Performance Management Gap: Goals Versus Realities

Originally published August 23, 2012

As with most corporate initiatives, the intended goal of performance management and what it actually ends up achieving are quite different. Many companies aren't even aware of the real purpose of performance management. But it doesn’t have to be that way.

To  understand what kind of performance a performance management system is meant to manage and how to implement an effective performance management program, it’s helpful to start with a definition: Business performance management is a set of integrated, closed-loop management and analytics processes that address financial as well as operational activities. Done properly, it enables business to define strategic goals and then measure and manage performance against those goals.

Ultimately, what is being managed is a company’s performance in achieving its goals. That’s the intent, at least – but far too often not the reality. Let’s look at why this is often the case:

Reality No. 1: Just Fixing an Isolated Problem

The core performance management processes include financial and operational planning, consolidation and reporting, modeling, analysis, and monitoring of key performance indicators (KPIs) linked to organizational strategy. Ideally, those pieces work together to help a company achieve its strategic objectives. But in practice, very few companies are addressing all of them.

Most are putting out fires – fixing a painful budgeting process, shortening a lengthy monthly close and reporting cycle, or providing greater access to information through enhanced management reporting capabilities and dashboards. Such steps can provide tremendous business value, but on their own they do little to improve execution of a company's primary goals. The true value of performance management comes into play when all key elements are implemented and integrated.
Reality #2: Living in the Past
Let's suppose an organization is implementing a full suite of performance management software. Is there an increased likelihood that it will in fact improve its execution against strategic objectives? Yes, somewhat. But there is a major stumbling block: Many organizations are so focused on the technological aspects of this major undertaking that they overlook the business side of the equation.

More specifically, they simply automate (or upgrade) what they have been doing for years either manually or in another system. They do not revisit what accounts and cost centers they are tracking. They do not change the content of reports, which may be based on the needs of an executive team that has long since left the company or a business climate that hasn’t existed in decades. They do not even think in terms of key performance indicators (KPIs), but in terms of key ratios that are straight out of an accounting textbook from the 1950s.

The point is that the information going into a performance management system and how it is going to be packaged and presented must be based on an organization’s current needs. The data needs to be tied back to strategic objectives. If that is not done, companies will just end up with more efficient, but not more effective, systems.
Reality #3: Getting Caught in a Metrics Minefield
When you’ve addressed those two issues, it might seem like you’re on the verge of success. If a company rolls out and integrates all key elements of performance management and revises its data and reports to align with the corporate objectives, executives should be able to better track and manage performance as it relates to those goals – right? Unfortunately, this is easier said than done.

Translating the strategic objectives into a series of KPIs that will be the focus of a performance management system is arduous and highly charged. It is political, territorial, and often driven by individual egos. Simply stated, people will want the system to measure what they do well, which is not necessarily what the company needs them to do well. The process of creating performance management KPIs linked to strategic objectives needs to be driven from the top down by a strong leader with little patience for gaming the system.
So, are we there yet? Actually, we are. If the all-too-common realities described above are corrected or avoided, a performance management system will effectively measure the right metrics and KPIs and help executives and business managers achieve corporate objectives.  

One more thing though: No business operates in isolation and neither should the performance management system. Companies should also measure performance against that of their peers. While a company may be doing well against internal goals, it may be falling short in terms of the performance of its industry as a whole. Benchmarking completes the performance management picture.

Editor's Note: To read the other articles featured with this article in our e-zine, BI Trends + Strategies, click here.
  • Craig SchiffCraig Schiff

    Craig, President and CEO of BPM Partners, is a pioneer in business performance management (BPM). Craig helped create and define the field as it evolved from business intelligence and analytic applications into BPM. He has worked with BPM and related technologies for more than 20 years, first as a founding member at IMRS/Hyperion Software (now Hyperion Solutions) and later cofounded OutlookSoft where he was President and CEO.

    Craig is a frequent author on BPM topics and monthly columnist for the BeyeNETWORK. He has led several jointly produced webcasts with Business Finance Magazine including "Beyond the Hype: The Truth about BPM Vendors," the three-part vendor review entitled "BPM Xpo" and "BPM 101: Navigating the Treacherous Waters of Business Performance Management." He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Craig can be reached at cschiff@bpmpartners.com.

    Editor's Note: More articles and resources are available in Craig's BeyeNETWORK Expert Channel. Be sure to visit today!

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