Chapter 5 Business Performance Management

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Chapter 5 Business Performance Management
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Learning Objectives

• Understand the all-encompassing nature of
  business performance management (BPM)
• Understand the closed-loop processes linking
  strategy to execution
• Describe some of the best practices in planning
  and management reporting
• Describe the difference between performance
  management and measurement

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Learning Objectives

• Understand the role of methodologies in BPM
• Describe the basic elements of the balanced
  scorecard and Six Sigma methodologies
• Describe the differences between scorecards and
  dashboards
• Understand some of the basics of dashboard design
• Understand the potential uses of business
  activity monitoring (BAM)

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Business Performance Management (BPM) Overview

• BPM Defined
• Business performance management (BPM)
• A real-time system that alert managers to
  potential opportunities, , impending problems and
  threats, and then empowers them to react through
  models and collaboration

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Business Performance Management (BPM) Overview

• BPM and BI Compared
• BPM is an outgrowth of BI and incorporates many
  of its technologies, applications, and techniques
  
• BPM is an enterprisewide strategy that seeks to
  prevent organizations from optimizing local
  business at the expense of overall corporate
  performance
• BPM is part of the daily work of managers

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Business Performance Management (BPM) Overview

• Summary of BPM processes
• BPM encompasses a closed-loop set of processes
  that link strategy to execution in order to
  optimize business performance, which is achieved
  by
• Setting goals and objectives
• Establishing initiatives and plans to achieve
  those goals
• Monitoring actual performance against the goals
  and objectives
• Taking corrective action

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Business Performance Management (BPM) Overview
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Strategize Where Do We Want to Go?

• Strategic planning
• Tasks common to the strategic planning process
• Conduct a current situation analysis
• Determine the planning horizon
• Conduct an environment scan
• Identify critical success factors
• Complete a gap analysis
• Create a strategic vision
• Develop a business strategy
• Identify strategic objectives and goals

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Strategize Where Do We Want to Go?

• Strategic planning
• Critical success factors (CSF)
• Key factors that delineate the things that an
  organization must excel at to be successful in
  its market space
• Strategic vision
• A picture or mental image of what the
  organization should look like in the future

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Strategize Where Do We Want to Go?

• Strategic planning
• Strategic objective
• A broad statement or general course of action
  prescribing targeted directions for an
  organization
• Strategic goal
• A quantified objective with a designated time
  period

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Strategize Where Do We Want to Go?

• The strategy gap
• Four sources for the gap between strategy and
  execution
• Vision
• People
• Management
• Resources

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Plan How Do We Get There?

• Operational planning
• Operational plan
• Plan that translates an organizations strategic
  objectives and goals into a set of well-defined
  tactics and initiatives, resources requirements,
  and expected results

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Plan How Do We Get There?

• Operational planning
• Tactic-centric plantactics are established to
  meet the objectives and targets established in
  the strategic plan (used by best practices
  organizations
• Budget-centric plana financial plan or budget is
  established that sums to the targeted financial
  values

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Plan How Do We Get There?

• Financial planning and budgeting
• An organizations strategic objectives and key
  metrics should serve as top-down drivers for the
  allocation of an organizations tangible and
  intangible assets
• Resource allocations should be carefully aligned
  with the organizations strategic objectives and
  tactics in order to achieve strategic success

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Monitor How Are We Doing?

• A comprehensive framework for monitoring
  performance should address two key issues
• What to monitor
• How to monitor

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Monitor How Are We Doing?
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Monitor How Are We Doing?

• Pitfalls of variance analysis
• The vast majority of the exception analysis
  focuses on negative variances when functional
  groups or departments fail to meet their targets
• Rarely are positive variances reviewed for
  potential opportunities, and rarely does the
  analysis focus on assumptions underlying the
  variance patterns

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Monitor How Are We Doing?
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Act and Adjust What Do We Need to Do
Differently?

• Hackett Groups benchmarking process divides
  planning and management reporting into four
  sub-processes
• Strategic planning
• Operational and financial planning
• Reporting
• Forecasting

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Act and Adjust What Do We Need to Do
Differently?

• Each sub-process is evaluated in terms of five
  dimensions of efficiency and effectiveness
• Strategic alignment
• Partnering
• Process
• Technology
• People and organizations

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Act and Adjust What Do We Need to Do
Differently?

