Management Excellence Framework: Gain to Sustain · Oracle White Paper— Management Excellence...

An Oracle Thought Leadership White Paper

October 2009

Management Excellence Framework: Gain to Sustain

Oracle White Paper— Management Excellence Framework: Gain to Sustain

Introduction – Management Excellence Framework........................... 3

Gain to Sustain .................................................................................. 5

Step by Step ...................................................................................... 6

Key Metrics........................................................................................ 7

Techniques and Technologies ........................................................... 8

Call to action.................................................................................... 11


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Introduction – Management Excellence Framework In the era of operational excellence, operational processes became well defined. Order to

Cash, Procure to Pay, Invest to Retire, and Develop to Release, among others, became

reliable, uniform, and predictable ways to get the job done. In time, the management

processes will be defined with the same degree of clarity. At the moment, however, the

term means many things to many people.

When asked to define their management process, managers answer with either silence

or a flurry of different activities and partial processes, such as budgeting, financial

reporting, resource management, and variance analysis. The closest traditional model

that people suggest is the PDCA-cycle (Plan, Do, Check, Adjust) — sometimes called the

planning and control cycle, or management cycle. But this approach falls short because

of its inside-out approach.

The Management Excellence Framework offers a process by which companies can

achieve Management Excellence by linking strategy to success. The Management

Excellence Framework expands the scope of traditional performance management to

offer a framework by which companies can deliver Management Excellence. Enterprise

Performance Management Systems (EPMS) then enable companies to realize their

management process goals by connecting disparate management activities and bringing

together strategy formulation, execution, and feedback.

The Management Excellence framework consists of six steps, in which the output from

one becomes the input for the next. These steps are depicted in Figure 1 below.

Figure 1: Management Excellence: The Management Process Value Chain

AGILE

ALIGNED

Plan to Act

Analyze to Adjust

Record to Report

Traditional Performance Management

Gain to

Sustain

Investigate

to Invest

Design

to Decide

SMART

High Impact Performance Management


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The Management Excellence Framework combines several principles that are critical in

driving management excellence.

First, it balances an outside-in and inside-out approach in managing performance —

explicitly including external views of the business by understanding stakeholder

contributions and requirements as well as market dynamics. In contrast, traditional

approaches to performance management are primarily focused on understanding internal

business performance only.

Second, because management processes are of strategic, financial, and operational

nature, the key to success is aligning these processes across various levels as well as

across business functions. Sound business results come only from the perfect execution

of plans, making it imperative to connect the entire set of management processes.

Traditional performance management often treats management activities such as

planning, budgeting, forecasting, reporting, and analysis in isolation.

Third, the Management Excellence Framework drives management excellence by

recognizing that, to create a learning organization that is agile, feedback loops between

management processes are critical. This feedback allows companies to detect changes

immediately, assess the impact on their plans, and quickly find alternative ways to reach

their goals. These feedback loops should consist of the right key performance indicators

on the operational, financial, and strategic management levels.

Last, the Management Excellence Framework organizes the various performance

management processes to be aligned. Each management process has its own focus.

In this white paper, we focus on the Gain to Sustain management process.


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Gain to Sustain

Traditional performance management is a top-down exercise in which a management team

translates strategic goals into success factors, key performance indicators and improvement

initiatives. But today’s enterprise operates within a network of different stakeholders, each of

which contributes to the overall performance of the organization.

Employees contribute labor and shareholders provide capital. Suppliers and partners provide

materials and services to design, build and sell products, while customers provide demand,

society provides an infrastructure and regulators ensure fair competition. Management can only

count on those contributions if it also acknowledges stakeholder requirements. It needs to

identify those contributions and requirements and use them as the basis for a performance

management strategy.

For this reason, a major city unveiled a performance management system that was designed to

improve transparency and customer service. The city adopted 2,500 KPIs across various agency

operations and implemented a standardized reporting format across 40 agencies and all data

types.

