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Performance Anxiety?

The new year was just one week old and there I was, again, trying to explain to a vendor how irrational supply chain management is, despite investments of hundreds of millions of dollars and a slew of books, seminars, and conferences devoted to the topic. My listener was incredulous, especially as I argued that just a little more information — a couple of more data points on supply and demand issues — could make all the difference to a supply chain manager.

 

"Don't they already know the best possible price for the parts they need to procure?" he asked, still trying to understand decision-making in a vacuum. "I mean, they've been doing this for years. Surely they have a better sense of the market than we can give them."

 

Wrong, wrong, wrong. When it comes to managing complex supply chains, it turns out that intuition, a finger in the wind, and other forms of wild guessing are among the best practices deployed by the best in the business. And that doesn't happen only in supply chain planning; it's pretty much endemic to all aspects of business management. We only pretend we have processes driven by rational thought and perfect information. Reality is much less tidy: Irrationality dominates, and guesswork is all too often the basis for complex and highly consequential business decisions.

 

Think I'm being negative? Look at what's happening in the corner of the market known as enterprise performance management, corporate performance management, or just plain business management. The ERP vendors are buying leading-edge EPM/CPM companies as fast as they can be discovered, and pushing massive marketing campaigns to their customers about the wisdom of being smarter when it comes to running a business.

 

These campaigns have an element of mea culpa to them. As one vendor executive told me recently: The bottom line is that the ERP vendors sold you a bunch of software that doesn't actually help you make smarter decisions. In fact, it may make decision-making more difficult. And now they're admitting their mistake and selling you the software that's supposed to fix the problems they created.

 

Will the fix be that easy? Will all this new performance management software, on which vendors are now betting their businesses, enable your business to make better bets and thereby become more profitable, more successful, more rational?

 

Not so fast. Performance management success is much more than a matter of buying new software, just as true enterprise resource planning was always about much more than installing an ERP system. Performance management also means that rational processes must be built to handle the new data, and it takes more than signing a check to become a more rational company.

 

So don't get caught in the same trap that the vendors set for you in the ERP market's halcyon days. You need better information, and performance management can help. But the best information in the world is useless if you have no means to act on it. So, before you sign on the dotted line for the latest in performance management, think about how to make best use of your new information. Success requires more than adding a few IQ points to your decision-making processes. For many companies, decision-making itself needs to change. And that will be a lot harder than it looks.

Source: Editorial from the March 2008 issue of Managing Automation, Performance Anxiety?, Joshua Greenbaum

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