure quality such as training,
appraising incoming materials,
manufacturing processes, and
inspections. The more you examine
measurable work activities and the
more detailed your breakdown of
costs, the more detailed your
understanding will be of the root
causes of variances in those costs.
Measuring and monitoring must be
integrated with quality expectations to
understand the effect of changes.
O P E R A T I O N S
81

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O P E R A T I O N S
Process Efficiency
Process efficiency management looks at ways to improve operation and supply chains. This means
looking for performance outliers and understanding why they occur. There are three areas where
well-designed comparative performance metrics can make the difference between an industry
follower and a leader:
• Internal operational processes
• External developments and trends
• Competitive benchmarking
Your internal operational processes are
most familiar to you, and the easiest to
analyze. For example, if Purchasing’s
“cost per dollar of purchase” is a
benchmark, then an unusual increase
in this index may indicate two things.
Either purchasing costs have increased
or purchases have decreased. You must
determine whether purchasing
efficiency has gone down or if sales
have slumped. Another possible
benchmark is “dollars of sales per
order”. If this metric is decreasing, it
can indicate that the business is filling
more orders for the same dollar total
in sales. This may mean that costs have
risen without an accompanying
increase in sales—but it may instead
indicate that you need to re-engineer
the business to handle smaller orders.
Taking advantage of external
developments and trends requires
looking outside your company. Should
you shift to low labor cost economies
for cheaper manufacturing or services such as call centers? Are there new manufacturing techniques,
equipment, or technologies that can introduce dramatic efficiencies? Failing to follow up on these
external efficiency developments may jeopardize your competitive position.
Beyond this focus, many leading businesses extend their monitoring activities to their competitors.
Simple comparative benchmarks such as sales per employee, volume output per employee, inventory
levels, number of warehouses, and others will help identify performance differences. With these
identified, you can determine the actions you need to take.

O P E R A T I O N S
83
Purchasing and Procurement
Purchase Price/Unit ($)
Actual Lead Days (#)
Contract Quality (#)
Purchase Order Cost ($)
Supplier Discount (%)
Capacity Utilization (%)
Fixed Production Cost ($/%)
Marginal Production Cost ($/%)
Production Hours (#)
Dimensions
Fiscal Week / Fiscal Year / Quarter
Raw Material Sub-Category
RM Suppliers / Type / Supplier
Shipment Type / BOL # / Shipment Type
Machine Type / Equipment Type
Manufacturing Product Run Number / SKU / Component
Organization / Department
Production Process
The Purchasing and Procurement and Production and Capacity decision areas illustrate how
the Operations function can monitor its performance, allocate resources, and set plans for
future financial targets.

85
Management or Administration of
Human Capital?
Did you realize that approximately 42% of the average company’s intellectual capital
exists only within its employees’ heads?
Thomas Brailsford
Your people interact with your customers to generate revenue. They introduce the small and
significant innovations that move your company forward. They set the strategic direction for your
organization and then put those strategies into operation. Human capital is your most valuable asset.
It is also typically undervalued.
Helping the organization recognize human capital as a valuable asset and competitive differentiator
is the strategic role of Human Resources.
Human Resources must demonstrate positive ROI from human capital investments. Human
Resources guides the alignment of employee roles, job functions, talent, and individual performance
with business results and goals. It finds, engages, assesses, develops, and retains the talent that drives
the business. It manages administrative requirements such as payroll, benefits, the recruitment
process, policy standards, and holiday and sick leave tracking. Human Resources also acts on behalf
of employees, and in this respect is the conscience of the organization.
Three critical barriers prevent Human Resources fulfilling its strategic role and hamper it tactically.
HUMAN
RESOURCES

Barrier 1: Lack of information in defining and selling the role and business value of
Human Resources
Senior management expects every business unit to generate reports and analysis that measure
performance against plan. Human Resources is no different. Research suggests that better human
capital practices lead to higher financial returns and have a direct impact on share price. Investors,
for example, scrutinize headcount and salary or wage ratios. Historically, however, Human
Resources has focused more on managing administrative requirements than on communicating—and
selling—the business value of human capital management.
While managing administrative requirements is essential, there are other critical strategic aspects of
managing human capital. Fulfilling them requires that Human Resources understands the strategic
objectives of the business, translates these into job skill requirements and individual capabilities, and
designs an appropriate performance tracking process. Human Resources should first assign a value
to each human capital asset and, by communicating this value, underline the importance of
managing its performance.
Base salary expenses +
Recruiting expenses +
Transfer expenses +
Training expenses +
Bonus and/or incentive expenses +
Stock option grant value (estimate) =
Human capital asset investment
Tracking these factors allows Human Resources to better manage human capital assets by asking the
following questions. What is the quality and value of the employee/employer relationship? What are
the training and development needs in this specific case? How should we provide incentives and
motivation for employees? Answers may come from reports on staff turnover, high-performer
retention rates, headcount growth, role definitions, job productivity, and individual performance
monitoring.
Assessing comparative productivity ratios such as revenue to headcount also helps manage resource
requirements, both short term and long term. These information sweet spots demonstrate the asset’s
strategic business value to the organization. Lack of such information impairs Human Resources’s
ability to fulfill its strategic role.
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H U M A N R E S O U R C E S

Barrier 2: Lack of visible and consistent Human Resources practices
The credibility and business value of Human Resources is often compromised by a lack of
consistency in decisions and by insufficient information. This allows an “informal network” to bias
the selection and promotion of employees. As a strategic partner in the business, Human Resources
should understand and define the factors defining success for employees. Does the business depend
on customer service? On innovation? Low cost? Based on this understanding, Human Resources can
institute practices that guide employees toward consistent and measurable milestones, creating a
structured process.
Implementing visible and consistent practices requires quality information. You will not achieve the
consistency you need if policy documents, performance reviews, career objectives, and compensation
assessments are not combined and positioned within a larger structure. Consistency requires a well-
defined and structured process shared across the organization.
You also need a clearly defined process for collecting Human Resources information. How should
this data be stored and retrieved? Can this mostly qualitative information be analyzed usefully, and
synthesized into a metric framework? With such a synthesis, Human Resources gains the ability to
compare and contrast different performance drivers. Identifying, managing, and retaining talented
individuals is a key competitive requirement, and consistent information and management practices
allow you to achieve this.
Barrier 3: Human Resources has a natural ally in IT but is not fully leveraging this asset
Both Human Resources and IT strive to position themselves within an organization as driving
business value instead of expense. They can be seen as two sides of the same coin.
Human Resources is responsible for job design and ensuring that the right skills and competencies
are developed or acquired to fill these jobs. In turn, performance in these jobs is defined and
measured against goals and objectives. In this sense, Human Resources’s information needs to mirror
the performance to be monitored, analyzed, and planned for in a given job. IT must understand a
user’s responsibilities in order to include that user in planning where functionality is deployed. Both
Human Resources and IT must understand how software tools and skills drive greater productivity.
As performance management information becomes more consistent and reliable, it will also enhance
the performance and compensation process for which Human Resources is responsible.
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Earning a Place at the Executive Table
Human Resources decision areas:
• Organization and staffing ➔ What job functions, positions, roles, and capabilities are required
to drive the business forward?
• Compensation ➔ How should we reward our employees to retain and motivate them for full
performance?
• Talent and succession ➔ What are the talent and succession gaps we must address to ensure
sustained performance?
• Training and development ➔ What training and development do we need to maximize
employee performance; is there a clear payback?
• Benefits ➔ How do we manage costs and incentives?
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HUMAN
RESOURCES
Organization and staffing
Compensation
Talent and succession
Training and development
Benefits

89
Organization and Staffing
In a human capital discussion, first define the organization’s requirements. What are the job
functions, positions, roles, and capabilities required to drive the business forward? The organization
chart becomes a road map highlighting staffing needs and the necessary hierarchy. From this road
map, Human Resources further refines the role, position, and skill requirements needed to accurately
evaluate candidates and current employees.
Organization and staffing
analysis is a core Human
Resources role. Typically,
companies align staffing
reports with information
about position planning,
staffing mix, and staffing
transaction activities (new
hires, transfers, retirements,
terminations, etc.). Analyzing
this data helps the company
monitor policy standards and
legal requirements. Human
Resources must track issues
such as employee overtime,
absenteeism, pay/tax, and
termination/retirement to
ensure they are managed
correctly.
In addition, when senior
management discusses
strategy and corporate
goals, there are typically
accompanying reports
that show headcount by
division/department, turnover
rates, loss trends, and high-
level project status. These
reports help ensure resources
are aligned with the global
priorities of the company.

Compensation
Compensation review examines salary costs—existing and planned—across the workforce, as well as
how these costs are reflected at the departmental, business unit, and global levels. This decision area
defines how you need to reward your employees to retain them and motivate them for the best
possible performance. Profiles on base pay, merit increases, promotions, and incentives help you
decide the total compensation strategy and individual employee compensation. With this complexity
comes the need for systematic methods for identifying and analyzing pay increases, bonuses, and
incentive awards. Many
organizations now require
that performance reviews are
ongoing; tracking the review
process is therefore a
requirement. Plans and
reports on the coverage,
completeness, and timeliness
of the review process
confirm your progress
against rewards
management, career
planning, and development
targets.
90

Talent and Succession
A company talent and succession review lets management see how current and planned business
skills and technical qualifications meet today’s and tomorrow’s requirements. Human Resources
must understand both the skill gaps and talent risks within the organization and plan accordingly.
Talent review lets Human Resources assess recruiting, staff transfer, and succession planning
needs. Other data such as turnover analysis, average tenure, and time in position also help define
succession plans.
91

Training and Development
When you’ve defined the organization’s required skill sets (to match employee abilities with position
descriptions), the next logical decision area is determining the training and development needs of
those employees. This decision area lets you review employee competencies and understand the value
of improving them. How much development time and training cost is being invested, and is there
visible evidence of the benefit? With training and development analysis, Human Resources gains a
systematic picture of all training investment.
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Benefits
The benefits decision area lets you manage the costs of healthcare programs, savings and pension
plans, stock purchase programs, and other similar initiatives. It compares the company’s benefits
with those of the competition. Benchmarking benefits helps determine whether you are aligned with
the marketplace. As well, because investors scrutinize benefits costs for risk and liability,
understanding this area helps demonstrate your company’s management acumen.
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94
Employee Turnover (%)
Headcount (#)
Work Time Actual Hrs. (#)
Compensation
Average Compensation Increase ($)
Compensation Cost ($)
Bonus/Incentive Costs ($)
Salary ($)
Dimensions
Employee Decision Role / Work Function
Employees / Full Time / Part Time
Fiscal Month / Year
Job Grade Level
Job Type
Organization / Department
Compensation Program / Program Type
Work Function
The Organization and Staffing and Compensation decision areas illustrate how the
Human Resources function can monitor its performance, allocate resources, and set plans for
future financial targets.

