Enterprise Performance Management:
The Australian State of the Art
Associate Professor Suresh Cuganesan
Macquarie Graduate School of Management, Macquarie University
Professor Andy Neely and Dr Bassil Yaghi
Cranfield School of Management Centre for Business Performance
Nigel Youell
Oracle
2
Enterprise Performance Management: The Australian State of the Art
About the Authors
Associate Professor Suresh Cuganesan teaches at the Macquarie Graduate School of
Management where he is also the Associate Dean (Research). Prof. Cuganesan has
worked in the areas of management consulting and finance, currently occupies a
position on CPA Australia’s Business Management Centre of Excellence, and is a
member of the Asian Board of the American Academy of Financial Management. He has
published 3 books and more than 50 articles, conference papers, and book chapters.
Professor Andy Neely is Director of Research at Cranfield School of Management,
Deputy Director of AIM Research, the U.K.’s research initiative on management, and
Chair of the Performance Measurement Association. He has authored more than 100
books and articles on performance measurement and management and is widely
recognised as one of the world’s leading authorities on the subject.
Dr. Bassil Yaghi is a lecturer at Cranfield School of Management. Bassil Yaghi is
researching, teaching, and consulting in strategic management with an emphasis on
strategy development and balanced scorecards. His research and academic and
executive teaching is grounded in his extensive practical experience in the industry as
practitioner and consultant.
Nigel Youell is Director, Global Integrated Marketing for Performance Management at
Oracle Corporation. He has over 25 years of experience in IT covering a wide range of
senior management roles. Organisations that Nigel has worked for include Hyperion
Corp, Comshare Corp, The Strathclyde Institute, Morgan Crucible plc and Marconi plc.
Nigel has spoken internationally and authored a number of articles on Performance
Management.
Enterprise Performance Management: The Australian State of the Art
Executive Summary
The field of enterprise performance management continues to grow exponentially. New
key performance indicators (KPIs) routinely emerge and are said to provide new
performance insights and a panacea to the problems of aligning behaviours with key
business drivers. Somewhat paradoxically, global research indicates a level of inertia in
enterprise performance management systems. While the problems of financial
measures are well known, evidence indicates their dominance in organisational
decision-making. Concurrently, more nonfinancial KPIs are being used, but their
proliferation is also their weakness, with executives left wondering which ones to focus
on and how they influence financial performance. As a result, many organisations
extract an insufficient return on measurement from their enterprise performance
management systems.
In Australia, there has been a dearth of evidence on practices in the field of enterprise
performance management. This report presents evidence on the state of the art in
Australian enterprise performance management. It is one part of a broader global study
across five countries: the United Kingdom, United States of America, Australia, Japan,
and China. The Australian study was led in Australia by Macquarie Graduate School of
Management and was conducted in conjunction with Oracle and Cranfield School of
Management.
Main Conclusions
•
Overall, enterprise performance management systems in Australia reflect the
popularity of balanced scorecard approaches. This performance measurement
framework and its prescribed performance perspectives featured prominently across
the organisations surveyed.
•
There is still a lack of balance in Australian enterprise performance management
systems. Financial KPIs dominate these systems, and the benefits are predominantly
operational and tactical rather than strategic. Overall, opportunities exist to enhance
the insights generated from enterprise performance management.
•
Barriers to effective enterprise performance management practice include:
• Tactical use of enterprise performance management systems
• Insufficient enterprise performance management buy-in and advocacy
• Internally focused enterprise performance management and over-optimism in
business performance
• Quality of measures and quality of data
• Enterprise performance management technology and support
• A lack of causal analysis
3
4
Enterprise Performance Management: The Australian State of the Art
Detailed Findings
Fig.1: Frameworks for EPM Systems
Reflecting the popularity of the balanced scorecard as a framework
for guiding the design of enterprise performance management
systems, 65.5 percent of respondents claim to have one in place
[see Figure 1]. Interestingly, no other framework for enterprise
performance management design is prominent in Australia, with
39.3 percent of respondents preferring to use their own basis for
designing their enterprise performance management system.
Reflecting the popularity of the balanced scorecard further,
financial, employee, customer and internal processes (perspectives
that align with the prescribed scorecard perspectives) feature as
the most utilised in enterprise performance management systems
amongst respondents [see Figure 2].
70
% of respondents
60
50
40
30
20
10
0
Balanced
scorecard
Six
sigma
EFQM
Other
65.5% of respondents claim have a balanced
scorecard in place.
