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Chapter 9: Business Performance Management

Explain Business Performance Management (BPM)

Business Performance Management (BPM) is a real-time system that alerts managers to
potential opportunities, impending problems, and threats, and then empowers them to react
through models and collaboration. Also BPM has a number of names, corporate performance
management (CPM by Gartner Group), enterprise performance management (EPM by Oracle),
and strategic enterprise management (SEM by SAP)
BPM refers to the business processes, methodologies, metrics, and technologies used by
enterprises to measure, monitor, and manage business performance.
BPM encompasses three key components
1. A set of integrated, closed-loop management and analytic processes, supported by
technology that address financial as well as operational.
2. Tools for businesses to define strategic goals and then measure/manage performance
against those goals
3. Methods and tools for monitoring key performance indicators (KPIs), linked to
organizational strategy
BPM versus BI
BPM is an outgrowth of BI and incorporates many of its technologies, applications, and
techniques. The confusion about differentiation between them still persists for the following
reasons:- The term of BI now the describe the technology used to access, analyze, and report on
data relevant to an enterprise. It encompasses a wide spectrum of software, including ad hoc
querying, reporting, OLAP, dashboard, scoreboard, search, visualizing, and more. But BPM has
been characterized as BI + planning meaning that BPM is convergence of BI and planning on a
unified platform and cycle of plan, monitor, and analyze.
Process of BPM
1. Strategize
2. Plan
3. Monitor/analyze
4. Act/adjust
Section review questions
1. Define BPM

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2. How does PBM differ from BI? And how they are same?
3. List the major BPM processes
Strategize
The term Strategy has many definitions. Its combination with a variety of other terms such as
strategic vision and strategic focus, Common tasks for the strategic planning process:
1. Conduct a current situation analysis: this analysis reviews the company’s current
situation and establishes baseline as well as key trends of financial performance and
operation performance.
2. Determine the planning horizon: traditionally organization produce plans on yearly
basis with planning horizons running 3 to 5 years. In large part the time horizon is
determined by volatility and predictability of market, product life cycles the size of the
organization and the rate of organization innovation.
3. Conduct an environment scan: an environment scan is the standard of strength,
strength, opportunity and threat (SWOT) assessment of the company.
4. Identify critical success factors: are the things that organization must excel at to be
successful in its market space. Product quality and innovation are examples.
5. Complete a gap analysis: gap analysis is used to identify and prioritize the internal
strengths and weakness in organization’s processes, structure, and technology and
applications. This gap reflects what strategy actually requires and what organization
actually provides.
6. Create a strategic vision: organization's strategic vision provides a picture or mental
image of what the organization should look like in the future.
7. Develop a business strategy: the challenge of this step is to produce a strategy that is
based on the data and information from the previous steps and i consistent with strategic
vision.
8. Identify strategic objectives and goals: Organization must have or define well
organized goals and objectives.
Where Do We Want to Go?
1. Strategic objective: A broad statement or general course of action prescribing targeted
directions for an organization
2. Strategic goal : A quantified objective with a designated time period

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3. Strategic vision: A picture or mental image of what the organization should look like in
the future
4. Critical success factors (CSF) : Key factors that delineate the things that an organization
must excel at to be successful
The strategy gap
A survey conducted describes that 90 percent of organizations fail to execute their strategies.
Four sources for the gap between strategy and execution:
1. Communication (enterprise-wide): In many organizations very small numbers of
employees understand the strategy of the organization who is less than 10 percent.
2. Alignment of rewards and incentives: linking pay to performance is important for
successful execution. However incentive plans are often linked to short term financial
result.
3. Focus (concentrating on the core elements): focus: Management often spends time on
periphery of issues rather than concentrating on core elements.
4. Resources: unless strategic initiatives are properly funded and resourced, thier failure is
virtually assured.
Plan How Do We Get There?
When operational mangers know and understand what organizational goals and objectives are
they will able to come up with a plan which makes possible to achieve those goals and
objectives.
Operational plan is a plan that translates an organization’s strategic objectives and goals
into a set of well-defined tactics and initiatives, resources requirements, and expected
results for some future time period. Operational planning can be Tactic-centric are
established to meet the objectives and targets established in strategic plan. Or Budget-
centric plan: is financial plan or budget established which sums to the targeted financial
values.
Financial planning and budgeting : In most organization resource are tend to be scarce
so 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.

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The best way for organization to achieve this alignment is to base its financial plan on its
operation plan or more directly, to allocate and budget its resources against specific tactics and
initiatives.
Section review
1. What is the goal of operational planning?
2. What is tactics-centric planning? What is budget-centric planning?
3. What is the primary goal of financial plan?
Monitor: How Are We Doing?
A comprehensive framework for monitoring performance should address two key issues: What
to monitor (Critical success factors and Strategic goals and targets) and How to monitor
Diagnostic control system
Diagnostic control system: A cybernetic system that has inputs, a process for transforming the
inputs into outputs, a standard or benchmark against which to compare the outputs, and a
feedback channel to allow information on variances between the outputs and the standard to be
communicated and acted upon.

