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Business Performance Management

Originally published December 13, 2004

Business performance management (BPM), when properly implemented, can lead to better and more focused decision making. Such improvements in decision making can be tangibly measured through improved bottom-line performance. Currently, a focus area for more than 85 percent of companies in 2004[1], BPM leverages investments already made in data warehouses, transactional systems and BI tools, providing improved ROI.

However, if done poorly, BPM can be a fiasco—and an expensive and highly visible fiasco at that. Business performance management, like ERP before it, is a large and complex undertaking. The overriding recommendation is to seek guidance from an expert, someone internal or external, who knows BPM from first-hand experience. Otherwise, the similarities to other enterprise software projects can lull you into overlooking the subtle but critical differences that are important in a BPM initiative.

To start, you need to have a good understanding of what BPM really is and what it can do for you. First of all, the BPM discussed here is not Business Process Management, a related, but distinct area. Put simply, business performance management ties strategy to execution by linking planning data (which spells out the strategy) to actual data (the execution) through a dashboard that displays the company’s key performance indicators. Since BPM is a relatively new discipline, there are many vendors and consultants vying for market share. They are skilled at inventing definitions that match up with their particular offerings. To combat the resulting confusion, a number of industry leaders formed the BPM Standards Group. You can visit their site (http://www.bpmstandardsgroup.org/) for the most current thinking about BPM, as well as detailed descriptions of the processes, technologies and content that is included.

From the definition above, it is clear that planning is a core component of BPM. How can you determine the success or failure of your performance if you don’t know what you were planning to achieve? Additionally, the planning process is still broken in many companies today. This phase of the initiative will win you many friends as you make planning less painful and more meaningful. Excel is still the primary budgeting tool in many cases and it needs to be connected to a real planning system that is secure and centrally controlled, but still easy to use. Most BPM offerings provide this capability. Once you have the plan in place you need to connect it to the actual data to enable you to measure actual performance against the plan. If you have a data warehouse and it currently holds transaction history, it can feed that actuals data into the BPM system to enable this measurement. If you don’t have a central repository of transaction data, you probably need a BPM module that performs consolidations, collects data from disparate systems, and maps it all to a standard chart of accounts and organization structure, while converting to the same currency and scale and eliminating any inter-company transactions.

A key challenge has just emerged: for all of this to work, there has to be a standard set of agreed upon metadata—the chart of accounts and organization structure. For this reason, and others that will become evident when we discuss metrics, a successful BPM initiative requires a very senior executive sponsor to support your efforts. Getting the organization to agree on one standard chart of accounts will take forever without a mandate from the top.

Now let’s look at the most visible part of any complete BPM system, the dashboard. A dashboard is really just an interface, a highly graphical way to display the most important aspect of your BPM system—the scorecard, which contains your company’s key metrics (key performance indicator or KPIs). All of the underlying systems were put in place for this purpose: to provide the dashboard with the plan and actual data it needs to display the resulting KPIs. This is the place where decisions will be made.

A well-crafted scorecard will contain measures that represent the key elements of the company’s strategy and business drivers. As you may surmise, putting together the appropriate scorecard (balanced or not) is one of the most difficult and politically charged tasks in any BPM initiative. It calls for a cross-departmental strategy session (or more likely, many sessions) chaired by the executive sponsor to settle on the key business drivers. The key performance indicators that end up on the scorecard should be those measures that are most closely tied to the company’s strategic business drivers. For example, if a key strategy for your firm is to open up new markets for its products, then its KPIs might focus on customer growth, by product and by geography. If a key strategy is to improve price competitiveness, then it might measure its supply chain costs and employee productivity.

In most companies, there are multiple scorecards—a corporate scorecard that everyone views and departmental scorecards that are used within a particular business area. The hierarchy of scorecards should be logically tied together. Once these scorecards have been in use for a while and accepted, then the company can begin to look at tying compensation to these measures. At that point you will have a BPM system that is truly utilized and acted upon company-wide, which is the ultimate goal for performance management initiatives.

Unfortunately, many companies stall out during the task of determining key metrics. To combat this, some consultants and vendors are today delivering dashboards pre-populated with industry-specific best practice metrics. The thinking is that for companies within an industry, 70 percent to 80 percent of the key measures are the same and less than one-third of the KPIs need to be customized. These industry-oriented dashboard offerings reduce the burden of developing a scorecard to just focusing on the 20 percent to 30 percent of metrics that are unique to your company.

Many of the most successful BPM projects are implemented incrementally. With a full suite of business performance management systems in place, you can achieve the full benefits that BPM is capable of providing, but for many companies, merely fixing the budgeting process is highly beneficial. As a result of this, and because planning is the core foundation data of BPM, budgeting and planning are often where many initiatives start.

The incremental approach can also apply to BPM’s enabling technologies. In order to communicate strategy and publish reports, many BPM solutions incorporate a portal interface. Some IT managers implement the portal interface before other more complex aspects of the BPM system, so they can publish existing reports that users have been clamoring for. Being able to access those reports on their own in an easy and secure manner, builds early end user acceptance of the overall BPM project. This is no small feat.

To sum up considerations for organizations considering BPM:

  • Get knowledgeable advice;
  • Understand clearly what BPM is and what it can do;
  • Start with budgeting and planning;
  • Have a senior executive sponsor;
  • Standardize your chart of accounts and organization structure;
  • Choose KPIs that are well suited to your industry; and
  • Take an incremental approach.

While BPM can be challenging, the performance improvement results are well worth it.

[1] Source:  Meta Group survey that 85% of Fortune 1000 companies are engaged in or considering a performance management initiative in 2004.

  • 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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