Gary Cokinsis a Performance Management Solutions Strategist with SAS (parent of ABC Technologies, Inc.), the world's largest privately held software vendor. Gary was the lead author of the acclaimed book An ABC Manager's Primer (1992, ISBN sponsored by the Institute of Management Accountants (IMA) and the Consortium for Advanced Manufacturers International (CAM-I).
PREFACE
ORGANIZATIONAL DIRECTION, TRACTION, AND SPEED
THE RELENTLESS PRESSURE TO PERFORM
Their execution systems are adequate for processing and fulfilling an order, but not for telling them where to improve or what to change in order to better align their employees' work with the organization's strategy. Enterprise resource planning (ERP) systems have become popular as a tool for filling orders and trying to plan future orders, but although ERP provides cross-functional visibility of operations, ERP tools (or planning and control systems operating systems) are not designed to produce the analytical intelligence that is essential to performance management.
ALIGNING EMPLOYEE BEHAVIOR WITH STRATEGY
Performance management allows leaders to translate their personal visions into collective visions that motivate managers and teams of employees to move in a direction that creates value. Many leaders have personal visions that never translate into shared visions that drive an organization.
IMPACTS OF ACCELERATING INNOVATION AND INFORMATION TECHNOLOGY
BALANCED SCORECARD: MYTH OR REALITY?
LEADERSHIP RISES FROM TAKING CALCULATED RISKS
POSITION STATEMENT
All decisions involve trade-offs that result from natural conflicts, such as customer service level goals and budgeted cost goals (ie, profit). They also need increased transparency of their trading partners' profit and cost structures and their operational data.
WHERE DOES INFORMATION TECHNOLOGY FIT?
Today, the impediment is not technology, but rather the organization's thinking—its ability to conceptualize how the interdependencies can be modeled, to configure software, and to embed the right assumptions and rule-based logic. Commercial software has made great leaps in the ease with which it can be implemented, maintained and, most importantly, used.
OVERVIEW OF THE BOOK
I would like to thank my many colleagues in the SAS and others, especially Eleanor Bloxham, who reviewed parts of this book and provided me with valuable feedback. I would like to thank those special people from whom I learned some insight, distilled it and summarized it in this book.
WHY THE NEED FOR PERFORMANCE
MANAGEMENT AS A SYSTEM?
Many of the component methodologies of PM have been around for decades, while others have recently become popular, such as the balanced scorecard. Some believe that implementing a balanced scorecard (described in part two as combining non-financial and financial measures for a balanced focus) is the ultimate solution.
SPOTLIGHT ON OBJECTIVES, OUTCOMES, CONFLICTS, CONSTRAINTS, AND TRADE-OFFS
However, evidence suggests that a balanced scorecard will fail if it is not linked to other management processes. PM also quantitatively measures the impact of planned spending using key performance indicators derived from the strategic plan and the balanced scorecard.
ACCELERATING TURNOVER AT THE TOP: WHY?
They are under pressure to deliver short-term return on investment (ROI) without undermining long-term returns. Many of their executive compensation programs include EPS as if it equates to adding economic value; so, whether they like it or not, many executives find themselves riding a quarterly earnings treadmill, and they don't know how to get off.
FALSE PROMISES OF INFORMATION TECHNOLOGIES
Operational Applications
To complicate matters, an organization in the 1990s was happy if its business system simply recorded and reported transactional information. IT transactional systems may be good at reporting past performance, but they lack the predictability for good planning.
A MAJOR POWER SHIFT IN THE VALUE CHAIN
Assuming that most organizations always operate with scarce resources, then financial language such as "return on customer" (a variant of return on investment) and "customer lifetime value" creeps into the CFO function of the enterprise. Phrases like "customer satisfaction" and "customer for life" pervade popular sales and marketing literature.
DISPLACEMENT OF TANGIBLE ASSETS BY INTANGIBLE ASSETS
A simple definition of this type of intangible asset is, in contrast to tangible assets, something with the potential to grow over time rather than depreciate. The management of economic value, directed at decisions and actions to increase the wealth of shareholders and not to destroy it, is discussed in the fourth part.).
GENERATING INCREASING SHAREHOLDER VALUE INVOLVES TRADE-OFFS
WHAT IS MISSING? PERFORMANCE MANAGEMENT AS THE INTELLIGENCE BRIDGE
This gap or missing piece was depicted in Figure 1.1 as the arrow highlighting the link between operations and strategy—the PM set of systems. What makes today's PM systems so effective is that work activities—what people, equipment, and assets do—are fundamental to PM reporting, analysis, and planning.
