Chapter 5
Business Performance Management
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
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)
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
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
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
Business Performance
Management (BPM) Overview
Strategize:
Where Do We Want to Go?
Strategic planning


Tasks common to the strategic planning
process:
1.
2.
3.
4.
5.
6.
7.
8.
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
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
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
Strategize:
Where Do We Want to Go?
The strategy gap


Four sources for the gap between strategy
and execution:
1.
2.
3.
4.
Vision
People
Management
Resources
Plan:
How Do We Get There?
 Operational

planning
Operational plan
Plan that translates an organization’s strategic
objectives and goals into a set of well-defined
tactics and initiatives, resources requirements,
and expected results
Plan:
How Do We Get There?
 Operational


planning
Tactic-centric plan—tactics are established to
meet the objectives and targets established in
the strategic plan (used by best practices
organizations
Budget-centric plan—a financial plan or
budget is established that sums to the
targeted financial values
Plan:
How Do We Get There?
 Financial


planning and budgeting
An organization’s strategic objectives and key
metrics should serve as top-down drivers for
the allocation of an organization’s tangible
and intangible assets
Resource allocations should be carefully
aligned with the organization’s strategic
objectives and tactics in order to achieve
strategic success
Monitor:
How Are We Doing?
 A comprehensive
framework for
monitoring performance should address
two key issues:


What to monitor
How to monitor
Monitor:
How Are We Doing?
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
Monitor:
How Are We Doing?
Act and Adjust:
What Do We Need to Do Differently?
Hackett Group’s benchmarking process
divides planning and management
reporting into four sub-processes:

1.
2.
3.
4.
Strategic planning
Operational and financial planning
Reporting
Forecasting
Act and Adjust:
What Do We Need to Do Differently?

Each sub-process is evaluated in terms of
five dimensions of efficiency and
effectiveness:
1.
2.
3.
4.
5.
Strategic alignment
Partnering
Process
Technology
People and organizations
Act and Adjust:
What Do We Need to Do Differently?
 The
Hackett Group’s 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
Act and Adjust:
What Do We Need to Do Differently?
 The
Hackett Group’s 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
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
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
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
Effective Performance
Measurement
Basic ingredients include:





Measures should focus on key CSF’s
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.
BPM Methodologies
 An
effective performance measurement
system should help:




Align top-level strategic objectives and bottomlevel 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
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
BPM Methodologies
 Balanced
scorecard (BSC)
A performance measurement and
management methodology that helps translate
an organization’s financial, customer, internal
process, and learning and growth objectives
and targets into a set of actionable initiatives
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:
1. Customer
2. Internal business process
3. Learning and growth
BPM Methodologies
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
BPM Methodologies

Aligning strategies and actions
•
BSC enables an organization to align its actions with
its overall strategies through a series of interrelated
steps:
1.
2.
3.
4.
5.
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-andeffect diagram called a strategy map
BPM Methodologies

Strategy map
A visual display that delineates the
relationships among the key organizational
objectives for all four BSC perspectives
BPM Methodologies
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:
1.
2.
3.
Strategic objectives from the four perspectives
The measures, targets, and initiatives associated with each
objective
The cause-and-effect relationships among the objectives
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
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
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
BPM Architecture and Applications
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:
1. Database tier
2. Application tier
3. Client or user interface
BPM Architecture and Applications
BPM architecture


Database tier designs include:
•
•
•
Transactional data stores
Application data marts
Centralized data warehouse
BPM Architecture and Applications
BPM architecture


BPM applications:
1.
2.
3.
4.
5.
Budgeting, planning, and forecasting
Profitability modeling and optimization
Scorecard applications
Financial consolidation
Statutory and financial reporting
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
BPM Architecture and Applications
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
Performance Dashboards
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
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)
Performance Dashboards
Dashboards versus scorecards


Three types of performance dashboards:
1. Operational dashboards
2. Tactical dashboards
3. Strategic dashboards
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)
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
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 upto-date with any recent changes in the business.
• Require little, if any, customized coding to
implement, deploy, and maintain
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
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
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
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