Copyright © 2002, SAS Institute Inc. All rights reserved.
The Power of Enterprise Intelligence
Copyright © 2002, SAS Institute Inc. All rights reserved.
Chris M. PieperEVP, SAS Performance Management
FormerChairman, CEO & Founder
Copyright © 2002, SAS Institute Inc. All rights reserved.
Enterprise Intelligence for the ‘C’ Level
Individual
Functional Manager
Senior Executive
‘C’ Level Executive‘C’ Level Executives are interested in Identifying
Business Problems and Sizing Opportunities
LaVon KoernerChief Revenue Officer
Copyright © 2002, SAS Institute Inc. All rights reserved.
HarvardBusiness Review
Yesterday’s accountingundermines pr
HarvardBusiness Review
One Cost StructureIsn’t Enough
Identifying and Sizing Business Problems and
Opportunities
HarvardBusiness Review
Measure Costs Right:Make the Right Decisions
Financial Accounting:• Does not report true costs
• Is the language of accounting – not
business
• Spreads cost like peanut butter
• Reported product/customer
profitability is wrong
Copyright © 2002, SAS Institute Inc. All rights reserved.
The Traditional Costing Model
Plastic Coated$50,000
Standard Metal$950,000
Volume-based Driver
Overhead$1,000,000
95% 5%
Overhead is aggregated and then allocated based
on volume
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Message! Specialty clips generate 5X profit of standard clips
The “Accounting” AnalysisPlastic Coated
Burdened Labor Units ProducedUnit Cost
Retail ListProfit Margin
$950,00010,000,000
9.5 cents
10.0 cents.5 cents
$50,000500,000
10.0 cents
12.5 cents2.5 cents
Standard Metal
Action Plans! De-emphasize standard metal clips! Refocus production toward hot pink plastic clips
Copyright © 2002, SAS Institute Inc. All rights reserved.
Plastic Coated$150,000
Standard Metal$850,000
The ABC/M Costing Model
Stage 1: Resources are allocated based on
management judgmentReasonable estimates
Overhead$1,000,000
Rework Plastic Coating$100,000
Special Handling
Stage 2: Activity Costs are allocated based on demand
Copyright © 2002, SAS Institute Inc. All rights reserved.
The ABC/M (real world) AnalysisPlastic Coated
Burdened Labor Units ProducedUnit Cost
Retail ListProfit Margin
$850,00010,000,000
8.5 cents
10.0 cents1.5 cents
$150,000500,000
30.0 cents
12.5 cents<17.5> cents
Standard Metal
“We realized that we could be more profitable if we stopped production and simply mailed the
customers a check.”
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Identifying and Sizing Business Problems and
Opportunities
Grossly under-costed
Over-costed
Highest volumeLow complexitySimple / Problem free
1,000%
0% 0%
20%Low volume
Diverse and ComplexSpecialty /Niche
Over 50% of Reported Product Costs are Wrong !
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Net profit accumulated across multiple products70% of the products generate 400% of the profit30% of the products destroy 300% of the profit
CumulativeProfit
(millions)
Number of Products
$8
$6
$4
$2
$0200 400 600 800
Identifying and Sizing Business Problems and
Opportunities
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Management myths to be challenged
! Accountants: Wrong, but accurately wrong
! Marketing: Product proliferation is free
! Product Design: Component proliferation is free
! Sales: Bigger customers are more profitable
! Management: Overhead cannot be traced
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Language: Accounting vs BusinessTraditional AccountingTraditional Accounting
SALARIES $371,917
FRINGES $118,069
SUPPLIES $76,745
FIXED COSTS $23,614
TOTAL $590,345TOTAL $590,345
Process sales order $144,846Source parts $136,320Expedite supplier orders $72,143Expedite internal process $49,945Resolve supplier quality $47,599Reissue purchase orders $45,235Expedite customer orders $27,747Schedule intra-company sales $17,768Request engineering change $16,704Resolve problems $16,648Schedule parts $15,390
TOTAL $590,345TOTAL $590,345
ABC/MABC/M
Source: Fortune Magazine“How the Dana Corporation discovers what it’s true costs are”.
Copyright © 2002, SAS Institute Inc. All rights reserved.
Language: Accounting vs OperationsTraditional AccountingTraditional Accounting
SALARIES $371,917
FRINGES $118,069
SUPPLIES $76,745
FIXED COSTS $23,614
TOTAL $590,345TOTAL $590,345
Process sales order $144,846Source parts $136,320Expedite supplier orders $72,143Expedite internal process $49,945Resolve supplier quality $47,599Reissue purchase orders $45,235Expedite customer orders $27,747Schedule intra-company sales $17,768Request engineering change $16,704Resolve problems $16,648Schedule parts $15,390
TOTAL $590,345TOTAL $590,345
ABC/MABC/M
“Value Added” Contribution less than 25%
Short term improvement opportunities
Copyright © 2002, SAS Institute Inc. All rights reserved.
