tools and measures to help you size up the improvement opportunity. Now including “Lessons for a Volatile World” in each chapter, Part Two summarizes key lessons managers can take away from the events of 2007–2009 and describes the principal best practices for each element of the performance manage-ment process—strategic planning, tactical and financial planning, management report-ing, forecasting, and risk management. Finally, Part Three provides insights into the steps required to design a best practice–inspired process that is right for your organization, as well as the critical success factors for implementation.

There is nothing like a good economic down-turn to get companies to see that using perfor-mance management best practices is absolutely essential. Just in time, Best Practices in Plan-ning and Performance Management, Third Edi-tion is the proactive guide you need right now to help you consistently make and execute better decisions faster.

DAVID A. J. AXSON is President of the Sonax Group, a business advisory firm. He is a former head of corporate planning at Bank of America and was a cofounder of The Hackett Group, where he was the architect of the firm’s market-leading benchmarks bank. He is a sought-after speaker and writer on best practices in planning and performance management reporting, and is widely regarded as a thought leader in the industry.

(continued from front flap)

Effectively manage performance in today’s complex, competitive, and risky global markets.

Filled with new examples and case studies from companies such as Apple, IBM, Starbucks, Target, Toshiba, and Facebook, Best Practices in Planning and Performance Management, Third Edition is updated to reflect what it takes to be an effective manager in an uncertain world, the implications of the global eco-nomic crisis for management practices, and new benchmarks for performance management processes and practices.

David Axson offers a must-read for anyone looking for a complete frame-work for building best practice management processes in today’s complex and uncertain world.

Praise for BEST PRACTICES IN PLANNING AND PERFORMANCE MANAGEMENT

T h i rd Ed i t ion

The housing bubble, the failures of Bear Stearns and Lehman Brothers, and the near-collapse of the global financial sys-

tem made it abundantly clear that the man-agement processes on which organizations have relied for more than fifty years are total-ly broken. Updating indispensable best prac-tices and examining the lessons learned from the Great Recession, Best Practices in Plan-ning and Performance Management: Radically Rethinking Management for a Volatile World, Third Edition is your road map for driving fundamental change in your organization.

David Axson’s innovative text helps you sig-nificantly upgrade your management prac-tices to better meet the needs of today’s increasingly complex and global markets. By providing a framework for identifying best practices in performance management, Best Practices in Planning and Performance Manage-ment, Third Edition defines clear action plans for successfully developing, implementing, and profiting from the strategic applications of key performance metrics.

Part One makes the case for a radical change in the way managers manage performance, explaining why effective performance man-agement is needed in today’s fast-paced world, and providing a series of diagnostic

(continued on back flap)

$65.00 USA/$78.00 CAN

BEST PRACTICES IN PLANNING AND

PERFORMANCE MANAGEMENT

RADICALLY RETHINKING MANAGEMENTFOR A VOLATILE WORLD

T h i rd Ed i t ion

Th irdEdit ion

RADICALLY RETHINKING MANAGEMENT FOR A VOLATILE WORLD

BEST PRACTICES IN PLANNING AND

PERFORMANCE MANAGEMENT

David A. J. Axson

Axson

BEST PRAC

TIC

ES IN PLAN

NIN

G AN

D PERFORM

ANCE M

ANAG

EMEN

T

ThirdEdition

4-COLOR GLOSSY

“Since the first edition of this book, Axson has provided pragmatic insights about investments in business analytics. After spending billions, most enterprises found out in 2008, in spite of their massive investments, that their business forecasting was off—and off spectacularly. Against that lens, the Third Edition of this book is even more timely and relevant. Use it to reevaluate and reenergize your analytical mindset.”

—Vinnie Mirchandani, author of The New Polymath

“David Axson could easily be considered one of the patriarchs of modern best practices. This book is not only a complete resource on all things strategic, it also challenges conventional thinking related to the business experience and recognizes that tactically, today’s business environment is unlike any other time in history. This complete ‘how to’ guide simplifies the application of key strategic principles and is a must-have resource for any business leader serious about growing their business.”

