In this article Michael Coveney, senior FSN writer and author of the book “Strategy to the MAX” takes a fresh look at the world of performance management. He challenges the existing obsession with CPM tools that fail to satisfy corporate objectives and instead proposes a new framework to illustrate what components are needed to deliver an executable strategy and how they should really fit together.
Imagine that the only way you could have a car was to buy the individual components from one or more manufacturers. Suppliers would be selling the power of their engines, dashboard vendors would ‘wow’ you with their fancy dials and gauges, while those supplying the control mechanisms would impress you on the benefits of using the latest technology. As it would be up to you to put it all together, integration would be a key requirement for those with previous ‘car-building’ experience. Also imagine if you then had to supply your own fuel to power the vehicle, which of course would need to match the engine or at least go through various transformations to make it suitable for its intended purpose. I wonder how many cars resulting from this process would fulfil the original vision that the user imagined?
I’m sure some of you are with me in this analogy, as something similar happens with decision support systems. Managers are faced with a range of tools and technologies under various vague names, such as CPM, BPM, BI, OLAP – all of which claim to be able to support organisational decision-making. But, as with the car analogy, it is up to the end-user to figure out how it all fits together.
Maybe this is part of the reason why a recent Gartner survey on BI, showed that “improved decision-making” is the key driver of purchases, with users placing an emphasis on “ease of use” and “rapid deployment”. The survey also found that most BI applications are disconnected from the business process and the decisions they support, and that many decisions that are made have a negative or suboptimal effect on performance.
The cause of these issues is not so much the technology itself, but rather the way in which these technologies have been put together. According to Dean Spitzer, a world-renowned expert on performance measurement, today’s reporting and analysis systems are used to create separate, disparate silos of information that tend to focus on the performance of individual departments. Because of this, the decisions that emanate can often undermine the performance of other departments as well as the achievement of overall organisational strategy.
In working with many organisations, I have often found users confused as to the role of the different tools available. Quite often managers see CPM as just a collection of programs to support planning and reporting, while BI is for detailed analysis through the ‘slice, dice and rotating’ of data. If this is the case then two things are sure. First, they organisation is unlikely to realise the potential of what they have, and two, they are likely to purchase tools that are totally unsuited for purpose.
CPM Framework
In response to this ‘mish-mash’ of technologies and systems, organisations need to first establish a system framework that meets the objectives of Corporate Performance Management. Such a framework must support organisational decision-making and would combine the following four areas:
Picture 1: Performance Management Framework
- A business model that shows how value is created by the business.
- A strategic/tactical plan that is focused on improving parts of the business model.
- Organisational resources (money, people, assets) that can be applied to enable the business model to function and that allow strategic initiatives to be implemented.
- Management processes that direct and control planning, funding and monitoring of business operations.
All four components are intertwined with each other and should operate within a technology framework as a continuous approach to performance management. All other technology systems, processes and analyses should support this central framework.
Let’s take a closer look at each of these areas.
CPM Business Model.
At the heart of a CPM system is an organisation model containing the relationship of activities that lead to organisational objectives. Although this model will differ between industries, it will typically include how revenue/income is generated; how products/services are manufactured / created and distributed to customers; how employees are recruited, trained and assessed; and how the organisation complies with its legal responsibilities.
Picture 2: Business Model
These activities are linked to one or more organisation departments that determine who is responsible for their execution. Some activities will have a one-to-one relationship with the organisation structure, but other activities will go across multiple departments.
Quite often the relationships between activities can be built as a driver-based model and used to plan or assess the operation of the business. Each activity can have different sets of KPIs that measure success; its implementation; the resources consumed; and the risks involved.
Strategy
The second area – Strategy – typically has an emphasis on how performance of the business model can be improved. It focuses on one or more organisational objectives and details specific strategic initiatives that show how that improvement is to be actioned, the resources that will be required, and the impact they should have on the objectives being supported.
Measures held will typically consist of a set of targets through which the effectiveness of initiatives can be monitored, and various business assumptions that were made when agreeing the initiatives.
Resources
The third area relates to the assets that the organisation has at its disposal, with financial resources being the focus of the budget. These should ideally be allocated to both sustaining the business model and in ensuring that strategic initiatives are properly resourced at the right time.
Organisational processes.
The final area of the framework are the organisation’s management processes that direct and control action. This includes how the business model should operate; the way in which strategy is developed and put into practice; and how resources are allocated and monitored. These processes are continuous in nature and should adapt to a volatile business environment.
Technology Solutions
As with a car, these four components need to be combined and operated as a single technology solution. It needs to support decision-making through the total integration of driver based modelling (the engine) and strategy improvement plans (visual indicators showing the intended direction) with organisational resources (the fuel) and how management processes are controlled (the pedals and steering wheel).
None of these components can be run in isolation - the degree of integration will determine how smooth the ride will be.
Picture 3: Components of a CPM technology solution
Around this central CPM system will be a range of BI analytical applications that provide insight into particular aspects of each component that can then be used to improve the business model, modify or develop new strategic initiatives, and if necessary, the re-allocation of resources.
The Benefits
When these components are integrated correctly, they provide
- A single, consistent framework by which the whole organisation manages performance
- Focus on the things that are critical to the organisation as a whole
- Reports and analyses that tells the story of ‘what and why’
- Information in context that links strategy with resources and monitors the effectiveness of processes
- The basis for all decision-making
Exactly how this integration can be achieved will be reserved for a future article. You can find MIchael on Linkedin.
