Business performance management is a set of
managementManagement in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
and analytic processes that enable the management of an
organizationAn organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
's performance to achieve one or more pre-selected goals. Synonyms for "business performance management" include
"corporate performance management" and
"enterprise performance management".
Business performance management is contained within approaches to
business process managementBusiness process management is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to...
.
Business performance management has three main activities:
- selection of goals,
- consolidation of measurement information relevant to an organization’s progress against these goals, and
- interventions made by managers in light of this information with a view to improving future performance against these goals.
Although presented here sequentially, typically all three activities will run concurrently, with interventions by managers affecting the choice of goals, the measurement information monitored, and the activities being undertaken by the organization.
Because business performance management activities in large organizations often involve the collation and reporting of large volumes of data, many software vendors, particularly those offering
business intelligenceBusiness intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....
tools, market products intended to assist in this process. As a result of this marketing effort, business performance management is often incorrectly understood as an activity that necessarily relies on software systems to work, and many definitions of business performance management explicitly suggest software as being a definitive component of the approach.
This interest in business performance management from the software community is sales-driven - "The biggest growth area in operational BI analysis is in the area of business performance management."
Since 1992, business performance management has been strongly influenced by the rise of the
balanced scorecardThe Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
framework. It is common for managers to use the balanced scorecard framework to clarify the goals of an organization, to identify how to track them, and to structure the mechanisms by which interventions will be triggered. These steps are the same as those that are found in BPM, and as a result balanced scorecard is often used as the basis for business performance management activity with organizations.
, owners have sought to drive strategy down and across their organizations, transform these strategies into actionable metrics and use analytics to expose the cause-and-effect relationships that, if understood, could give insight into decision-making.
History
Reference to non-
businessA business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
performance management occurs in
Sun TzuSun Wu , style name Changqing , better known as Sun Tzu or Sunzi , was an ancient Chinese military general, strategist and philosopher who is traditionally believed, and who is most likely, to have authored The Art of War, an influential ancient Chinese book on military strategy...
's
The Art of WarThe Art of War is an ancient Chinese military treatise that is attributed to Sun Tzu , a high ranking military general and strategist during the late Spring and Autumn period...
. Sun Tzu claims that to succeed in war, one should have full knowledge of one's own strengths and weaknesses as well as those of one's enemies. Lack of either set of knowledge might result in defeat. Parallels between the challenges in business and those of war include:
- collecting data - both internal and external
- discerning patterns and meaning in the data (analyzing)
- responding to the resultant information
Prior to the start of the
Information AgeThe Information Age, also commonly known as the Computer Age or Digital Age, is an idea that the current age will be characterized by the ability of individuals to transfer information freely, and to have instant access to knowledge that would have been difficult or impossible to find previously...
in the late 20th century, businesses sometimes took the trouble to laboriously collect data from non-automated sources. As they lacked computing resources to properly analyze the data, they often made commercial decisions primarily on the basis of
intuitionIntuition is the ability to acquire knowledge without inference or the use of reason. "The word 'intuition' comes from the Latin word 'intueri', which is often roughly translated as meaning 'to look inside'’ or 'to contemplate'." Intuition provides us with beliefs that we cannot necessarily justify...
.
As businesses started automating more and more systems, more and more data became available. However, collection often remained a challenge due to a lack of infrastructure for data exchange or due to incompatibilities between systems. Reports on the data gathered sometimes took months to generate. Such reports allowed informed long-term strategic decision-making. However, short-term tactical decision-making often continued to rely on intuition.
In 1989 Howard Dresner, a research analyst at
GartnerGartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut, United States. It was known as GartnerGroup until 2001....
, popularized "
business intelligenceBusiness intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....
" (BI) as an umbrella term to describe a set of concepts and methods to improve business decision-making by using fact-based support systems. Performance management builds on a foundation of BI, but marries it to the planning-and-control cycle of the enterprise - with enterprise planning, consolidation and modeling capabilities.