MANAGEMENT AS A ”DISCIPLINE”
IS AT AN EARLY EMBRYONIC STAGE
The purpose of this book is to present PM not only as an integrated set of decision support tools, but also as a discipline intended to keep a view of the bigger picture and understand how an organization works as a whole. This book is intended as a way to understand how some of the big ideas of management thinking, such as business process redesign and customer relationship management, relate to each other.
PERFORMANCE MANAGEMENT—
My intention is that readers of this book recognize PM as an important branch of general management. Instead, I describe with some rigorous management techniques such as strategy planning, results review, ABM and customer relationship management without overcomplicating them – they remain simple but not simplistic.
MANAGING COMPLEXITIES OF PEOPLE, PROCESSES, PRODUCTS, AND CUSTOMERS
An additional factor driving the need for PM is the increasing need for specially trained workers and equipment. In summary, increasing specialization, complexity and value-added services drive the need for more, not less, PM.
NOTES
The strategic objectives of the organization must be clearly communicated so that everyone is pulling in the same direction, not in opposite and conflicting directions, and so that their combined efforts produce success.
Performance
Management Process
INTEGRATING A SUITE OF PROVEN METHODOLOGIES
In summary, employees and managers must be equipped with the tools to align their work with strategy and to be recognized for their contribution to the success of the organization. Think of a scorecard as a set of chain links of strategy map strategic objectives, where each chain link uses if-then relationships with leading and lagging measures to drive work efforts to align with the organization's mission and vision .
PEOPLE AND CULTURE MATTER
This approach speaks in terms of production, power, efficiency and control, where employees are hired to be used and replaced periodically, somewhat as if they were robots. This Darwinian way of thinking speaks in terms of evolution, continuous learning, natural response and adaptation to changing circumstances.3.
THEORY VERSUS PRACTICE
The quantitative approach applies Newtonian mechanical thinking as if the world and everything in it were a big machine. The result of performance management is not the information of endless books and meetings, but rather, when practiced properly, it provides solid and practical knowledge.
PERFORMANCE MANAGEMENT IS BASED ON BUSINESS MODELING
In short, I modeled a 1969 National Baseball League simulation using random number generators based on the probabilities associated with each player's average hitting profiles—including distinguishing power hits from single hitters. The program also adjusted for each pitcher's power and dominance by reducing the average probabilities of batters they faced at the plate.
IS PERFORMANCE MANAGEMENT OLD WINE IN A NEW BOTTLE?
A customer-centric strategy seems attractive as a no-brainer, but proponents of an investor-centric approach have argued against a strategy of thinking based on shareholder returns. I like the idea of using well thought out methods that just haven't been properly tested or integrated (ie old wine).
SUPPORT FROM
FACT-BASED DATA AND
INFORMATION TECHNOLOGY
ROLE OF RELIABLE FACT-BASED DATA—
PRIMARILY COST MEASUREMENTS
Many ABM project managers are slow to recognize the behavior change management aspects of the ABM data. But aren't we perhaps like the early astronomers who championed the idea that the Earth was the center of the universe?
ROLE OF INFORMATION TECHNOLOGY AND DATA WAREHOUSING
There may be good dashboard reports within a certain department, but generally the rest of the organization is unaware of them. Additional pain results when others recreate their version of the same report—a wasteful duplication of effort.
SHIFT IN POWER FROM CHIEF INFORMATION OFFICER TO THE BUSINESS FUNCTIONS
Power is transferred across business functions – to leaders in sales, marketing, procurement, customer service, logistics and human resources. They have bigger problems than CFOs and CIOs, so they take control of their own destiny and drive the IT strategy for their part of the business.
Strategy Maps and Balanced Scorecards
The Link between Strategy and Successful Execution
MEASUREMENT
PROBLEMS AND SOLUTIONS
HOW DO YOU KNOW IF YOU ARE PERFORMING WELL?
The crucial role of the scorecard is that it places the measures (key performance indicators or KPIs) in the context of the strategy. Performance measures related to the strategic objectives defined in the strategy map are commonly referred to as strategic measures.
EXECUTIVE HEADACHES WITH EMPLOYEES
WHAT IMPEDES ORGANIZATIONAL PERFORMANCE?
Is it fair to measure people on, say, ten measures, especially if several of them are outside the employees' influence and control. The evolving management philosophy behind the balanced scorecard1 evokes immediate appeal because of its basic message: excessive focus on financial results is unbalanced because nonfinancial measures affect final results.
