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Performance Management: In theory, in practice, and in place of business as usual.

September 2007

Which is more important to your CFO: paying rent or retaining customers? John Blackmore from Cognos has meet David Axson founder and President of the Sonax Group and an advisor to the Cognos Innovation Center. Interview.

John Blackmore: David Axson is the founder and President of the Sonax Group and an advisor to the Cognos Innovation Center. Previously, David was the head of Corporate Planning at Bank of America and a co-founder of the Hackett Group. Today, David is discussing his new book: Best Practices in Planning and Performance Management published by John Wiley & Sons in 2007. Best Practices in Planning and Performance Management is an update of a book that you had also written in 2003. How has the landscape and your thinking of performance management evolved? This need for greater flexibility, is that one of the key pieces?

David Axson: I think it’s key. If you look at the commercial world over the last three to five years the hallmark has really been volatility and uncertainty. And what it’s really done it’s really put the spotlight on the traditional planning, budgeting and forecasting processes and many managers are coming to the conclusion that they’re obsolete. So the major change now is a ready acceptance in CEO’s, CFOs and other business executives that business as usual is no longer acceptable. They’re having to create more flexible and more adaptive, risk aware performance management practices that can accommodate the reality of the current environment. A couple of other things have changed, which I think are really germane today. One is the availability of benchmark information, allows companies to be much more prescriptive in what their processes should look like. We’re moving along a maturity curve here and the incidence and the availability of benchmark information is much broader today. You no longer need to spend a lot of time studying what the end result should look like; you can spend more time focusing on how to get there. And perhaps finally the most important change is for the first time in my career of 25 years in this industry we’re now seeing systems and technologies that can actually deliver the things that we’ve been asking for for a long time in terms of real time information, rich analytical tool sets, selectivity, distribution, and the ability to share and collaborate on information as you go through a planning and decision making process. So that gap between what was promised and what can actually be delivered is now largely being closed. So we don’t have technology as an excuse and more. It’s our fault if we don’t leverage it fully.

John Blackmore: Early on in your new book you probably make a case for that when you ask readers fifteen questions that help them guage the health of their own performance management processes and systems. Maybe if you could outline two or three of those questions that you consider more important than others and ones that most of us tend to fail at.

David Axson: I think the most important one is plan what’s relevant and what’s important. Too many companies, when I look at their plans and budgets today, have line items of things like stationary, and rent, and office supplies. Where is the line item that says the amount we’re going to invest in acquiring new customers? Or the amount we’re going to invest in retaining talented people? These are things that CEO’s talk about. These are things that are written about in strategic plans in an operational plan documents, but nowhere are they reflecting the budgets or forecasts of the organization. Now does it mean that rent is more important than acquiring and retaining customers? I think not. So the first step is to make sure we plan the things that matter, not the things that the accountants want us to look at at the end of the year. By all means we need to satisfy that fiduciary requirement, but a plan is a roadmap to help managers make better decisions faster; therefore the content needs to be relevant to the decisions that they’re being asked to make. And I’ve never met a company that fired an employee because the floor space cost too much. So the rent is probably not the most important thing to me thinking about. The second major thing, and we really must do this as a matter of urgency, is to liberate our financial analysts. We gave them this tool called the spreadsheet 20 years ago, which was seen as being the best thing since sliced bread for the financial analysts. We can now sit and slice and dice data to our hearts content. What’s happened is we’ve become slaves to our cubes. The elements of dialogue, discovery and debate, that are so essential to the developing rich insight have been lost. We really need to get our analysts out of our cubes by providing with the information access and the analytical tools that allows them to deliver rich insight. Technology’s a big step to that change, but it’s also behavioral. It’s very different being a great analyst than being a great accountant. So there’s some skill set changes that need occur if we’re going to help our people be successful. So the combination of planning the right things and then equipping our people with the tools and the behaviors and the skills to effectively use those tools and information successfully, that’s really at the heart of successful performance management today.

John Blackmore: You’re telling readers that we can’t solve tomorrow’s challenges with yesterday’s business thinking. What are some of those outdated practices? You’ve touched on some of them we must abandon. And what is it about the new challenges that we’re facing that forces that abandonment?

David Axson: Let me answer the second question first. What has really changed is when most of these management practices were created it was really in the zenith of manufacturing industry in North America. Alfred P. Sloan at General Motors, Henry Ford at Ford, and all the other industrial titans were really creating new industries. So the challenge that Alfred P. Sloan had at General Motors was making the right mix of Buicks, Chevrolets, Pontiacs, Oldsmobiles and Cadillacs to service the demand in the marketplace. There was massive pent-up demand for new vehicles. Not everyone had a car. Now GM and Ford are in the situation of trying to persuade a two-driver household they need four vehicles. It’s a very, very different mindset. But we’re also seeing much greater volatility and competitiveness in every marketplace. Just look at what the Japanese manufacturers have been able to do in terms of market share and product quality over the last 25 years in the North American market. That’s requiring that things like static annual budgets, and five year financial plans, and rigid quarterly forecasts are pretty much obsolete the day they’re created. And the absurdity is a company will sit down and create its budget for next year and will have the month of January and will cut and past the line items for January into December and expect the organization to be able to predict December’s numbers as accurately as January. That’s like trying to forecast the weather: We can get it right for about the next 6 minutes and thereafter our predictive ability declines dramatically. So we really need to size and structure our performance management processes to the reality of a very volatile world. The only surefire thing about your plan is it will be wrong. The key is to know when it’s wrong quickly so you can take corrective action or, if it’s an opportunity, capitalize upon that opportunity.

John Blackmore: You’ve recently been on the road with Cognos with the Innovation Center Roundtable Events and you had a great topic. You presented on the performance management secret – Isolate Management Stupidity. Can you tell me a little bit about this secret stupidity?

David Axson: Part of it is a nice sound bite. That’s really the objective. But what I’m really getting at here for far too long we’ve had too many excuses for not making good decisions. We don’t have the data, or it’s bad data. The information’s not available. It’s too late. It’s not timely. The systems don’t work properly. We didn’t get the right people in the room. To me, the definition of world class performance management is, the only excuse for a bad decision is a stupid manager. We can’t blame the process. We can’t blame the information. We can’t blame the systems and the technology. We can’t blame the analytical tools that we brought to bear. And it may be a utopian vision, but I think it’s one that bears thinking about in terms of striving for excellence. We want to eliminate all those excuses.

John Blackmore: You’ve been an advisor to the Cognos Innovation Center for a number of years now. Why have you chosen this particular forum for your work?

David Axson: Well there are a couple of things: One is, I think the Cognos vision and my vision fit together very well. And I think that Cognos has done a very, very good job of articulating how its technology plays in a business process and in a culture and operating environment that’s focused on good decision making. The other thing that, frankly, was important was Cognos’s willingness to bring in subject matter experts. Not just myself, but a number of other people through the Innovation Center who could actually share ideas and thinking from the real world that really helps Cognos’ clients go beyond the simple technology implementation. But as soon as you move into the performance management space you really need to adapt the tools and technology to the culture and management style of the organization, and I think Cognos appreciates that.