Increasing standards, automation, and technologies have led to vast amounts of data becoming available.
Data warehouseIn computing, a data warehouse is a database used for reporting and analysis. The data stored in the warehouse is uploaded from the operational systems. The data may pass through an operational data store for additional operations before it is used in the DW for reporting.A data warehouse...
technologies have allowed the building of repositories to store this data. Improved
ETLExtract, transform and load is a process in database usage and especially in data warehousing that involves:* Extracting data from outside sources* Transforming it to fit operational needs...
and
enterprise application integrationEnterprise Application Integration is defined as the use of software and computer systems architectural principles to integrate a set of enterprise computer applications.- Overview :...
tools have increased the timely collecting of data. OLAP reporting technologies have allowed faster generation of new reports which analyze the data. , business intelligence has become the art of sieving through large amounts of data, extracting useful information and turning that information into actionable knowledge.
Definition and scope
Business performance management consists of a set of management and analytic processes, supported by technology, that enable businesses to define strategic goals and then measure and manage performance against those goals. Core business performance management processes include
financial planningFinancial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set...
, operational planning, business modeling, consolidation and reporting, analysis, and monitoring of key performance indicators linked to strategy.
Business performance management involves consolidation of data from various sources, querying, and analysis of the data, and putting the results into practice.
Methodologies
Various methodologies for implementing business performance management exist. The discipline gives companies a top-down framework by which to align planning and execution, strategy and tactics, and business-unit and enterprise objectives. Reactions may include the
Six SigmaSix Sigma is a business management strategy originally developed by Motorola, USA in 1986. , it is widely used in many sectors of industry.Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability in manufacturing and...
strategy,
balanced scorecardThe Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
,
activity-based costingActivity-based costing is a special costing model that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each...
(ABC),
Total Quality ManagementTotal quality management or TQM is an integrative philosophy of management for continuously improving the quality of products and processes....
,
economic value-addIn corporate finance, Economic Value Added or EVA, a registered trademark of Stern Stewart & Co., is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors . Quite simply, EVA is the profit earned by the firm less the cost of...
, integrated strategic measurement and
Theory of ConstraintsThe theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...
.
The
balanced scorecardThe Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
is the most widely adopted performance management methodology.
Methodologies on their own cannot deliver a full solution to an enterprise's CPM needs. Many pure-methodology implementations fail to deliver the anticipated benefits due to lack of integration with fundamental CPM processes.
Metrics and key performance indicators
Some of the areas from which bank management may gain knowledge by using business performance management include:
- customer-related numbers:
- new customers acquired
- status of existing customers
- attrition of customers (including breakup by reason for attrition)
- turnover generated by segments of the customers - possibly using demographic filters
- outstanding balances held by segments of customers and terms of payment - possibly using demographic filters
- collection of bad debts within customer relationships
- demographic analysis
Demographic analysis includes the sets of methods that allow us to measure the dimensions and dynamics of populations. These methods have primarily been developed to study human populations, but are extended to a variety of areas where researchers want to know how populations of social actors can...
of individuals (potential customers) applying to become customers, and the levels of approval, rejections and pending numbers
- delinquency analysis of customers behind on payments
- profitability
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
of customers by demographic segments and segmentation of customers by profitability
- campaign management
- real-time dashboard
Dashboard provides at-a-glance views of key performance indicators relevant to a particular objective or business process...
on key operational metrics
- overall equipment effectiveness
Overall equipment effectiveness is a hierarchy of metrics which evaluates and indicates how effectively a manufacturing operation is utilized. The results are stated in a generic form which allows comparison between manufacturing units in differing industries...
