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Which Performance Management Process or Loop Yields the Most?

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What is the correct scope and scale to describe an organization’s ideal performance management framework? Is it a narrow one that just has visual dashboards and improved financial reporting? Or is it a broad one like the closed-loop management system diagram recently proposed by Robert S. Kaplan and David P. Norton in “Mastering the Management System,” published by the Harvard Business Review, which arguably captured their life’s contribution to applying business methods?

 

My belief is that the answer lies somewhere in between. However, to understand the answer to an admittedly vague question, we need to frame this discussion in the context of  current issues related to performance management. Where has performance management been and where is it headed? The answer can shed light on its status today.

 

The Status of the Performance Management Discipline

 

In the beginning, performance management was mainly associated with the human resources and function focused on the individual employee. In the 1990s, the term enterprise performance management began to appear in the media; the adjective “enterprise” has been conveniently dropped for brevity. The 1990s interpretation of the term was fairly narrow. It was more synonymous with performance measurement than management. It typically reported high-level, aggregate results of the organization or, at the other extreme, department statistics, such as absenteeism rates.  

 

As the business process management (BPM) era of the 1990s matured, managers began to look across the department boxes of the hierarchical organization chart. New process-based nomenclature like “quote-to-cash” and “purchase-to-pay” reflected internal loops capturing short-term transactional cycles involving multiple cost centers - transcending the so-called organizational silos. The results were not rapid, because it took years for management thinking to move from a departmental perspective of transaction systems to a process-oriented one. However, the shift in mind set - lead by shouts of “Don’t fix it, break it” - reflected the use of technology to replace encrusted and tangled manual procedures that were not worth reforming. The result was substantial productivity gains.

 

As IT vendors began to integrate their various software modules, the discipline of performance management was neatly grouped around some core software applications, such as strategy maps, budgeting, planning, scorecarding and reporting. However, spreadsheets and Microsoft PowerPoint diagrams continue to be prevalent in the mix. However, even the organizations that have automated several of these applications still have high, untapped potential. They now have the opportunity to reach their full potential by deploying the complete vision of performance management.

 

Performance Management: Process, System, Framework or Discipline

 

Is performance management a process, system, framework, discipline or what?

While many consultants and software vendors present compelling diagrams of performance management as a linkage of databases and software tools that imply seamless integration, the realized benefits at the ground level in most organizations have been less than I expected at this stage. But, I have high expectations. One problem is that the adoption of performance management is only growing gradually; it’s restricted by a behavioral bunker and silo mentality as well as insufficient executive management involvement and leadership.       

 

An explanation for this slow rate of adoption involves ongoing confusion and ambiguity as to exactly what performance management is. Is it a process? Is it software? Is it a discipline? I describe enterprise performance management as the integration of multiple methodologies embracing the full business cycle that is embedded with all flavors of analytics (e.g., segmentation analysis), but particularly predictive analytics. That was a mouthful, there are key aspects:

 

  • Technologies support the methodologies. Gaining competency with a methodology (e.g., activity-based cost management for customer profitability analysis and strategy mapping) that is automated will turbocharge its yield.
  • Integrate the methodologies. Customers, products, services, processes, resources, suppliers, etc. are all connected.
  • Embed each methodology with analytics. It is not enough to report. Improving performance involves answering three questions: What? So what? Then what? Reporting only answers the first question.
  • Emphasize predictive analytics. As change accelerates and management better understands the impact of future uncertainty about performance levels, executives are altering their managerial style. They are shifting from control to anticipatory planning, in other words from after-the-fact reacting to proactive adjustments and actions.
  • Embrace the full business cycle. Performance management should also include knowing the value and preferences of customers. Typically, in the traditional scope of performance management, sales and marketing are excluded.

Once the scope and full vision of enterprise performance management is better understood, my belief is its adoption rate will accelerate.

 

What is the Correct Scope for Performance Management?

 

Kaplan and Norton’s closed-loop diagram reflects the plan-do-check-act (PDCA) repetitive cycle embraced in the 1980s by the quality management community. It is at the highest level and will be useful in the future. My belief is that the more useful scopes focus on the continuous and dynamic flow that starts with customers, formulates strategy and then executes the strategy with measures, customer targeting, risk management, streamlined order fulfillment processes (i.e., smarter, better, faster and cheaper) and innovation.

 

When performance management is referred to as seamless integration, it occurs at this rubber-meets-the-road level of decision-making that’s related to which types of customers to retain grow, to newly acquire, as well as the correct type and level of resources used to accomplish mission-critical tasks. At this level, it is an optimization game.   

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