95
INFORMATION
TECHNOLOGY
A Pathfinder to Better Performance
Our Age of Anxiety is, in great part, the result of trying to do today’s jobs with
yesterday’s tools.
Marshall McLuhan
IT can be to the company what high-tech firms have been to the economy—a catalyst for change
and an engine driving rapid growth. Of course, the opposite is also true: IT failures can seriously
harm the company.
Why? Technology and information have become so important to how companies operate that even
small changes can dramatically affect many areas of the business. This reality is reflected in the
amount of IT assets accumulated over years due to large IT budgets, often second only to payroll in
size. How many of these assets are still underleveraged, for whatever reason? What impact on results
would an across-the-board 10 percent increase in return on IT assets (ROA) have?
Clearly, the stakes are high. And yet, IT is often seen as a simple support function or an expense ripe
for outsourcing. It is rarely seen as an enabler or creative pathfinder for the business.
IT’s daily pressures often derive from thankless, sometimes no-win tasks, such as ensuring core
service levels of up-time, data quality, security, and compliance. Beyond these basic operations—
“keeping the lights on”—IT must also respond to the never-ending and always-changing needs of
their business customers. The challenge of managing their expectations is intensified by the pressure
to reduce costs, do more with less, and even outsource major capabilities.
Companies often cite poor alignment of IT with other functions as the key challenge. IT, however,
can be the pathfinder that helps the company discover a new way to drive value and maximize ROI
and ROA. Unfortunately, the opportunity for IT to demonstrate this is often blocked by three
common barriers.

Barrier 1: Effective alignment cannot succeed without a common language and unifying map
IT must be well aligned with the business. Much has been written about processes for achieving
greater alignment in IT decisions. These include:
• Securing senior executive sponsorship
• Implementing gating procedures and ROI justifications for project approvals
• Establishing steering committees and business partnering roles and responsibilities
However, for any of these processes to be successful, IT and the company as a whole need to share a
common language and unifying map.
This is really about building a relevant business context for what IT can do. The language and map
must reflect a fundamental understanding of what issues matter to the success of the company.
Then you can form a credible view on how IT capabilities can help. The map must show how IT
capabilities fit among the company’s other functions, processes, decisions and, most important,
goals. It must show who benefits from these capabilities. And it must be able to communicate the
strengths and weaknesses of these IT capabilities across a range of infrastructure, applications,
and information, as well as how to manage them. Think of it as a Google™
Earth tool for IT.
Zoom in on business objectives and evaluate different technical options based on an understanding
of detailed capabilities.
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I T
Business Visibility
IT/Business
Options/Paths
Detailed IT Capabilities

The common language and unifying map should include the fundamental anchors of metadata (such
as customer, product, and location) and standard business rules. Finally, it must also clarify and
explain IT terminology. Non-technical audiences should be able to understand the impact of IT in
business terms and answer some fundamental questions, including:
• Where are we today, where do we want to be, and how can we get there?
• What business processes and strategic goals are being negatively affected?
• How could IT drive better business performance? Which users stand to benefit?
• How well do multiple, discrete IT assets combine to fulfill complex business performance
requirements?
• What information do you need to drive better decision-making capabilities, in terms of content
(measures and dimensions), business rules (metadata), and use (functionality)?
• What financial and human resources do you require to fulfill your goals?
• How should costs be aggregated and allocated to reflect actual use?
• What are the cost/benefit trade-offs between alternative technical options?
Barrier 2: The difficulty of developing more credible, closed-loop measurements of IT’s value to
the company
It is standard practice within most IT departments to evaluate the return on investment for projects
and initiatives, and measure the cost/benefit of various IT capabilities. The challenge comes in
developing a value measurement system that:
• Is credible with Finance and users alike
• Provides insight into cause and effect drivers
• Goes beyond point measurement to reflect the entire company
• Is consistent across projects, departments, and business units
• Provides a closed loop so that results can be compared to the plan and lessons learned
I T
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98
I T
Fundamentally, IT creates value by improving operational efficiency and/or effectiveness, but
defining what this actually means isn’t straightforward. One approach is to use the simple notion of
input/output changes. Greater efficiency means reducing input cost—the effort or time required to
achieve a given level of output. Greater effectiveness means achieving better-quality or higher-value
output for the same level of input. A further guideline for defining useful metrics is to divide them
into three distinct categories:
• IT efficiency ➔ Direct total cost of ownership (TCO) savings in use of IT resources
• Business efficiency ➔ Productivity savings in terms of business users’ time to perform both
transaction and decision-making work
• Business effectiveness ➔ Improved business performance from faster and more informed
decision-making
These three categories include measures ranging from cost savings (efficiency) to value generation
(effectiveness), as well as from more to less certainty in the numbers. This is the dilemma and the
challenge for IT: the greatest opportunity for ROI and ROA is also the least verifiable, and therefore
the least credible.
Hard numbers around IT efficiency, such as cost savings and cost avoidance, are easier to measure
and are often the only ones Finance sees as credible. Companies document such costs, or they occur
upfront, and therefore involve fewer future projections. Pursuing TCO is a well-established
discipline. It captures hidden costs such as implementation, change orders, maintenance, training,
and user support. TCO also evaluates common drivers of IT inefficiency such as lack of
standardization and consolidation.
Decision
Productivity
Transaction
Productivity
Total Cost of
Ownership
Performance
Drivers
CostSavings–––––––––––––ValueGeneration
More Certain–––––––––––––––––––––––––––––––––––––Less Certain
ROI / ROA
Business Efficiency
Business Effectiveness
IT Efficiency
IT Value Management

I T
99
Determining the value of business efficiency in user productivity improvements is somewhat harder.
However, there are established processes. Historically, IT’s primary focus has been on improving
efficiency through automation. Cost savings in core transaction processes justified much of the
countless dollars spent on technology over the last decade. The heavy investment required to
implement enterprise resource planning systems, for example, was usually justified based on the ROI
of process improvement that reduced cost per transaction.
However, measuring value merely in terms of IT efficiency from cost savings, or business efficiency
from improved transaction productivity, understates the total value. Companies have already
achieved most of the major cost savings available from consolidations, platform standardization, and
transaction process improvements. While you may still need incremental upgrades and integration
initiatives, the bigger opportunity for value is in improving the efficiency and effectiveness of
decision-making.
As noted in the introduction, analysis from McKinsey shows that the proportion of more complex
decision-based (tacit) work has increased relative to transaction-based work. It now represents more
than 50 percent of the workload in many industries.
Unfortunately, decision-based work is much harder to measure, and therefore to determine how to
improve. It is information-intensive, interactive, and often iterative. IT must evaluate the value of
improving business efficiency and effectiveness around decision-making work. The critical asset—
and therefore the element to measure—is information. IT delivers value through quality of
information. You measure that quality in terms of relevance, accuracy, timeliness, usability, and
consistency. The higher the quality of information, measured across all of these factors, the better the
decision-making. This leads to greater user productivity and the ability to drive performance goals.
Some metrics on decision productivity come from monitoring the use of a reporting, scorecard, or
overall performance management system. How many people use it? How often do they use it? When
do they use it? How often are reports updated? How many new reports do users create? Who are
these power users? IT can also track user feedback about information quality through self-
assessments and qualitative ratings.
Metrics quantifying business effectiveness are in some ways more straightforward, though not
necessarily as certain or verifiable. These are based on the performance metrics for the decision area
you are improving. As demonstrated throughout this book, decision areas are defined by drivers and
outcomes that reflect the cause-and-effect relationships among business issues. This metric hierarchy
provides the logic for ROI/ROA calculations and for monitoring success over time.

Barrier 3: Lack of good decision-making information for managing IT
IT often lacks its own decision-making information. Beyond the need for metrics noted above, IT
needs a context for making a wide range of decisions, as well as for filtering the volume of data it
generates. There are two types of IT information sources that are often not fully integrated or
harnessed.
The first comes from applications that serve IT processes. Use of information from systems
management tools has become quite common, notably to manage security and compliance issues.
For example, compliance with Sarbanes-Oxley’s Section 404 for General IT and Application
Controls involves reviewing access rights, incident logs, change and release management data, and
other information generated by IT applications. This information is useful for making decisions
beyond compliance.
The second source comes from having more consistent information about the IT management
process itself. The Sarbanes-Oxley legislation was a catalyst for well-established best practices in IT
becoming more widely adopted. These practices include:
• Frameworks such as Control Objectives for Information and related Technology (COBIT®
) from
the IT Governance Institute and the Information Technology Infrastructure Library (ITIL)
framework
• Methodologies such as the software development life cycle (SDLC)
• Organizations such as the Project Management Institute (PMI).
Greater acceptance and use of these best practices provides more information about IT and the
business processes, organizations, and users that IT supports.
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The Business of IT
The five decision areas described in this chapter provide IT with insights and facts to help drive
overall value for the company.
The sequence of these decision areas provides a logical and iterative flow of analysis and action. The
start and end point—IT with a clear view of where and how it is driving business value—sets the
basis for priorities and plans to close gaps. You require a detailed understanding of the effectiveness
of IT assets, both individually and combined, to see how to make them more effective. In order to
optimize your current assets, or add new ones, you must monitor the projects closely and manage
vendors. Finally, you need visibility over the many “moving parts” to ensure you comply with
business and regulatory objectives to mitigate risks.
Decision areas on IT:
• Business value map ➔ Where and how does IT drive business value?
• IT portfolio management ➔ How are IT assets optimized for greatest ROA?
• Project/SDLC management ➔ Are projects on time, on budget, on target?
• IT vendor management ➔ Are vendor service levels and costs managed optimally?
• IT compliance management ➔ Are IT risks and controls managed appropriately?
I T
101
IT
Business value map
IT portfolio management
Project / SDLC management
IT vendor management
IT compliance management