Pitfalls of poor Financial Intelligence
! Sends incorrect signals to management
! Hinders cost reduction/BPR initiatives
! Direct labor is the route to cost reduction
! Specialty/niche products generate big profits
! Positive net income is a measure of health
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Enterprise Intelligence
“Does it hinder our ability to compete? Probably not, because we’re no dumber
than our competition.”
James LewisContinental CanSource: Fortune Magazine, October 1987
When asked to evaluate the effects of bad cost information:
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SAS Performance Management
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By integrating the ABC team into SAS, we will become bigger and
better.
SAS Acquires ABC Technologies …
Dr. Jim GoodnightPresident & CEO
SAS Institute
March 5th,2002
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SAS Performance Management
To empower our customers to discover enterprise intelligence which they currently do not possess.
and then …
To provide them the resources to convert intelligence into actions and actions into results.
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Intelligence, Knowledge and Process
Enterprise Intelligence (EI)
“that which our customers desire. the knowledgeto unlocking measurable increases in value”
Active Performance Management (APM)
“the ongoing process by which customers can achieve a desired increase in performance. APM is the means to achieve Enterprise Intelligence and the solutions to turn opportunity into Value”
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Active Performance Management (APM)
The Management Process of:
Converting Data into Information
Converting Information into Intelligence
Converting Intelligence into Actions
Converting Actions into Results
Without Actions there can be no Increases in Value !
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Active Performance Management (APM)Goal: To unlock the Intelligence that Results in Value Creation / ROI
How: 1) By increasing profits
2) Reducing operating expense to fit budget constraints
Note: Value Creation is all about Financial Intelligence ($$$)
Fact: Financial Accounting impedes Profit Optimization
Pain: 75% of products/customers generate 400% of the net profit
Restated: 25% destroy 300% of the Earned Profits
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Performance Management! Supplier Intelligence
- Strategic Sourcing (SRM)- Value Chain Analysis (VCA)
! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions
! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM
! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning
Copyright © 2002, SAS Institute Inc. All rights reserved.
Performance Management! Supplier Intelligence
- Strategic Sourcing- Value Chain Analysis (VCA)
! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions
! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM
! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning
Copyright © 2002, SAS Institute Inc. All rights reserved.
Performance Management! Supplier Intelligence
- Strategic Sourcing- Value Chain Analysis (VCA)
! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions
! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM
! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning
Copyright © 2002, SAS Institute Inc. All rights reserved.
Performance Management! Supplier Intelligence
- Strategic Sourcing- Value Chain Analysis (VCA)
! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions
! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM
! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning
Copyright © 2002, SAS Institute Inc. All rights reserved.
Supplier Intelligence
! Generate for value chain intelligence for benchmarking and strategic sourcing
! Analyze supplier performance ranking(s) to reveal optimization opportunities
! Identify supplier demand/cost impact for resource planning of procurement activities
! Generate portfolio cost and spend analysis
! Identifies supplier impact on profitability
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Organization Intelligence
! Generate financial intelligence for profit optimization and cost reduction
! Provide analysis for process costing, outsourcing and chargeback
! Enable predictive planning of resource requirements given capacity constraints
! Reveal costs to hire, train and reward
! Identify process, activity and balance sheet impact (EVA) on profitability
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Customer Intelligence
! Generate customer and prospect profiles
! Optimise cost and effectiveness of multi-channel marketing campaigns
! Analyze customer performance ranking(s) to reveal optimizationopportunities
! Utilize financial intelligence for campaign planning, execution, and segmentation
! Identify product, customer and channel impact on profitability
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Enterprise Intelligence
! Communicate strategic goals (BSC) and Key Performance Indicators (KPI’s)
! Align resources, processes and operational activities toward strategic goals
! Measure, manage and scoreorganizational effectiveness against set objectives
! Analyse multi-dimensional cost and profit analysis of products, services, processes, activities and resources
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Transactions
SCM IT GL HRCRM
Data(good, bad & undefined)
ResultsROI
Actions
ROI from SAS Solutions and APM
Information
Focus & Domain Focus & Domain KnowledgeKnowledge
IntelligenceSAS
Management Solutions
Executive Visibility
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“Our combined solution will provide ourcustomers with a breadth of applications that
other vendors in the space simply can’t match ”
Final Note from our CEO
Dr. Jim GoodnightPresident & CEOSAS
Copyright © 2002, SAS Institute Inc. All rights reserved.
Enterprise Intelligence for Management
Individual
Functional Manager
Senior Executive
‘C’ Level ExecutiveSenior executives/managers are tasked to identify new
strategies that advance the corporate agenda
LaVon KoernerChief Revenue Officer
Copyright © 2002, SAS Institute Inc. All rights reserved.Copyright © 2002, SAS Institute Inc. All rights reserved.
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