NOTE
I think of strategy charts and scorecards that enable employees to soar like a flock of birds or a school of fish. Let's explore further why strategy mapping and scorecards are becoming popular, what issues are involved that distinguish success from failure in implementing scorecards, and how to build strategy maps and scorecards.
STRATEGY MAPS AND
SCORECARDS AS A SOLUTION
Scorecard systems help manage these initiatives by tracking each initiative, project and business process and then linking them to the strategic objectives they impact. A primary purpose of strategy maps and scorecards is to determine action plans and projects that will achieve strategic objectives to meet the overarching strategy that supports the organization's vision and mission.
POOR ALIGNMENT OF STRATEGIES AND MEASURES
They called these groups "perspectives" and described a hierarchy where the achievement of strategic goals in one perspective contributed to the success of achieving strategic goals in dependent perspectives. The next chapter discusses how cascading actions link the interdependencies of strategic objectives and maintain a common focus on strategy.
STRATEGIC OBJECTIVES’
DRIVE GEARS
Cascading Measures
They can be designed first for a specific function or process—for example, at the warehouse, and then for the top of the house. That is, leading and lagging measures are ideally selected by the employee team, mutually configured, and weighted in parallel with the levels of importance of the strategic goals and corresponding action plans or business processes that support them.
A RECIPE FOR IMPLEMENTATION
- AGREE ON THE VISION, MISSION, AND STRATEGIC INTENT OF THE
- DEFINE THE STRATEGIC OBJECTIVES THAT SUPPORT STEP 1
- MAP THE INTERRELATED STRATEGIC OBJECTIVES WITH THEIR CAUSE-AND-EFFECT LINKAGES
- DEFINE INITIATIVES TO CLOSE THE PERFORMANCE GAP FOR EACH STRATEGIC OBJECTIVE, AND
That task is to take all the strategic objectives (solidified from a workshop where the managers identify the strengths, weaknesses, opportunities and threats from the popular SWOT analysis, and then group them into themes) and put each one into perspective . it fits the best. An interesting question that is often asked is "Where is the organization's strategy defined and located on the strategy map?" The simple answer is that it doesn't appear.
SCALE BACK NONSUPPORTIVE PROJECTS
SELECT APPROPRIATE STRATEGIC MEASURES AND CASCADE THEM TO RELEVANT
The role of the strategy map is to tell employees and managers what the organization is looking for, rather than letting the executives say what they want the employees to do. DEFINE INITIATIVES TO ADDRESS THE PERFORMANCE GAP FOR EACH STRATEGIC OBJECTIVE, AND GAP FOR EACH STRATEGIC OBJECTIVE, AND.
PARTS OF THE ORGANIZATION
SELECT THE TARGET LEVELS 2 FOR EACH KPI FOR RELEVANT TIME PERIODS AND IDENTIFY
THE PERFORMANCE DEFICIENCY GAP
COLLECT THE ACTUAL KPIS, DISPLAY THE SCORES, AND COMPARE TO THE TARGETS
MANAGE PERFORMANCE GAPS TO STEER THE ORGANIZATION BY INTERPRETING AND REACTING
PERFORMANCE MANAGEMENT PROCESS WHEEL IN ACTION
Delivering the Internet via Web browsers to individual PCs is now very practical (discussed in Chapter 9 under “Reporting and Distribution of Scorecard Information: Internet Architecture”). Scorecard software systems may also support generally accepted measurement methodologies, such as the criteria set forth in the United States' Malcolm Baldrige Award or the European Foundation for Quality Management (EFQM).
THE HUMAN SIDE OF COLLABORATION
WHO SHOULD DEFINE AND CONSTRUCT—
EXECUTIVES OR EMPLOYEES?
In short, the executives must initially construct the strategy map to derive the themes (ultimately the strategic objectives) and their interrelationships. During each reporting period, the employee teams do their best to achieve the Key Performance Indicator (KPI) target.
ACCOUNTABILITY, RESPONSIBILITY, AND OWNERSHIP
Scorecard software allows each manager and employee team to customize their local scorecards, both individual and team. While adhering to security and policy, managers and employees can access and understand the scorecards of other employee teams, as well as higher-level managers above the teams, and even all the way down to the CEO's scorecard.
MOTIVATING EMPLOYEES TO TALK TO EACH OTHER
Ideally, easy access to scorecard visibility promotes discussion of common or shared interests and issues. Commercial scorecard software solves this by discreetly assigning ownership of strategic objectives and KPI measurements with scores across the strategy map and ultimately the culture of the organization.
