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Turning Strategy into Action, Part 4

  • October 01 2004, 1:00am EDT

In recent months, business and IT professionals have been inundated with articles about corporate performance management (CPM) and its promises of improved productivity, operational efficiency and competitive prowess. As a consultant dedicated to helping companies develop and implement CPM solutions, it occurs to me that an early and common roadblock to successful CPM efforts is the absence of an assessment of the company's CPM proficiency. The ability of a company to assess its CPM proficiency level and address any deficiencies in key components is a critical success factor to realizing the compelling promises of any CPM solution.

All too often, a company will deploy an executive dashboard or implement a business intelligence (BI) solution for CPM only to end up with the realization they have discovered more unanswered questions than they had when they started. Although the company may have gained insight into some processes, the CPM solution doesn't provide the information the company thought would help them manage critical components of business performance. It is not uncommon to hear from companies that their CPM efforts have been plagued by false starts, confusion or capabilities that fall well short of management expectations. The CPM Proficiency Model, introduced later in this article, is the result of my attempts to understand and classify, or categorize, the root causes of failure in these companies, and to help other companies use these lessons learned to improve their opportunity for success.

There are many different steps that can be taken to move a company toward an effective corporate performance management solution. In a proficient CPM organization, the company has established performance objectives that are consistently and frequently communicated throughout the organization to ensure cross-functional alignment. These performance objectives are examined for linkage to business processes and their measures, or key performance indicators (KPIs). KPIs with the highest significant correlation to corporate objectives are chosen to plan, measure and report upon, making them highly visible measures and predictors of corporate performance results. KPIs are measured in a consistent and automated fashion as an integral part of the company's systems and data infrastructure. Finally, the company has management sponsorship and executive vision to ensure CPM becomes a cultural reality and not just another tactical project.

In a non-proficient CPM organization, there is often little correlation between corporate performance objectives and KPIs. KPIs are used to measure business process outcomes; however, there is no agreement that KPIs are used to measure business processes that are the most effective predictors of corporate performance success. The linkages between people, processes and systems are often strained and sometimes broken. The results of CPM efforts in these companies may be characterized by confusion, frustration, false starts and outright failure.

This article will examine the idea that many early exploratory efforts into CPM can turn into clear and considerable failures unless the organization is aware of where it stands relative to specific measurable components of CPM proficiency. The company's CPM efforts should then be tailored to overcome deficiencies and optimize competencies in each of these critical components. The CPM Proficiency Model provides companies with guidance on how to evolve toward a culture of CPM excellence.

Fundamental Components of CPM Proficiency

CPM is the application of fundamentally sound business management practices, enhanced by timely and accurate information, in order to effectively communicate, comprehend and control (C3) the performance of an organization.

Simply put, communication, comprehension and control define the exercise of business management over the resources of the organization in the accomplishment of corporate performance objectives. C3 is performed through the arrangement of people, processes and information systems employed by management to plan, direct, coordinate and control the enterprise in the achievement of its objectives. C3 builds upon the foundation of existing resources, including people, business processes, operational systems and business intelligence (BI) applications to:

  • Identify key performance objectives,
  • Measure progress toward identified performance objectives,
  • Provide the information necessary to communicate expectations and overall progress and understand exceptions as necessary,
  • Comprehend the meaning of performance trends over time, and
  • Take action to control the organization in its efforts to achieve performance objectives.

How successful a company will be in achieving communication, comprehension and control of its resources to optimize corporate performance results is largely dependent upon several fundamental components of CPM proficiency (see Figure 1). Descriptions of these components follow.

Figure 1: The CPM Proficiency Model

Executive vision can be defined as a set of shared corporate objectives that are communicated throughout the organization. As a company improves its CPM proficiency, the corporate objectives become more specific, measurable, actionable, realistic and time-bound. Objectives are more completely defined and more consistently communicated throughout the organization.

Business processes are defined as activities that are required to produce, procure and sell the products and services of a company and manage business operations. The business process component of the CPM Proficiency Model describes the ability to measure these processes to determine progress toward corporate objectives. It also looks at ways to improve the effectiveness of existing business processes that support the CPM solution. As CPM proficiency matures in the business process component, the company is able to define both expected and actual process measurements and predict performance objective outcomes based on measured process variances.