Pitfalls of variance analysis

In many organizations 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.
Section review

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Act and Adjust: What Do We Need to Do Differently?

Success depends on new projects: creating new products, entering new markets, acquiring new
customers (or businesses), or streamlining some process.
Harrah’s Closed-Loop Marketing Model
1. Define quantifiable objectives of marketing campaign or test outcomes.
2. Execute the marketing campaign
3. Truck linked transactions.
4. Evaluate campaign effectiveness.
5. Learn and define campaign and approaches. (look your for more details page 388)
The Hackett Group’s benchmarking results indicate that world class companies:
1. Are significantly more efficient than their peers at managing costs
2. Focus on operational excellence and experience significantly reduced rates of employee
turnover
3. Provide management with the tools and training to leverage corporate information and to
guide strategic planning, budgeting, and forecasting
4. Closely align strategic and tactical plans, enabling functional areas to contribute more
effectively.
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. Comprises systematic comparative methods that indicate progress (or lack thereof)
against goals
Key performance indicator (KBI)
Key performance indicator (KBI): A KPI represents a strategic objective and metrics that
measures performance against a goal. Distinguishing features of KPIs
1. Strategy: KPI embody strategic objectives.
2. Targets: KPI measures performance against specific targets.
3. Ranges: targets have performance ranges (e.g. above or below targets).
4. Encoding: ranges are encoded in software, enabling the visual display of performance or
more complex rules.
5. Time frames: targets are assigned time frames by which they must be accomplished.

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6. Benchmarks: targets are measured against a baseline or benchmark.

Outcome KPIs vs. Driver KPIs
1. Outcome KPI also known as lagging indicators: KPI which measures the output of the
past activity example revenues, they often financial nature, but not always.
2. Driver KPI also known as leading indicators: which are indicators that measure
activities that have significant impact on outcome KPI example sales leads. in some
articles This KPI know as operational KPI.
Operational areas covered by driver KPIs
1. Customer performance
2. Service performance
3. Sales operations
4. Sales plan/forecast
Problems with existing performance measurement systems
The most popular system in use is some variant of the balanced scorecard (BSC) various survey
and benchmarking studies indicate that 50-90% of all companies implemented BSC. BSC
methodology is a holistic vision of a measurement system tied to the strategic direction of the
organization and based on a four-perspective view of the world: Financial measures supported by
customer, internal, and learning and growth metrics.
The drawbacks of using financial data as the core of a performance measurement
1. Financial measures are usually reported by organizational structures and not by the
processes that produced them
2. Financial measures are lagging indicators, telling us what happened, not why it happened
or what is likely to happen in the future
3. Financial measures are often the product of allocations that are not related to the
underlying processes that generated them
4. Financial measures are focused on the short-term returns
Good and effective performance measures should:
1. Be focused on key factors
2. Be a mix of past, present, and future
3. Balance the needs of all stakeholders (shareholders, employees, partners, suppliers, …)
4. Start at the top and trickle down to the bottom

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5. Have targets that are based on research and reality rather than be arbitrary
Section review questions
1. What is a performance measurement system?
2. What is KPI and what are distinguishing characteristics?
3. How does a KPI differ from an operation metric?
4. What are some drawbacks of relying solely on financial metrics for measuring
performance?
5. What is the principle obliquity?
6. What are some characteristics of good collection performance measures?
BPM Methodologies
An effective performance measurement system should help:
1. Align top-level strategic objectives and bottom-level initiatives
2. Identify opportunities and problems in a timely fashion
3. Determine priorities and allocate resources accordingly
4. Change measurements when the underlying processes and strategies change
5. Delineate responsibilities, understand actual performance relative to responsibilities, and
reward and recognize accomplishments
6. Take action to improve processes and procedures when the data warrant it
7. Plan and forecast in a more reliable and timely fashion.
Balanced scorecard (BSC)
BSC is 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. "The Balanced Scorecard: Measures That Drive
Performance”
BSC is designed to overcome the limitations of systems that are financially focused.
Nonfinancial objectives fall into one of three perspectives:
1. Customer: those objectives define how the organization should appear to its customers if
it to accomplish its vision.
2. Internal process: these objectives specify the processes the organization must excel at in
order to satisfy its stakeholders and customers.