Sustainability reporting is quickly becoming an important capability for EPM solutions.

Companies will need to collect, analyze and share information about the impact of their

businesses in terms of economic results, social responsibility and environmental consequences.

When performance management begins with stakeholder management, corporate transparency

will become a much less challenging issue.

A European manufacturing company has already taken a step in this direction by implementing a

single system for financial and sustainability reporting. The EPM system enables the company to

automate the calculation of its energy conversions and greenhouse gas emissions. Two sets of

critical data are now disclosed on the same time schedule and stored in a readily auditable format.


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Gain to Sustain

Gain to Sustain is the management process for connecting corporate strategy

with the interests of key stakeholders including employees, customers, suppliers,

regulators, citizens and investors. The purpose of this process is to ensure that a

company gains all the necessary contributions from its stakeholders to drive

business performance, while meeting the required stakeholder expectations.

The Gain to Sustain process helps executive management answer the following key questions:

• Do you know what your stakeholders require, and are you effectively managing the

trade-offs between conflicting stakeholders (employees, partners, shareholders,

customers, society)?

• What impact could upcoming regulatory changes have on your business?

• Are investor interests aligned with your business?

• Have you identified all potential market opportunities?

Step by Step

The Gain to Sustain management process deals with aligning corporate strategy with the interests

of all the organization’s stakeholders. Table 1 below describes inputs, best practice and outputs

for the Gain to Sustain management process.

TABLE 1. GAIN TO SUSTAIN INPUTS, PROCESS STEPS, AND OUTPUTS

INPUT BEST PRACTICE STEPS OUTPUT

• Stakeholder analysis

• Analyst reports

• Regulations

1. Identify key stakeholder contributions and

requirements

2. Align conflicting stakeholder requirements

3. Align corporate strategy with stakeholder interests.

4. Maximize sustainable stakeholder value

5. Engage in a continuous stakeholder dialogue and

provide continuous feedback

• Access to capital, resources,

assets, and capabilities

• Definition of boundary

conditions, strategic constraints

• Stakeholder performance goals

It is important to understand each stakeholder’s influence and potential impact on the

organization, as well as what the organization needs from these stakeholders. For example,

regulators demand compliance and transparency from the organization and, in return, they

deliver fair competition. Employees contribute labor, knowledge, experience, motivation, and


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loyalty in exchange for salary, security, and recognition. Shareholders provide capital and the

ability to finance the organization’s projects, and they expect a monetary return. After

understanding all stakeholder expectations and contributions and aligning any conflicting

requirements, the corporate goals and strategies need to be aligned with stakeholder

requirements. Leading organizations engage with their stakeholders in a continuous dialogue and

ensure that they receive feedback according to the stated performance goals and metrics. A

popular way of structuring this dialogue is called the triple bottom line, consisting of societal,

environmental, and economic results (or people, planet, and profit results).

Key Metrics

Management excellence means that organizations create competitive advantage by having

superior management processes, making the organization smart, agile, and aligned. Management

processes should be managed using performance indicators much as operational processes are.

Table 2 below describes performance indicators that can be used for the Gain to Sustain

management process.

TABLE 2: GAIN TO SUSTAIN PERFORMANCE INDICATORS

BUSINESS RESULTS (LAGGING) BUSINESS DRIVERS (LEADING)

Investors • Shareholder value

• Earnings per share

• Market capitalization

• Capital structure mix

• Credit rating

Customers • Customer satisfaction

• Share of wallet

• Mindshare, market share

• Product and service delivery

Employees • Employee satisfaction and

retention

• Employer attractiveness

Suppliers • Supplier performance • Supplier profitability

• Switching cost

Regulators • Audit score • Compliance index

Society • Sustainability index • Positive press index

Overall • Value added • Brand value

Key performance indicators within the Gain to Sustain process should focus on an organization’s

stakeholders, i.e. investors, customers, employees, suppliers, regulators, society, and other

stakeholders in general. Credit rating is an interesting investor-related metric that is both leading


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and lagging. A high credit rating positively impacts an organization’s financial results and

shareholder opinion. At the same time, this credit rating is the result of the confidence the rating

agency has, (partly) based on past results. Most of the investor metrics, though, are lagging in

nature. Earnings per share, market cap, and other related indicators are the result of past action.

