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Performance Management Demystified

By Jonathan D. Becher, President and CEO, Pilot Software

You've heard performance management touted as the cure-all business solution more times than you care to count - and likely in as many flavors. Perhaps you're not yet convinced that performance management is not just another panacea du jour that will soon take its place in the annals of management and technology trends whose promise fell short. If you have been tempted to dip your toe in the water and see what the clamor is about, perhaps you are struggling with where to begin. How do you navigate this fresh sea of acronyms - BPM (business performance management), FPM (financial performance management), OPM (operational performance management), to name a few - and find success in performance management's promised land?

Why Performance Management - and Why Now?
With a focus on automation and efficiency, the 1990s equipped organizations with more data - and faster than ever dreamed. Unfortunately, more reports, spreadsheets and emails scattered in islands across the organization were not the answer. If the 90s were about efficiency, this decade's unique set of challenges demands a focus on effectiveness - in other words, results. As organizations have begun to understand that the one with the most data does not necessarily win, they've sought a way to help them actually achieve their desired results or goals.

Enter performance management, whose focus is on creating methodical and predictable ways to improve business results, or performance, across organizations. Simply put, performance management helps organizations achieve their strategic goals. Rather than discarding the data accessibility previous systems fostered, performance management harnesses it to help ensure that an organization's data works in service to organizational goals to provide information that is actually useful in achieving them.

Deciphering the Brands of PM
With all of the various flavors of performance management out there, how do you decide which one is right for your organization? Despite common elements, their focus varies, as do the primary stakeholders driving them. In general, performance management can be grouped into three overall categories: business performance management (under which typically falls financial and workforce/human resources performance management), IT performance management and operational performance management. The chart below depicts where and how the three general categories are often applied in organizations:

BUSINESS PERFORMANCE MANAGEMENT* IT PERFORMANCE MANAGEMENT OPERATIONAL PERFORMANCE MANAGEMENT
Business imperatives Compliance management; Performance efficiency Cost reduction; Profitability management Business innovation; Process effectiveness
Typical owner CFO CIO COO
Functional focus Financial; Workforce/Human Resources IT Systems; Information & Integration Customer Operations; Products & Supply Chain
*Also called Corporate Performance Management and Enterprise Performance Management.

Business performance management includes finance - covering compliance issues, competition, risk and profitability - and human resources performance management - encompassing employee performance appraisals and incentive compensation. IT performance management assists organizations with the increasing demands of maximizing value creation from technology investments; reducing risk from IT; decreasing architectural complexity; and optimizing overall technology expenditures. Operational performance management addresses the growing pressure to increase revenue while managing costs, while meeting ever-evolving and expanding customer demands.

Which one is right for your organization? As with most things, there isn't one "best" flavor; the right approach for your organization depends on many factors, such as your organization's strategy and goals, capabilities and competitive context.

Mistaken Identities: What is not PM
As performance management (PM) continues its way into popular consciousness, it is often confused and/or used interchangeably with other differing, though sometimes related, concepts. Some of the confusion is propagated by business intelligence (BI) vendors who slap a performance management label on existing BI technology. However, while the data provided by BI systems can feed into performance management, by itself, it is insufficient for managing performance. Not only is BI typically backwards looking, moreover, it lacks the critical links to organizational strategy and ongoing execution. The chart below highlights, at a glance, some of the fundamental differences between BI and PM:

Business Intelligence Performance Management
Measure and monitor Motivate, manage, measure, and monitor
Understand Align, understand, and adjust
Dashboards and reports Strategy plans, pathways, initiatives, scorecards, dashboards, reports, comments
Lagging indicators Leading and lagging indicators
Structured quantitative data Structured and unstructured qualitative and quantitative data
Automated data loading Automated loading and manual data entry

Let's take a closer look at some of the key reasons BI should not be confused with performance management:
Lack of Context: Without a connection to overall strategy and goals, the values and trends presented by BI systems are difficult to interpret. How do you know if a particular result is good or bad? Besides targets and goals, there may be inside information - background knowledge that may shed light on a particular result that BI systems do not capture or share throughout an organization. An effective performance management system, on the other hand, frames information and trends in the context of progress toward goals. Whereas BI stops at providing just the actuals, performance management tells you how those actuals compare to the targets and thresholds important to meeting overall organizational goals. In addition, it provides for the dissemination of background commentary essential to understanding what the information and trends actually mean, and/or how they're being addressed.

Lack of Forward Projections: With its backward-looking perspective, BI focuses solely on lagging indicators, such as market share, costs, profits, and other measures of past performance. While important, these lagging indicators aren't useful in projecting future performance to enable organizational change today that can effectively adjust course. Performance management, on the other hand, includes both traditional lagging indicators as well as leading indicators from customer, operational, or employee points of view. The forward-looking nature of leading indicators enables organizations to seize nascent opportunities, proactively correct issues, and more effectively shape future performance.



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