Irrespective of framework utilised, the majority of respondents
(70 percent) have attempted to ensure that the KPIs selected
reflect their business strategy [see Figure 3]. This finding
ostensibly indicates that firms have made significant steps
towards both improving their use of enterprise performance
management and reconfiguring their KPIs into strategic
performance measurement systems. Supporting this, 58.5
percent of respondents agreed or strongly agreed that their
enterprise performance management system contributed to
improvements in company performance [see Figure 4]. However,
other findings of the study suggest a note of caution and
opportunities for improvement when assessing enterprise
performance management practice in Australia.
Fig.2: Range of Measurement Perspectives
100
90
80
% reporting use
70
60
50
First, despite claims of a balance in KPIs, 53.7 percent of
respondents have enterprise performance management systems
where financial measures comprise more than half of the total
KPIs [see Figure 5]. Indeed, over a fifth of firms surveyed have
systems where financial measures represent more than 75
percent of all KPIs. This is despite widespread acknowledgment
of the shortcomings of financial measures, which include:
40
30
20
10
0
They are lagging indicators of performance, encouraging too
much emphasis on the short-term
•
Fig.3: Alignment with Strategy
Fig.4: EPM and Company Performance
45
45
40
40
35
35
% of respondents
% of respondents
50
30
25
20
15
30
25
20
15
10
10
5
5
0
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
70% of respondents agree or strongly agree
that their measures reflect their strategy.
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
58.5% of respondents agree or strongly agree that their EPM
system contributes to improvements in company performance.
5
Enterprise Performance Management: The Australian State of the Art
They provide insufficient detail to enable diagnosis of
business problems.
•
They do not ably communicate or drive desired behaviours
throughout the organisation
This finding also casts the results presented in Figures 2 and 3 in a
new light, indicating that while various perspectives are measured,
the financial perspective clearly dominates, and that although
selected KPIs may reflect business strategy, they may not do so
sufficiently.
Fig.5: Prominence of Financial Measures
40
35
30
% of respondents
•
20
15
10
Second, the types of benefits gained from enterprise
performance management system are predominantly operational
[see Figure 6]. Enhancements to operational decision-making
were reported by the most respondents (81.9 percent) followed
closely by improvements in the KPIs themselves (77.5 percent).
Better strategic decision-making was a distant third, with only
59.1 percent claiming this as a benefit from enterprise
performance management.
5
0
None
1 - 24%
25 - 49%
50 - 74%
75 - 99%
All
53.7% of respondents report that more than half
of their KPIs are financial measures.
Fig.6: The Benefits of EPM
60
Strategic decisions
50
Operational decisions
% of respondents
Positive impact on KPIs
40
30
20
10
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
The main benefits of EPM systems are operational:
81.9% claim better operational decision-making,
77.5% cite KPI improvement.
Fig.7: Insight Generation from EPM
60
% of respondents
Overall, there appears to be room for improvement in terms of
Australian enterprise performance management practice. 31.4
percent of respondents did not agree that their enterprise
performance management system had delivered insights, while
only 16.9 percent were in strong agreement [see Figure 7]. The
remainder of this report considers the barriers to effective
enterprise performance management practice and identifies how
organisations can overcome this.
25
50
40
30
20
10
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
31.4% do not agree that their EPM systems
have delivered insights.
6
Enterprise Performance Management: The Australian State of the Art
Fig.8: Purpose of EPM System
Assessing Performance
70
Aligning Employees Behaviours
Operational Efficiency
% of respondents
60
Compensation/Rewarding
Strategic Decision Making
50
Financial Control
Strategic Planning
40
External Reporting
30
Validating Strategy
20
Tactical use of enterprise performance
management systems
10
0
Primary reason for measurement
The clear ‘top tier’ of EPM roles indicates it is
primarily operational and tactical in nature.
Fig.9: Managerial focus when using KPI Information
80
Assessing Outputs
Controlling Inputs
70
Controlling Behaviours
% of respondents
60
50
40
30
20
10
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
Relatively, more focus is placed by management
on controlling inputs.
90
% of respondents
Reflecting further the use of enterprise performance
management for operational and tactical reasons, management’s
focus on using KPI information emphasised the control of inputs
over other dimensions of performance [see Figure 9]. Thus
performance appears to be assessed from a managerial mindset
focused on the level of organisational inputs (people,
premises/infrastructure, economic, etc.) and how these are
deployed across the business.
