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Chapter 5 Business Performance Management. Learning Objectives  Understand the all-encompassing nature of business performance management (BPM)  Understand.

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Presentation on theme: "Chapter 5 Business Performance Management. Learning Objectives  Understand the all-encompassing nature of business performance management (BPM)  Understand."— Presentation transcript:

1 Chapter 5 Business Performance Management

2 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

3 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)

4 Business Performance Management (BPM) Overview  BPM Defined Business performance management (BPM) 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

5 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 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 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 BPM is part of the daily work of managers

6 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: 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 objectivesSetting goals and objectives Establishing initiatives and plans to achieve those goalsEstablishing initiatives and plans to achieve those goals Monitoring actual performance against the goals and objectivesMonitoring actual performance against the goals and objectives Taking corrective actionTaking corrective action

7 Business Performance Management (BPM) Overview

8 Strategize: Where Do We Want to Go?  Strategic planning Tasks common to the strategic planning process: Tasks common to the strategic planning process: 1.Conduct a current situation analysis 2.Determine the planning horizon 3.Conduct an environment scan 4.Identify critical success factors 5.Complete a gap analysis 6.Create a strategic vision 7.Develop a business strategy 8.Identify strategic objectives and goals

9 Strategize: Where Do We Want to Go?  Strategic planning Critical success factors (CSF) 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 Strategic vision A picture or mental image of what the organization should look like in the future

10 Strategize: Where Do We Want to Go?  Strategic planning Strategic objective Strategic objective A broad statement or general course of action prescribing targeted directions for an organization Strategic goal Strategic goal A quantified objective with a designated time period

11 Strategize: Where Do We Want to Go?  The strategy gap Four sources for the gap between strategy and execution: Four sources for the gap between strategy and execution: 1.Vision 2.People 3.Management 4.Resources

12 Plan: How Do We Get There?  Operational planning Operational plan 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

13 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 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 Budget-centric plan—a financial plan or budget is established that sums to the targeted financial values

14 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 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 Resource allocations should be carefully aligned with the organization’s strategic objectives and tactics in order to achieve strategic success

15 Monitor: How Are We Doing?  A comprehensive framework for monitoring performance should address two key issues: What to monitor What to monitor How to monitor How to monitor

16 Monitor: How Are We Doing?

17  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 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 Rarely are positive variances reviewed for potential opportunities, and rarely does the analysis focus on assumptions underlying the variance patterns

18 Monitor: How Are We Doing?

19 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. Strategic planning 2. Operational and financial planning 3. Reporting 4. Forecasting

20 Act and Adjust: What Do We Need to Do Differently? Each sub-process is evaluated in terms of five dimensions of efficiency and effectiveness: Each sub-process is evaluated in terms of five dimensions of efficiency and effectiveness: 1.Strategic alignment 2.Partnering 3.Process 4.Technology 5.People and organizations

21 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 Are significantly more efficient than their peers at managing costs Focus on operational excellence and experience significantly reduced rates of voluntary employee turnover Focus on operational excellence and experience significantly reduced rates of voluntary employee turnover Have hybrid sourcing strategies that combine shared services and outsourcing Have hybrid sourcing strategies that combine shared services and outsourcing

22 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 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 Closely align strategic and tactical plans, enabling functional areas to contribute more effectively to overall business goals

23 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 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

24 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

25 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 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 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 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 Financial measures are focused on the short term and provide little information about the longer term

26 Effective Performance Measurement Basic ingredients include: Measures should focus on key CSF’s Measures should focus on key CSF’s Measures should be a mix of past, present, and future 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 balance the needs of all stakeholders (shareholders, employees, partners, suppliers, etc). Measures should start at the top and flow down. 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. Targets must be based on facts and reality; arbitrary measures do not work in the long run.

27 BPM Methodologies  An effective performance measurement system should help: Align top-level strategic objectives and bottom- level initiatives (goal congruence) Align top-level strategic objectives and bottom- level initiatives (goal congruence) Identify opportunities and problems in a timely fashion Identify opportunities and problems in a timely fashion Determine priorities and allocate resources based on those priorities. Determine priorities and allocate resources based on those priorities. Be flexible to adjust measurements as the underlying processes and strategies change Be flexible to adjust measurements as the underlying processes and strategies change

28 BPM Methodologies  An effective performance measurement system should: Delineate responsibilities, understand actual performance relative to responsibilities, and reward and recognize accomplishments. 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. Identify opportunities to take action to improve processes and procedures based on data. Plan and forecast in a reliable and timely fashion Plan and forecast in a reliable and timely fashion

29 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

30 BPM Methodologies  The meaning of balance BSC is designed to overcome the limitations of systems that are financially focused BSC is designed to overcome the limitations of systems that are financially focused Nonfinancial objectives fall into one of three perspectives: Nonfinancial objectives fall into one of three perspectives: 1.Customer 2.Internal business process 3.Learning and growth