Information infrastructure is defined as the collection of systems that create, collect, maintain and analyze the information assets of a company. As CPM proficiency in the information infrastructure component matures, a company develops a complete, consistent and integrated set of information assets. Proficiency implies the ability of the company to share and trust in the accuracy of data used to define and measure business process results as well as understand and take action as a result of exceptions.

Performance management refers to the ability of the organization to influence individual performance based on collective alignment and focus on shared corporate objectives. CPM proficiency in this component is characterized by the institutionalization of performance incentives and compensation plans that support the achievement of these objectives. Companies proficient in performance management focus on rewarding individuals for achieving collective corporate results.

Action plan refers to the company's CPM road map. The CPM road map becomes more complete and is recognized as a long-term, strategic business enabler as a company improves its CPM action plan proficiency. Regular reviews and updates of corporate objectives, business processes, KPIs and the company's information infrastructure are integral components of the CPM action plan.

CPM Proficiency Levels

The CPM Proficiency Model provides a five-tier measurement scale for each of the critical components of CPM proficiency. In ascending order, levels 1 through 5 are categorized as heroic efforts, evolving corporate performance manageability, coordinated CPM, collaborative CPM and fully optimized CPM, or C3 (communication, comprehension and control).

The resulting assessment of the five critical components -- executive vision, business processes, information infrastructure, performance management and action plan/road map, indicate the starting point for a company as it embarks on its efforts to improve CPM capabilities.

The fully optimized, or C3, company is a company that is continually and effectively turning CPM strategy into action. This company is characterized by a well-communicated strategic vision and set of corporate objectives, an institutionalized culture of continuous business process improvement, management of information assets as a corporate responsibility, performance-based compensation driven by the achievement of corporate objectives and a well-documented, iterative road map for continuous delivery of incremental CPM capability. The C3 company is the leader in its competitive marketplace.

At the opposite end of the scale, the heroic efforts company is a company whose corporate objectives are typically "thrown over the wall" on an annual basis, with the most fervent hope that somehow the entire organization will understand and be motivated to take whatever actions are required to achieve these objectives. The heroic efforts company makes what progress it can, but only through the heroic efforts of individuals or functional organizations that happen to get it right. There is no alignment of focus on the achievement of specific, measurable and beneficial outcomes that cross functional boundaries within the organization. Functional managers in the level 1 company are largely left to their own devices to determine, without any certainty of outcome, what performance improvement actions they should attempt.

The level 2, or evolving CPM, company recognizes the importance of the linkage between corporate objectives and critical business processes. Attempts to measure the effectiveness of business processes through KPIs are beginning to occur. Company associates are talking about corporate objectives, but the results measurement and reporting processes are still inconsistent across the organization. Performance objectives are tied to fixed annual targets, providing limited motivation to perform outside of the "plan" or acknowledge external factors that may impact performance.

The level 3, or coordinated CPM, company has begun to recognize the value of consistent measurement of business results and is making attempts to improve the information infrastructure to provide automated measurement and reporting processes. Corporate objectives and KPIs are strongly linked, but there is no mature process to evaluate and refine corporate strategy in a timely fashion. Business process measurement may still be highly "vertical-ized" within business areas and there is opportunity to develop a consistent framework in which processes and KPIs can be measured cross-functionally.

The level 4, or collaborative CPM, company is well on its way to CPM excellence. Corporate objectives drive the identification of critical business processes whose results are measured and analyzed continuously and automatically (objectively). Performance incentives for associates are driven by achievement of corporate objectives and there is a high degree of collaboration evident throughout the business and functional areas of the organization. Objectives are moved from fixed annual targets to a more adaptive, ongoing business forecasting process with objectives tied to relative performance versus peers.

The CPM Proficiency Model provides companies with a framework by which they can assess their current proficiency levels in the five critical components of CPM. By performing this assessment, a company can identify deficiencies that must be addressed to optimize CPM strategic planning and development.

For example, in a recent CPM proficiency survey administered by ThinkFast Consulting, 40 percent of respondents indicated they did not have corporate performance objectives that met the "SMART" (specific, measurable, actionable, results-oriented and time-bound) criteria. If a company recognizes that they fall into this category, they can make significant strides toward effective CPM if they spend time enhancing objectives to make them "SMART-er." As an example, there is an obvious difference between a corporate objective of "grow the business" and one of "improve profitability of product line X by four percent this year." The organizational consequences of the first objective are primarily accidental in nature; that is, the achievement of company growth will largely be dependent upon doing business "as usual," as influenced by largely circumstantial factors beyond anyone's planning and comprehension and, much less, control. The consequences of the SMART objective, however, provide all functional activities within the business with a specific and measurable outcome against which their efforts will be measured. This objective sends a message to the entire organization that there is intent to measure what matters, and what matters is increasing the profitability of a specific product line by four percent before year-end.