Effective use of enterprise performance management systems
requires buy-in and advocacy at all levels of the organisation.
Arguably, operational and tactical use of enterprise performance
management places extra demands on and a need for
engagement with the organisational ‘front line’. However,
enterprise performance management buy-in and advocacy
clearly diminishes amongst the firms studied as one proceeds
down the organisational hierarchy [see Figure 10]. While top
management commitment is clearly important and is evidenced
across survey respondents (82.1 percent report the CEO as a
enterprise performance management advocate, while 70.2
80
70
60
50
40
30
20
10
0
Fig.11: Internal versus external focus of EPM
40
35
30
25
20
15
10
5
0
No
benchmarking
Assessing firms’ use of enterprise performance management
systems indicates a primarily operational or tactical purpose [see
Figure 8]. A clear top tier of enterprise performance
management uses is evident from the study’s findings,
comprising performance assessment (64.4 percent of
respondents), aligning employee behaviours (59.8 percent of
respondents), and operational efficiency (56.3 percent of
respondents). A higher-level focus on extracting strategic lessons
from the overall enterprise performance management system is
less apparent, with strategic decision-making ranking fifth,
strategic planning ranking seventh and validating strategy
ranking last of the purposes surveyed.
Insufficient enterprise performance
management buy-in and advocacy
Fig.10: Buy-in and EPM Advocacy
% of respondents
Barriers to Effective Enterprise
Performance Management Practice
Internal
benchmarking
External
benchmarking
Internal &
external
benchmarking
More than half of respondents do not conduct any
external benchmarking and 17.9% do not conduct
any benchmarking at all.
7
Enterprise Performance Management: The Australian State of the Art
Fig.12: Performance relative to peers
45
percent report their top executive team in a similar role), less
than one-fifth of surveyed firms claim middle management to be
enterprise performance management advocates, and only 6
percent report full buy-in from front-line employees.
% of respondents
40
35
30
25
20
15
10
5
While business literature abounds with claims about the
increasingly demanding business environment, downward
pressures on prices, and the emergence of low-cost and
globalised competition, enterprise performance management
systems appear not to have kept pace with pressures to be
externally focused and facilitate performance evaluation relative
to competitors. 17.9 percent of respondents do not conduct any
benchmarking of performance at all, while more than half fail to
conduct any external benchmarking [see Figure 11]. The insular
focus of enterprise performance management manifests itself in
dangerous over-optimism [see Figure 12], with 62.5 percent of
respondents considering their business performance to be better
than competitors, and only 6.3 percent assessing their
performance as relatively worse than competitors.
0
Strongly
disagree
Neither
agree nor
disagree
Agree
Strongly
agree
Fig.13: Are the right things being measured?
70
60
50
40
30
20
10
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
Only one-fifth of respondents have concerns with or
are neutral on the extent to which their EPM system
aligns to business value drivers.
Quality measures and quality data
Fig.14: EPM supported by good data quality
60
% of respondents
50
40
30
20
10
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
The majority of respondents agree or
strongly agree their EPM systems are
supported by good quality data.
Fig.15: Are the right things being measured?
45
40
35
% of respondents
Overall, the majority of respondents were happy with the
alignment of their enterprise performance management system
to business value drivers [see Figure 13] and the soundness of
the underlying data [see Figure 14]. However, a significant
proportion (approximately 20 percent in both cases) either
disagreed with or were neutral on the quality of measures and
the quality of data. In relation to whether their enterprise
performance management system contained the right number of
measures, 45.8 percent of respondents either disagreed or
strongly disagreed, while another 27.4 percent were neutral [see
Figure 15]. Reducing the ‘noise’ and potential for information
overload from enterprise performance management systems
represents another opportunity for improvement.
Disagree
The majority of respondents agree or strongly agree
their performance is better than competitors and peers.
% of respondents
Internally focused enterprise performance
management and over-optimism in business
performance
30
25
20
15
10
5
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
More than half of respondents are concerned with or are
neutral on whether they have the right number of measures.
8
Enterprise Performance Management: The Australian State of the Art
Enterprise Performance Management
technology and support
Fig.16: Software tools used for EPM
70
% of respondents
60
50
40
30
20
10
0
None
Spreadsheet
ERP
software
Customised
software
EPM
software
38.6% have concerns about the quality of their data.
