The e-business transformation Managing for Value in an Internet Economy.

Strategic planning. Everyone does it, right? Perhaps, but strategic management tactics in today's swiftly changing economy bear little resemblance to the planning strategies of even a year ago. The internet has changed everything.

Companies are seeking new ways to interact with customers and suppliers, reach new markets, communicate, share knowledge and, ultimately, create value. Thanks to the internet, both the speed and intensity of change and competition are increasing exponentially.

To survive and thrive in the new economy, companies must make the transition to e-business, which alters the very core of how companies manage growth and plan the future. Successful e-businesses are developing a deep, real-time understanding of both internal processes and external dynamics of the marketplace and the competition on a monthly, weekly, even daily, basis.

IPALCO Enterprises, a multistate energy company whose primary subsidiary is Indianapolis Power & Light Co. (IPL), is a key example. "We need to be able to understand and measure our critical business processes in order to be able to improve service," says Steve Plunkett, IPALCO's controller. "Businesses are really just a collection of processes. The problem is that traditional accounting systems do not capture costs in that way. We need to be able to connect our costs to our processes if we are really to be in a position to improve."

Ask a group of CFOs to identify their greatest information needs and you're likely to hear a variation on IPALCO's theme: managing enterprise operating costs and measuring customer and product profitability. "The need for nimble strategic planning and agile management is not new," says Oracle CFO Jeff Henley. "Raw data exists in most organizations to inform more sophisticated decision making, and bold new techniques have arisen in the science of organizational management. What's been missing is the enabling technology, and that's where the internet comes into play. Companies that harness its power will emerge as leaders in this new, sophisticated business environment."

To get at real costs and unit profitability, IPALCO turned to Oracle's internet-enabled Strategic Enterprise Management (SEM) suite of applications. The Oracle SEM suite includes Activity Based Management, Balanced Scorecard, Strategy Formulation and Value Based Management. Each component is designed to work separately or in tandem with other components to help managers drive customer and product profitability, link strategic planning to execution, set corporate goals and objectives, and focus on increasing shareholder value.

Activity based management methods show which products and customers are profitable by allocating costs to the lowest possible level of detail. Accurate cost information can then be distributed throughout the organization, giving frontline managers the ability, for the first time, to make decisions based on a trustworthy analysis of relevant costs, rather than on intuition or ad hoc analysis.

IPL, whose nearly 2,000 employees serve some 426,000 commercial, industrial and residential customers in central Indiana, has maintained the lowest residential rates among the 20 largest U.S. cities with investor-owned utilities. IPALCO and IPL implemented Oracle Financials in 1998, adding Activity Based Management (ABM) in 1999 to retain their competitive edge as deregulation ups the ante.

Oracle ABM enables IPALCO to more accurately allocate both direct and indirect costs to the hundred or so cost objects in the accounting system. "We have four major units at one site," says Plunkett. "We collected fuel costs by each unit, but we never really captured employees' labor or how much time they were spending in maintenance on unit one versus unit four. With ABM we're now capturing that information.

"We also had several hundred people whose time was all charged to one or two account numbers. Now we're getting reports that break those costs down into specific activities, and we can collect information on how much it costs us in real dollars to do particular types of activities."

Linking Strategic Planning to Execution

Strategic planning doesn't count for much unless it's followed up by action. In 1999, Mobistar, a subsidiary of France Telecom, used Oracle Balanced Scorecard (OBSC) to create the Mobistar Aligned Scorecard (MASC), a prime example of how, in the fast-moving e-business environment, planning becomes a continuous, adaptive process with an immediate feedback loop linking strategy to execution. Mobistar uses MASC to translate strategy into quantifiable performance indicators that measure specific points of progress toward strategic objectives.

This Brussels-based mobile telephony company has experienced dramatic growth in both customer base and revenue since its launch in 1996. In a world of enormous information flow, rapid technological change, aggressive competition and capital market pressure, Mobistar has more than 1 million mobile telephone customers and is aggressively expanding the range of its telecommunications services. Mobistar's management is now relying on its Oracle-based MASC to retain its leadership position in a no-holds-barred marketplace.

"A balanced scorecard approach relies on key performance indicators (KPIs)," says Oracle's Henley, "and the great value of KPIs is that if you can measure something, you can improve it. The beauty of the Mobistar Aligned Scorecard is that it gives people at all levels of the organization a measurement framework, and then it gives them feedback, and it's all very intuitive."

Mobistar's first steps in creating MASC were to identify the 25 key processes that underlie the company's work, and to develop three or four KPIs linked to each process and another 20 purely strategic KPIs that would address results such as churn rate (how many customers leave) and market share.

"Then we decided to go one step further and link back to the vision of the company," says Bernard Ghillebaert, general manager of Mobistar.

