In Part 1 of this article, we looked at the budgeting/planning and consolidation/reporting areas of business performance management (BPM). This month, we will examine the business benefits of performance dashboards/scorecards and operational optimization.

For companies that have yet to get their planning processes and actual reporting systems in order, these areas remain priority number one. In fact, it is of little benefit to move ahead with the next phases of BPM described here without getting the fundamentals in order first. Once that is done however, this is where the real benefits of BPM, specifically improved business performance, kick-in.

Dashboards and Scorecards

Most companies have many well-intentioned employees working very hard on a multitude of tasks. However, if they are working on the wrong things or if groups across the company are not working in synch, the desired results will simply never come to pass. That is where a BPM dashboard can add value. Performance management dashboards are probably the most well-known aspect of performance management, but perhaps least understood. First, dashboards by themselves are nothing more than a visual display tool. They graphically and intuitively lay out the information they are tasked with displaying. There are certainly some technologies that are better than others. However, the difference between successful and unsuccessful BPM implementations is often not about the dashboard technology choices. It is about what populates those dashboards – the organization’s scorecard. A scorecard is a collection of key performance indicators (KPIs) that enable the company to truly understand and manage what matters. In many IT-driven dashboard projects, the focus is simply to get information out of the data warehouse. Useful and necessary, but that will do little to improve the company’s performance.

The reason companies really pursue performance dashboards is to gain strategic alignment. What does that really mean? It means for starters that instead of just looking at the same old standard reports, most people in the company are able to focus on just those things that are critical to achieving the strategic objectives. It is the measures of those things that are placed on the dashboard. So for example, if a goal this year is to improve margins by 10%, or raise customer retention rates by 2 points, or achieve $100 million in revenue from a new product launch, that is what is front and center. Without having these items highlighted on the dashboard, they would undoubtedly be buried in standard reports that typically only financial analysts pore through.

The secondary benefit is to encourage departmental synchronization and tie back to corporate goals. More specifically, a series of cascading dashboards is developed that focus on the specific departmental goals that tie into the corporate goals. So, coming back to the goal of $100 million in revenue for the new product might mean the manufacturing group’s dashboard tracks the delivery of units of finished product by month. If they don’t meet the projected delivery schedule, then the sales department won’t be able to meet their targets either. The sales group may need to add 10 new salesmen so their dashboard might track staffing levels for that product. More than just informing employees of the status of a KPI, the dashboard also compares it to predefined targets, usually coming out of the planning process. Tolerances are defined and variances outside of these ranges can be acted upon. In an ideal implementation of performance management dashboards, there is ownership of each and every KPI. This is not so much to place blame, but to identify the responsible party when action is required. The final stage of a performance management dashboard rollout is really to reward people based on their performance against their departmental or, in some cases, individual KPIs. Behavioral change is often required to achieve new levels of performance. A performance management dashboard initiative that ties compensation to specific measures can certainly impact behavior. For some employees, just the widespread visibility of the measures and the general awareness that they are the ones responsible will drive them to higher levels of performance. This can have a significant impact on the company’s bottom line performance, again assuming that the dashboard is, in fact, measuring the right things.

Operational Optimization

This area of performance management often follows in sequence after the previous three (planning, reporting, dashboards) have been addressed. The goal is to optimize the performance of each area of the business, get a holistic view of the entire operation working together, and optimize the profitability of all activities and investments. This is accomplished by taking the basic concepts of performance management and applying them to each major area of the business: sales, manufacturing, IT, marketing, HR, services, etc. Each area can plan and track performance at a level of detail that would not normally be part of the corporate system. In addition, there are specialized applications that are unique to each area of the business. IT might focus on optimization of returns from its project portfolio. Sales might examine the relationship between various incentive plans and the resulting sales revenues. They could also look at sales by product, by region or by rep to identify trends, areas for improvement and successes that should be replicated. Marketing would look at the effectiveness of various campaigns and promotional approaches. Services might examine utilization rates as well as customer satisfaction and retention. If each area is optimized, then the whole organization should be performing at a higher level. In addition, by having all of these systems in place and unified, the executives should be able to understand the full impact of any major decisions. For example, if they are thinking about closing a manufacturing plant or shrinking customer service, they are able to look at more than just the anticipated cost savings. They can model how this decision will ripple through the organization. Perhaps the plant closing will delay revenues from a new product because it is part of the critical path to deliver that product. Their BPM models might show that a 10% reduction in customer service staffing causes a 5% drop in customer satisfaction that results in a 2% increase in the customer attrition rate. They may still make these decisions, but with the full understanding of what the true outcome might be.

The profitability optimization aspect of BPM cuts across departments as well. To truly understand how profitable a product or service or particular customer is, you need to account for all of the associated costs. Most companies think they already have a good handle on this, but after implementing BPM are surprised to find out how far off they were. For example, you would normally assume your biggest (most revenues) customers are your best (most profitable) customers. Not always true. They may require product customization, extra hours of support, non-routine deliveries with only partially filled trucks, special return arrangements, etc. When these costs are factored in, they may not be that profitable at all. With BPM, companies can focus their investments on their most profitable products and customers, and adjust pricing accordingly or discontinue their less profitable activities. When looking for cost savings, they can focus on the areas of lowest return first while protecting their primary profit streams.

While many companies stop after addressing their budgeting or reporting pains, it is only after properly implementing a performance dashboard and operational analytics that they can really expect to see improved company performance.

Recent articles by Craig Schiff

• Business Performance Management in 2010, Part 2
• Business Performance Management in 2010, Part 1
• How Executive Information Systems Evolved Into Performance Dashboards
• The Emerging Leaders in Performance Management, Part 2