In prior columns, we reviewed the basics of Six Sigma including its definition, methodologies and "martial arts" roles. Now we'll shift gears slightly to examine corporate performance management (CPM).
CPM, not merely the next industry buzzword, is garnering a reputation and respect for finally linking business strategy with targeted metrics, powerful analytics and flexible reporting options to actually deliver improved business results. Rising interest in CPM is also generating increased demand for dashboard development. This month and next, we'll provide an introduction to CPM, including a basic definition, key components and benefits, and look at how CPM and the digital dashboard connect.
The Search for Meaning
One would think that defining corporate performance management would prove a simple endeavor. However, various business intelligence tool vendors, application suite vendors and market research and consulting firms have complicated this task by propagating a set of distinctive aliases for related concepts including business performance management (BPM), enterprise performance management (EPM) and strategic enterprise management (SEM).
Hyperion, for example, states that BPM will "enable organizations to translate strategies into plans, monitor execution and provide insight to manage and improve financial and operational performance." Business Objects similarly defines EPM as "a process that connects goals, metrics and people in order to drive improved management, analysis and action across the organization." SAP promotes SEM as "the processes that link strategy with operational activities and value drivers and thus turn strategy into everyday business for every employee." Figure 1 provides a snapshot of some current performance management lexicon and associated proponents.
Figure 1: Performance Management Topology
CPM takes a holistic approach that focuses on how an organization develops, implements and monitors its strategic plans. Gartner, Inc. was apparently first to coin and define CPM as "the methodologies, metrics, processes and systems used to monitor and manage an enterprise's business performance." As good a definition as any, it's the one we'll use.
The CPM Framework
While there are multiple ways to define and describe performance management, the good news is that they all are focused on a common objective linking enterprise-wide strategy with enterprise-wide operations through key performance indicators (KPIs). Another consistent thread is the framework involved. Each definition of corporate performance builds on Gartner's primary construct methodologies, metrics, processes and systems as the core ingredients for performance management success. We define these as follows:
- Methodologies: Systematic and sustainable procedures for tracking, measuring and improving business performance (i.e., balanced scorecard, economic value added [EVA], activity-based costing [ABC] and Six Sigma).
- Metrics: Real-time measures (KPIs) captured in a Web-based dashboard focused on key issues and critical data for dynamic decision making (i.e., return on investment [ROI], customer relationship management [CRM] analytics and supply chain management [SCM] analytics).
- Processes: Performance feedback loops link strategic, operational and activity levels with the ability to respond to dynamic market conditions (i.e., strategy formulation, planning and budgeting, forecasting and business tracking).
- Systems: Technology solutions (or information systems) that combine methodology, metrics and processes in a single enterprise-wide reporting and analysis environment designed to track, understand and manage information (i.e., data marts, data warehouse and business intelligence applications).
CPM combines and leverages business best practices and information technology to drive strategy implementation throughout the organization. Success is contingent on the ability to access quality data in a timely manner from multiple and disparate sources. Several back-end options include custom data warehouses with custom interfaces to data sources, data warehouse architecture integrated with enterprise suites (SAP, PeopleSoft) and data architecture embedded within the CPM tool (Cognos, Business Objects). Development of the powerful back-end data access, data quality and data integration processes/platforms remains the greatest challenge (and, not incidentally, a significant up-front investment).
On the front end, the Web-based digital dashboard provides a collaborative customized interface that delivers mission-critical information on a real-time basis. The ability to drill through for more extensive and detailed analysis is facilitated by underlying multidimensional data mart(s) with a sophisticated analytical engine for statistical forecasting and data mining. The final key is the CPM suite, which includes strategic planning and financial applications that link strategy to operational budgets with a closed-loop life cycle approach.
When properly orchestrated, these components provide true business value delivering the right information to the right people at the right time in the right format to support business decision making and generate improved results.
In future columns, we'll examine data integrity and integration issues critical to the support of CPM, review the benefits of tracking, measuring and reporting CPM and its various components, and compare similarities and goals shared by CPM and Six Sigma.
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