"That brought us to our next challenge," adds Ghillebaert, "which was to deploy the vision, mission, values and strategy of Mobistar throughout the organization and bring all our team members, projects, action plans and operational processes into alignment, bearing in mind that three years ago we had just one team member, where today we have 1,200." For Mobistar, that alignment means balancing these elements from four perspectives: customer, team member, shareholder and business partner.

"We quickly realized we needed a measurement system to link all these things up," says Ghillebaert. "But we needed more than just a measure, we needed to get at root cause analysis. Identifying the root cause tells you what to do next. This is where the perspective of quality comes in, and the possibility of improvement."

MASC also enabled Mobistar to set project priorities, create a filtering system that would ensure a focus on those priorities and establish a flexible system that would facilitate continuous review. "We needed a very flexible system that would enable us to take into account all the external factors such as mergers, acquisitions, new products, new competitors, price wars, service wars -- anything that would suggest different kinds of actions, different ways to position the company," says Ghillebaert.

Setting Corporate Goals and Objectives

The competitive and complex e-business environment is enabling companies to continuously evaluate strategy and adapt quickly to changing circumstances. The flexibility Mobistar built into the Oracle-based MASC is central to the company's adaptive ability in setting goals and objectives in a turbulent business climate.

"MASC is not just a dashboard of numbers, it also gives us an enterprise-wide view," says Ghillebaert. "When we held a meeting of our functional business managers in December, all the various process owners reported on the status of their KPIs and could see the impact on an enterprise-wide basis. If they reached a higher level or lower level on one KPI, what would the impact be on another? That was the first time since we implemented the system in August that we sat down and actually saw the benefits being played out in real time with links to real data."

Oracle's Balanced Scorecard is designed to take goal-setting to the next level with the Oracle Strategy Formulation (OSF). OSF enables managers to plan collaboratively using competitive-edge strategy tools, including simulation and predictive modeling, to engage in the new management process of "dynamic strategy." OSF will also provide an external perspective on the economic and competitive environment. The strategy formulation process results in quantifiable objectives that can be communicated and measured using Oracle Balanced Scorecard. Hence, Oracle SEM enables companies to both set strategy and measure its effectiveness.

Focusing on Increasing Shareholder Value

"I think what you start to capture in the Oracle SEM model is the intellectual capital of a company," says Ghillebaert. "We can now capture the elements that are not traditionally measured. For example, time to market is a critical success factor for us, but if I go into my annual report, I won't find that kind of information.

"Another important benefit of the Oracle Balanced Scorecard approach is that we can include benchmarking data. For every KPI, if you can find some benchmarking data that you can put inside the database, you can compare yourself to best in class."

Another key component of Oracle SEM is Value Based Management, an analytical application that will enable executives to derive their corporate valuation metric of choice. It might be return on net assets (RONA), shareholder value (SVA), cash flow return on investment (CFROI) or economic value added (EVA(r) -- anything that gives managers insight into which components of their business, products or business units create or diminish shareholder value. Through an understanding of the key drivers of corporate value, managers will be able to predict and proactively manage movements in their companies' share price.

The Imperative: Build a Smarter E-business

As companies turn inevitably to e-business, the new scope and depth of business intelligence is becoming a corporate imperative. Managers who implement the tools to develop a deep, real-time understanding of both internal processes and external dynamics of both the marketplace and the competition will emerge as leaders. Those companies that remain locked in traditional methods will forfeit their ability to survive and thrive.

"The integrated Oracle suite of products has helped us to position ourselves for increasing our profitability and shareholder value in a wide-open and somewhat-volatile utility marketplace," says IPALCO's Plunkett. "We now have smarter and better tools for incorporating external factors into our management strategies, and we have much more effective, responsive ways to get information to management across the enterprise."

Mobistar, like IPALCO, has implemented a range of Oracle Applications. "The integration of SEM with our Oracle databases and other applications was important," says Mobistar General Manager Ghillebaert, "but the main reason was sufficient flexibility, and the fact that with this tool, you have no rules.

"We have a strong growth imperative at Mobistar, and it's very important to us that the various components can help to shape the attitudes that affect how we do business. One of the most difficult things to do is to change attitudes. In such a dynamic, ambitious and aggressive company as ours, it's good to have tools that can do that while still embracing flexibility."

WANT TO BUILD A SMARTER E-BUSINESS?

Access Oracle's proven e-business intelligence expertise, right from your office or home. Download a free white paper, Oracle Strategic Enterprise Management: Managing for Value, and register for a free Internet Seminar, Managing for Value, at www.orcale.com/applications/bi/.

Oracle Corporation is the world's leading supplier of information-management software, and the world's second-largest independent software company. With annual revenues of over $9.1 billion, the company offers database, tools and e-business suite products, along with related consulting, education and support services, in more than 145 countries worldwide.