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A Business Process and Performance Management Framework for the Intelligent Business

Originally published August 1, 2007

Declaration of Independence
Within this article I will occasionally refer to products and use screenshot examples of various products as an aid to communicating specific points. These examples are chosen at random and in no way represent any endorsement on behalf of the author to any product in the marketplace.
End of Declaration
 
Over the last several years, the performance management marketplace has been growing steadily with mainstream business intelligence vendors having made hay by introducing performance management products that support scorecards, metrics dashboards (for easy visualisation), budgeting, forecasting and planning. Most of this effort has been around the balanced scorecard performance management methodology. This methodology was made popular by Kaplan and Norton in their excellent book The Balanced Scorecard published by Harvard Business School Press back in 1996. Yet for some time now over in the world of process management, another performance management methodology has been climbing the charts as a management practice with strange names such as “black-belt” associated with it. That methodology is, of course, Six Sigma. Six Sigma is about locating and rectifying defects in processes to improve efficiency and therefore performance.

As an analyst and consultant, I have been involved in both of these methodologies with clients and find it kind of strange that in the area of analysis and reporting people talk about performance management like it belongs there, and in the area of business process management people talk about performance management like it belongs there. The case is, of course, that they are both right. Balanced Scorecard has historically been about strategic performance management while Six Sigma has been about operational performance management. In product terms, the former has been associated with so-called “corporate performance management” software while the latter has been associated with “business process management” software and in particular business activity monitoring (BAM).

However, people like myself and many others have for some time now been talking about the fact that these performance management approaches should come together to give companies the ability to manage business performance at both strategic and operational levels from a common toolset. And, to a large extent, that is what this article is about – the creation of a performance management framework that allows companies to integrate performance management initiatives to create a truly enterprise-wide approach to performance management.

I regard performance management as the strategy and process of managing a business. This is done by trying to optimise resources and processes at all levels in the enterprise to meet a common set of strategic objectives. I have underlined “at all levels” quite deliberately here for a very simple reason. We have to find a way by which the entire enterprise can pull in the same direction to meet common goals. It is not enough to just have strong managers at strategic levels in the enterprise trying to steer the business. Of course this is necessary, but the vast majority of employees are not included in that exclusive executive club. I am perhaps more of a fan of the principles put forward in the excellent book by Don Tapscott and Anthony D. Williams entitled Wikinomics – How Mass Collaboration Changes Everything.  It is actually the subtitle that says it all, i.e., how the power of the masses can change everything. Applying this to performance management and the enterprise employee base (and even beyond that into its partners, customers and suppliers) asks a simple question, “How do you leverage the power of the masses to improve business performance at all levels in the enterprise?” Surely this is the key question. It is a question that in my mind has been bothering executives for years. Is it possible to leverage technology so you can enable and trust your own employees to all tow in the same direction? My answer to this is yes. Absolutely yes. But to get there, we have to look at where performance management is today and how it needs to be strengthened to really make this possible.

Performance Management Today

When I look at the performance management (PM) marketplace today, I see multiple types of performance management. These can be classified as follows:

Corporate performance management1

  • Integrated with business intelligence (BI) systems, e.g., executive strategy scorecards, corporate budgeting and planning

Line of business performance management

  • Integrated with operational systems such as ERP, e.g., customer PM, supply chain PM, operations PM, resource PM

Operational performance management

  • Process-oriented business activity monitoring

However, the requirement is enterprise-wide performance management that engages people at all levels in the enterprise. In other words, an integrated combination of all of the above is needed.

Corporate Performance Management

If we look at corporate performance management (CPM) today, we have seen the emergence of scorecards, reporting, financial consolidation, forecasting budgeting and planning aimed primarily at executives. These CPM systems have been built on top of data warehouses as shown in Figure 1

Figure 1

The requirement here is to be integrated with BI systems to facilitate metrics roll-up and drill-down. Many different mainstream BI vendors have been in the CPM market for some time, e.g., Actuate, Business Objects (Cartesis), Cognos, IBM, Microsoft, MicroStrategy, Oracle (Hyperion), SAP (OutlookSoft) and SAS.

CPM has its pros and cons. The pros of CPM include the following:

  • Built on a base of integrated historical data
    – Single integrated views of master data and transactional activity
    – Historical data for trend analysis

  • Can therefore support financial consolidation from multiple ERP systems

  • BI systems with near real-time data integration can keep dashboards reasonably well up to date

