Hunting for "Best Practices"

A lot is written about benchmarking as a vehicle for identifying best practices. Clearly the two are related, but sometimes too much weight is given to the connection.

The temptation is to look to high performing companies, make a laundry list of what they are doing, and then go try to emulate that. The presumption being that most of what they are doing qualifies as "best practice". In reality, what is often taking place at leading companies is a mix of three things:

1. Basic or core operating practices ("blocking and tackling") that are simply executed at a level better than most

2. An effective "operating model" within which these practices reside

3. True "best practices", of the innovative and breakthrough variety

The first two categories are clearly important, and in some cases more important than the latter, because without those foundational aspects, all the best practices in the world will yield little incremental value. But assuming those are in place, true "best practices" are clearly the next place to look for innovation. The challenge is knowing what to look for.

When you invest in activities geared toward identifying these types of best practices (conferences, benchmarking studies, consulting projects, etc), its important to have a set of standards on which to base your return on that investment. For a best practice to pass the "innovation" test, it must deliver some level of insight that goes beyond just doing the same things better. I offer the following as a checklist for assessing whether a specific practice passes this type of sniff test:

1.Is it definable?
Best practices are not general philosophies (e.g.- "better management of risk"), but rather specific changes to process, technology, organization, policy, or operating protocol. And it refers to a specific "change" from current state, typically involving something you will either add (start doing) or subtract (stop doing) . Sometimes its a new process or technology all together. But defining it requires being specific.

2. Is it unique?
Is this a practice you are likely to find most everywhere you go, just implemented at different levels of effectiveness? There is nothing wrong with focusing on better execution/ implementation or core business practices as a driver of performance, but you are better off calling it what it it- an implementation breakdown- rather than disguising the issue as failure to have a particular practice or policy that the organization knows is already in place in some way, shape or form. Otherwise, you'll be met with "this is just more of the same".

2. Is it breakthrough?
Does the change in practice or policy create a step level change in result of a business process. Generally I look for a 10 times payback in a relatively short horizon, and at least a 50% change in current performance level to the affected business process. But these standards can vary from company to company. But we are not talking 1 or 2 %- but something of material significance. A small standard business case worksheet can help your employees do their own internal "sniff test" before consuming your time in analyzing the myriad of small ticket changes.

3. Leading edge or "bleeding edge"?
Often, it is our temptation to look at the coolest technology or system and proclaim it to be a best practice. Most of these are untested at best, and looking for "test dummies" to try themselves out on. Find companies that have implemented it, look at the business cases they used to justify it, and then look at how much of that actually materialized.

4. Is it actionable?
My test for "actionable" is usually that it can be adopted (fully implemented) inside of a 1-3 year timeframe. Otherwise, you're adding new R&D into the pipeline. R&D is fine, but don't let theoretical or speculative projects clutter up your best practices pipeline. Focus on things that you can quickly assign ownership to, and things you can get on with rather quickly.

5. Can I attach value?
Most importantly, can you attach dollars and a specific budget location to the achievement of implementation? And will someone "sign up" for that commitment? e.g. If I implement xyz, how many bodies go away, or how much money will i save, and when? If you cant answer those questions, we're probably not talking about a credible "best practice".

Look- there is nothing wrong with focusing on doing the basics better. Or having a better operating philosophy or business model. You need those elements to run the business. But when we talk about BEST practices, we are generally talking about doing something unique and different. And without that component to business improvement, its unlikely that you will get to or remain at a leading edge level of performance.

So make sure you have true best practices in your pipeline, and use these tests to make sure they pass the proverbial "sniff test".

-b

The Value of EPM During Market Downturns

Nearly every CFO I've spoken with since last September acknowledges taking a very different posture with respect to spending and investing. Most have radically slashed O&M budgets and have cut deeply into their CapEx plans to accommodate today's anemic growth levels. All companies, however, would admit to taking a more conservative posture with respect to any spending that looks even the least bit discretionary.

So where does (or should) EPM investment fall in this mix? Does it belong in the same category as infrastructure investments that are of obvious high benefit but long term in nature? Should it be viewed as "nice to have", to be done in periods of excess profits and reinvestment? Or is it something more critical to the companies ability to generate value, or more importantly, manage risk in the environment we find ourselves sitting in

For those pondering the same questions, here are a few of my perspectives on why EPM should not only stay on the priority list, but perhaps rise to the very top in terms of executive time and mindspace.

1. Value Realization from EXISTING projects-
For years, all of our companies have had improvement initiative after improvement initiative, program after program, project after project. We've all seen the value cases, and we've all become used to seeing many of these projects receive accolades for being completed on time and under budget, only to generate a fraction of the promised value/ savings promised. Putting the right EPM process in place will immediately force project sponsors to tie improvement initiatives to clear impacts on your KPI's. Once that is done, and you can see the landscape of what is really generating value, you are now in a position to defer (or kill) projects that are not accretive to immediate returns, and start "ringing the cash register" on the the ones that do. Sure, this will have generate long and sustained impact on the culture and a new way of thinking across the enterprise. But it is something that is not too difficult to do with the right process and tools, and something that can and will have immediate and significant impact.

2. Compliance with today's risk/ performance controls-
Starting with SOxley and today's new transparency mandates, and looking forward at IFRS requirements, CFO's and other Company Officers will be on the proverbial "hot seat" for the forseeable future. Unfortunately, the seat only gets "hotter" with further declines and more market uncertainty, just at a time when the cost of adding new controls becomes unbearable. Finding new and less costly ways to achieve compliance is paramount in resolving this inherent conflict.

3. Lowering Administrative Costs-
The cost of management and budget reporting is increasing at a record pace, which is believed by many to be unsustainable. Furthermore, the manual manner through which much of this is coordinated, has decreased the reliability of the information produced. While "cloud" computing has a sexy new connotation today, most CFO'sand CIO's would agree that without a clear architecture, the current web of worksheets, source systems and partial BI layers is unsustainable. EPM focus will begin to clear up this picture by quickly establishing the right architecture (and foundation) on which this will ultimately sit.

Those are three of potentially many arguements for moving faster and moving NOW on EPM as a strategic thrust of the business in 2009. But even more compelling reinforcement for this assertion comes from some recently published benchmarks. According to a recent study from Hackett, world class EPM companies are consistently generating 2.4 times the equity returns of peer companies, a potential lifeboat for a company facing tougher and tougher economic times. These same companies have 20-30 less volitility in profits, and more significant operating returns overall.

But here's the kicker for why you want to do this now rather than later. The very same companies that are achieving the above gains, are also (according to Hackett) doing so at roughly 1/2 the cost for performance reporting and performance management business functions. And they are radically reducing budget complexity and improving information access to end users rather than traditional reporting middle-men. And another nice benefit- a 40% higher reliability in forcasting. Best of all is that when this is in place, the company becomes better able to model and forecast more dynamically, a practice where speed and flexibility are life saving in down/ unpredictible markets.

EPM investments are sometimes significant depending on the end state you want to achieve and your relative starting point. And while the EPM journey of best practice companies can take between 4 and 7 years to achieve full scale competence, results can begin materializing in months. In fact, many would say the first 6-12 months are most vital in creating awareness and a catalyst for real cultural change, with sizable gains occuring all along the way.

Bottom line: EPM can and will add immediate value, mitigate current risks, and save on adminiatrative and budgeting cost in coming years. Starting the EPM journey during a dark time like this may not be the most intuitive answer you want to hear. But starting a journey at night is sometimes the best answer.

-b