—Robert U. Craven, President, ScalePassion and author of Scale Your Passion

E1FFIRS_1 05/19/2010 2

E1FFIRS_1 05/19/2010 1

Best Practices in Planningand Performance Management

E1FFIRS_1 05/19/2010 2

E1FFIRS_1 05/19/2010 3

Best Practices inPlanning andPerformanceManagement

Radically Rethinking Managementfor a Volatile World

Third Edition

DAVID A. J. AXSON

John Wiley & Sons, Inc.

E1FFIRS_1 05/19/2010 4

Copyright # 2010 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

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Library of Congress Cataloging-in-Publication Data:Axson, David A. J.

Best practices in planning and performance management: radically rethinking

management for a volatile world/David A.J. Axson. — 3rd ed.

p. cm.

Includes index.

ISBN 978-0-470-53979-8 (cloth)

1. Benchmarking (Management) 2. Managerial accounting. 3. Business planning.

I. Title.

HD62.15.A97 2010

658.40012—dc22

2010003840

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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To Mum and Dad: I miss you both

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Contents

Preface to the First Edition xi

Preface to the Third Edition xiii

Acknowledgments xv

Introduction 1

PART ONE

WHY PERFORMANCE MANAGEMENT MATTERS

1 Traditional Management Processes Are Obsolete 5

Better-Informed Customers 6

Changing Market and Business Models 7

Structural Change in the Economics of Business 10

Globalization 13

Regulatory Revolution 13

Growth through Acquisition as the Normal Course of Business 15

Redefining Asset Values 16

Changing Delivery Channels 17

Compressed Cycle Times 17

Vast New Information Sources 18

Technology and Systems 19

Need for a Burning Platform 22

2 What Is Performance Management? 24

Defining Performance Management 24

Best Practices Defined 27

Types of Best Practice 31

Applying Best Practices 32

Best Practice Adoption Is Now a Necessity 34

3 Sizing the Opportunities 38

Beyond Benchmarking 38

Defining the Right Metrics 39

Conclusion 57

vii

E1FTOC_1 05/19/2010 8

PART TWO

BEST PRACTICES

4 Using Best Practices to Drive Change 61

A Brief History 61

From Battlefield to Boardroom 63

Components of a Best Practice Framework 65

Best Practice Recipe 65

Selecting the Right Best Practices 65

Golden Rule of Best Practice Application 68

Time to Sacrifice a Few Sacred Cows 69

No Silver Bullets 73

5 Strategic Planning: Ideas That Drive Results 74

Defining Strategy 76

Typical Process 77

Strategic Planning Best Practices 79

Communicate, Communicate, Communicate 92

Strategic Planning Is a Collaborative Process 93

CEO as Chief Strategist 93

Hard Side of Strategy 94

Acid Test 106

Lessons for a Volatile World 106

Best Practice Summary 106

6 Tactical and Financial Planning: Translating Strategy into Action 109

Defining Tactical and Financial Planning 109

Typical Process 110

Tactical Planning Best Practices 111

Financial Planning Best Practices 126

Lessons for a Volatile World 137

Best Practice Summary 138

7 Management Reporting: From Information to Insight 140

Typical Process 143

Management Reporting Best Practices 145

Putting It All Together 166

Lessons for a Volatile World 168

Best Practice Summary 168

viii Contents

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8 Forecasting: Pass the Crystal Ball 171

Typical Process 172

Forecasting Best Practices 173

Understand Variability 192

Lessons for a Volatile World 193

Best Practice Summary 194

9 Risk Management: Place Your Bets 196

No Excuses 197

Global Interdependence 198

Developing an Effective Business Risk Management Capability 204

Risk Mitigation Techniques 217

Lessons for a Volatile World 219

10 Technology: Panacea or Pain? 221

Evolution of Information Technology in Business 222

Why the Time for Convergence Is Right 224

Applying Technology to Performance Management—

Dawn of the Digital Manager 224

Best Practices for Leveraging Technology 229

Lessons for a Volatile World 240

Best Practice Summary 241

PART THREE

MOVING FROM DATA TO DECISIONS

11 Implementing Best Practices 245

Getting Started 245

Moving to Implementation 247

Understand the Overall Strategic Goals and Objectives 248

Define the Critical Success Factors and Drivers 249

Define the Appropriate Performance Measures 251

Link Measures to the Overall Strategy 253

Define the Reporting Dimensions 253

Detail and Source the Performance Measures 253

Design the User Experience 255

Design and Build the Reporting Process 256

Integrate the Reporting and Planning Processes—Align Incentives 256

Develop the Required Skills 257

Contents ix

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12 Implementation Secrets 259