  • Some products can link with OLAP servers for drill down

  • Some support for collaboration, e.g., comment history against metrics

On the down side, CPM has also had its limitations. These include the fact that CPM products may have a separate summary database for key performance indicators (KPIs) that has to be populated (e.g., using an ETL tool) and no ability to drill down into detail in an underlying BI system. Also, there is often no ability to integrate CPM with process management in order to associate a process (or process activities) with an objective and to initiate business activity monitoring (BAM) from within CPM tools to monitor processes. There is no doubt that things are beginning to change here in that CPM vendors are now recognising the need to embrace process management by introducing management processes into their products. An example here would be OutlookSoft (recently acquired by SAP), which has business process flows built in to their product to guide things like sales forecasts and expense forecasts. Also, Cartesis (recently acquired by Business Objects) has introduced the concept of processes models into their governance product (see Figure 2). This is more for documenting things like the financial reporting processes rather than core operational processes, however. Nevertheless, the signs are there that process management is finding its way into CPM products. The issue for me is whether or not CPM products can import standard XPDL process models that would typically be created in business process modelling software like BEA AquaLogic, Intalio, IDS Scheer, IBM WebSphere Business Modeller, MetaStorm, Microsoft BizTalk, Tibco, WebMethods, etc. When this happens, then we start to get true integration beginning to occur.

Figure 2

However, despite these advances, performance management is still in the hands of a few when it should be in the hands of many. For example, what about people in operations? It is still the case that even with the web, many employees in operations have little or no access to performance management. Given that CPM software typically holds the detail on business strategy, it follows that today for many companies there is no enterprise-wide execution of business strategy and no integrated business planning at all levels. Also, companies often have multiple “stand-alone” BI systems which makes it difficult to integrate CPM software with BI. In addition, many CPM systems are not integrated with other systems so that they can be leveraged to continually manage performance.

Line of Business Performance Management

Looking at line of business (LoB) performance management today, this is aimed more at the tactical level rather than the strategic level. There is some degree of LoB scorecards and dashboards as well as LoB budgeting and planning. There is also a lot of operational reporting as well as BI reports and analysis. However, LoB performance management is also limited in that it may be implemented on top of operational systems (e.g., ERP or CRM) or on top of line of business BI systems. Both of these kinds of implementation are shown in Figure 3 and Figure 4, respectively.

Figure 3

 


Figure 4

It is common to see performance management initiatives particularly on top of operational systems like ERP as opposed to CPM which is built on top of BI systems. In line of business areas, things like supplier and customer performance management focus on specific areas and can work reasonably well within operational areas. One of the key issues why LoB performance management ends up on top of ERP is that many CFOs believe that the only place they can trust the data is the ERP system itself, which is, of course, the main operational system in use in a finance department. It is also true that data in ERP systems offers considerable PM coverage. LoB PM on top of operational systems also means access to real-time data. In this environment, Corporate Performance Management is potentially possible if there is one ERP instance. The problem with LoB performance management on top of operational systems is that it is limited by the scope of the data in the underlying operational system. As an example here, CRM systems such as Oracle/Siebel are often missing communications data captured in telephony systems such as Cisco and AVAYA . Another limitation is what happens when there are many instances of an ERP system, e.g., one per country in which a company trades. In this case, LoB PM can be restrictive if there are multiple instances of these applications. In addition, there is no enterprise-wide single view to account for problems in other areas (e.g., overspend in another area of the business may impact budget allocated to other lines of business). Other LoB PM limitations include:

  • Lack of drill down and integrated historical data.

  • Financial budgeting is by cost centre (typically organisation structure) when plans are typically defined using activities. This makes it difficult to allocate budget to plans unless plans are aligned with cost centres.

  • Supply chain PM not linked to demand.

  • LoB PM on top of ERP systems is weak in some areas (e.g., ERP systems hold very little data on operations and areas of CRM like call centre and sales territories).

  • Often LoB does not include business activity monitoring (BAM).

Operational Performance Management

Operational performance management today includes operational dashboards, operational reports, as well as BAM, alerts and automated recommendations. This is an area of performance management that is growing but is still in limited deployment mainly because companies are still rolling out business process management. Operational performance management has typically been associated with BAM. Some mainstream BI vendors offering CPM solutions have now stepped into the BAM market, which I believe is a good sign in that it indicates that operational PM and corporate PM have a good chance of coming together. A good example of this is Cognos. Cognos has launched their Cognos Now! product as part of the wider performance management product set. The pros and cons of operational performance management are as follows:

Pros

  • Real-time event-driven operational performance monitoring for proactive alerting and automated actions.

  • Means operational problems and opportunities can be rapidly identified and dealt with.

  • May even mean that problems and/or opportunities can be predicted.

  • Can deliver significant return on investment, e.g., reduction of operational costs.

Cons

  • Process management BAM vendors often have no business intelligence to understand the significance of an operational event.

  • BAM vendors struggle to understand operational org structure to cater for problem escalation.

  • No tie back to strategic or tactical performance management.