Business Value Map
The business value map provides a high-level view of IT’s effect on the business, both currently and
potentially. This information sweet spot combines common language with value measurement in a
single unifying map for use throughout the company. Of the five decision areas, this is the most
important for driving better alignment between IT and the other functions. It helps define the
demand for IT and the ways IT can assist. Companies use the business value map at different levels
and stages of IT processes. These include defining IT strategy, setting priorities, approving projects
and investments, defining requirements, monitoring user acceptance, and validating success.
The business value map provides a consistent understanding of the business and an overall
understanding of IT. One useful source of this information is the consistent view of the business
required by Section 404 of the Sarbanes-Oxley legislation in terms of organizational entities,
transaction processes, systems, people, and their overall relationship to financial accounts.
The business value map provides context and measures gaps in current or projected IT capabilities.
This helps clarify the where / who / how / what / when questions:
• Where are better IT capabilities needed in the company in terms of organizational units,
functions, and processes?
• Who are the users and stakeholders of better IT capabilities?
• How will better IT capabilities drive value for the company (and did they last quarter)?
• What are the requirements for developing better IT capabilities?
• When must better IT capabilities be available?
This decision area lets you compare strengths and weaknesses in IT capabilities across different
business units, processes, and functions. Then you can relate any gaps back to the drivers of
performance. Information quality is a leading indicator of business value—is IT delivering the right
information at the right time to the right decision-makers to support the business? You can evaluate
gaps in information quality using a number of qualitative factors. These include relevance, accuracy,
timeliness, availability, reliability, breadth of functionality, and consistency. These factors can be used
to clarify cost/benefit options and let you prioritize potential improvements.
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IT Portfolio Management
This is the supply side of the IT value equation, while the business value map decision area is the
demand side. Portfolio management offers details of and insights into the company’s IT assets, how
well these support the business, and what opportunities exist to improve IT ROA spending by:
• Expanding the portfolio
by acquiring new IT
assets
• Investing more in
existing IT assets to
generate greater value
from them
• Retiring obsolete or
inefficient IT assets
• Implementing controls
to mitigate risk related
to IT assets
While there are many
potential categories and
attributes of IT assets, the
three core ones are
infrastructure, applications,
and information. Using this
decision area, IT can analyze
the inventory of physical IT
assets (hardware, software,
data sources, and
applications); their
properties (such as vendor
and direct cost); and their
core capabilities (such as
flexibility, scalability,
reliability, compatibility, and
availability).
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I T

Improving IT efficiency, however, is not enough. Most companies have tied 70 percent of their IT
budget to non-discretionary items. You can’t cut these “keeping the lights on” costs easily. You can
gain additional and invaluable insight in this decision area by comparing how diverse IT assets work
together to support specific areas of the business. Think of these IT assets as belonging to an
information supply chain that acquires, manages, and delivers access to information for end users.
Thinking in terms of shared and integrated supply chains delivering information and functionality
makes it easier to explain how improvements to incomplete, complex, or obsolete IT assets represent
greater effectiveness and value to the company.
IT should set standards and document the core business metadata for the company. Consistent
metadata and business rules are critical for information to become a trusted sweet spot in decision-
making processes.
I T
105

Project/SDLC Management
This decision area is one of two that make up IT’s operational bread and butter. Value is generated
from IT assets by implementing new software and infrastructure or developing new applications.
With IT’s discretionary budget for new projects limited to about one-third or less of the total IT
budget, resources are scarce and expectations high. This makes good information even more critical.
Most IT departments have
hundreds of separate
projects that are interrelated,
overlapping, or at various
stages of completion. This
decision area tracks the
status of major projects
against common project
management milestones such
as scope, requirements
analysis, design
specifications, development,
testing, implementation, and
production. Monitoring on-
time, on-budget, on-quality
project indicators is critical
to managing scope,
unplanned changes, and
necessary adjustments. This
information, which may
need to be aggregated from
several sources, also
improves alignment around
project priorities and helps
flag duplication in purpose
or scope.
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I T

Contextual dimensions provide greater comparability across different projects. This allows for
learning and best-practice sharing between “apples and oranges” by pooling common information
about different projects. These dimensions can include:
• Investment amount (< 50K, < 100K, < 500K, > 1M, etc.)
• Complexity (features, information, architecture)
• Dynamic versus static
• Business scope (point solution, departmental, or enterprise)
• Critical skills required
• Risk level (likelihood and impact assessments)
A key benefit of this information is that you gain insights even from failed projects. By seeing what
worked and what didn’t across many different projects, and by ensuring a full life cycle perspective
on development projects, you can avoid future mistakes and resource misallocations.
This information sweet spot helps manage expectations across the team, sponsors, and stakeholders.
With it, IT management can avoid project cost overruns, missed deadlines, and subpar quality
deliverables. Beyond avoiding the adverse financial implications of failed projects, it also helps IT
avoid the potentially serious impact on the company’s reputation and credibility.
I T
107

108
I T
IT Vendor Management
This decision area represents the other operational information sweet spot for IT. In many
companies, IT is second only to Purchasing in terms of dollars spent on external vendors. IT needs a
consolidated view of how much it is spending on IT assets and with whom. It’s a long list, from PCs
and PDAs to routers and telecom services, from software licenses to system integrator services.
Analyzing this information
sweet spot helps identify
what to consolidate and/or
standardize to reduce costs
and complexity. It also
reveals where you can pool
requirements to gain
purchasing power or
generate higher service
levels.
When this information is
fragmented across the
enterprise, it is difficult to
spot duplication of contracts
and agreements. Simple
comparisons of vendor costs
by function and user can
help uncover potential
excesses. Knowing that other
vendors have provided
similar products or services
also helps IT foster healthy
competition and
price/quality comparisons.

This decision area is also important in managing service levels tied to major outsourcing contracts, a
fixture for many IT functions. All service level agreements have trade-offs between quality, time, and
cost. Measuring quality, especially in the more complex Tier 3 contracts that manage and enhance
applications, can be a challenge. For example, where Tier 1 agreements may measure service
availability, numbers of incidents, and resolution response times, Tier 3 agreements need to address
access to and use of information from applications, and how easy and quick it is to make changes.
Even knowing when contracts are up for renewal, as well as when you are triggering penalty or
incentive clauses, can lead to cost savings or improved service levels.
I T
109

110
I T
IT Compliance Management
IT compliance management is a key focus for U.S. public companies. This decision area consolidates
information from different compliance initiatives. As noted in Barrier 3, various frameworks and IT
best practices such as COBIT and ITIL require general and application-specific IT controls. This
decision area requires three common sources of information.
The first is from compliance
program management
software, such as that used
for Sarbanes-Oxley. Similar
to the project/SDLC
management decision area,
this allows IT to ensure that
compliance tasks take place
and are meeting program
milestones.
The second source of
information comes from the
controls themselves. Of the
34 IT processes across four
domains used in COBIT, a
subset is required for
Sarbanes-Oxley, notably
around security and access
controls, change and release
management, and incident
and problem management.
In most cases, these controls
involve reviewing large
volumes of data and flagging
exceptions to established
procedures.

The third source is metadata itself. Today, companies have mostly manual internal controls.
Approximately two-thirds or more are “detective” controls, versus the more reliable “preventive”
ones. Detective controls involve reviewing transaction records in both detailed and summary form.
For example, reviewing an accounts receivable trial balance is a detective control. In order for
greater reliance to be placed on these controls, there must be a clear audit trail linking the source of
information with the definitions and business rules that apply. Being able to monitor and analyze
which metadata governs which reports and who has access to it creates a more reliable control
environment. It also supports the enforcement of existing data architecture standards.
I T
111

112
I T
Project / SDLC Management
External Resource Days (EFT)
Internal Resource Days (EFT)
IT Project Cost ($)
Total Resource Days (EFT)
IT Contract Costs ($)
IT Project Lead Time (#)
IT Direct Costs ($)
IT Indirect Costs ($)
IT Project Costs ($)
Dimensions
Fiscal Month
IT Projects
Organization
Project Completion Date
Infrastructure Environment
IT Vendors
Organization
The Project / SDLC Management and IT Vendor Management decision areas illustrate how the IT
function can monitor its performance, allocate resources, and set plans for future financial targets.

113
Chief Balancing Officers
Checking the results of a decision against expectations shows executives what their
strengths are, where they need to improve, and where they lack knowledge or information.
Peter Drucker
Executive Management bears the ultimate responsibility for the success or failure of the business. Yet
this senior team must work largely by indirect means: setting goals and communicating strategy;
strengthening the organizational culture; recruiting senior talent and building teams; and determining
how to allocate capital, especially for long-term priorities.
The team faces complexity, uncertainty, time pressures, and constraints in its efforts to lead the
organization, and set and deliver on performance expectations. Today, these traditional challenges
occur in the context of unprecedented levels of investor and regulatory scrutiny. Executive
Management must find the proper equilibrium among these pressures, striking the right balance at
the top and causing this influence to pervade the organization.
In the wake of the Sarbanes-Oxley Act (SOX) and other regulatory initiatives worldwide, corporate
governance, risk, and compliance are major focal points for Executive Management. Governance
starts with performance. It reflects the highest-level balancing act for management: Are we
performing to shareholder expectations? Risk starts with the flip side of performance: Are we
successfully taking and managing the right risks to sustain this performance? Compliance sets the
rules by which we must play: Are we complying with regulatory requirements? Executive
Management must understand and balance these business forces to ensure long-term success with
customers, investors, employees, and the law.
Driving your organization’s performance is an exercise in balancing:
• Strategic goals and operational objectives
• Financial performance and operational drivers
• Short-term and long-term pressures
• Top-down and bottom-up perspectives.
EXECUTIVE
MANAGEMENT