Shareholder value is influenced by expected future results, but is the end result of a bottom-line

analysis and therefore also lagging in nature.

Typical leading metrics for customers are mindshare on the strategic level, and product and

service delivery quality on the operational level. Mindshare, the percentage of respondents that

spontaneously mention your brand as top-of-mind, drives future sales. Service and delivery

quality drives customer satisfaction and share-of-wallet (how much of their budget customers

have spent with you). Likewise, employer attractiveness is a leading indicator for getting a good

team together, while high employee satisfaction and retention are the results.

Organizations should be interested in the profitability of their suppliers. It is a leading indicator

for a successful relationship and the degree to which a supplier can invest in order to integrate

within your administrative and logistical processes. A high supplier performance is the result.

Regulators and society have a similar way of looking at the organization. A positive press index

and a good compliance index (to which extent the organization can ‘tick off’ all boxes demanded

by the regulator) provide confidence in good corporate governance. This confidence can be the

outcome of a regulator audit, or high ratings in a sustainability index, such as the Dow Jones

Sustainability Index and others worldwide.

In general, the bottom-line performance indicator for the Gain to Sustain process is ‘added

value’. Not only to the organization itself, but to all stakeholders.

Key methodology: Performance Prism1

Techniques and Technologies

In support of the Gain to Sustain management process, an EPM system needs to support both

the gathering of input and expectations from key stakeholders as well as the reporting of business

results and metrics relevant to each audience. The information can vary widely - from audited

financial statements and filings for regulators to metrics and narratives detailing environmental

and social initiatives for employees, customers, society, and investors. The input and expectations

1 Andrew Neely, Chris Adams, Mike Kennerly (2002), Performance Prism: The Scorecard for Measuring and Managing Stakeholder Relationships, Financial Times/Prentice Hall.


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from key stakeholders need to be converted into business goals and objectives that drive strategy

and are linked to key business initiatives. These goals and objectives also provide input to

financial and operational models of the business.

Key techniques and capabilities required to support the Gain to Sustain process are

• Stakeholder scorecards. These scorecards can be delivered through a report or a

dashboard accessible to stakeholders via the Web. For example, a supplier scorecard might

include goals and metrics related to on-time deliveries, product quality, and customer

satisfaction. It might also provide other statistics that compares the historic performance of

individual suppliers.

• Financial reporting. Financial reporting is focused on the delivery of formal financial

statements to external stakeholders using a defined set of accounting and reporting

standards such as U.S. Generally Accepted Accounting Principles (GAAP) or International

Financial Reporting Standards (IFRS). Typical financial reports include income statements,

balance sheets, statements of cash flows, and supporting schedules and disclosures.

Financial reports can also include textual information such as management discussion and

analysis.

• Sustainability reporting. Also referred to as the triple bottom line, sustainability reporting

is the voluntary or required reporting of societal, environmental, and economic metrics (or

people, planet, profit results) to external and internal stakeholders. It provides more

visibility into the broader impacts an enterprise is having in the world it operates within

and provides insights into the longer term viability of the business.

• Financial and predictive modeling. Financial modeling typically involves projecting the

long-term financial results for a company or business entity by analyzing the impact of

different scenarios or input assumptions. Models can show the results of strategic decisions

such as acquiring a new business or entering a new market. They can also illustrate how

external forces - such as a change in interest rates or funding sources - might affect

business results. Financial modeling is essential to providing accurate guidance to external

stakeholders. Predictive modeling techniques can be applied to a broad range of financial

and operational decision making processes. Predictive modeling provides a higher level of

precision through advanced statistics and risk assessment techniques such as Monte Carlo

simulation.