OPENNESS VERSUS SECRECY: SHARE THE SCORES?
Using commercial scorecard software, this collaborative environment allows different actors to share all aspects of performance and captures a chronology of comments on each strategic objective.
SCORECARD OR REPORT CARD?
Many readers may return to the memories of grade school when they eagerly awaited their grades: the teacher's assessment of their performance in class. An altruistic view would be that the organization should quickly shift its focus to the underachieved strategic objectives – the red traffic lights – and focus its energies on identifying and fixing the problems.
FACT-BASED MANAGEMENT ACCOUNTING DATA
It is not just the work activities that people perform, but the descriptions of the results after the activities have been performed; they are the results of the work. The goal is to maximize the number of potential participants in the scorecard initiative and thus have the best possible influence on the success of the organization's strategy implementation.
SCORECARDS
AND STRATEGY MAPS
Enablers for
Performance Management
Ultimately, if the organization performs well, rewards go to employees, investors in the form of financial returns, or nonprofit boards in the form of mission accomplishment. Management consultants who have transitioned to these services consistently report that this methodology has a higher "stick-through rate" than the improvement programs they have consulted on in the past.
Leveraging Financial Analytical Facts
IF ACTIVITY-BASED MANAGEMENT
WHAT IS THE QUESTION?
Cost usage. The opening chapter of many management accounting textbooks usually states that there are three broad uses for cost data: operational control, assessment and evaluation, and predictive planning. Assessment and evaluation. The second purpose of cost data is to assess what is happening and evaluate why.
REMOVING THE BLINDFOLD WITH ACTIVITY-BASED MANAGEMENT
OVERHEAD EXPENSES ARE DISPLACING DIRECT COSTS
Problems occur in the overhead expense area, depicted by the upper portion of the figure. ABM simply extends the same type of understanding and visibility of spending to the overhead that is already applied to the repetitive laborers.
IMPACT OF DIVERSITY IN PRODUCTS, SERVICE LINES, CHANNELS, AND CUSTOMERS
Basically, ABM becomes an organization-wide method of understanding work activity costs as well as the standard costs of outputs.
EXPENSES ARE NOT THE SAME THING AS COSTS!
I jokingly reply, "The right side is good because the left side is bad!" I didn't say the main book was a bad thing. So I often ask myself wittily, "What else is GL called?" The answer is "good luck." Not much help for decision support.
STRATEGIC VERSUS OPERATIONAL ACTIVITY-BASED MANAGEMENT
Operational ABM, also referred to here as local ABM, is not enterprise-wide, but rather addresses individual functions, departments, or business processes. Its aim is not about analyzing profit contribution margins, but instead focuses on process improvement, managing activity costs more efficiently and optimizing asset utilization.
MANAGEMENT MODEL DESIGN AND PRINCIPLES
Key to Success
In contrast, the activity drivers in ABM cost allocations should be quantitative, using metrics that distribute costs across cost objects. An activity driver, which relates a work activity to cost objects, measures the work activity based on the unique diversity and variation of the cost objects that consume that activity.
HOW DOES ACTIVITY-BASED COSTING COMPUTE BETTER ACCURACIES?
What is missing in most ABM implementations is a good understanding of what factors actually determine the accuracy of the ABM calculated outputs. But beyond this highly managed trial-and-error approach, effective smoothing of the ABM model can be achieved through better thinking.
EVOLUTION OF THE COST ASSIGNMENT VIEW
Then the amount, frequency or intensity of the activity driver is collected for each activity. The activity driver equation approach solves for the costs of the cost objects by measuring or estimating activity costs and tracking them by event (i.e., activity driver quantities).
OPERATIONAL (LOCAL) ACTIVITY-BASED
MANAGEMENT FOR
CONTINUOUS IMPROVEMENT
CONSOLIDATING ABM “CHILDREN”
SUBMODELS INTO A PARENT MODEL
Children”
ABC Models
Parent”
ABC Model
In contrast, a consolidated enterprise-wide ABM model is often used for strategic purposes because it helps focus where to look for problems and opportunities. I encourage readers interested in a more in-depth understanding of this topic to visit www.wiley.com/go/performance to read how a railroad organization optimized its route profitability (ie, strategic ABM) while increasing productivity. improvements and cost reductions with multiple operational ABM models incorporated into the strategic ABM model.