There are many business approaches that help unlock the right formula: Total Quality Management,
Balanced Scorecard, Six Sigma, homegrown variations of these, and more. Such business approaches
provide focus, context, and alignment for decisions. They all require the development of a
performance management system. This system turns your organizing philosophy into executable
actions for decision-makers at the top and throughout the business.
Among the many methodologies and frameworks for defining a performance management system,
three basic concepts are universal:
1. How does this action tie back to the financials? (the so what question)
2. How does this action tie back to organizational functions and roles? (the who is accountable
question)
3. How does this fit with the business process? (the where, when, and how question or questions)
While many companies embrace a business philosophy, most lack the performance management
system necessary to make it truly successful. Four common barriers prevent Executive Management
from striking the right balance in achieving performance, managing risk, and ensuring compliance.
Barrier 1: Poor vertical visibility of performance drivers
Executive Management requires a simple vertical hierarchy to connect goals and objectives to
underlying functions, processes, and decision areas—including a clear tie back to the financials. This
hierarchy is central to a performance management system. With it, Executive Management can
understand what has happened, guide today’s actions, and plan future performance.
However, despite extensive help in this area (Six Sigma, Balanced Scorecard, Total Quality
Management, etc.), companies still struggle with successfully implementing a performance
management system. Why? It is difficult to translate the top-to-bottom conceptual logic—goals and
objectives, leading and lagging indicators, financial and operational considerations, cause and
effect—into practical, measurable areas for which people can feel accountable. The many interrelated
factors become too complex to implement or manage.
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E X E C U T I V E M A N A G E M E N T

As this illustration shows, a pyramidal hierarchy ensures a clear, logical path to follow from strategic
goals at the enterprise level to operational objectives at the functional level, and then down to
specific decision areas within those functions. This reduces the number of goals at the top while
building detail at appropriate levels of the organization. This creates a basis for delegating
accountability.
The pyramid structure requires a consistency and logic that governs cause-and-effect assumptions.
Metadata underpin this consistency, which requires defining appropriate business rules and
controlling changes through them.
Barrier 2: Unclear ownership of performance goals and accountability for them at the front line
Executive Management is accountable for everything but directly controls nothing. Executives rely
on many individuals to strike the right balance and make the right decisions. Micromanaging is
maligned for good reasons: it is not feasible for an executive to be everywhere, doing everything; it
weakens everyone under the executive, and it distracts the executive from strategy into tactical
execution.
Successful leadership thrives in an environment where there is clear ownership of and accountability
for results up and down the organization, rather than merely expected tasks and duties. Ownership
requires clearly assigned roles in making decisions that drive performance goals and objectives.
Accountability requires measuring the value of actions and outcomes. Using the pyramid structure,
you can overlay the goal hierarchy with primary and contributory roles in decision-making
according to function and decision area.
115
Customer
Service
DistributionProductionProcurement
SalesMarketingDevelopment
GOALS
(Financial)
GOALS
(Operational Metrics)
DECISION AREAS
BY FUNCTION
(Dimensional Reporting and Analysis)

You can assign accountability for these decision areas through the planning process. When you ask
people to contribute a target number or set an acceptable threshold for a goal or measure, you have
shared ownership of the outcome and helped link the person back to the financial results.
Barrier 3: Poor horizontal visibility of cross-functional alignment and coordination
A true performance management system spans more than one function or department. It sits above
the business process flow in a related but non-linear fashion. Many performance decisions draw
upon different elements across process flows in an iterative way.
116
Decision areas overlay the familiar view of core processes and underlying support
processes. Each functional set of decision areas provides an iterative feedback loop.
Cross-functional sets combine to address additional performance goals and objectives.

If your performance management system adequately captures vertical cause-and-effect relationships,
it may still lack visibility across different functions that share common goals or objectives. This
visibility is necessary for striking the right balance throughout the organization. Cross-functional or
“horizontal” visibility lets decision-makers across business processes collaborate and execute
strategy. It also lets Executive Management weigh in on the difficult choices that cannot be resolved
at lower functional levels. Delays in cross-functional handoffs and misalignments among
departments negatively affect your overall performance.
The performance management system must include two capabilities. First, it must show how
everything fits together in terms of business process. Second, it must include a consistent definition
of and context for performance drivers across functions that share common goals or objectives. In
metadata terms, horizontal consistency means defining common dimensions shared across functional
decision-making processes. (For example, it is critical to define and track products, customers, and
locations—the anchors of the business—consistently across processes.)
117
Horizontal Coordination: Conformed Dimensionality Across the Value Chain

Barrier 4: Current executive information capabilities do not support the non-linear and iterative
nature of decision-making/management processes
For most employees, decision-making work has increased relative to transaction work, but this
situation is not reflected in the information we receive to do our jobs. This problem is most acute in
the management process itself. Decision-making should flow top-down and bottom-up in an iterative
closed loop. Various decisions in different functions need to be grouped and understood together
when they affect the same goals. There are also different decision-making cycles and requirements
for long-term strategic goals than for short-term monthly and quarterly operations.
These metrics constantly evolve because 1) they often need tweaking (typically realized by using
them), and 2) people’s behavior eventually adapts to what is being measured. There is a natural
tendency for people to learn over time how to “work the system”, which obscures its original intent.
This requires agile, adaptive, and controlled metadata functionality of business rules, definitions, and
audit trails.
A multi-year strategic management planning process starts by reassessing assumptions and
conventional wisdom based on rigorous analysis. You must validate or readjust what is important,
and should therefore be measured and translated into operational plans that can be delegated down
through the organization. Decision flow then switches to monthly or quarterly monitoring of
performance with fast, drill-down analysis and reporting on the underlying causes of results. When
these causes have been understood by each of the contributing decision-makers, you can reforecast
adjustments to operational and financial plans. The bottom line: You need performance management
information at each of these steps to support your decision-makers effectively.
Strategic management cycle:
• Analysis ➔ Where do we want to be? (vision and
goals)
• Measures ➔ What’s important? (priorities)
• Planning ➔ How do we get there? (objectives and
targets)
Operational management cycle:
• Monitoring ➔ How are we doing?
• Analysis and reporting ➔ Why?
• Planning ➔ What should we be doing?
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Decision Areas
The six decision areas listed below support the core governance, risk, and compliance balancing act
of Executive Management. They include four performance management decision areas and one
decision area each for risk and compliance management.
• Performance ➔
Financial management ➔ Are we performing to shareholder expectations?
Operational revenue management ➔ Are we driving revenue growth effectively?
Operational expense management ➔ Are we managing operational expenses effectively?
Long-term assets management ➔ Are we managing long-term assets effectively to increase
future revenue and expense management capabilities?
• Risk management ➔ Are we managing the risks of sustaining this performance?
• Compliance management ➔ Are we complying with regulatory requirements?
The four decision areas for performance management are further designed to support several
interrelated balancing acts: between leading and lagging indicators; between revenue and expense
trade-offs; between short-term and long-term resource allocations; and between top-down and
bottom-up management processes. Specifically, each of these decision areas has two integrated levels:
an overview “dashboard” level and a more detailed operational level.
The latter is an intermediate level that points to other underlying decision areas that contain even
more detail, as in the pyramid structure outlined on page 115. It allows Executive Management to
gain a comprehensive view of business performance and to zero in on additional detail for greater
insight when necessary, then reset targets and plans accordingly. In each case, the set of goals in the
overview level dashboard is purposely limited to one illustrative goal per theme, with additional
goals and metrics made available at the next drill-down level. Each company will have its own
variations on these goals and may determine that more than one indicator should be added at the
dashboard level.
Inspired by the Balanced Scorecard framework, the four performance management decision areas
provide clear, parallel paths to drill down from goals into their underlying operational drivers. The
customer-focused perspective is adapted to include information and metrics from decision areas that
drive revenue. The internal process perspective is adapted to focus on operational expense drivers.
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EXECUTIVE
MANAGEMENT
Financial management
Operational revenue management
Operational expense management
Long-term assets management
Risk managementCompliance management

120
The learning and growth perspective also reflects investment and leverage from long-term assets such
as human capital and IT assets. The financial management perspective is where we analyze and
monitor directly quantifiable financial indicators, but the three other performance management
decision areas provide parallel non-financial paths to drill down to operational drivers.
The functions and decision areas described in the rest of this book form a bottom-up framework for
designing effective and interconnected information sweet spots of scorecards and dashboards,
analytical and business reports, and budgets and plans. Each decision area in this chapter shows a
path or starting point for linking the other decision areas together in a top-down logic and, by doing
so, establishing cross-functional teams to drive shared goals and objectives. This chapter also
highlights the balancing act and trade-offs that Executive Management must make.
Financial
Management
Revenue Drivers
• Market Opportunity Value
• Customer Acquisition
• Customer Retention
• Realized Value
Expense Drivers
• Supply Chain Cost Index
• Operational Cost Index
• Overhead Cost Index
Longer-Term Rev and Exp Drivers:
• Strategic Investment ROI (%)
• Staff Productivity Index
• IT ROA (%)
• Employee Retention (%)
S H O R T E R T E R M L O N G E R T E R M
Parallel Drill Down to Operational Non-Financial Indicators
Revenue
Growth (%)
Operating
Margin (%)
Asset
Efficiency (%)
• COGS Variance
• SGA Variance
• ROCE /ROA /ROI (%)
• Working Capital (%)
• Sales Plan Variance
• Volume/Price Variance
Expense
Management
Revenue
Management
LT Asset
Management
Our executive dashboard allows executives to quickly understand the behavior of all the
company’s revenue drivers. By adding reporting and scorecarding capabilities, we make it
easier for decision-makers to manage what matters the most.
Louis Barton, Executive VP, Cullen/Frost Bankers

121
Financial Management
The financial scorecard is a well-developed information sweet spot for most companies. Its bottom-
line results are tied to executive financial rewards and additional incentives such as share options, as
well as overall risk factors, to align shareholder expectations with executive team motivation.
The three basic performance measures illustrated here are critical to any business. Revenue growth
and operating margin are linked to the statement of income, and asset efficiency is linked to the
balance sheet. The fourth is a high-level risk measure. Revenue growth is a key component of
shareholder value creation. If costs stay flat, revenue increases will directly affect earnings growth,
leading to a positive change in the price to earnings ratio (P/E). Executives and investors watch the
operating margin and the associated percentage of operating margin to sales ratio. More
sophisticated performance measures include return on capital employed (ROCE), return on assets
(ROA), and economic profit. Risk exposure is the flip side of this coin, tracking various categories of
risks and mitigating factors that could affect the company’s ability to meet its performance goals.
These measures more closely align with the investor’s perspective, since they give an indication of the
risks/rewards generated by a given capital or asset base. Since the capital tied up in the business has
a certain opportunity cost for investors, unless these rewards are sufficiently high shareholders will
take their cash elsewhere.
Revenue Growth (%)
Is revenue growing? How fast? How does this compare with projections? Executive Management
reviews the income statement and the sales plan variance to find out how the business performs
against plan, and drills down to find the drivers of any revenue variances. Volume, price, or product
mix reasons for sales variances tell Executive Management what other decision areas should be
examined. For example, if premium product sales are declining, then Executive Management should
review product life cycle management.
Operating Margin (%)
Operating margin is a vital internal performance benchmark. When compared to that of a
competitor, it provides a performance comparison for investors. If operating margins are weakening,
Executive Management will examine the income statement to determine why. Other margin
indicators such as material margin or gross margin help identify which costs are increasing within
cost of goods sold (COGS). Operational plan variance may suggest that selling, general, and
administrative (SG&A) costs are significantly higher than plan, and the drill-down variance can help
determine the cause.
Asset Efficiency (%)—ROCE, ROA, ROI, Economic Profit
Assessing the company’s performance through ROCE or similar measures gives Executive
Management the same benchmarks that shareholders use to evaluate the business. If the asset
efficiency index is not aligned with market expectations, Executive Management can look at causes
in the balance sheet or income statement. The CapEx and strategic investments decision areas may
highlight when a major plant or equipment investment program has increased the fixed asset base.