Learn from the Mistakes of Others 259

Effect Change and Then Sustain It 261

It’s about Commitment and Execution 273

13 Managing in an Uncertain World 274

Leadership Qualities 275

Don’t Underestimate the Impact of Leaders 281

14 Looking to the Future 283

Fast, Flawless Execution Will Be the Distinguishing Characteristic

of World-Class Companies 283

Global Accounting and Reporting Standards Will Become a Reality 285

The Focus Will Shift from Buying Technology to Using It 286

The Annual Budget Will Die—and Few Tears Will Be Shed 287

Finance Executives Will Require New Skills or New Jobs 288

Final Thoughts 288

About the Author 291

Index 293

x Contents

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Preface to the First Edition

This book has its origins in my father’s study during the late 1970s. Dad had

bought one of the first Commodore Pet computers to be sold in the U.K. and was

writing BASIC programs to automate the financial reporting for the family furni-

ture business. I was his data entry clerk.

After staying up into the early hours of the morning writing programs and labo-

riously copying them onto cassette tapes—this being before the days of the first

floppy disk—I would help him key in the day’s transactions before leaving for

school. Over the next few months, we developed a full accounting, budgeting, and

financial reporting system for the business—complete with customer database, in-

ventory management system, and scorecard reporting system. We did not know

then that this is what these features would come to be called, but they worked.

Thus was my interest sparked in planning, management reporting, and the applica-

tion of computers to business.

Dad sold the family business soon after and moved into computing full time; I

left for university to study accounting and computer science. Twenty-five years

later, I feel ready to document what I have learned in my journey through the appli-

cation of technology to business planning and management reporting processes.

Starting with my first job at Lloyds Bank (now Lloyds TSB) in London, followed

by 18 years in consulting and moving on to research this book, information has

been my career. Throughout that time, one of Dad’s earliest pieces of advice to me

has remained one of my guiding principles.

One night I was sitting in his study and we were talking about the potential of

computers to change the world. I am sure Steve Jobs and Steve Wozniak and Bill

Gates and Paul Allen were having similar conversations around the same time. As

Dad and I discussed the potential applications to which computers could be put,

Dad commented, ‘‘The real power of computers will only be realized when the

user needs to know nothing about them in order to find them useful.’’ He was right

then and he is still right now. The full potential of computer technology to add

value to life in general, and planning and management reporting in particular, will

only be realized when the user does not need to have any computer knowledge at

all to benefit.

Dad passed away in 1999. I hope this book follows his mantra of keeping it

simple by explaining complex things in words people can easily understand.

David A. J. Axson

March 2003

xi

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Preface to the Third Edition

The second edition of this book was published in early 2007, just as the first signs

of a housing bubble were emerging in the United States. By early 2008, Bear

Stearns had failed and signs of further stress in the housing market were clear.

However, many commentators were still predicting that the fallout would be lim-

ited. Then came September 15, 2008, and the collapse of Lehman Brothers; sud-

denly all bets were off. I was in Prague that day, and as I observed the beginning of

the near collapse of the global financial system, I was conflicted. On one hand, I,

along with everyone else, saw the value of my investments plummeting, while on

the other hand, here was incontrovertible proof that the management processes

upon which organizations have relied for more than half a century were totally bro-

ken. In this edition I have updated all the best practices to reflect the learnings from

the ‘‘crash,’’ or was it the ‘‘crunch’’? In almost all cases, the argument for best

practices has simply been made stronger. Each of the best practice chapters (5

through 10) now contains a new section, ‘‘Lessons for a Volatile World,’’ which

summarizes the key lessons managers should take away from the events of 2007 to

2009. Use this book as a road map for driving fundamental change so that we will

all be better prepared next time.

David A. J. Axson

January 2010

xiii