- clickstream
A clickstream is the recording of the parts of the screen a computer user clicks on while web browsing or using another software application. As the user clicks anywhere in the webpage or application, the action is logged on a client or inside the web server, as well as possibly the web browser,...
analysis on a website
- key product portfolio trackers
- marketing-channel
A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process...
analysis
- sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
-data analysis by product segments
- callcenter metrics
Though the above list describes what a bank might monitor, it could refer to a telephone company or to a similar service-sector company.
Items of generic importance include:
- consistent and correct KPI-related data providing insights into operational aspects of a company
- timely availability of KPI-related data
- KPIs designed to directly reflect the efficiency and effectiveness of a business
- information presented in a format which aids decision-making for management and decision-makers
- ability to discern patterns or trends from organized information
Business performance management integrates the company's processes with
CRMCustomer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...
or
ERPEnterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
. Companies should become better able to gauge
customer satisfactionCustomer satisfaction, a term frequently used in marketing, is a measure of how products and services supplied by a company meet or surpass customer expectation...
, control customer trends and influence shareholder value.
Application software types
People working in business intelligence have developed tools that ease the work of business performance management, especially when the business-intelligence task involves gathering and analyzing large amounts of unstructured
dataThe term data refers to qualitative or quantitative attributes of a variable or set of variables. Data are typically the results of measurements and can be the basis of graphs, images, or observations of a set of variables. Data are often viewed as the lowest level of abstraction from which...
.
Tool categories commonly used for business performance management include:
- OLAP — online analytical processing, sometimes simply called "analytics" (based on dimensional analysis
In physics and all science, dimensional analysis is a tool to find or check relations among physical quantities by using their dimensions. The dimension of a physical quantity is the combination of the basic physical dimensions which describe it; for example, speed has the dimension length per...
and the so-called "hypercube" or "cube")
- scorecarding
The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
, dashboarding and data visualizationData visualization is the study of the visual representation of data, meaning "information that has been abstracted in some schematic form, including attributes or variables for the units of information"....
- data warehouse
In computing, a data warehouse is a database used for reporting and analysis. The data stored in the warehouse is uploaded from the operational systems. The data may pass through an operational data store for additional operations before it is used in the DW for reporting.A data warehouse...
s
- document warehouse
In the field of data warehouses, a document warehouse is a software framework for analysis, sharing, and reuse of unstructured data, such as textual or multimedia documents....
s
- text mining
Text mining, sometimes alternately referred to as text data mining, roughly equivalent to text analytics, refers to the process of deriving high-quality information from text. High-quality information is typically derived through the devising of patterns and trends through means such as...
- DM — data mining
Data mining , a relatively young and interdisciplinary field of computer science is the process of discovering new patterns from large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics and database systems...
- BPO — business performance optimization
- EPM — enterprise performance management
Enterprise Performance Management is a management field of Business Performance Management which considers the visibility of operations in a closed-loop model across all facets of the enterprise. There are several emerging domains in the EPM field which are being driven by corporate initiatives,...
- EIS — executive information system
An executive information system is a type of management information system intended to facilitate and support the information and decision-making needs of senior executives by providing easy access to both internal and external information relevant to meeting the strategic goals of the organization...
s
- DSS — decision support system
A decision support system is a computer-based information system that supports business or organizational decision-making activities. DSSs serve the management, operations, and planning levels of an organization and help to make decisions, which may be rapidly changing and not easily specified in...
s
- MIS — management information system
A management information system provides information needed to manage organizations efficiently and effectively. Management information systems involve three primary resources: people, technology, and information. Management information systems are distinct from other information systems in that...
s
- SEMS — strategic enterprise management
Strategic Enterprise Management refers to management techniques, metrics and related tools that companies can use to make strategic decisions. In practice, it is an advertising term intended to lend credibility to an information technology system.-Software:...
software
Design and implementation
Questions asked when implementing a business performance management program include:
- Determine the short- and medium-term purpose of the program. What strategic goal(s) of the organization will the program address? What organizational mission/vision does it relate to? A hypothesis needs to be crafted that details how this initiative will eventually improve results / performance (i.e. a strategy map
A strategy map is a diagram that is used to document the primary strategic goals being pursued by an organization or management team. It is an element of the documentation associated with the Balanced Scorecard, and in particular is characteristic of the second generation of Balanced Scorecard...