Fig.17: Expert support in EPM development
80
70
% of respondents
60
50
Although the costs of a consultant led enterprise performance
management system implementation can appear prohibitive, the
dangers of a spreadsheeting approach to enterprise performance
management are numerous (and potentially significantly more
expensive):
•
obsolete or incorrect data.
•
cost and duplication of effort.
•
numerous rather than consolidated data holdings throughout
the organisation.
•
potentially inconsistent data.
40
30
20
10
0
In-house
Consultant-led
Collaborative
EPM systems are typically developed in-house,
with 77.4% utilising this approach.
Fig.18: Lack of causal models
60
50
% of respondents
Despite ‘systems integration’ being at the forefront of numerous
organisational technology initiatives, it is surprising that the
most-popular enterprise performance management software
tool remains the spreadsheet, with 69 percent of respondents
using this, compared to 48.3 percent using an enterprise
resource planning (ERP) system [see Figure 16]. Related to this
approach is the fact that the majority of organisations have taken
an in-house approach to developing their enterprise performance
management systems [see Figure 17].
40
30
20
10
0
Indicators not
structured
Indicators
structured
Indicators linked
to strategic
objectives
Indicators linked
in cause effect
diagrams
Only 13.8% have indicators linked in
cause-and-effect models.
Larger organisations certainly need to revisit the business case
for better enterprise performance management technology,
considering the significant savings in terms of less manual
activities, the reduced costs of data redundancy and
inconsistency, and the benefits of faster and easier access to
enterprise performance management information that can be
offset against any capital expenditure for technology upgrades
and consultancy.
9
Enterprise Performance Management: The Australian State of the Art
Overall, the deficiencies in designing causality into enterprise
performance management systems by visualising linkages and
testing either implied or explicitly envisaged causal relationships
manifests in terms of either incomplete (23.8 percent of
respondents) or partial understandings (56 percent of
respondents) of what drives business performance [see Figure
21]. The consequences of this are significant:
•
•
•
A lack of focus on resource allocation and managerial
attention
Effort wasted on performance dimensions that do not offer
the greatest returns
Too much time spent trying to execute a poor strategy
These factors not only diminish business clarity but create a
significant risk of competitive underperformance.
50
45
40
% of respondents
Related to the lack of strategic use of enterprise performance
management, the majority of organisations surveyed
underperformed in terms of the analysis of business value
drivers and factors that cause financial performance. Only 13.8
percent of respondents framed their KPIs in terms of cause and
effect models [see Figure 18] and less than 10 percent attempted
to visualise these linkages as part of the design and operation of
their enterprise performance management system [see Figure
19]. Indeed, almost half of the firms surveyed did not attempt any
visualisation of causal links, be they between performance
perspectives, strategic objectives, or specific KPIs. Furthermore,
although testing for causality utilising an enterprise performance
management system can offer strategic insights on whether an
existing strategy is performing effectively and where to prioritise
improvement efforts, less than half the firms surveyed did this
[see Figure 20].
Fig.19: Visualising links
35
30
25
20
15
10
0
None
Between
perspectives
Between
strategic objectives
Between
performance measures
46.4% do not visualise causal linkages in their EPM systems,
while less than 10% do so at a KPI level.
Fig.20: Testing Cause-and-Effect Relationships
35
30
25
% of respondents
A lack of causal analysis
20
15
10
5
0
Strongly
disagree
Disagree
Neither
agree nor
disagree
Agree
Strongly
agree
Less than half actually test for causal
relationships in their EPM system.
Fig.21: Understanding Cause-and-Effect Links
Complete
Partial
Incomplete
Almost 80% of respondents have an incomplete or
only partial understanding of causal relationships.
10
Enterprise Performance Management: The Australian State of the Art
What to Do?
What should organisations do in response to the six challenges
outlined in this report?
Bring performance measurement into strategy
discussions
While 70 percent of respondents have KPIs that reflect business
strategy, the feedback loop in which firms identify whether and
how strategy could be refined or altered is largely absent. Instead,
enterprise performance management systems tend to be used for
execution only, leading to a return on performance measurement
that is largely operational and rarely strategic [see Figure 6]. To
capture the strategy benefit, firms need to ensure that business
planning forums and strategy days begin and end with a
discussion on what performance measures are indicators of the
efficiency and effectiveness of their current business model.