Alternatively, by looking more closely at cash flow and working capital, Executive Management may
find that accounts receivable delays are negatively affecting working capital. The treasury decision
area can give Executive Management confidence that interest on liquid assets such as cash is
contributing to asset efficiency performance.
Risk Exposure Index
Executive Management needs a clear understanding of what the company’s major categories of risk
are and, most importantly, what level of exposure to these risks it faces. Its ability to communicate
these risks while instilling confidence in investors and regulators that it is managing them
appropriately is critical. In extreme cases, inadequate risk management can cause a company to fail,
but risk appetite is what generates returns. Investors expect solid management of it. Risk exposure is
a derived metric that shows residual risk after inherent risk has been mitigated.
Executive Management can review changes in exposure and evaluate the potential impact on capital
allocation across the business. Drilling down into the risk management decision area gives Executive
Management additional insight into inherent risk (such as loss events, loss amounts, or risk
assessments), and into the methods of responding to risk (such as avoidance, reduction, sharing,
and acceptance).
Likewise, review of compliance management shows the effectiveness of internal controls and the
status of current compliance programs and audit activity. Managing compliance is clearly driven by
the company’s reputation and litigation risks, hence the need for Executive Management to be
informed and involved. SOX management is first reported to the Board’s audit committee, whose
directors, together with company officers, are now more personally liable for financial misstatements
and inaccuracies. Directors’ and officers’ liability insurance rose tremendously after SOX was
enacted, precisely for this reason.
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We have a number of metrics (data cubes) that help us track profit and loss margins,
student and staff details, activity-based costing and asset management. The flexibility of
our system has allowed users to drill down from a “big picture” overview provided by our
dashboard. This allows us to make decisions on everything from opening up a new
offshore campus to minute details like the individual cost of teaching a class of ten
students in a particular subject.
Chris Grange, VP Administration, University of Wollongong

123
Financial
Management
Revenue Growth
(%)
Operating Margin
(%)
Asset Efficiency
(%) ROCE / ROA
Risk Exposure
Index
Income Statement
Goals
• Actual vs. Plan Variance
($/%)
• Net Sales ($)
• Operating Profit/EBIT
($/%)
Drill-Down Variance
Goals
• Profit Change ($/%)
• Sales Change ($/%)
• Volume/Price/Mix
Variance ($/%)
Sales Plan Variance
Goals
• Sales Order ($)
• Sales Plan ($/%)
Risk Management
Goals
• Loss Incidents (#)
• Loss Value ($)
• Risk Level Index
• Risk Mgt. Audit Score
Compliance Management
Goals
• Compliance Completion
(%)
• Compliance Costs ($)
• Material Deficiencies (#)
• Materiality Rating
• Regulatory Compliance (%)
• Risk Level Index
Income Statement
Goals
($/%)
• Net Sales ($)
($/%)
Drill-Down Variance
Goals
• Profit Change ($/%)
• Sales Change ($/%)
• Volume/Price/Mix
Variance ($/%)
Goals
• Operating Cost Variance
($/%)
• Overhead Cost Variance
($/%)
• Prod. Cost/Sales Ratio
(%)
Income Statement
Goals
($/%)
• Net Sales ($)
($/%)
Balance Sheet
Goals
• Capital Employed ($)
• Debt to Equity Ratio (%)
• ROCE (%)
CapEx and Strategic
Investments
Goals
• Investment ($)
• NPV ($)
• ROI (%)
Cash Flow and Working
Capital
Goals
• A/R Days (#)
• Net Cash Flow ($/%)
• Working Capital Ratio (%)
Treasury
Goals
• Borrowing Cost (%)
• Investment Yield (%)
• Net Liquidity ($)
SALES FINANCE EXEC. MANAGEMENT

Operational Revenue Management
Revenue performance is a key driver of shareholder value. Executive Management must focus on
managing revenue goals and directing the business and its resources to the most profitable revenue
opportunities. This requires cross-functional cooperation.
Growth requires looking beyond current revenue performance to new opportunities. The strategic
plan for growth involves Marketing, Sales, and Product Development. Executive Management looks
at the business’s ability to acquire new customers in order to generate new sales, and compares this
to existing customer retention performance.
Market Opportunity Value ($)
While you may structure your business along functional lines, revenue opportunities cut across
Marketing, Sales, and Product Development. By clustering the decision areas associated with market
opportunities, you allow more complete and aligned decision-making. This important business driver
allows you to develop an overarching index or series of indicators to describe performance. If
needed, Executive Management can drill down further into specific decision areas and the related
goals and metrics.
If market opportunity value tracks below an acceptable level, Executive Management may look for
new market opportunities. For example, a new premium segment growing at 20 percent annually is
clearly attractive but the business may have no relevant product offering. The competitor position
assessment indicates a low level of competitor consolidation, suggesting it would be easy to gain
share. Product and Portfolio Innovation has evaluated the costs necessary to enter this premium
segment. Available market and customer feedback gives some confidence that these new product
concepts could hit the mark. Executive Management can now assimilate this information and decide
the best way forward.
Customer Acquisition (%)
Revenue management is also concerned with the effectiveness of customer acquisition strategies. This
means becoming well versed in sales results and the expectations for future sales pipeline and
demand-generation activities. If you have weak customer relationships, increasing customer visits by
Sales may be a solution. The customer acquisition percentage lets Executive Management monitor
this key performance area.
Executive Management must closely scrutinize product life cycle management to see if new products
deliver the projected sales results. Most companies launch new products with high optimism.
Executive Management must be particularly attentive to early performance indicators. If projected
sales are not delivered, you must find out why and communicate this to all levels of the
organization. Sales plan variance becomes an essential information sweet spot for determining the
why and where of problems, allowing for a decision regarding the what. You must explain these
findings well enough that the Board has confidence in the proposed measures, and also be detailed
enough to allow lower levels of the organization to execute effectively.
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125
With our performance management solution, we have a simple and quick environment
which can handle all our needs and gives us insight into operating costs per cost center
and product, sales in relation to the budget, internal purchasing support, premiums paid
and disbursed insurance sums. We’ve increased our reliability and reduced the time spent
on certain operations from 66 hours to three. In the long term, this means we’ll save
masses of time and money thanks to this solution. We are now able to focus 85 percent of
our attention on strategic initiatives that help drive our business.
George Janson, Business Intelligence Coordinator, Controller Division, Folksam
Customer Retention (%)
Growing business revenue is not enough if sales leak away due to poor customer retention. If the
customer retention index is low, Executive Management must focus on the operational and service
performance issues that directly affect customers. Early indicators of potential problems are likely to
come from inadequate on-time delivery performance and from complaints and claims. Monitoring
these early indicators informs the team and helps ensure accountability from those responsible.
Service benchmarks also offer insights into customer service problems that need to be managed.
These benchmarks may also indicate the relative service performance differences between the
business and its competitors, highlighting disadvantages that could lead to customers switching
despite consistently good service performance.
Despite positive numbers in these early-warning measures, the sales results decision area may
indicate poor results, with decreasing sales to existing customers. The solution may be rebalancing
sales tactics. Perhaps you need a greater emphasis on improving the specification information to
improve customer confidence when making an order.
Realized Value ($)
Realized value provides an overview of the effect on profit of the effort going into driving revenue
growth. The customer/product profitability decision area is an important sweet spot for Executive
Management. You must review unprofitable customers and pursue different strategies if they are
important to the business. A pricing review may indicate that increasing product prices for a large
but unprofitable customer would be a bad decision, since this would accelerate the competition’s
penetration of that market. Reviewing the service cost of the service value metric could highlight too
much spending on service support. In that case, you might attempt to negotiate a higher service
charge to maintain existing service levels.
Executive Management may also examine product profitability to determine realized value
performance. You may look at options to correct the underperformance of loss-making products.
These could include discontinuing a product, increasing the price, or changing sales tactics.
Increasing prices for certain niche products may offer a “milking” option in the short term to
counteract losses somewhere else. Compensating for losses by increasing profits elsewhere is a
common decision area in the Executive Management balancing act.