• The Hackett Groups benchmarking results indicate
  that world class companies
• Are significantly more efficient than their peers
  at managing costs
• Focus on operational excellence and experience
  significantly reduced rates of voluntary employee
  turnover
• Have hybrid sourcing strategies that combine
  shared services and outsourcing

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Act and Adjust What Do We Need to Do
Differently?

• The Hackett Groups benchmarking results indicate
  that world class companies
• Provide management with the tools and training to
  leverage corporate information and to guide
  strategic planning, budgeting, and forecasting
• Closely align strategic and tactical plans,
  enabling functional areas to contribute more
  effectively to overall business goals

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Act and Adjust What Do We Need to Do
Differently?

• Paucity of analysis
• The overall impact of the planning and reporting
  practices of the average company is that
  management has little time to review results from
  a strategic perspective, decide what should be
  done differently, and act on the revised plans

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Performance Measurement

• Performance measurement system
• A system that assists managers in tracking the
  implementations of business strategy by comparing
  actual results against strategic goals and
  objectives

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Drawbacks of solely using Financial Data

• Financial measures are usually reported by
  organizational structures and not by the
  processes that produced them
• Financial measures are lagging indicators,
  telling us what happened, not why it happened or
  what is likely to happen in the future
• Financial measures are often the product of
  allocations that are not related to the
  underlying processes that generated them
• Financial measures are focused on the short term
  and provide little information about the longer
  term

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Effective Performance Measurement

• Basic ingredients include
• Measures should focus on key CSFs
• Measures should be a mix of past, present, and
  future
• Measures should balance the needs of all
  stakeholders (shareholders, employees, partners,
  suppliers, etc).
• Measures should start at the top and flow down.
• Targets must be based on facts and reality
  arbitrary measures do not work in the long run.

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BPM Methodologies

• An effective performance measurement system
  should help
• Align top-level strategic objectives and
  bottom-level initiatives (goal congruence)
• Identify opportunities and problems in a timely
  fashion
• Determine priorities and allocate resources based
  on those priorities.
• Be flexible to adjust measurements as the
  underlying processes and strategies change

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BPM Methodologies

• An effective performance measurement system
  should
• Delineate responsibilities, understand actual
  performance relative to responsibilities, and
  reward and recognize accomplishments.
• Identify opportunities to take action to improve
  processes and procedures based on data.
• Plan and forecast in a reliable and timely
  fashion

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BPM Methodologies

• Balanced scorecard (BSC)
• A performance measurement and management
  methodology that helps translate an
  organizations financial, customer, internal
  process, and learning and growth objectives and
  targets into a set of actionable initiatives

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BPM Methodologies

• The meaning of balance
• BSC is designed to overcome the limitations of
  systems that are financially focused
• Nonfinancial objectives fall into one of three
  perspectives
• Customer
• Internal business process
• Learning and growth

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BPM Methodologies
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BPM Methodologies

• In BSC, the term balance arises because the
  combined set of measures are supposed to
  encompass indicators that are
• Financial and nonfinancial
• Leading and lagging
• Internal and external
• Quantitative and qualitative
• Short term and long term

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BPM Methodologies

• Aligning strategies and actions
• BSC enables an organization to align its actions
  with its overall strategies through a series of
  interrelated steps
• Identify strategic objectives for each of the
  perspectives
• Associate measures with each of the strategic
  objectives a mix of quantitative and qualitative
  should be used.
• Assign targets to the measures.
• List strategic initiatives to accomplish each of
  the objectives (i.e., responsibilities).
• Link the various strategic objectives through a
  cause-and-effect diagram called a strategy map

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BPM Methodologies

• Strategy map
• A visual display that delineates the
  relationships among the key organizational
  objectives for all four BSC perspectives

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BPM Methodologies
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BPM Methodologies

• BSC certification
• BSC Collaborative offers software vendors the
  opportunity to have their applications certified
  against a well-defined set of criteria
• The application must offer an end user the
  ability to view
• Strategic objectives from the four perspectives
• The measures, targets, and initiatives associated
  with each objective
• The cause-and-effect relationships among the
  objectives

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BPM Methodologies

• Six Sigma
• A performance management methodology aimed at
  reducing the number of defects in a business
  process to as close to zero defects per million
  opportunities (DPMO) as possible