Having looked at these different types of performance management, the problem we face is that they are not integrated. The requirement is that we need the whole solution to work from top to bottom so that performance management is deployed to the masses to make everyone performance aware and execute on a common business strategy. So it raises the question of what an enterprise-wide performance management system should do. First and foremost, a performance management system is the control system for the enterprise. It should be the system that allows you to manage the business at all levels from strategic down to everyday operations. It should, therefore, support all types of performance management – strategic, tactical (LoB) and operational. In addition, everyone in the enterprise should be accountable for managing “their part” of the business and for contributing toward common objectives and common goals. Also, everyone should have access to common BI and performance management that fits with their role in the enterprise.

Figure 5 shows what I mean here, which is to get enterprise business strategy execution and integrated performance management at all levels.


Figure 5

Notice that there are objectives, KPIs, targets, owners, budgets, plans, alerts and recommendations at all levels here. This is like driving. If you turn the steering wheel at the top of the enterprise, how long does it take for the enterprise to turn? However, if there are steering wheels at all levels, then the decisions made at lower levels all help to turn the wheel at a strategic level. It’s back to the power of the masses again. All of this implies a hierarchy (or hierarchies) of some sort to tie it all together so that all levels contribute toward execution of a common business strategy (see Figure 6).

Figure 6


What is the dominant hierarchy? There are several, but the employee management hierarchy must be recognised here because it identifies roles, contact details, immediate reports, etc. The reporting structure of who reports to who needs to be understood. But just looking at the employee management hierarchy implies others because each manager in the hierarchy needs to have:

  • Objectives

  • KPIs and KPI targets

  • Action initiatives to be carried out to achieve his or her objectives

    – Plans, i.e., planned activities
    – Budget allocation by activity

  • Process activities and/or whole processes to monitor in their area of responsibility

  • BI to guide them including some combination of reports, guided analysis, alerts and recommendations

This implies that many different performance management hierarchies need to be linked to employee roles and reporting structure (see figure 7).

 


Figure 7

Some products like IBM Workplace for Business Strategy Execution (WBSE) already support this concept. However, in exploring elements of performance management such as plans at lower levels in the enterprise, I have found again and again that the technology use at lower levels for planning operational initiatives is not the same as the performance management tools found at strategic levels. What I keep bumping into for operational planning is Microsoft Project. In a recent presentation at the BI conference in Rome, I thought I would check out my findings to validate whether this is, in fact, commonplace. To my surprise, about 80% of the audience raised their hands confirming the dominance of Microsoft Project in business planning at lower levels in the enterprise. Therefore, as you go down the levels of the enterprise, integration of performance management software with project management software is very much required.

As a regular speaker at portal conferences, I have however realised something else about this link between performance management and project management, and that is that project management software (that holds plans) is now heavily integrated with Web 2.0 collaborative workspaces in portal software. Portal vendors like BEA, IBM, Microsoft and Vignette are all capable of collaborative project management today in their portal products. This point about PM, project management and Web 2.0 collaborative workspaces is important in answering the question of how to empower the masses with respect to performance management. I already mentioned the Tapscott/Williams book on how mass collaboration changes everything.

Enterprise Wide Performance Management Requirements

Looking at what we have discussed so far, it is clear that the scope of performance management needs to change to become capable of leveraging other infrastructure. Performance management needs to include:

  • Traditional scorecards, dashboards, budgeting, planning, forecasting

  • Hierarchies of linked objectives, KPIs, KPI targets, plans, budgets and alerts

  • Integration with Office for “what-if” planning and analysis

  • Integration with BI for KPI rollup and drill down (OLAP cubes)

  • Integration with BI reporting

  • Integration with process management (e.g., via XPDL import) to view and change process models

  • Business activity monitoring to monitor the efficiency of business processes and to drive automatic alerts and recommendations

  • Activity-based costing to monitor the cost of business processes and to create costed plans since plans are at an activity level

  • Integration with project management to link to lower level plans and to import/export plans in this form

  • Integration with portals for role-based PM

  • BI and PM services to integrate on-demand intelligence and recommendations with operational applications and processes

  • Integration with Web 2.0 collaborative workspaces to share information and collaborate

In addition, many of my clients have said to me that performance management will never achieve maximum effectiveness if we don’t link performance to individual employee appraisals. In other words, we need to hold people accountable for performance. For this to happen, performance management needs to access HR applications. The HR-XML Consortium  proposes “standard” services and XML content that ERP HR systems should expose to get employee performance information into and out of ERP systems.

This whole set of wider requirements suggests that performance management needs to become a composite application sitting above an enterprise service bus in a service-oriented architecture (see Figure 8).

Figure 8

Looking at this in the context of a SOA architecture diagram just confirms the fact that performance management is set to become a composite application leveraging other services and infrastructure software to empower the masses in order to create the performance-aware intelligent enterprise. This is shown in Figure 9.


Figure 9

 

Endnotes:

  1. According to Wikipedia, corporate performance management is a concept that was introduced by Gartner Research in 2001

Copyright © Intelligent Business Strategies, 2007 – All Rights Reserved

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