Another example from the CPM proficiency survey is that nearly six of every 10 companies surveyed indicated that functional organizations or business units had defined KPIs that directly apply to corporate performance objectives. Past the point that business processes were being measured using KPIs, however, there was much room for improvement. Companies surveyed indicated the likelihood for consistency of measured results across departments was only approximately 50 percent. This tells us that KPI results are just as likely to be a source of contention or dispute across the organization as they are to be agreed upon. Exacerbating the concern of inconsistent KPI measurement results is the fact that many companies also indicated that business analysts were just as likely to withhold information from other departments as they were to share it. The bottom line was that 30 percent of the companies surveyed believe KPI results did not compel management to take specific actions to improve performance. The inconsistent measurement of KPIs also causes one to wonder how the other 70 percent of companies actually understand, with any certainty of outcome, what performance improvement actions to take.

CPM Proficiency and the Prediction of Performance

In addition to a company's assessment of CPM proficiency using the CPM Proficiency Model, it is important to understand that the five key components in CPM must be present in order to ensure CPM success. As Figure 2 illustrates, proficiency in all critical CPM components results in organizational alignment for CPM. When this alignment occurs, a company is able to apply fundamentally sound business management practices, enhanced by timely and accurate information, in order to effectively communicate, comprehend and control the performance of the organization.

Figure 2: Five Key CPM Components

The white areas in Figure 2 depict proficiency gaps in critical CPM components. A proficiency gap in any critical CPM component also results in mostly predictable, albeit less desirable, results. For example, if the proficiency gap is in executive vision, a CPM initiative will often result in organizational confusion. By definition, the starting point for CPM is the definition of a set of corporate performance objectives that provide focus and alignment for the entire enterprise. The absence of performance objectives renders the other CPM components largely guesswork, and the result is a CPM initiative that is ineffective and a source of significant frustration and constant confusion throughout the company.

A CPM proficiency gap in identifying and measuring key business processes will often result in organizational chaos. It is not unusual in these instances to find the company has implemented, or is attempting to implement, management dashboards in all areas of the company to display results of processes that may or may not have significant impact on overall corporate performance results. In the case where compensation is linked to departmental objectives, it is not uncommon to see only the most predictable (and sometimes mundane) business processes being measured with any enthusiasm. In these situations, a company can find itself measuring many processes, with inconsistent and sometimes conflicting results, creating a divisive and frenzied organizational environment with very little focus on shared objectives.

A CPM proficiency gap in information infrastructure often results in organizational conflict. In many companies, sources of information used to manage and report upon progress to performance objectives are disjointed, at best. Information used to measure KPIs comes from multiple databases, transaction systems and manually generated spreadsheets. In these cases, it is difficult to trust, analyze and act upon reported discrepancies with any certainty of outcome. The absence of a single version of the truth from which performance measures can be sourced will significantly increase the risk of organizational conflict.

A CPM proficiency gap in performance management will often result in an absence of accountability for corporate performance results and, as a consequence, very modest opportunity for real organizational change. While there is clearly an attempt to link individual performance (and compensation) to the achievement of overall corporate performance objectives in many companies, most associates will only feel comfortable with this linkage when they have a good understanding of what specific actions they can take to influence results.

A CPM proficiency gap in development of an action plan or road map will often result in CPM efforts that fall short of management expectations. Over time, these efforts constitute numerous false starts at introducing CPM capabilities to the company. While many companies are developing CPM action plans and road maps, there is often much room for improvement to ensure the inclusion of all the essential CPM proficiency components in such a plan.

The CPM Proficiency Model represents a common-sense assessment approach for any company that is seeking to improve its corporate performance management capabilities. The model provides a framework for determining the point from which a company is embarking on its journey to communicating, comprehending and controlling corporate performance. The model will help companies identify deficiencies that should be addressed in order to optimize their CPM planning and development efforts. Understanding the likely outcomes of CPM initiatives that have gaps in critical components will help companies achieve success by avoiding the mistakes commonly made by others. The CPM Proficiency Model is an attempt at providing companies with a disciplined and consistent approach to planning and managing successful CPM initiatives.

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