Business Performance Model

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Lisa Marie Martinez • Who and how do you manage your financial management capabilities?
Who and how do you manage your party management capabilities?
Who and how do you manage your offer management capabilities?
Who and how do you manage your expense transactional capabilities?
Who and how do you manage your revenue transactional capabilities?

5 days ago

Syed SuhailUnfollow

Syed Suhail Ahmad • Thanks for your input. I agree that the capabilities that you identified will difinitely reveal good insight of a business model.

How about question like below:

- Does the model provide ongoing competitive advantages?
- How much is a switching cost for a prospect to become a customer?
- Does the model provide great margin and recurring revenue?

Thoughts?

5 days ago • Unlike

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Hari Shankar • My 2 cents

1.How does the model fit enterprise strategy?
2. What is the risk exposure due to the business model?
3. How does the model deliver against financial aspirations?
4. How does the model affect customers and internal stakeholders?

5 days ago • Like

Syed SuhailUnfollow

Syed Suhail Ahmad • Great input Hari. Regarding your risk related question, are you suggesting the risk could arise due to change in the business model or something else?

5 days ago • Like

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Hari Shankar • @Syed

Risks due to introduction of the new model. And risks due to non-deployment in terms of opportunity cost, losing competitive advantage etc.

4 days ago • Like

Lisa Marie Martinez • The questions are the framework for those types of questions;

Let me add some color to my approach; Offer management capability drill down

Management capability questions level 2 discovery-what level of maturity according to the external stakeholder classification systems.
New offers may be a research and development type
How does this model fit into maturity model?
Brand new equals high risk and non-GAAP revenue model
May be exclusive to a single or few customers typically equal in size to a global company, infrastructure in place to benefit from new excluded from revenue until the first incubation criteria has been met.

Advanced not new but not matured enough in industry sales to have graduated to the 1 billion in revenue across the market.
If not, does the organization have a leader position according to the industry analyst? Finally, if either are true the SEC reporting has an exclusion or has categorized this in the risk category of advanced technology x.

Of the two types discussed combined the rule typically doesn't exceed 30%, what will be removed from the current portfolio to ensure this balance?
Who's communicating the end of life and when?
Does the timeline align to the new business model proposed?

Transactional capabilities both expense and revenue
Do either of the risk categories have a dependency on any supply or joint selling arrangement?
Would the core/foundational offers be managed direct or in a resale model?

There's another layer in the party management capability to derive the transaction models...:)

4 days ago

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Alexander Samarin • Is it executable?

Thanks,
AS

4 days ago • Like

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Alexander Davidge • On a purely practical note:
Is it simple enough for sponsors /decision makers to digest?
Is it illuminating enough for them to be interested?
Is it relevant enough for them to care?
Is it detailed enough to be meaningful?
Is it coherent enough for people other than me to pick it up and own it?

4 days ago  

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Syed SuhailUnfollow

Syed Suhail Ahmad • So for very productive feedback from everyone. Thank you very much.

@Lisa- There should be an exit strategy for a business model as well, i.e. selling to a competitor, IPO etc. Where this question will belong in your 5 identified model capabilities area?

@Alexander Davidge- I like your response of "Is it illuminating enough for them to be interested? ". What criteria would you use for judging if the model is illuminating or not to its stakeholders?

@Alexander Samarin- Agreed, I can have the best model but if it’s not executable then it make no sense to run the business on such a model.

3 days ago • Like  

Lisa Marie Martinez • Syed

Think of these management (3) capabilities as the codes (financial) assigned to a vehicle before it enters the highway. We must work with our suppliers (party) to build a vehicle traveling south (expense transactions) Start enters southbound at any point. Exit ends the build in south.

A customer (party) purchases a vehicle at the point of entry to highway traveling North (revenue transactions). The exit strategy must take any vehicles off the road at an exit and define the strategy to end of life those vehicles or sell to a competitor etc... Entry and Exit are the only things we must have at this level in our design. We keep it global and allow local flexibility to be defined within these simple rules.

The exit strategy and who what when or why get's managed by the exiting vehicle.
The codes from our management capabilities tell us the details.

To keep us using the same approach anywhere in the world, we just want to summarize south and north with the codes assigned telling us the where and when or how.

Your executive audience, cares about details after they have a total of all travelers in both south and north directions in summary. They will drill down on the details after they digest the totals.

Does this answer your question?