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Revenue
Management
Market Opportunity
Value ($)
Customer
Acquisition (%)
Customer
Retention (%)
Realized
Value ($)
Goals
• Company Share (%)
• Market Growth Rate (%)
• Market Revenue ($)
Goals
• Competitor Growth (%)
• Competitor Price Change
(%)
• Competitor Share (%)
Product and Portfolio
Innovation
Goals
• New Product Market
Share (%)
• New Product Sales ($)
• Product Develop. Cost ($)
Market and Customer
Feedback
Goals
• Suggestion Cost ($)
• Suggestion Value-Added
Score (#)
Pricing
Goals
• Price Change (%)
• Price Segment Growth (%)
• Price Segment Share (%)
Sales Tactics
Goals
• Average Selling Price ($)
• Direct Cost ($)
• Discount (%)
• Sales Calls (#)
Customer/Product
Profitability
Goals
• Average Customer Profit
($)
• Lifetime Profit ($)
• Net Profit ($)
Service Value
Goals
• Lifetime Profit ($)
• Service Cost (%)
• Service Effectiveness Index
Demand Generation
Goals
• Baseline Sales ($)
• Incremental Sales ($)
• Promotions ROI (%)
Sales Tactics
Goals
• Direct Cost ($)
• Discount (%)
• Sales Calls (#)
Sales Pipeline
Goals
• Pipeline Ratio (%)
• Pipeline Revenue ($)
• Sales Order Conversion
($/%)
Product Life Cycle
Management
Goals
• New Product Growth (%)
• New Product Share (%)
• Relative New Product
Share (%)
Sales Results
Goals
• New Customer Sales ($)
• Sales Growth (%)
• Sales Order ($)
On-Time Delivery
Goals
• Average Lead Time Days
(#)
• Order Fill Rate (%)
• On-Time Unit Delivery (%)
Information, Complaints
and Claims
Goals
• Complaint Count (#)
• Failed Orders (#)
• Returned Units (#)
Sales Results
Goals
• New Customer Sales ($)
• Sales Growth (%)
• Sales Orders ($)
Service Benchmarks
Goals
• Average Resolution
Response Time (#)
• Customer Satisfaction
Scorecard
• Service Effectiveness
Index
Sales Tactics
Goals
• Direct Cost ($)
• Discount (%)
• Sales Calls (#)
MARKETING SALES DEVELOPMENT CUSTOMER SERVICE

Operational Expense Management
Once customers have made orders, there is little scope for operating errors without affecting profit
margins. With approximately 90 percent of revenue going into making and delivering a product or
service, information that helps Executive Management identify operating anomalies and act quickly
can make the difference between success and failure.
By grouping relevant functional decision areas together, the information sweet spots can be aligned
with typical business concerns. These business challenges need to be approached cross-functionally
and cannot be solved in isolated silos.
Business is a process that starts with inputs and ends with outputs. In between, you must manage
value-added activities for efficiencies and costs. On the input side, this starts with supply chain
efficiency, followed by the internal operating processes needed to produce a product or service. You
manage these internal operating processes by monitoring operating costs, reflecting the key driver in
achieving sustainable profits. Organizations carry a number of support functions broadly classified
as overhead. You must manage these overhead costs to ensure that, for example, departmental
headcounts do not grow out of control, and that your various support activities deliver real value.
When you have a finished product, you must distribute and deliver output, bringing the cycle back
to supply chain efficiency.
Supply Chain Cost Index
This index highlights the balancing act between input and output for management. The
unpredictable is the norm. No sooner have purchase orders gone out for next month’s requirements
than you see changes in expectations. The sales plan variance metric reflects future sales
expectations; if it indicates an unexpected increase in orders, Procurement and Purchasing must
respond. If suppliers are not sufficiently responsive to the unexpected increase in orders, meeting the
order surge may become a problem that Executive Management must address by looking at, for
example, ways to announce possible delivery delays and the impact of these on customers.
127
As a manufacturing company we are faced with constraints. We have a seasonal business
and limited production capabilities as well as limited warehouse space. So we have
developed a model where we put our sales forecast against our production forecast to
monitor machine utilization, target inventory levels, and warehouse space utilization. In
that model, because we are rolling out a forecast for several months, we can determine
that we are going to face issues in July and address them in March instead. We have been
able to move from an annual plan with a quarterly reforecast to a continuous planning
process. This lets us get our information to the users quickly so that they can react to
that information.
Roberta Kaplan, Director of Business Intelligence, Constar International, Inc.

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Expense
Management
Supply Chain Cost
Index
Operations Cost
Index
Overhead Cost
Index
Purchasing / Procurement
Goals
• Purchase Price/Unit ($)
• Reject Rate (%)
• Supplier Timeliness (%)
Distribution and Logistics
Goals
• Damaged Units (%)
• Distribution Cost ($)
• Price/lb/100 miles ($)
Inventory Management
Goals
• Inventory ($)
• Inventory (days/%)
• Inventory Turns (#)
• Product SKUs (#)
On-Time Delivery
Goals
• Average Lead Time Days (#)
• Order Fill Rate (%)
Information, Complaints and
Claims
Goals
Sales Plan Variance
Goals
• Sales Order ($)
Goals
• Backlog (%)
• Capacity Utilization (%)
• Systems Up-Time (%)
Cost and Quality
Management
Goals
• Failure Cost ($)
• QC Reject Rate (%)
Product Development
Milestones
Goals
• Product Develop. Cost ($)
• Product Develop. Lead
Time (#)
• Project Completion by
Milestone (#/%)
Goals
($/%)
($/%)
• Prod. Cost/Sales Ratio (%)
Information, Complaints
and Claims
Goals
Project / SDLC
Management
Goals
• IT Project Completion (%)
• IT Project Lead Time (#)
• IT Project ROI (%)
Goals
• IT Contract Cost ($)
• IT Vendor On-Time (%)
• SLA Performance (%)
Income Statement
Goals
($/%)
• Net Sales ($)
($/%)
Goals
• Avg. Tenure Years (#)
• Employee Turnover (%)
• Headcount (#)
Cost and Quality
Management
Goals
• Failure Cost ($)
• QC Reject Rate (%)
Goals
($/%)
($/%)
(%)
Benefits
Goals
• Benefit Cost Increase (%)
• Benefit Costs ($)
• Benefit Costs/Payroll (%)
OPERATIONS CUSTOMER SERVICE IT PRODUCT DEVELOPMENT
HUMAN RESOURCES SALES FINANCE

The ability to see across the supply chain indicators helps Executive Management understand the
overall situation. Poor on-time delivery can highlight a problem that may also be reflected in
inventory management. The surge in orders may create an inventory problem that Executive
Management must decide either is temporary or requires an increase in warehousing capacity.
Information, complaints, and claims may indicate risk and exposure with certain customers.
Temporary problems in warehousing can be solved by looking at distribution and logistics
management. Increasing the carrier capacity and using the distribution network to offset the lack
of internal warehousing capacity may be a solution that avoids extra warehouse costs.
This ability to see the whole supply chain and derive information from different decision areas is
essential to good leadership. When Executive Management understands the various tolerances and
risks, it can confidently make an informed decision.
Information gaps are not acceptable reasons for failure.
Operational Cost Index
Executive Management uses operational cost to monitor the operation’s backbone and the related
cost implications of inefficiencies and bottlenecks. For example, if you approve a new transaction
system, how can you manage and monitor its implementation effectively? In the project management
software/system development life cycle (SDLC) decision area, a clear plan will outline the scope of
work and time needed to implement the new system. Executive Management must watch cost and
time overruns, and perceived risks. You can use the service vendor management decision area and its
indicators of past vendor performance to mitigate risks and make better forecasts.
If the purchase order process is difficult—causing system rejections, delivery delays, and an increase
in complaints and claims—Executive Management can look at production and capacity
management. With the information from this sweet spot, it can assess the implications of using
overtime to push delayed orders through. You can gauge cost implications from the operational
efficiency and quality management decision areas. The increase in operating costs will affect the
operational plan variance. Executive Management will use this information to communicate the
discrepancy from plan and focus on solving this problem.
The above example illustrates the importance of managing the unforeseen by using fact-based
indicators. Every business has to be ready for the unexpected. Companies that manage these
situations as they occur gain a significant advantage.
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130
Overhead Cost Index
Monitoring support functions with the overhead cost index ensures the balance between cost and
value makes sense. If this area underperforms, you can analyze the organization and staffing decision
areas to look at headcounts, or the income statement to review more detailed functional costs.
Management analyzes ratios to understand the cost changes and the relative importance of various
support functions or departments. For example, percentage of marketing costs to sales and
percentage of sales headcount to total headcount will tell you whether marketing or selling resources
are changing in proportion to the business. Increasing sales revenue unaccompanied by an increase in
Marketing or Sales headcounts could affect future customer relationships and sales prospects.
The sales plan variance gives Executive Management a key indicator to determine future resource
requirements and support costs. If you expect strong sales growth, then this insight can be used to
look at the operational plan variance. Senior management can take a more active role in deciding if
future sales growth requires broad resource upgrades in the support functions. You can integrate the
associated increase or decrease in costs into the planning process. Fast, proactive decision-making
increases competitive capabilities across the organization.

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MARKETING IT HUMAN RESOURCES
SALES FINANCE
LT Asset
Management
Strategic
Investment ROI (%)
Staff Productivity
Index
IT ROA (%)
Employee
Retention (%)
CapEx and Strategic
Investments
Goals
• Investment ($)
• NPV ($)
• ROI (%)
Balance Sheet
Goals
• Capital Employed ($)
• Debt to Equity Ratio (%)
• ROCE (%)
Goals
• Company Share (%)
• Market Growth Rate (%)
• Market Revenue ($)
Goals
• Competitor Growth (%)
• Competitor Price Change
(%)
• Competitor Share (%)
Product Life Cycle
Management
Goals
• New Product Growth (%)
• New Product Share (%)
• Relative New Product
Share (%)
Goals
• Headcount (#)
Sales Plan Variance
Goals
• Sales Order ($)
Business Value Road Map
Goals
• Business Priority Score
• Business Value ($)
• Information Quality Index
• IT Capability Index
• IT Costs ($)
Compensation
Goals
• Compensation Increase
($)
• Avg. Compensation
Increase (%)
• Compensation Cost ($)
Goals
($/%)
($/%)
(%)
Goals
• Skills Rating Gap (%)
• Training and Develop. Cost
($)
• Training and Devlop.
Cost/Payroll (%)
Business Value Map
Goals
• Business Priority Score
• Business Value ($)
• Information Quality Index
• IT Costs ($)
IT Portfolio Management
Goals
• IT Costs ($)
• IT Efficiency Index
Project / SDLC
Management
Goals
• IT Project ROI (%)
Goals
• IT Contract Cost ($)
• IT Vendor On-Time (%)
• SLA Performance (%)
Sales Plan Variance
Goals
• Sales Order ($)
Talent and Succession
Goals
• Employee Satisfaction
Index (#)
• Succession Gaps (#)
• Talent Gaps (#)
Goals
• Headcount (#)
Benefits
Goals
• Benefit Cost Increase (%)
• Benefit Costs ($)
• Benefit Costs/Payroll (%)
Compensation
Goals
• Compensation Increase ($)
• Avg. Compensation
Increase (%)
• Compensation Cost ($)
Goals
• Skills Rating Gap (%)
• Training and Develop. Cost
($)
• Training and Devlop.
Cost/Payroll (%)
Income Statement
Goals
($/%)
• Net Sales ($)
($/%)

