Category Archive for "Corporate Performance Management"

Integrating different processes with the goals of the strategic plan is a crucial aspect of all Corporate Performance Management (CPM) applications.

First, processes must be defined to translate the strategic goals into operational realities.

Secondly, measurement criteria must be developed and tools must be adopted to provide metrics about the results of those processes. However, such a step must be supported by integration of technologies used at different levels of the organization to prevent any inefficiencies.

Thirdly, people involved in the execution of the strategic goals must be rewarded by incentives which are commensurate with revenue growth goals of the company.

Business consultant Michael Coveney has outlined the following 12 Best Practices to implement a Corporate Performance Management (CPM) system:

1. Identify and agree on objectives for each process

2. Plan for all aspects of the business

3. Align strategic goals with operational budgets

4. Assign responsibilities to goals

5. Report at levels that achieve objectives

6. Record assumptions on business environment

7. Communicate goals, objectives and timetables

8. Give access to relevant information

9. Use statistical techniques to predict future performance

10. Provide a feedback loop

11. Budget or forecast a range of scenarios

12. Create an analysis methodology

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Measurement

Without measuring results it’s impossible to know whether the Strategic Plan is reaching its goals or not.

However, most business organizations limit themselves to traditional financial measurements like year-over-year losses or gains. But are those really the best indicators of an organization’s value-added activity?

For example, if you are a tutoring organization, which should be a more crucial measurement of business success: the year-over-year increase in income/profits, or the change in the number of students admitted to the top 20 universities?

CPM brings clarity to the nature of the measurements process itself and helps managers select the right kinds of performance measurements.

Processes

Most organizations operate with traditional processes like annual planning, budgeting, performance measurement, forecasting, reporting and analysis, etc.

However, more often than not, such processes are linked to general financial metrics and not to specific performance targets that really matter for the organization.

A process, for example, which “makes money” is deemed a good process whether it leads to (just to give just two random examples) more healthy patients and shorter hospital stay, or, higher consumer satisfaction and less kitchen accidents.

Without a clear idea as to how each process contributes to specific performance targets, market performance becomes almost an incidental outcome of “better financials.” CPM aims to bring the focus back to the processes that would serve the strategic goals of the organization the best.

Incentives

Sometimes people are rewarded for meeting targets that are not directly related to strategic goals, with adverse implications for the organization’s future growth.
For example, if a manager gets a year-end “resource utilization” bonus, she will try to spend all her allocated budget before the year’s end whether such expenditure contributes to the company’s top strategic goal (e.g., market share) or not. The chances are she will also try to maximize the projected costs and minimize the projected revenues for the year ahead to hedge her bets.

CPM emphasizes the importance of providing management incentives for satisfying not the traditional budgetary targets but specific goals defined by the Strategic Plan.

Data Integration

Some organizations use different technologies at different levels to implement and measure different processes. The result can be a total lack of coordination, confusion, and erosion of morale.

For example, the Strategic Plan might be delivered as a PDF document. The budgeting might be presented in Excel sheets. Process management might use MS Project. A statistics package like SPSS might be used for multi-variate analysis of the results.

But when it comes to deciding whether the goals of the Strategic Plan have been met or not, no manager might be able to make any sense of the overall situation due to the different data platforms used at each step.

CPM aims to eliminate such variance by streamlining and integrating the technologies used by different departments for different processes.

Corporate Performance Management (CPM) system consists of the following elements:

1. A Strategic Plan.
2. An inventory of budgeting, forecasting, planning, reporting and measurement tools available.
3. Integration of those tools in a way to help reach the Strategic Planning goals.
4. An inventory of internal and external resources.
5. A method to relate the allocation of those resources to the Strategic Plan so that the managers can decide which actions to take to implement the plan.
6. A feedback loop from the operational units back to the line management and all the way up to the strategic planners.

The major emphasis is to close the gap between strategic planning and policy execution so the planning will not remain as a mere theoretical exercise.

CPM tries to go beyond the traditional financial reporting of (for example) same-store sales figures a year apart, or similar metrics showing the annual changes in selected variables.

Such measurements are crucial but in themselves that do shed any light on the actual practices that create such changes.

CPM aims to address not only the end result of the change but its causes as well.

A Corporate Performance Management (CPM) system brings a comprehensive approach to business processes.

It uses a wide variety of components including Economic Value Added (EVA) based measurements; different kinds of business methodologies including scorecards, activity-based measurements, etc.

CPM synthesizes a number of “best practices” and newest technologies to come up with and implement the best strategic plan for a given business.

As a self-contained system, CPM employs a Closed-Loop Process which begins with an assessment of the business’s mission and goals, which goals it wants to achieve and when, which resources should be allocated for which programs, the identity, needs and interests of the stakeholders, etc.

Then comes monitoring of the implementation and the collection of specific metrics.

This loop is closed with an evaluation of the measurements and re-assessment of the organization’s main goals, operational targets, and processes.

Gartner reports that 40% of the organizations will implement CPM within the next 3 years and they will have a significant performance advantage over those that don’t.

Corporate Performance Management (CPM) is a management approach that encompasses all “the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise,” according to the management research and consultancy firm Gartner that came up with the concept.

It is basically yet another but effective and sophisticated tool to increase business productivity and profits.

CPM is the direct descendant of other platforms and management tools that were developed in the past like the “Decision Support Systems” of the ’70s, “Executive Information Systems” (EIS) of the ’80s, and the “Business Intelligence” (BI) model of the ’90s.

One thing that separates CPM from other business performance platforms is its focus on strategic planning and deployment.

“How can a business organization draw up a Strategic Plan and execute it with success?” That’s the chief focus of CPM in a nutshell.