2 days ago

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Syed SuhailUnfollow

Syed Suhail Ahmad • Great analogy Lisa. Thank you.

iGraphix Guides

Title	Description
Transforming transactions	Implicitly transform transactions as they flow through a process.
Transforming transactions with attributes	Use attributes to explicitly transform transactions as they flow through a process.
Routing transactions by attribute	Route transactions depending on the value of a transaction attribute.
Transactions that renege or abandon	Model transactions (e.g. calls) that abandon if they wait too long in a queue.
Batching transactions by time	Make transactions wait until a specific time of day before being processed.
Simple branching and joining	One method for branching transactions that are later joined back together.
More branching and joining	Three methods for splitting transactions for parallel processing then joining the transactions later.
Controlling one flow with another	Model process behavior using scenario attributes that control the process flow.
Stopping transaction flow	When necessary, one flow can stop related transactions moving through another flow.
High priority transactions	Model transactions that have priority over other transactions.

Modeling Resources

Title	Description
Acquiring and releasing resources	Acquire and hold a resource to perform multiple activities on a transaction.
Department dedicated resources	After a transaction acquires a resource always use the same resource in the future.
Scheduled and unscheduled downtime	Model resources that are periodically unavailable due to scheduled maintenance or random breakdowns.
Schedules and shifts	Model separate pools of workers in the same department with different work schedules.
Resource contention	Define separate process flows that contend for the same resource.
Part time resources	Define and use resources that are only available for a portion of the day.

Analysis and Reporting

Title	Description
Analyzing cycle and service time	Report both cycle time (which includes inactive time) and service time (which excludes inactive time).
Eliminating warm-up time	Gather simulation results after a startup and stabilization time period has elapsed.
Analyzing costs	Report and analyze process and activity costs in order to maximize profits.
Measuring part of a flow	Use monitors to focus analysis and reporting on a small portion of the process map.

Additional Tips

Title	Description
Modeling hierarchy	Create hierarchical process models where activities call subordinate processes.
Modeling activity capacity	Model special activities that have limited capacity not related to worker availability.

Business Performance Model in contrast to an Outcome Model

Best Case Goal and Target

A business performance model serves as the ideal state for any organization, you need this to lead your organization as the baseline against others in the industry. 

Actual Performance

An Outcome model gives us "the actual state" of the organization providing the basis for how the implementation of the management decision making process translates into operational execution.  

Does the organizations Business Performance Model, enable effective management decision making?

You have your 5 capabilities; application of the current strategy objectives would enable the outcome model.   

A company has just defined the next years strategy;

• 3 strategic priorities for an organization
• Workforce Development
• Enable a diverse and inclusive work environment
• Grow your employees through focused development
• Enable connected business decisions
• Social Responsibility
• Retire legacy applications to reduce power consumption
• Give back to your local community by growing your public sector presence 
• Enable a resilient technology through enterprise architecture
• Quality
• Align Enterprise Business Data to ensure measureable quality outcomes
• Enable effective measurements for the business management system
• Improve the re-use of information to improve the quality of the information assets

A group of managers are asked to take a survey on their priorities for executing the strategy based on their decision making authority; 

1. What is your lowest priority in recruiting new talent? 

• The lowest priorities based on the survey response
• Diversity and Inclusion 

2. What is the most important requirement you have for a candidate? 

• The ability to get along with other teammates and extended teams

3. Out of 10 total qualities you expect in a candidate, the lowest priority for you is?  

• The ability for a candidate to influence others

How does this make my point?

Let's look at the last response, least important priority for any candidate.

• Ouch-you want them to get along but not build relationships.  
• Generally-getting along means constant consensus.
• Diversity and inclusion indicates many things.
• For the purpose of this point of view-assume a diverse way of addressing an issue.
• Different skills sets that don't exist in the team would be like the point prior but unique too.
• How do people in consensus driven organizations typically respond to another point of view? 

I believe this will be either a barrier to communication or an opportunity for your team to grow.

If the strategy was to align with the above listed 3 priorities?  Each of the three have a diversity component or way to extract and build your team.

Each of your resources could close or collectively meet the very first item on the performance plan.

Instead, your hoping that they get along in your area of responsibility.

Worst Case Scenario

Worst Case Scenario

When you have an annual planning exercise and you've kicked off the expectations.  Executives define the corporate strategy. 

