Design to Align: The Key Component in BPM Success
By Simon Tucker and Ron Dimon | Apr 17, 2009
The cleanest data, the latest tools, and the most advanced infrastructure can't guarantee success for your BPM project if it's out of synch with the organization at large. Here's how to get your ducks in a row.
The word "alignment" may have lost some of its value in business conversations through overuse lately, but for business performance management (BPM) projects, the requirements that it denotes remain essential.
The Random House Unabridged Dictionary defines alignment as "a state of agreement or cooperation among persons, groups, etc., with a common cause or viewpoint." It's easy to see how BPM enables this "state." Ideally, BPM provides an environment of cooperation (for purposes of modeling, planning, and reporting and analysis) that supports agreement (one version of the truth) among the various persons and groups within the organization. And it helps those users take action in pursuit of their "common cause": achieving performance targets, executing company strategy, and delivering value to stakeholders.
But BPM doesn't just enable alignment; it also demands it. Alignment is one ingredient that's critical to success if you want to use BPM to help you execute on your strategy, survive these difficult times, and be fully prepared to emerge in a stronger position when the economy recovers. You can have the most advanced technical infrastructure, the latest BPM tools, pristine data, executive sponsorship, and well-defined BPM processes, but unless these are financially and operationally aligned -- across functions and through all layers of the business -- with your organizational eco-system and your overarching strategy, you won't achieve the best return on your BPM investment.
In this article we describe the five types of BPM alignment -- strategy/measures, horizontal, vertical, external, and financial/operational -- and show how each contributes to BPM success. Each type of alignment has three major aspects: people (and where they function in the organization), process (including workflow), and technology (including tools and data).
1. Strategy/Measures Alignment. Amazingly, many companies don't know which measures truly drive value in the business. They can't answer the simple question, What are the key drivers (KPIs, metrics, etc.) that have the biggest material impact on strategic objectives?
For example, we once worked with a high-tech client in Silicon Valley. We interviewed all of the top executives and senior leaders in this 4,000-employee organization to determine the most important drivers of value. We talked to the CEO, the COO, the executive vice president of sales, the vice president of HR, and even the chairman of the board. We expected that the consensus would identify such measures as profitable and sustainable revenue growth, high operating margins, or customer satisfaction.
But it turned out that the primary driver of value was employee skills. Employees with advanced degrees, professional certifications, and industry experience were the key generator of value for this organization. They kept the customers happy, they developed superior products, and they captured revenue.
Yet this company didn't have a single measure around employee skills. Management didn't capture that information or even plan for it in the budget.
Recognizing this anomaly was an enlightening experience for the company's leadership. If they wanted to put their money where their mouth was -- and put some meaning behind statements like "people are our most important asset" -- they would have to create measures for employee skills and build them into their models, forecasts, and management reporting and analysis processes and systems.
Doing so would not mean that they were giving HR too much say in the strategic planning process. After all, every function -- including operations, marketing, sales, and development, and in the operating units as well as at corporate headquarters -- clearly had a stake in actualizing the "people as assets" philosophy. Measuring and improving employee skills was vital to generating customer and stakeholder value.
The initiative would need to be coordinated and companywide. As Robert S. Kaplan and David P. Norton note in their book Alignment (Harvard Business School Press, 2006), if a company wants to capture economies of scale and scope, "corporate headquarters needs a tool to articulate a theory for how to operate the multiple units within the corporate structure to create value beyond what the individual units could achieve on their own."
2. Horizontal Alignment. Even though every function has a stake in a company's outcomes, many organizations underperform because critical information is trapped in silos. For example, if marketing launches a new promotion, sales needs to know the projected impact on leads, which then (depending on the sales conversion drivers) turns into sales and revenue. Manufacturing needs to know how much volume to expect so that it can update production schedules and alert suppliers that they may need to buy more raw materials. Finance needs to release working capital and prepare to extend more customer credit. It's not hard to imagine the disaster that might unfold if the marketing effort scores a big success, but the company can't deliver.
So a business needs to be horizontally event-driven; it needs to understand how a course of action adopted by one function impacts other functions. This is a balancing act. In the example above, let's say that finance declares that there won't be enough working capital available in the time needed for the sales projected. What does the business do now? Most likely, sales and marketing efforts will have to be scaled back to match capital availability.