Table 3 highlights the specific modules of Oracle’s EPM system that support the Gain to Sustain

process.


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TABLE 3 ORACLE’S EPM SOLUTIONS FOR GAIN TO SUSTAIN

PRODUCT ALLOWS MANAGERS TO

Oracle Hyperion Performance

Scorecard

• Develop and communicate goals, objectives, and strategies across the

organization including the ability to develop accountability maps

• Identify and track KPIs and metrics to monitor progress against strategic initiatives

Oracle Hyperion Financial

Management

• Collect, consolidate, and report financial results to investors, regulators, and

management while adhering to global accounting and reporting standards, such as

U.S. GAAP, IFRS, and local statutory requirements, on a single platform

• Provide sustainability reporting as well as collect, consolidate, and report on

initiatives for environmental and social issues while providing supporting narrative

Oracle Hyperion Strategic

Finance

• Assess the full financial impact of strategic alternatives by integrating long-term

planning, treasury, value management, and corporate development activities

• Communicate financial strategies with the board of directors, investors, analysts,

banks, rating agencies, and strategic partners

• Manage acquisition and divestiture strategies

Oracle Crystal Ball • Manage uncertainty and risk in critical business decisions

• Develop future guidance to stakeholders with more confidence by measuring the

risk of not meeting expectations, understanding the underlying risk factors, and

optimizing choices to mitigate that risk

Oracle Business Intelligence

foundation

• Access a complete set of end-user reporting and analysis tools, including

interactive dashboards, ad hoc query and reporting, financial and production

reporting, multidimensional (OLAP) analysis, Microsoft Office integration, Google-

type search, alerts, and support for mobile devices

• Access an enterprise information model that drives pervasive access to multiple

datasources via a business-oriented semantic model

The output from the Gain to Sustain process becomes input to the Investigate to Invest

management process. This output includes measurements of available capital and resources,

definition of boundary conditions and strategic constraints, and identification of stakeholder

performance goals. With this information, an organization can begin identifying and assessing

their market opportunities.


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Call to action

Management processes should not be viewed in isolation. Oracle’s Management Excellence

Framework describes a set of six management processes that lead organizations to become

smarter, more agile, and better aligned - the key attributes of management excellence. Companies

implementing the framework apply a systematic approach to management activities to increase

both managerial and operational effectiveness. They can visualize the impact of business

decisions and understand the levers that can be adjusted to affect outcomes. However,

management processes differ from operational or transactional processes, and the techniques and

technologies required to support and integrate each type are different.

By unifying performance management and BI, Oracle’s EPM system supports the strategic,

financial, and operational management processes described in the Management Excellence

Framework. Oracle provides a complete and integrated system for managing and optimizing

enterprise wide performance and supporting all of the best practices and techniques associated

with the management processes. This combination of processes, techniques, and technologies

allows organizations to leverage operational investments, achieve management excellence, and

create competitive advantage.

Thousands of companies around the world are benefiting from Oracle’s comprehensive

approach to EPM. With lower costs and less complexity than with nonintegrated point solutions,

companies using Oracle’s EPM system are able to align decisions with strategic goals, reduce

financial reporting and planning cycles, compare operational results to plans in real time, and

drive strategy to success.2

2 For more information on Oracle’s approach to enterprise performance management, please visit oracle.com/epm.

Management Excellence Framework:

Gain to Sustain

October 2009

Author: Frank Buytendijk, Thomas Oestreich,

John O’Rourke, Toby Hatch, Nigel Youell

Oracle Corporation

World Headquarters

500 Oracle Parkway

Redwood Shores, CA 94065

U.S.A.

Worldwide Inquiries:

Phone: +1.650.506.7000

Fax: +1.650.506.7200

oracle.com

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