The management must align their vision, strategy and execution plan in a way that measures against the Business Performance Model. 

In a worst case scenario, you have two different understandings of the purpose of the strategy.  Your people lack the same understanding of the expectations your trying to execute.  

Here's an example of a worst case scenario.

Managers priorities

-Different ways of viewing the world from a gender perspective.
    A women in Enterprise Architecture could the hardest thing you ever do. 

-Barriers to Communication-prevents any chance of success for the new employee. 

    -People who have different opinions and new points of view.

-The executives talk about the competitive advantage, in your organization the leaders have turned into a buzz word representing Big Data. 

Measure the Cost of Poor Quality

Cost of Poor Quality

1. Adjustments made to revenue on a prior period
2. Adjustments made manually through offline systems
3. Daily adjustments in offline systems
4. Many unused service items
5. How many people report service contract issues?
6. How much effort does it require to handle the issue?
7. How many people have to be involved?

In the worst case scenario...

1. You could have an entirely different process path
1. 80% of this effort would be waste
2. 80% of these transactions introduce errors on audit reports
2. Your original transactions have defects that would be non-conformance defects
3. Your 80% duplicates become the evidence of poor accounting practices
1. Your accuracy on your financial statements becomes 20% accurate 
2. Your risk becomes 80%
3. Your operational cost become twice the norm making you less profitable.

12 month service contract financial practices

The rule on any service contract, when your customer wants the service free to win the deal.

 

How do you apply a rule to service on product or software?  

Generic rules around the percentage of service to product on an annual contract uses a 15-20% allocation of the total offer revenue. 

 

Create a set of service items with financial charge account codes to apply the appropriate business unit credit against the transactions created with the item in the offer. 

 

The item would trigger a percentage of the overall offer to a service account into the contract system, by marking the item template indicators.

 

Example;

Write to install base? Yes or No

Invoice item?  Yes or No

Eligible for renewal? Yes or No 

 

Transaction behaviors

1. The item template would represent a single year with a quantity 1
1. 1 year of coverage. 
2. 12 generic objects make up the item composition 
3. The template is a generic service item
4. The programs will change based on the offer the item is sold in.
1. The programs will not change the item, the systems managing the campaigns will assign an activity code to the offers in the transactions.
2. Not forcing unique items in the systems
2. The coverage begins after the customer downloads or registers the products.
1. The service item becomes a placeholder on the install base, linked for activation on based on the download event.

The item itself and purpose of the item, to generate the same revenue behaviors on the item when sold in an offer. 

Generic re-usable items
Think of the service item as a container for adjustments before the financial processes begin. 

1. This is only speaking to the service applied equally to a 12 month period.
1. Typically hardware replacement-faster response increases the 15% by increments up to 19%. 
1.  48 hour replacement
2.  36 hour replacement
3.    8 hour replacement next business day 
4.    4 hour replacement  

 

Cost of Poor Quality Defects

• Automatically ensure your company has met the key control criteria for each of the following;
• Key controls around setup of item cost
• Key controls around discount setup
• Key controls around the accuracy of revenue according to revenue recognition rules.
• Accuracy on the financial statements for 404 assurances

What would I prescribe? 

• A really smart company allocates the service dollars in a manner that's totally transparent to the customer.
• A really smart company doesn't penalize sales by deferring the payment of their commission. 
• A really smart company includes this non-invoice type item in the offer, with an option to override the non-invoice to present the item on the invoice with the sell price.   

By including the item in the offer and making this accounting practice transparent to the customer and sales, your change impacts are lower and easier to influence buyin. 

 
Customer expectations
You have brought your organization closer to the voice of the customer and have become easire to do business with. 

Immediate Savings

1. Remember this design has just saved you on the tax over payments for at least 15% of the tax you were paying.
1. Consider the savings on taxable revenue removes 15% of the current payments
2. Insurance expenses reduce your valuation of the product by 15% saving on the cost to insure the shipment.  

Assume you will take these factors through a Lean Six Sigma project to measure the return on this simple service solution for basic service contracts (re-active). 

 

5 Capabilities enabling your business management (performance) systems

How do master records an the outcomes of transactions "fact records" differ in terms of the companies performance?   

An organization has a set of procedures that a person in a position of authority has been directed by corporate policies to perform using pre-defined procedures to execute.