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3. Learning and growth: these objectives indicate how an organization can improve in
order to achieve its vision.
4. Financial: to success financially how should we appear our stock or shareholders?
In BSC, the term “balance” arises because the combined sets of measures are supposed to
encompass indicators that are:
1. Financial and nonfinancial
2. Leading and lagging
3. Internal and external
4. Quantitative and qualitative
5. Short term and long term
Aligning strategies and actions there A six-step process
1. Developing and formulating a strategy: develop and clarify organization’s mission, vision, and
values.
2. Planning the strategy: convert statement of strategic direction into specific objectives,
measures, targets and budgets that guide actions.
3. Aligning the organization: ensure that business units and support units strategies are in line with
cooperate strategy and that employee is motivated to execute that strategy.
4. Planning the operations: ensure that the changes require by strategy are translated into changes
in operational processes that resource capacity, operational plans and budget reflect the direction
and needs of the strategy.
5. Monitoring and learning: determine through formal operational review meetings whether short
term financial and operation performance are in line with specified targets.
6. Testing and adapting the strategy: determine through strategy testing and adapting meetings
whether stragey is working.
Strategy map
A visual display that delineates the relationships among the key organizational objectives for all
four BSC perspectives
Six Sigma methodologies
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

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The DMAIC performance model

DMAIC is a closed-loop business improvement model that encompasses the steps of defining,
measuring, analyzing, improving, and controlling a process. These steps can describe as
follows:-
1. Define: define goals, objectives and boundaries of improvement activity.
2. Measure: measure the existing system. Establish quantitative measures that will yield
statistically valid data.
3. Analyze: analyze the system to identify the ways to eliminate the gap between the current
performance of the system and desired goal.
4. Improve: initiate the actions to eliminate the gap by finding ways to do things better,
cheaper or faster.
5. Control: institutionalize the improved system by modifying compensation and incentive
systems, policies, procedures, manufactures resource planning (MRP) , budget and
operation instructions.
Lean production versus six sigma
Lean production is the methodology which focuses on production by eliminating waste and non-
value-added activity, Where Six sigma focus on reducing the variation and or improving the
consistency of a process.
Comparison of lean production with six sigma

List factors that increase Succeed in Six Sigma (further explanation look page420)
1. Six Sigma is integrated with business strategy
2. Six Sigma supports business objectives
3. Key executives are engaged in the process
4. Project selection is based on value potential
5. There is a critical mass of projects and resources

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6. Projects-in-process are actively managed

7. Team leadership skills are emphasized
8. Results are rigorously tracked.
9. All in All BSC + Six Sigma = Success
Comparison of BSC and Six sigma methodology

Integrating six sigma with BSC is achieved by doing the following things
1. Translating their strategy into quantifiable objectives
2. Cascading objectives through the organization
3. Setting targets based on the voice of the customer
4. Implementing strategic projects using Six Sigma
5. Executing processes in a consistent fashion to deliver business results

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BPM architecture
BPM system architecture refers to both the logical and physical design of the system. the logical
design focus on functional elements of the system and their interactions whereas physical design
of the system focus on how logical design is implemented and deployed across a specific set of
technologies, such as web browser, application servers, communication protocols and databases.
BPM system consists of three logical parts:
1. BPM Applications: this layer supports BPM process used to transform user interactions
and source data into budget, plans, forecasts, reports, and analysis.
2. Information Hub: most BPM system require data information from variety source of
system such as ERP and CRM, however the data from various sources are stores in a
central location typically data warehouse and data mart.
3. Source Systems: this layers represents all data sources containing information fed into
the BPM information H=hub.
BPM system consists of three physical parts:
1. Database tier :
2. Application tier
3. Client or user interface
BPM applications
1. Strategy management
2. Budgeting, planning, and forecasting
3. Financial consolidation
4. Profitability modeling and optimization
5. Financial, statutory, and management reporting
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Leading BPM Application Suits/Vendors

1. SAP Business Objects Enterprise Performance Management
2. Oracle Hyperion Performance Management
3. IBM Cognos BI and Financial Performance Management
4. Microstrategy
5. Microsoft

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.
Dashboards versus scorecards
1. Performance dashboards: are Visual display used to monitor operational performance
(free form…),. 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
2. Performance scorecards: are Visual display used to chart progress against strategic and
tactical goals and targets (predetermined measures…)
Three types of performance dashboards
1. Operational dashboards
2. Tactical dashboards
3. Strategic 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.
The most distinct features of dashboards
The most distinct features of dashboards are its three layer of information:
1. Monitoring: graphical, abstracted data to monitor key performance metrics.
2. Analysis: summarized dimensional data to analyze the root cause of problems.

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3. Management: detailed operational data that identifies what actions to take to resolve a
problem.
What to look for in a dashboard
1. Use of visual components (e.g., charts, performance bars, spark lines, gauges, meters,
stoplights) to highlight, at a glance, the data and exceptions that require action
2. Transparent to the user, meaning that they require minimal training and are extremely
easy to use
3. Combine data from a variety of systems into a single, summarized, unified view of the
business
4. Enable drill-down or drill-through to underlying data sources or reports
5. Present a dynamic, real-world view with timely data updates
6. Require little, if any, customized coding to implement, deploy, and maintain
END

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