TEAMFLY Team-Fly ® The Strategy Gap The Strategy Gap Leveraging Technology to Execute Winning Strategies Michael Coveney Dennis Ganster Brian Hartlen Dave King, Ph.D. John Wiley & Sons, Inc. This book is printed on acid-free paper. Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or oth- erwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. 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HD30.28.S7385 2003 658.4'012 dc21 2002015558 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 To those visionaries we work with every day that have the courage and foresight to do the things that add true value to their organizations CONTENTS Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Chapter 1. Strategy Gap . . . . . . . . . . . . . . . . . . . . . . . . . . 1 What Gap? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Failure of Strategic Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Management-Induced Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Process-Induced Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Technology System-Induced Gaps . . . . . . . . . . . . . . . . . . . . . . . . 13 Role of the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . 19 Corporate Performance Management . . . . . . . . . . . . . . . . . . . . . 20 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Chapter 2. Strategy in the Next Economy . . . . . . . . . . . 25 Strategy Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Business as Unusual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Change and Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Strategy Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Strategy Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Integrating Top-down and Bottom-up Strategic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Discontinuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 vii viii Chapter 3. Corporate Performance Management Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Event-Driven Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Key CPM Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Chapter 4. Measurement and Methodologies . . . . . . . . . 64 Does Measurement Make a Difference?. . . . . . . . . . . . . . . . . . . . 64 State of the Measurement Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Effective Performance Measurement . . . . . . . . . . . . . . . . . . . . . . 71 Performance Measurement Methodologies. . . . . . . . . . . . . . . . . 73 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Chapter 5. Corporate Performance Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Impact of Technology on the Finance Function . . . . . . . . . . . . . 88 Characteristics of CPM Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Architecture of a CPM System . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 CPM Data Tier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 CPM Application Tier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 CPM Client Tier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Chapter 6. Corporate Performance Management at Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Early Adopter Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Chapter 7. Getting Started . . . . . . . . . . . . . . . . . . . . . . 139 One Piece at a Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Choosing the Right Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Building a CPM Road Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Calculating Return on Investment . . . . . . . . . . . . . . . . . . . . . . . 152 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Chapter 8. Designing a Corporate Performance Management Solution . . . . . . . . . . . . . . . . . . . . . . . 162 Design Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 CPM Data Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Contents ix User Interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Reports and Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Chapter 9. Implementing a Corporate Performance Management Solution . . . . . . . . . . . . . . . . . . . . . . . 184 Knowledge and Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Project Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Build or Buy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 Selecting a CPM Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Controlling the Implementation . . . . . . . . . . . . . . . . . . . . . . . . 198 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Chapter 10. What Lies Ahead . . . . . . . . . . . . . . . . . . . . 207 Communicating Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Connected World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Closing the Gap between Finance and Information Technology . . . . . . . . . . . . . . . . . . . . . . . 213 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 www.wiley.com/go/strategygap (password: Strategy) Appendix A CPM Process Review Template Appendix B Strategy into CPM Data Model Template Appendix C CPM Project Scope Template Appendix D Software Evaluation Checklist Appendix E Sample Implementation Project Plan Appendix F CPM Vendor Proposal Template Appendix G Software Vendor Scorecard Template Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Contents [...]... situation leads to the strategy gap Failure to Communicate the Strategy Operational managers and their employees are typically the people within an organization who implement strategy They need to know how the strategy impacts them Yet according to research by Kaplan and Norton, creators of the Balanced Scorecard, “less than 5 percent of the typical workforce understands their organization’s strategy. ”8 Without... to reflect changes to these assumptions, the result will be the strategy gap PROCESS-INDUCED GAPS The traditional processes an organization uses to implement and monitor strategy are the second set of strategy gap causes Once a strategic plan has been researched and created, what happens next? How is the plan translated into action? How are the organization’s assets allocated to the various strategic... achieve strategic goals, which will result in the strategy gap Other Factors Two other factors that can contribute to the strategy gap are more attributable to organizational behavior than to the processes themselves; nevertheless, they need to be taken into account when designing a solution The first factor is a lack of accountability and commitment to the budgeting process Budgeting is often a game... management’s expectations? These are crucial questions that need to be answered if the strategy gap is to be avoided 2 Team-Fly® Strategy Gap FAILURE OF STRATEGIC PLANS According to the dictionary, strategy is “a plan,” “an approach,” and “a line of attack.” There are many different types of strategy, which will be discussed in the next chapter For now, consider strategy to be the art of guiding, forming,... The result will be the strategy gap The second factor is wrongly focused incentive plans Budget holders and management often are paid on their ability to meet or beat the budget This fact will affect their decisions when it comes to planning and reporting their performance and does little to help with the implementation of strategy In some cases it will actively work against the implementation of strategy. .. re6 Strategy Gap late to the specific strategic initiatives outlined in the plan To put things back on track, the accounts become the target of any decision rather than the agreed-on action plans, which may have long been forgotten Test this for yourself In your current reporting pack, how many of the reports tie actual and forecast results back to the strategies outlined in the strategic plan? The. .. and support the plan, they are unlikely to put in the right amount of effort to make it succeed Their allocation of resources may be counterproductive to implementing strategic initiatives, while their management time is diverted into seeking out factors that will justify 5 The Strategy Gap their position This misplaced time and effort will lead to a gap, which could prevent the execution of the plan... down the corporate performance management road Thanks also to our fellow Comshare employees around the world for their continued dedication, spirit of innovation, and can-do attitude Finally, thanks to Cindy Morrow and the editors at John Wiley & Sons, Inc for their valuable contributions in the development and publication of this, our first book xv The Strategy Gap CHAPTER 1 Strategy Gap WHAT GAP? ... idea of what the strategy, vision, and direction of the organization are, they are unlikely to act in ways that will result in effective implementation of the corporate plan Communication of strategy is vital in all management processes When budgeting, employees need to see the tactical plans and related targets that affect them so they can modify their behavior accordingly During the year, they need... to the plan These adjustments will not be just a once-a-year activity They may become necessary at any time to keep on track toward the intended destination Strategic planning, budgeting, forecasting, and monitoring actuals are all part of the same process—moving an organization toward its objective Together, they are essential components in the implementation 15 The Strategy Gap and execution of strategy . two together There seems to be, in many companies, an implicit assumption that the short term and long term abut each other, rather than being dove- tailed together. But the long term doesn’t. nonfinancial performance indicators must be included. Assumptions underlying the development of strategy also must be considered. They term the result- ing set of capabilities corporate performance management. assembly and introduced a long-term, daring mission for his en- terprise. It was both terrifying and inspiring. To many, successfully com- pleting the mission seemed an impossible task. The executive