• Certain inputs must be executed in a process activity based on pre-defined request criteria.  
• The person isn't authorized to create a record without a requestor.
• Once created by the authorized user, a transaction user must create a transaction record based on referencing the master record created by the authorized user. 

Typically the master record isn't going to be "on demand" capability. 

• The three key impacts to your performance metrics in several directions "create, read or updates" to your master records. 
• NEVER DELETE any of this vital information to your customer and supplier value streams.  The master records MUST be the lifeblood *(connected to the Transaction Capabilities) to your reference information stored in each record as a "Fact Record". 
• A change in the master record, doesn't update the transactions that referenced the information earlier than the change to the master record. 

• See the 7 waste radar for examples of the way this might look in a "worst case scenario" 

 

The management capabilities follows;

1. Financial Management Capabilities
2. Party Management Capabilities
3. Offer Management Capabilities

An on demand request would be an exception in the transaction capabilities. 
Each of these capability categories make up the basis for your performance measurement systems. 
Each directly impacts quality and your organizations bottom line. 
Accuracy on your organizations ability to provide complete and valid transactions.  

 

The transaction capabilities include the following;

1. An expense transaction capability
2. A revenue transaction capability

This is where we get really confused, the requestor wants to update a master record, because someone in the workstream sees the master and isn't allowing the transaction to flow through the system. 

 

What could be causing this situation?

• The person made adjustments outside the system
• The person looking at a different view isn't recognizing the difference between the transaction at the time of the record being created
• Grandfather rules should apply
• People must understand the difference between reference captured in a record

IMPORTANT

 

The only update or create "a requestor" would have the authority to do perform would be to publish a request to the authorized user workstream.

• Validation must be performed to meet the key control requirements in the 404 assurance performed by the CEO on each reporting period. 

New Market Offers and Advanced Support Models

Risk Maturity Designed into the Performance Model

Total revenue in most organizations rarely exceeds 30% of overall strategy, 

Emerging or new product offers and Advanced technologies as defined by the way the organization reports to the SEC.

 

These two market phases, are driven externally and not subject to rules made up by anyone within the company.  If necessary, make this an executive layer of the organization. 

Decide on the method you want to use to enable better cash flow, either the hard way with activity based costing. 

1. If you think of hours in a day, as one type of activity measured in hours by task in an ABC model.
2. Summary by revenue behavior in another simpler model 

I prefer the 2nd option. 

Let me try to simplify the subject, starting with the customer types in the risk model.  Only a handful mostly headquartered in the US, larger and globally distributed. 

These are the typical audience for new market offers in the definition of the technology market segments. 

You are not dealing with 70% of your organization, typically your distribution and channels are not setup nor qualified to take on the risk models. 

A select group of system integrators, SELECT the key word.  In the US the threats become greater a risk. 

Assume the US has the hardest customers with the greatest competition in the Western Region, if you can go to market in this region, your other regions will be a sub-set of the experience. 

1. Your best chance of building an experience that meets all regional variations. 
2. Your resource and experience levels will be consistent with the market by region. 
3. Your government resources and the technologies purchased in the eastern region are greater, you need more resources with the skills to meet those demands.  

Each type of resource category has a different invoice handling model. 

1. We will look at the setup of items, as components in an offer type at the program level for the categories of labor types. 
1. Quantity 1 = offer groups resources into types by total effort to execute
1. Based on the invoice type
2. Based on the rule using the following billable milestones

Ideally, a 30/30/30/10 revenue recognition rules enable the best cashflow acquisition of an expense when planned well, meets the execution of the project to bill upon the effort in the same period. 

1. Your total project includes both hardware, software and resources as a component in the execution of a system. 
2. You must assume the standard break fix contract isn't going to be one that applies to the risk categories. 
3. Pro-active support would prevent any liability expense or threats that your innovation could introduce into a customer of equal size of your own organization if not greater size. 

In this model, you have the largest dollar transactions a million dollars each would be average versus 100's of smaller valued boxes. 

1. Beyond the project start and finish, you are not talking about the normal service arrangement.
1. Something breaks you cannot simply expect to send a replacement part
2. Your going to have a resource onsite at that customers location for the first year, you may increase the resources onsite based on how well you do.   
1. This resource will be a grade 10-12 expense against the project or the product development cost? 
2. On the upside, you also have sustainable service dollars as a higher percentage of the product shipped on the original installation. 
1. 30% of 1 million for a single service contract

You are on the hook for both the integration with the customer and existing equipment they own. This is true, if the customer invest in the pre-sales consulting services. 