).
- Assess current information-gathering competency. Does the organization have the capability to monitor important sources of information? What data is being collected and how is it being stored? What are the statistical parameters of this data, e.g., how much random variation does it contain? Is this being measured?
- Estimate the financial consequences of a new BI initiative. Assess the cost of the present operations and the increase in costs associated with the BPM initiative. What is the risk that the initiative will fail? This risk assessment should be converted into a financial metric and included in the planning.
- Customer and stakeholder queries
- Determine who will benefit from the initiative and who will pay. Who has a stake in the current procedure? What kinds of customers / stakeholders will benefit directly from this initiative? Who will benefit indirectly? What quantitative / qualitative benefits follow? Is the specified initiative the best or only way to increase satisfaction for all kinds of customers? How will customer benefits be monitored? What about employees, shareholders, and distribution channel members?
- Information requirements need operationalization
In humanities, operationalization is the process of defining a fuzzy concept so as to make the concept clearly distinguishable or measurable and to understand it in terms of empirical observations...
into clearly defined metrics. Decide which metrics to use for each piece of information being gathered. Are these the best metrics and why? How many metrics need to be tracked? If this is a large number (it usually is), what kind of system can track them? Are the metrics standardized, so they can be benchmarkedBenchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
against performance in other organizations? What are the industry standard metrics available?
- Measurement methodology-related queries
- Establish a methodology or a procedure to determine the best (or acceptable) way of measuring the required metrics. How frequently will data be collected? Are there any industry standards for this? Is this the best way to do the measurements? How do we know that?
- Monitor the BPM program to ensure that it meets objectives. The program itself may require adjusting. The program should be tested for accuracy, reliability
In statistics, reliability is the consistency of a set of measurements or of a measuring instrument, often used to describe a test. Reliability is inversely related to random error.-Types:There are several general classes of reliability estimates:...
, and validityIn science and statistics, validity has no single agreed definition but generally refers to the extent to which a concept, conclusion or measurement is well-founded and corresponds accurately to the real world. The word "valid" is derived from the Latin validus, meaning strong...
. How can it be demonstrated that the BI initiative, and not something else, contributed to a change in results? How much of the change was probably random?
See also
- Business process management
Business process management is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to...
- Integrated business planning
Integrated business planning refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance...
- Data Presentation Architecture
Data presentation architecture is a skill-set that seeks to identify, locate, manipulate, format and present data in such a way as to optimally communicate meaning and proffer knowledge.-Origin and context:...
- List of management topics
- List of information technology management topics
- Electronic performance support systems
An Electronic Performance Support System is any computer software program or component that improves user performance.Electronic Performance Support Systems is also the name of a book, published in 1991, by Gloria Gery.- Uses :...
Further reading
- Mosimann, Roland P., Patrick Mosimann and Meg Dussault, The Performance Manager. 2007 ISBN 978-0-9730124-1-5
- Dresner, Howard, The Performance Management Revolution: Business Results Through Insight and Action. 2007 ISBN 978-0470124833
- Dresner, Howard, Profiles in Performance: Business Intelligence Journeys and the Roadmap for Change. 2009 ISBN 978-0470408865
- Cokins, Gary, Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. 2009 ISBN 978-0-470-44998-1
- Cokins, Gary, Performance Management: Finding the Missing Pieces (to Close the Intelligence Gap). 2004 ISBN 978-0-471-57690-7
- Paladino, Bob, Five Key Principles of Corporate Performance Management. 2007 ISBN 978-0470009918
- Wade, David and Ronald Recardo, Corporate Performance Management. Butterworth-Heinemann, 2001 ISBN 0-87719-386-X
External links