OPERATIONAL ACTIVITY-BASED MANAGEMENT MODEL ANALYSIS: A HIGHWAY ROAD MAINTENANCE EXAMPLE
ABM becomes an excellent focus tool that highlights where to look for potential changes for improvement. Some managers believe that the only way to truly reduce costs is to eliminate the work activity altogether.
USING THE ATTRIBUTES OF ACTIVITY-BASED COSTING
Error- Free
Noncon- formance
In summary, the goal of operational ABM is continuous process improvement and overall cost management. In contrast, the goal of strategic ABM is to increase revenue and improve the quality of profits.
Level of Performance
The bottom left quadrant suggests outsourcing the work, because the activities there are not carried out properly, but are also not a required core competency.
Level of Importance
STRATEGIC ACTIVITY-BASED MANAGEMENT FOR
CUSTOMER AND CHANNEL PROFITABILITY ANALYSIS
ARE ALL OF YOUR CUSTOMERS PROFITABLE TO YOU?
If you add up all the costs of your employees' time, effort, interruptions, and disruptions attributed to high-maintenance customers, in addition to the costs of the products and basic service lines they draw on, you may find that you're not making any money from them. Unless the same (cost) principles are used to control selling and administrative costs (as for production), the entire advantage gained by efficient low-cost production may be lost.”1.
PURSUIT OF TRUTH ABOUT PROFITS
It is no longer acceptable that we do not have a rational system of attributing so-called untraceable costs to sources of origin, whether those sources are suppliers, products or customers. ABM is this rational system, and when combined with planning and indicators like a company's PM system, the collective system becomes a powerful toolbox for taking the right actions.
BENEATH THE ICEBERG: UNREALIZED PROFITS
Accountants rarely isolate the costs of customer-related activities and charge them directly to the specific customer segments that generate those costs. After matching sales to ABC costs, this graph shows that $8 million was made from the most profitable 75% of products – and then $6 million was returned.
HOW DOES CUSTOMER SALES VOLUME RELATE TO PROFITS?
There may be medium-sized customers who, as a collective group, bring in a large portion of the total profit. Knowing the types of customers that cluster in the different profit/loss zones of Figure 14.3 can be valuable in determining what actions to take.
ABM CUSTOMER PROFIT AND LOSS STATEMENT USING PROFIT CONTRIBUTION LAYERING
In other words, in a customer-specific P&L summary, the product or service line is reported as a composite average, but the details about the mix are visible. In addition, within each product or service line, the user can further examine the content and cost of labor and material activities (bill of costs) for each product and service line.
MIGRATING CUSTOMERS TO HIGHER PROFITABILITY
The goal is to make all customers more profitable, represented by driving them to the upper left corner. Note that migrating customers to the upper left corner is equivalent to moving individual data points in the profit profile in Figure 14.1 from right to left.
SEGMENTING CUSTOMERS BASED ON THEIR DEMAND BEHAVIOR AND MAINTENANCE NEEDS
You may want them to permanently breach to competitors and avoid them in any win back campaigns. Another critical reason to know where each of your customers is located on the profit matrix is to protect your most profitable customers from competitors.
OPTIONS TO RAISE THE PROFIT CLIFF CURVE
It highlights the importance of high customer retention rates, the value derived from customer loyalty, and the opportunity cost of losing profitable customers.
BEWARE THE LEARNING ORGANIZATION: COMPETITORS
PREDICTIVE COSTING, PREDICTIVE ACCOUNTING,
AND BUDGETING 1
WEARY ANNUAL BUDGET PARADE
USER DISCONTENT AND REBELLION
Instead of controlling spending, the broader purpose of the budget should be to determine in advance the level of resources that will be needed, such as people, materials, supplies, and equipment, to meet the expected or desired amount of demand for employee services—that is, the requirements for their work. It is also necessary to make assumptions about the intermediate results and the maze of inter-organizational relationships that will be used to produce the expected final results.
WHERE DOES ACTIVITY-BASED RESOURCE PLANNING AND BUDGETING FIT IN?
If possible, the speed and efficiency of the existing resources can be cranked up or down. Adjust prices. In for-profit commercial enterprises or full cost recovery operations, prices may be increased or decreased.
MANAGEMENT SUPPORTS PERFORMANCE MANAGEMENT
The main problem with ABM is seeing it as just another way to spin financial data rather than critical management information. How we format data and put it into forms we can work with.
Integrating Performance
Management with Core Solutions
FIVE INTELLIGENCES OF PERFORMANCE MANAGEMENT
Each of these core solutions is referred to as an intelligence to be held with the theme of an intelligence architecture layered on top of the information technology (IT) transactional operational application software in Figure 1.1. Before we dive into each of these, I'd like to briefly discuss the ambiguities of the concept of value.