BPM software supports horizontal alignment by giving the various corporate departments visibility into plans, actuals, and variances based on business goals rather than business functions. In the example above, rather they relying on a marketing or sales dashboard, the company might deploy a campaign-to-cash dashboard that could be accessed by marketing, sales, operations, and finance, all of which have a "common cause" and need to establish a "state of agreement and cooperation" for the initiative. BPM is the glue for that collaboration.
3. Vertical Alignment. How do you know whether people at all levels of the organization are working in unison toward strategic objectives? And how do they know if they're on track? The need for a clear "drill path" from day-to-day activities and outcomes to strategy is a key tenet in enterprise accountability. If you're an accounts receivable clerk and you can easily see the impact of days sales outstanding (DSO) on corporate cash flow or on investors' valuation of the company, you're more likely to want to improve that measure. And if company leaders want to drive more of that behavior, they can connect bonuses to job-specific measures and targets.
A BPM scorecard or dashboard is the perfect way to monitor alignment up and down the organization. The built-in ability of BPM systems to work with a variety of hierarchies helps you to see how the business rolls up from different perspectives: by entity, by geography, by product line, or by chart of accounts. From the bottom up, our A/R clerk gets to see the value of his or her contribution. From the top down, executives get to see the most material contributors to results and the biggest detractors from them.
4. External Alignment. Many BPM-enabled businesses are tightly focused on alignment within their own four walls. But the ongoing evolution of BPM is enabling companies to extend modeling, planning, reporting, and analytics to the entire value chain. For example, you can use BPM to give customers and suppliers insight into your inventory and delivery times, and even your quality metrics. Alignment with the external ecosystem helps your company to understand exactly what's important to the people with whom you do business.
Consider including external users in your BPM plans, especially in forecasting and business intelligence initiatives. We're seeing more and more activity and thought leadership in this area. For example, Whole Foods recently announced plans to enable its suppliers and vendors to view sales data for their product lines through a BPM application. Many of our clients are opting to include suppliers and customers in the scope of our foundational requirements discovery method. A specialized area of BPM called supplier performance management is starting to emerge. Performance networks, which include all related parties in BPM, will be an important part of the next level of performance management.
5. Financial/Operational Alignment. Senior management creates targets based on financial measures -- let's say, 10 percent year-over-year revenue growth. When these targets are delivered to the operations side of the business, they are quickly translated into operational targets (so many additional units at a certain price). The further down into operations you go, the more granular the drivers get; for example, more volume might mean more productivity, more work shifts, or more head count. Once the operational results are in, managers have to translate them back into financial terms to communicate them to senior management. When this is done right, you can easily see the cause-and-effect relationship between operational drivers and financial results.
Most first-generation BPM initiatives do a good job of this translation in areas such as driver-based planning and operational business intelligence. But there's another area that we think is ripe for exploitation in the next generation of BPM initiatives: connecting the budgeting, planning, and forecasting processes back to the financial and operational models that link strategy to plans. For example, when senior managers debate which objectives and targets are achievable, they should be able to record their assumptions, constraints, and drivers in a BPM tool with a governance (review and approval) process.
The agreed-upon operational model, with its financial targets, then forms the basis for the annual operating plan and subsequent budgets. As plans and forecasts bubble up from the lower levels of the organization, new assumptions, constraints, and drivers will arise (new regional competitors may change the business outlook, for instance). These can be fed back into the corporate operational model so that the next cycle is closely aligned with reality.
Align Your Alignment!
What kind of BPM article would this be without mentioning meta-something? Meta-alignment, then, would be making sure that you align all the ways you align!
You'll want to be prepared for the organizational impacts of the five types of BPM alignment that we've described here. For example, the BPM initiative may reveal a need for additional data controls or changes in variable compensation programs. Consider performing an "alignment audit" or review that can help you to uncover and document any discrepancies.
We recommend building consensus from the top down using tools such as the accountability map described by Howard Dresner (see chapter 5 of his book The Performance Management Revolution, Wiley & Sons, 2008). An accountability map crystallizes the vision of holistic alignment on a single sheet of paper and enrolls company leadership in support of the BPM project. Align your portfolio of BPM initiatives to your accountability map, and you'll quickly demonstrate the power of "agreement or cooperation among persons and groups with a common cause or viewpoint."