Think and test cause and effect
Often organisations complain that too many aspects of the
business are measured, with the result being information
overload and a loss of focus. One means of moving beyond this,
to an understanding of critical business drivers, is to select KPIs
that are not just considered important factors in the business, but
are also related to each other in terms of cause and effect.
Unfortunately, the majority of firms do not do this. Only 13.8
percent of respondents framed their KPIs in terms of cause-andeffect models [see Figure 18], and less than 10 percent
attempted to visualise these linkages as part of the design and
operation of their enterprise performance management system
[see Figure 19]. The overall result is either incomplete (23.8
percent of respondents) or partial understandings (56 percent of
respondents) of what drives business performance [see Figure
21]. Designing and testing expected relationships of causality into
and through enterprise performance management systems will
not only enhance strategic focus and learning but allow a
rationalisation of KPIs as firms learn which are lag and lead
indicators and how to prioritise KPI measurement.
Drive organisational engagement
Organisations are often surprised that implemented enterprise
performance management systems do not deliver expected
benefits, or worse, result in lower levels of performance than
existed previously. While a well-designed system is important for
a firm, it is how its people use and react to measurement that
determines performance effects. Careful thinking and stresstesting of enterprise performance management systems in terms
of the behaviours that are incentivised is required. Enterprise
performance management systems also need to be supported by
a communication strategy that both educates employees on the
rationale behind measurement and mitigates organisational
resistance. In this way, shared ownership of the enterprise
performance management system throughout the organisation
may be achieved.
11
Enterprise Performance Management: The Australian State of the Art
Benchmark against peers
Fig.22: Respondents by revenue
Firms should seek to benchmark their performance against peers
to the extent that data is available. While financial KPI benchmarks
in an industry may be more readily available, organisations should
seek to orient their business intelligence systems to the collection
of external nonfinancial performance information. This not only
contextualises performance evaluation in terms of the
achievements of others in a similar competitive environment, but
would also enhance the testing of causality and strategic learning
from enterprise performance management systems.
25%
32%
Create integrated enterprise performance
management through technology
While the popularity of spreadsheets [see Figure 16] ensures that
organisations avoid the systems cost of integrated and automated
enterprise performance management systems, costs are incurred
in other ways. These costs are incurred through multiple and
potential inconsistent data holdings that cannot be integrated, data
errors, and the need for a high degree of manual effort if causality
and strategy are to be designed into enterprise performance
management systems. Firms should seek to evaluate these
hidden costs when deciding on an appropriate level of systems
integration and automation. Importantly, automation releases
management attention away from the tasks of data collection, data
integration, and data quality control, and focuses it on analysis and
better decision-making. This is where enterprise performance
management software can be most effective.
28%
15%
£100M - £250M
£250M - £500M
£500M - £1B
£1B - £5B
Fig.23: Respondents by sector
Agriculture
Health
Utilities
Telecoms
Services
Transportation
Pharmaceuticals
Construction
Financial services
Wholesale/retail
Other
Manufacturing
About the Research
For the survey, we targeted the top 1,000 companies in Australia.
We received 87 usable responses, yielding a response rate of
approximately 9 percent. Approximately 58 percent of
respondents reported their annual turnover to be AUD$500
million and over [see Figure 22]. The overall sample comprised
all sectors of the Australian economy, with manufacturing firms
representing the most-significant group in the overall sample
(approximately 18 percent) [see Figure 23].
All participants were assured that all responses would be kept
confidential. The survey stated that only aggregates would be
used for the research and that no individual company would be
linked to specific responses.
0
5
10
% of respondents
15
20
Centre for Business Performance, Cranfield School of Management,
Cranfield University, Cranfield, Bedford, MK43 0AL UK
T: +44 (0)1234 751122 | F: +44 (0)1234 751806 | www.som.cranfield.ac.uk
To contact Andy Neely, email: a.neely@cranfield.ac.uk
To contact Bassil Yaghi, email: bassil.yaghi@cranfield.ac.uk
Oracle Corporation UK Ltd., Oracle Parkway, Thames Valley Park (TVP),
Reading, Berkshire, RG6 1RA. UK
T: 0118 924 0000 | F: 0118 924 3000 | www.oracle.com
To contact Nigel Youell, email: nigel.youell@oracle.com
MGSM, Macquarie University, NSW 2109. Australia
T: +61 2 9850 7800 | F: +61 2 9850 8630 | www.mgsm.edu.au
To contact Suresh Cuganesan, email: suresh.cuganesan@mgsm.edu.au