Core Solutions
I hope that in my lifetime, advances in the quantitative side of PM will be able to model the connections from measures of customer satisfaction to measures of shareholder wealth creation.
CONFUSING PURSUIT OF VALUE ENTITLEMENT
Heroes of the 20th century labor union movement, such as Walter Reuther of today's AFL/CIO in the United States, confronted Henry Ford for "fair pay" for hourly workers. Or they become contractors and establish their own value through their fees or billing rate.
CUSTOMER INTELLIGENCE AND CUSTOMER
RELATIONSHIP MANAGEMENT
WHAT IS THE ROI OF MARKETING?
CI and CRM will soon be defined, but they have evolved from the 1950s shift from mass marketing to the use of customer database marketing systems. Regardless of semantics, CI and CRM together are customer database marketing methods that accomplish identifying, acquiring, retaining, and growing customers.
CUSTOMERS: THE ULTIMATE SOURCE FOR ECONOMIC VALUE CREATION
Instead of fretting over your competitors, CI/CRM says the best way to outperform your competitors is to focus on your customers. A company's interactions with a customer or sales target are the most important currency of CI/CRM - but what does each interaction really cost and how much is returned.
NEED FOR CUSTOMER INTELLIGENCE/
CUSTOMER RELATIONSHIP MANAGEMENT
CI/CRM FIGURE-EIGHT CONTINUOUS CYCLE
Much of the customer data on the CI (analytical CRM) side of the back office is usually captured in the operational CRM on the right. Customized messages, possibly with offers or incentives to purchase or take action, can be delivered back to the customer immediately.
CI/CR CODEPENDENCIES
But with today's data mining software and transaction details, marketers can see crossover effects. With data mining tools, you can minimize missing opportunities to stock products or launch promotions in a subset of stores or to a subset of customers (not just demographically segmented).
INTEGRATING CUSTOMER PROFITABILITY WITH CI/CRM
Without data on customer profitability, the team using a CI/CRM system can potentially invest greater effort and resources, which, even if successful, may also be permanently unprofitable. Together, ABM and customer benefit analysis provide a foundation for managerial decision-making and action.
CUSTOMER VALUE MEASUREMENT USING CUSTOMER LIFETIME VALUE
Further, the equation includes pricing, costs of products and services, credit risk, customer retention rates and incremental sales. For an in-depth discussion on measuring and implementing customer lifetime value metrics, go to www.wiley.com/go/performance.
PREDICTIVE CUSTOMER LIFETIME VALUE VERSUS ACTUAL
HISTORICAL) CUSTOMER PROFITABILITY
However, the current sources of customer profitability are not necessarily a completely reliable predictor of future customer profitability.
NEXT-GENERATION CUSTOMER RELATIONSHIP MANAGEMENT
A COMPETITIVE EDGE
CRM systems aim to ensure that customer satisfaction is addressed in order to provide true customer value. Enterprise resource planning (ERP) and advanced planning systems (APS) aim to ensure good execution and organizational effectiveness.
CI/CRM, SHAREHOLDER WEALTH CREATION, AND ABM
PM strategy cards and scorecards are intended to ensure that employee work aligns with senior management strategies. But it takes ABM data to ultimately calculate the key performance indicators that drive shareholder value and wealth creation.
SUPPLIER INTELLIGENCE
Managing Economic Profit across the Value Chain
This chapter will focus on measuring intermediate cost behavior between the many pairs of buyer/seller trading partner relationships that together add to cost behavior along the extended value chain. But before we dive into the issues surrounding cost measurement and collaborative relationships, let's first discuss the broader value chain initiatives.
VALUE CHAIN INTELLIGENCE
Price optimization. Just look at the airline industry, how they dynamically adjust prices until the last hour before the scheduled flight takes off. The PM tools in the value chain solution set move a company's goals to longer horizons, broadening its perspective from reducing silo costs to maximizing customer value.
VALUE CHAIN ANALYTICS LEVERAGING ABM PRINCIPLES
Value chain analytics data initially provides companies with insight into their cost behavior as well as the financial transparency of their trading partners. But eventually they will use their value chain analysis (VCA) with their trading partners.
INSIGHTS TO PROFITS AND COSTS ACROSS THE VALUE CHAIN
These systems are effective at extracting data, but not at providing the knowledge needed to make decisions that increase profits and make companies more competitive. Businesses are inundated with data, but it's no closer to the truth or relevance.