The equipment list was developed for this work in a unique customer engagement, scoped and milestone based billing rules apply.  This would be the most mature customer, with invested design and accountability transfers in this context.  Your company owns the solution.  

Financial Measures - Integrating

It never seems to surprise me that people think service is complex, it has become complex because of the reason's mentioned in the following question raised by the moderator Jim Bowie.   

"Integrating Financial Measures that Positively Impact ALL Stakeholders"

While the second generation of Six Sigma integrated quality improvements with cost reductions, many organizations have struggled with developing, reporting, and improving fiscal metrics. Is this a problem in your organization? Why? In my experience, I have noticed a fear of transparency between different management layers ranging from the C-level to the shop floor. The notion revolves around multiple assumptions, including (but not limited to):

I think people are partially worried about the following points raised by Jim, although I suspect a bit more around a different theme. 

1. If the shop floor workers have visibility on cumulative savings, they might expect better compensation;

1. I'd never considered nor met an executive that expressed this type of concern. 
1. Perhaps a regional dilemma? 
2. There certainly are managers who would be unlikely to promote this idea, if they didn't think of it themselves. 
1. The manager would not want to pay someone or promote the person who came up with an idea on their own. 
2. Perhaps the manager couldn't explain the value and benefits themselves, so they introduce barriers to communication or block their own employee?

2. If the senior leaders realize increased profitability with existing resources, they might pursue the continuation of the positive trend with fewer resources; and

1. This could be regional... in my part of the world, this is happening regardless.
1. The number of jobs sent offshore. 
2. The "fewer resource model" is in the works, regardless.  
2. I'd preserve my position by being the smart one to find these opportunities.

3. If certain stakeholders gain visibility of the cost savings (or increased profitability), they might question what the heck the leaders and the employees were doing beforehand.

1. Of course, this fear is normal. 
1. I would worry, to change this around, I'd want to be the fantastic person who brought the opportunity forward. 
2. Then, I'd want to be part of the solution...doing something fantastic to contribute to fixing the problem.    

Set yourself up for success. 

• Surround yourself with a bunch of lean six sigma's and be the one to make the difference in your organization. 

Why did I take this conversation or discussion offline? 

• To avoid hijacking the conversation. 

Service complexity; Fact or Fiction? 

• Hardware or Software defect - break fix service
• Advisory or consulting services

The only capabilities you need to overcome

• Business Management Systems
• 9 principles of management systems

How would I use an analogy to describe what I do?

Analogy Business Architect

The BA would be like a coach on a football team. The coach has been hired by a team owner or school. The coach has two types of coaches who he guides in two different sets of players with different skills. Offensive coach and players Defensive coach and players Offensive plays either run the ball getting immediate yards in the right direction. OR IMMEDIATE REVENUE on PRODUCTS (not part of a system or solution) Full backs run the ball most often The passing game, the wide receiver or full back when you have a good player. SALES SKILL TIERS Based on the game playbook and the QB telling the players the play to use The quarterback expects the wide receiver to be in the place the ball is thrown. The time between the player catching and where the player runs toward the goal. This has met one part of the requirement, that only matters or counts after the play ends. DEFERRED REVENUE The second type of coach would be the defensive coach, who has a middle linebacker (Purchasing) Similar to the QB the linebacker directs the players on each play. The difference would be that the goal of these players intends to take yards away (accounts payable) prevent the other team from getting new yards. (cost overruns/protecting the margin) The MLB uses the same playbook(ANNUAL INVESTMENT PORTFOLIO) as the QB in a different section of the book, The MLB section guides the players in ways to to line up his defense in order to protect the line (ACTUAL SPEND). The players respond to the other teams attempts to move toward their goal and the defense tries to prevent the advancement or ideally take yards away. EXPENSE TO PLAN The more the coach learns about his players and builds upon their untapped or known talents increases the teams chances to win. More touchdowns wins more games GROWTH TARGETS The coach based his players playbook on what others have proven and had success doing. GAAP/SOX Then he may allow his coaches to be creative or throws his own plays in. He does this understanding the players the other team and uses a series of test before trying to execute. (PDCSA) He looks at his results and determines if the play makes sense. QUALITY The BA is the coach in my mind and in this analogy, the CEO hired the coach.

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