132
Long-Term Asset Management
Long-term investment and asset decisions represent Executive Management’s opportunity to
influence the future direction and success of the business. This is where the right investment choice
can fundamentally redefine both the revenue opportunities and cost efficiencies of an organization.
Unfortunately these important decisions are both costly and risky. Senior management has to decide
carefully which investment options have priority. The uncertainties involved in these long-term
investment decisions are difficult to balance against a backdrop of short-term performance pressures.
Failure is not a palatable option, resulting in a lower share price, restructuring and, at the extreme,
corporate failure.
What are long-term assets? From a balance sheet perspective, they are defined in terms of property,
plant and equipment, investments, etc.—but from an executive perspective they also must include
intangible assets such as human capital and IT capability and infrastructure. Designing key measures
that offer a holistic perspective on these investments (tangible and intangible) allows Executive
Management to monitor the long-term health of the corporation.
Strategic Investment ROI (%)
The strategic investment ROI percentage tracks strategic projects. This sweet spot lets Executive
Management learn from the past and adapt those experiences to future decision-making.
Strategic investment decisions, for example an acquisition, require input from a number of decision
areas. The market opportunity decision area may have identified an attractive adjacent market
segment. You may build a case for the acquisition if existing options for the business are limited and
product life cycle management shows poor performance of new products. The case for acquisition
strengthens if your existing product portfolio does not have new high-performers and there is little
prospect of generating satisfactory growth. If the competitor assessment decision area has identified
a potential acquisition target that satisfies corporate due diligence, you then require financial
evaluations. Through the CapEx and strategic investments decision areas, Executive Management
can review scenarios with associated ROI assumptions. If these conform to the corporate investment
structures, then Executive Management must consider whether the balance sheet is strong enough to
finance the acquisition. Should you increase debt or is it necessary to raise additional capital from
new shares?
The above example reflects the type of information sweet spots that Executive Management requires
in order to make strategic investment decisions. By making strategic investments a dedicated sweet
spot, it can monitor investment performance and rationale for a decision. Acquisitions fail in
financial terms due to overpaying for the target or poor execution when consolidating the business.
With Executive Management well informed by past acquisitions of the key factors that influence
success or failure, you reduce the risks for the future.

133
Staff Productivity Index
Human capital is a key asset of any business, and Executive Management must track this asset’s
productivity. A basic assessment reveals headcount and sales per employee by department, but there
can be many added levels of sophistication in this tracking. Understanding the context for changes in
staff productivity requires Executive Management to seek information from a number of decision
areas.
If this indicator increases, implying improved staff productivity, Executive Management should look
at how to sustain it. The sales plan variance decision area may show an increase in sales versus
expectations, and organization and staffing information will help Executive Management see if and
where additional staff were employed. If overall headcount has not increased and an assessment of
the compensation decision area indicates stable staff expenses, you know your staff is more
productive. The business value road map may confirm that a recent project implementation has had
a direct and positive impact on staff productivity. You may have seen an associated increase in
training and development expenditures due to the new project, but the result directly improves the
staff productivity index. With these figures, Executive Management can push for a review of plans
and have other functions record the impact in operational plan variance.
IT ROA (%)
Sudden technology shifts can upend the business model, so Executive Management must know
where and how IT assets are driving value across different business units, lines of business, and
functions. Comparing the upward or downward trend in IT ROA with current financial and
operational results lets you see potential weaknesses in IT strategy. Likewise, comparisons with staff
productivity and strategic investment percentages highlight the level of alignment with long-term
business goals. If IT ROA is declining in a high-performing area of the business, a drill-down on the
business value road map may indicate what specific drivers of performance are at risk, such as
revenue growth or operating margins. Understanding who is affected leads to a more productive and
proactive approach.
Employee Retention (%)
Retaining employees saves money on recruitment and start-up costs; keeping the right employees
builds one of your most important assets. The talent and succession review decision area provides
additional information for Executive Management, making it aware that new people and talent are
necessary to improve the capability of the business. Designing a blend of internal career
advancement and strategic recruiting of new talent is an Executive Management priority.
If the employee retention percentage is a concern, you may examine compensation and benefits
information, looking at market comparisons. Overall staff cost-to-income ratios provide high-level
benchmarks for senior management to compare against competitors. Do you increase staff costs,
with the associated effect on the income statement, to reverse a weak employee retention index?
Perhaps low employee morale is the cause. If so, improving compensation may not actually change
employee retention. In this case, it may be more productive to invest in employee team-building or
other employee development programs. Training and development information may help to set an
appropriate strategy.

Risk Management1
Recent regulatory trends such as Basel II for financial services and SOX for publicly traded
organizations have heightened the importance of better risk management. So have trends like
globalization, integrated financial markets, the knowledge economy, and political uncertainty. The
resulting competitive environment and constant rapid change have created countless potential threats
to business performance. Today, more than ever, how well you take and manage risks affects your
cost of capital through:
• Investors and major exchanges such as NYSE and NASDAQ
• Lenders and related rating agencies such as Moody’s and S&P
• Insurers and related loss control programs and coverage discounts.
This decision area provides a consolidated view of several categories and hierarchies of risk, such as
operational, credit, and market risk. In addition to these, organizations must monitor environmental
and natural risks that impact disaster recovery and business continuity. Having a single integrated
universe of identified risks that cuts across common organizational units, functions, and business
processes enables more coordinated and cost-effective risk responses.
The trend toward an integrated view of risk has gained ground as the costs of compliance have
increased, in particular due to SOX. Many enterprise and operational risk frameworks are available,
including the so-called COSO II, which identifies four high-level objectives that frame risk
management components, as shown in this exhibit from their Enterprise Risk Management –
Integrated Framework, published in 2004. The cube visual reinforces the multidimensional nature of
risk management and compliance.
Ideally, this decision area combines both qualitative and quantitative information. Qualitative risk
ratings and assessments are more reliable and verifiable when they are underpinned by numbers that
measure risk incidents, events, and loss amounts. Setting accepted risk thresholds, modeling expected
outcomes, and monitoring actual results ensures finer insights and tweaking for managing risk.
134
• The four objectives – strategic, operations,
reporting, and compliance – are represented by
the vertical columns.
• The eight components are represented by
horizontal rows.
• The entity and its organizational units are
depicted by the third dimension of the matrix.
1
As a subject, risk management warrants a book of its own. Accordingly, this decision area is only meant to provide an overview of what could easily
be several more detailed information sweet spots. Also, although it is represented here as a drill down within Executive Management, many compa-
nies have a separate risk management function.

For many risks, such as those related to SOX, specific internal controls are in place to mitigate risks.
This decision area helps to flag the controls that are most effective and reduce inherent risk to a
more acceptable exposure of residual risk.
Risk management is more than tracking obscure or unlikely threats. When risks are tracked against
a common map of the business, it is easier to establish the relationship between business
performance and risk, like flip sides of the same coin. Insuring common operational risks, notably in
Human Resources and Finance, is another area of overlap. For example, the escalating costs of
employee benefits and uncertainty in workers’ compensation claims are forcing companies to
negotiate more self-insurance offerings from their insurance carriers, requiring close analysis and
monitoring of reserves-to-losses trends. Likewise, determining the right price for insured cash flow
programs requires similar analysis of bad debt reserves.
135

Compliance Management2
Managing compliance is the key operational execution area of risk management. Even when
addressing purely regulatory requirements, the frameworks that guide compliance are often based on
a risk perspective. For example, SOX program management uses the COSO framework for defining
internal controls requirements based on identifying risks of financial misstatement. Likewise, non-
SOX internal audit programs are also anchored in initial risk assessments that suggest which areas of
the business require audits.
Ideally, compliance management provides an integrated view of the entire regulatory universe. Most
companies face numerous overlapping regulatory requirements. In banking, certain business
processes are scrutinized by the Office of the Controller, Basel II, the Patriot Act, and SOX alike.
Knowing where and how to leverage the same controls for multiple regulatory reporting can save
you considerable effort in compliance.
As in IT compliance management, this decision area can draw on more than one data source. The
first is compliance program management solutions, such as for SOX, that manage a company’s
projects and programs to ensure compliance. The second source is a new category of tools, often
referred to as continuous controls monitoring software, that generate real-time or near real-time
information about transactions and flag any exceptions to expected outcomes, as defined by internal
controls. For example, inconsistent accounts payable patterns in terms of purchase order numbers or
amounts that are just below authorized levels might indicate fraud.
Finally, compliance management can also draw information from solutions that automate manual
spreadsheet-based processes, including reports that are used to perform detective or monitoring
control activity. The most common and costly, from a compliance perspective, are manual financial
reporting and close processes, in particular for consolidation and adjustments.
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2
As compliance can span several regulatory areas, this decision area is only meant to provide an overview of what could easily be several more detailed
information sweet spots. Also, although it is represented here as a drill down within Executive Management, many companies have a separate internal
audit function reporting directly to the Board’s audit committee.
We’ve always had good visibility and control of our financial house. As a publicly traded
company on the NASDAQ (in the U.S), we are subject to the intense scrutiny required by
Sarbanes-Oxley. In this light, good is no longer good enough. We have to be great.
Tom Manley, CFO, Cognos