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BPM Methodologies

• Six Sigma
• The DMAIC performance model
• A closed-loop business improvement model that
  encompasses the steps of defining, measuring,
  analyzing, improving, and controlling a process

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BPM Methodologies

• Six Sigma
• Limitations of Six Sigma
• The lack of integration among the various Six
  Sigma projects across the enterprise
• The failure to institute the roles required to
  support the methodology

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BPM Architecture and Applications
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BPM Architecture and Applications

• BPM architecture
• System architecture
• The logical and physical design of a system
• A BPM system needs three components in order to
  contribute to the successful implementation of
  strategy
• Database tier
• Application tier
• Client or user interface

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BPM Architecture and Applications

• BPM architecture
• Database tier designs include
• Transactional data stores
• Application data marts
• Centralized data warehouse

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BPM Architecture and Applications

• BPM architecture
• BPM applications
• Budgeting, planning, and forecasting
• Profitability modeling and optimization
• Scorecard applications
• Financial consolidation
• Statutory and financial reporting

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BPM Architecture and Applications

• BPM architecture
• BPM user interface
• The user interface is the bridge between the BPM
  applications and the end user
• The Web browser is currently the primary tool for
  accessing information in a BPM system
• Spreadsheets are a popular alternative when a
  rich user interface is needed to support the
  analytical and computation needs of the user
• BPM interfaces should provide is guidance to the
  end user

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BPM Architecture and Applications
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Performance Dashboards

• Dashboards and scorecards both provide visual
  displays of important information that is
  consolidated and arranged on a single screen so
  that information can be digested at a single
  glance and easily explored

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Performance Dashboards
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Performance Dashboards

• Dashboards versus scorecards
• Performance dashboards
• Visual display used to monitor operational
  performance
• Performance scorecards
• Visual display used to chart progress against
  strategic and tactical goals and targets

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Performance Dashboards

• Dashboards versus scorecards
• Performance dashboard is a multilayered
  application built on a business intelligence and
  data integration infrastructure that enables
  organizations to measure, monitor, and manage
  business performance more effectively (Eckerson)

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Performance Dashboards

• Dashboards versus scorecards
• Three types of performance dashboards
• Operational dashboards
• Tactical dashboards
• Strategic dashboards

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Performance Dashboards

• Dashboard design
• The fundamental challenge of dashboard design is
  to display all the required information on a
  single screen, clearly and without distraction,
  in a manner that can be assimilated quickly"
  (Few, 2005)

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Performance Dashboards

• What to look for in a dashboard
• Use of visual components (e.g., charts,
  performance bars, sparklines, gauges, meters,
  stoplights) to highlight, at a glance, the data
  and exceptions that require action.
• Transparent to the user, meaning that they
  require minimal training and are extremely easy
  to use
• Combine data from a variety of systems into a
  single, summarized, unified view of the business

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Performance Dashboards

• What to look for in a dashboard
• Enable drill-down or drill-through to underlying
  data sources or reports
• Present a dynamic, real-world view with timely
  data refreshes, enabling the end user to stay
  up-to-date with any recent changes in the
  business.
• Require little, if any, customized coding to
  implement, deploy, and maintain

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Business Activity Monitoring (BAM)

• Business activity monitoring (BAM)
• A real-time system that alert managers to
  potential opportunities, impending problems, and
  threats, and then empowers them to react through
  models and collaboration

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Business Activity Monitoring (BAM)

• BAM depends on a wide range of technologies
  working in concert including
• ETL technology
• Process modeling technology
• Rules engines
• Messaging servers
• E-mail in-boxes, portals, dashboards, and Web
  services

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Business Activity Monitoring (BAM)

• Benefits of BAM
• Real-time data access in a usable format
• Access to tools to collaborate and model the
  problem, leading to a quick solution

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Business Activity Monitoring (BAM)

• BAM Issues
• Executives fail to consider the readiness of
  technology or of the business processes they want
  to monitor
• Change management issues are paramount
• Effective BAM requires working closely with the
  business units to identify the key indicators
  (CSF) and analytical techniques that provide
  reliable early warnings of impending issues
• Executives must let the responsible managers on
  the frontlines deal with their problems and
  issues in a timely manner before reacting