31 BPM Methodologies

32 In BSC, the term balance arises because the combined set of measures are supposed to encompass indicators that are: In BSC, the term balance arises because the combined set of measures are supposed to encompass indicators that are: Financial and nonfinancialFinancial and nonfinancial Leading and laggingLeading and lagging Internal and externalInternal and external Quantitative and qualitativeQuantitative and qualitative Short term and long termShort term and long term

33 BPM Methodologies Aligning strategies and actions Aligning strategies and actions BSC enables an organization to align its actions with its overall strategies through a series of interrelated steps:BSC enables an organization to align its actions with its overall strategies through a series of interrelated steps: 1. Identify strategic objectives for each of the perspectives 2. Associate measures with each of the strategic objectives; a mix of quantitative and qualitative should be used. 3. Assign targets to the measures. 4. List strategic initiatives to accomplish each of the objectives (i.e., responsibilities). 5. Link the various strategic objectives through a cause-and- effect diagram called a strategy map

34 BPM Methodologies Strategy map Strategy map A visual display that delineates the relationships among the key organizational objectives for all four BSC perspectives

35 BPM Methodologies

36 BSC certification BSC certification BSC Collaborative offers software vendors the opportunity to have their applications certified against a well-defined set of criteriaBSC 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:The application must offer an end user the ability to view: 1. Strategic objectives from the four perspectives 2. The measures, targets, and initiatives associated with each objective 3. The cause-and-effect relationships among the objectives

37 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

38 BPM Methodologies  Six Sigma The DMAIC performance model The DMAIC performance model A closed-loop business improvement model that encompasses the steps of defining, measuring, analyzing, improving, and controlling a process

39 BPM Methodologies  Six Sigma Limitations of Six Sigma Limitations of Six Sigma The lack of integration among the various Six Sigma projects across the enterpriseThe lack of integration among the various Six Sigma projects across the enterprise The failure to institute the roles required to support the methodologyThe failure to institute the roles required to support the methodology

40 BPM Architecture and Applications

41  BPM architecture System 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: 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

42 BPM Architecture and Applications  BPM architecture Database tier designs include: Database tier designs include: Transactional data storesTransactional data stores Application data martsApplication data marts Centralized data warehouseCentralized data warehouse

43 BPM Architecture and Applications  BPM architecture BPM applications: BPM applications: 1.Budgeting, planning, and forecasting 2.Profitability modeling and optimization 3.Scorecard applications 4.Financial consolidation 5.Statutory and financial reporting

44 BPM Architecture and Applications  BPM architecture BPM user interface BPM user interface The user interface is the bridge between the BPM applications and the end userThe 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 systemThe 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 userSpreadsheets 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 userBPM interfaces should provide is guidance to the end user

45 BPM Architecture and Applications

46 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

47 Performance Dashboards

48  Dashboards versus scorecards Performance dashboards Performance dashboards Visual display used to monitor operational performance Performance scorecards Performance scorecards Visual display used to chart progress against strategic and tactical goals and targets

49 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 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)

50 Performance Dashboards  Dashboards versus scorecards Three types of performance dashboards: Three types of performance dashboards: 1.Operational dashboards 2.Tactical dashboards 3.Strategic dashboards

51 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) “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)

52 Performance Dashboards What to look for in a dashboard 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.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 useTransparent 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 businessCombine data from a variety of systems into a single, summarized, unified view of the business

53 Performance Dashboards What to look for in a dashboard What to look for in a dashboard Enable drill-down or drill-through to underlying data sources or reportsEnable 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 up- to-date with any recent changes in the business.Present a dynamic, real-world view with timely data refreshes, enabling the end user to stay up- to-date with any recent changes in the business. Require little, if any, customized coding to implement, deploy, and maintainRequire little, if any, customized coding to implement, deploy, and maintain

54 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

55 Business Activity Monitoring (BAM)  BAM depends on a wide range of technologies working in concert including: ETL technology ETL technology Process modeling technology Process modeling technology Rules engines Rules engines Messaging servers Messaging servers in-boxes, portals, dashboards, and Web services in-boxes, portals, dashboards, and Web services

56 Business Activity Monitoring (BAM)  Benefits of BAM Real-time data access in a usable format Real-time data access in a usable format Access to tools to collaborate and model the problem, leading to a quick solution Access to tools to collaborate and model the problem, leading to a quick solution

57 Business Activity Monitoring (BAM)  BAM Issues Executives fail to consider the readiness of technology or of the business processes they want to monitor Executives fail to consider the readiness of technology or of the business processes they want to monitor Change management issues are paramount 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 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 Executives must let the responsible managers on the frontlines deal with their problems and issues in a timely manner before reacting


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