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139
We reviewed thousands of performance management initiatives in writing this book. Organizations
successfully engaging with performance management were able to align resources, opportunities, and
execution to gain a sustainable competitive advantage.
Alignment requires a unifying map and a common language. That is what the framework in this
book is about. This shared framework supports and strengthens the business/IT partnership, and the
partnership between decision-makers in different decision areas across different business functions. It
offers a single viewpoint on customers and suppliers, products and brands, and the business results.
It ensures people in one division are looking at the same information as people in another.
Three fundamental requirements enable this alignment and successful performance management:
Information Sweet Spots
The issue is not getting more data—people are drowning in data—the issue is getting the right
information. The key is to design, group, and enrich data into information sweet spots. Information
sweet spots help managers make the best revenue growth decisions, the best expense management
decisions, the best financial management decisions, and the best decisions for long-term asset
management.
Managers Perform Within Collaborative Decision-Making Cycles
Decision-makers need to achieve their objectives in the context of the company’s objectives.
Information and strategy must be communicated in multiple directions, not just one way.
Information sweet spots link executive management and line management. They connect decision-
makers throughout the organization and let them understand, manage, and improve the business.
Integrated Decision-Making Functionality in Different User Modes
Each decision is a process rather than an event. Once you see what has happened, you may need to
analyze it to understand why it happened. You must put the occurrence in context to see trends
common to other parts of the business, geographies, product lines and, most important, objectives.
From there, you can see the way forward and plan the future of the business.
SUMMARY

The Performance Manager
Decision-makers need integrated information at their fingertips to focus on winning, rather than the
distraction of gathering information. This requires a system to deliver performance management
information whenever and wherever they require it.
Knowing what’s happened and why it happened, aligning this knowledge with objectives, and
articulating a plan to establish a forward view of your business—these are the skills of a
performance manager. This book provides a framework to design information sweet spots that will
drive your business performance. We hope you will use these concepts to surpass the results achieved
by performance management initiatives from around the world.
The right information at the right time can make all managers better; but more importantly, it can
make good managers great. Letting people realize this untapped potential is why we wrote this
book. We hope your personal and business successes drive our next edition.
140
S U M M A R Y

Roland P. Mosimann
Chief Executive Officer, BI International
As CEO and co-founder of BI International, Roland has led major client relationships and thought
leadership initiatives for the company. Most recently, he drove the launch of the Aline™
platform for
on-demand Governance, Risk, and Compliance. Roland is also a co-author of The Multidimensional
Manager and The Multidimensional Organization.
Prior to founding BI International, Roland was a member of the Executive Board of the World
Economic Forum in Geneva. Responsible for leading the financial services and supply chain
management sectors of the Forum’s activities, he worked with Chief Executive Officers and
cabinet-level government officials in North America, Europe, and Asia. He was a consultant with
McKinsey & Company in Zurich, and he served in Singapore as Market Executive for Tetra Pak’s
Asian sales operations.
Roland holds an MBA from the Wharton School of the University of Pennsylvania and a B.Sc.(Econ)
from the London School of Economics.
About Business Intelligence International
BI International is a global expert in providing the frameworks, structures, and analytics that allow
businesses to properly manage risk and performance.
Since 1995, with The Multidimensional Manager and subsequent DecisionSpeed®
framework, BI
International has pioneered core principles for aligning information needs with roles, decision-
making processes, and cascaded goals to drive performance. In 2004, BI International also launched
its Aline™
Platform for on-demand Governance, Risk, and Compliance. These Software as a Service
(SaaS) solutions seek to ‘right size’ Fortune 1000 capabilities so they become affordable for small
and medium sized companies.
For more than 10 years, BI International has led the development of key business intelligence
solutions for companies both large and small across the Financial Services, Manufacturing,
Pharmaceutical, and other industries. Beyond its direct customers, BI International has influenced
thousands of companies worldwide through its thought leadership, frameworks, workshops, and
design tools. For more information, visit the BI International Web site at www.aline4value.com.
141
ABOUT THE
AUTHORS

Meg Dussault
Director of Analyst Relations and Corporate Positioning, Cognos
Meg started her marketing career in 1990, beginning with campaign management for the national
telecommunications carrier as deregulation was changing the market. She then moved to market
development for Internet retail and chip-embedded smart cards before moving to product marketing
with Cognos.
Since joining Cognos, Meg has worked extensively with executives and decision-makers in the
Global 3500 to define and prioritize performance management solutions. This work was leveraged
to help shape the vision of Cognos performance management solutions and to communicate the
message to key influencers.
About Cognos
Cognos, the world leader in business intelligence and performance management solutions, provides
world-class enterprise planning and BI software and services to help companies plan, understand and
manage financial and operational performance.
Cognos brings together technology, analytical applications, best practices, and a broad network of
partners to give customers a complete performance system. The Cognos performance system is an
open and adaptive solution that leverages an organization’s ERP, packaged applications, and
database investments. It gives customers the ability to answer the questions—How are we doing?
Why are we on or off track? What should we do about it?—and enables them to understand and
monitor current performance while planning future business strategies.
Cognos serves more than 23,000 customers in more than 135 countries and its top 100 enterprise
customers consistently outperform market indexes. Cognos performance management solutions and
services are also available from more than 3,000 worldwide partners and resellers. For more
information, visit the Cognos Web site at www.cognos.com
142
A B O U T T H E A U T H O R S

Patrick Mosimann
Founding & Joint Managing Director, PMSI Consulting
As co-founder of PMSI (Practical Management Solutions & Insights), Patrick has led major client
engagements and has significant experience across several industry sectors.
His prior experience includes consulting at Strategic Planning Associates (now Mercer Consulting),
working on projects in Banking, Telecoms, and other industries. He also worked at the investment
bank Morgan Grenfell (now Deutsche Bank) and with Arthur Andersen on audit assignments
in Europe.
Patrick also holds an MBA from the Wharton School of the University of Pennsylvania and a B.Sc.
(Econ) from the London School of Economics, University of London.
About PMSI
PMSI provides practical and commercial solutions to drive performance with data-driven decision-
making using a combination of business consulting skills, data integration, and analytical capability.
The design of a successful performance management solution requires the expert understanding of
the business decisions and drivers across various responsibilities and functions. PMSI acts as a bridge
between the insights needed within a business and the potential IT capability and delivery. The focus
is to fully leverage the innovative use of technology and create highly repeatable, business-led
solutions while reducing cost of delivery.
PMSI’s experience ranges across industry sectors and markets; this cumulative business knowledge
and flexibility of solution and approach is of particular value to its clients. For more information,
visit the PMSI Web site at www.pmsi-consulting.com
A B O U T T H E A U T H O R S
143

Acknowledgments
The authors would like to acknowledge the many outstanding companies and individuals who have
contributed to the publication of The Performance Manager and agreed to share their experience publicly:
BCBS Tennessee Frank Brooks
Bloorview Kids Rehab Hakim Lakhani
C & C Ireland Paul Rainey
Coloplast GmbH Marina Glodzei
Constar International, Inc. Roberta Kaplan
Cullen/Frost Bankers Louis Barton
Delta Sonic Car Wash Chris Boebel
Diageo (Dubai) Narayana Rao
ENECO Energie Ton van den Dungen
FOD VVVL (Federal Georges Leenen
Government Department
of Public Health, Food
Chain Safety and Environment)
Folksam George Janson
Générale de Protection Mikael Perhirin
Jeans West Patrick Aldred
Kotányi GmbH Andreas Speck
Ministry of Defence Henk van Tigchelhoven
Mölnlycke Health Care, Susan Dean
US, LLC
Pernod Vincent Meunier
Philips Eelco van den Akker
Prysmian Russell Garnett
Raiffeisen International Michael-Hagen Weese
Bank-Holding AG
Reichle & De-Massari Markus Pfister
Ricoh Nur Miah
Suncorp Metway Alex Mongard
University of Wollongong Chris Grange
Vesuvius Group Nicolas Mathei
WEKA Verlag AG Niolas Schloesser
From within our own respective organizations, we want to thank the many individuals who have
supported the authors, provided thought leadership and ‘real world’ input for the development of the
framework and the writing of the book.
From Cognos, we want to thank Dave Laverty and the management team: Jane Baird, Doug Barton, Drew
Clarke, Sue Gold, Chris Kaderli, Dave Marmer, Leah MacMillan, Mychelle Mollot, as well as Forrest
Palmer, Rich Lanahan, Rob Rose, Thanhia Sanchez, David Pratt, Tom Manley, Kathryn Hughes, Dr. Greg
Richards, Peter Griffiths, Robert Helal, Tom Fazal, Farhana Alarakhiya, Leo Tucker, Jon Pilkington, and
Eric Yau.
From BII, Dominic Varillo, Richard Binswanger, Yaswhiro Kanno, Justin Craig, Rich Fox, Bob Hronsky,
and Bob Marble.
From PMSI, Steve Whant, Nicolas Meyer, David Crout, Jeremy Holmes, Tim Bowden, and Andrew
McKee.
In addition, we want to recognize the years of framework refinement shared with Art Certosimo, Matthew
Matsui, Cecil St. Jules, Pete Vogel, and Jennifer Cole.
We also want to recognize Rob Ashe for the thinking and work he has done to create and evangelize
performance management as a business imperative.
Finally, we would like to thank Dr. Richard Connelly and Robin McNeill. They are responsible for the
genesis of the principles in this book and have supported and coached us through its writing.

Proven Strategies for Turning Information
into Higher Business Performance
!053114!
Roland P. Mosimann Chief Executive Officer, BI International
As CEO and co-founder of BI International, Roland has led major client relationships
and thought leadership initiatives for the company. Most recently he drove the launch of
the Aline™
platform for on-demand Governance, Risk and Compliance. Roland is also a
co-author of the Multidimensional Manager and the Multidimensional Organization.
He holds an MBA from the Wharton School of the University of Pennsylvania and a
B.Sc.(Econ) from the London School of Economics.
Meg Dussault Director of Analyst Relations and Corporate Positioning, Cognos
Meg started her marketing career 15 years ago, beginning with campaign management for
the national telecommunications carrier. She then moved to market development for Internet
retail and chip-embedded smart cards before moving to product marketing with Cognos.
She has been with Cognos for eight years and has worked extensively with executives and
decision makers within the Global 3500 to define and prioritize performance management
solutions. This work was leveraged to help shape the vision of Cognos performance
management solutions and to communicate the message to key influencers.
Patrick Mosimann Founding & Joint Managing Director, PMSI Consulting
As co-founder of PMSI (Practical Management Solutions & Insights), Patrick has led major
client engagements and has significant experience across a number of industry sectors.
Patrick Mosimann also holds an MBA from the Wharton School of the University of
Pennsylvania and a B.Sc. (Econ) from the London School of Economics,
University of London.
ISBN 978-0-9730124-1-5
Printed in Canada (12/07)
$24.95
TheThe PERFORMANCEPERFORMANCE ManageManager

Bk Performance Manager

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