Best Practices in Business Performance Management: Business and Technical Strategies--Excerpt from the Full Report

• 05/13/04

By Wayne Eckerson, Director of Research, TDWI

Business performance management is a series of processes and applications designed to optimize the execution of business strategy —TDWI definition

GROWTH DESPITE CONFUSION
Many people today are confused about what business performance management (BPM) is—and is not. Much of the confusion arises because BPM is a new category to describe multiple applications that many companies have already implemented, including planning, business intelligence, budgeting, and KPI reports. When introduced to the concept of BPM, many managers rightfully exclaim, 'We've been doing that for years!'

However, most organizations haven't pulled these applications together in a cohesive and concerted way—using a common strategic and technical framework to drive all parts of the organization toward a common set of goals and objectives. Today, companies implement individual BPM applications isolated from each other. Each application provides some local benefit, but little global value.

Benefits. Despite the current confusion, BPM is gaining adherents in all industries. Today, early adopter companies are deploying BPM initiatives to better communicate and execute business strategy at all levels and gain greater visibility into organizational performance. The success of early adopters with BPM are stoking red-hot interest in the area by organizations in all industries.

According to TDWI research, almost two-thirds of organizations (65 percent) said they have adopted BPM to gain 'greater visibility into the business,' followed by 'better execution of strategy' and 'more efficient processes' (53 percent each), and 'faster reaction to events' (52 percent). (See illustration 1.)

When all steps in the BPM process are executed in a concerted manner, they enhance communication, collaboration, control, and coordination among staff and groups in the organization. In many ways, BPM greases all the parts of the organizational engine to keep it moving in the right direction.

Enterprise BI. Successful BPM projects have a strong data warehousing and business intelligence foundation. Data warehouses integrate data from multiple sources to deliver key performance indicators and detailed reports, and business intelligence tools display data in the appropriate format (dashboard, scorecard, detailed report, etc.) as well as send alerts and notifications to users when performance slips below acceptable levels.

Illustration 1. The top reason that organizations are deploying BPM is to gain greater visibility into the business. Based on 635 respondents.

BPM FRAMEWORK: A FOUR-STEP PROCESS
Organizations are discovering that BPM is more than just a planning, budgeting, forecasting, consolidation, or scorecarding application—rather it's a common business and technical framework that underlays all these applications.

The BPM framework consists of a four-step business process—strategize, plan, monitor, and act & adjust. (See illustration 2.) Each step in the process is enabled by various tools, chief among them data warehouses and business intelligence tools.

BPM Framework

Illustration 3. Most BPM existing deployments are enterprisewide in scope, although organizations 'exploring' BPM envision smaller implementations. Based on 635 respondents.

BI for BPM. As such, BPM places tremendous demands on BI and data warehouses to deliver the right information to the right people at the right time. In essence, BPM solutions require a turbo-charged, enterprisewide analytical platform. This is a far cry from the departmental BI solutions that most organizations have implemented to date.

Shown below is a quick comparison of the way organizations have traditionally implemented BI ('Traditional BI') versus the way they need to implement BI to support a full-fledged BPM initiative ('BI for BPM'):

	Traditional BI	BI for BPM
Scale	Departmental	Enterprisewide
Focus	Historical	Timely
Decisions	Strategic and Tactical	Strategic, Tactical, and Operational
Users	Analysts	Everyone
Orientation	Reactive	Proactive
Output	Strategic Analysis	Strategic Action
Process	Open-ended	Closed Loop
Measures	Metrics	Key Performance Indicators
Views	Generic	Personalized
Visuals	Tables/Charts	Dashboards/Scorecards
Collaboration	Informal	Built-in
Interaction	Pull (ad hoc query)	Push (alerts)
Analysis	Trends	Exceptions
Data	Numeric only	Numeric, Text, etc.

WHERE TO BEGIN?
Organizations embarking on BPM face several challenges. Since many organizations view BPM as an enterprise endeavor, they struggle to figure out where to begin. Do they deploy at the enterprise, division, or department level? To executives, mid-managers, or front-line employees?

Scope. Most organizations (72 percent) are deploying BPM on an enterprisewide basis. This is a surprisingly high percentage compared to those organizations that are contemplating BPM. Only 25 percent of the latter group envision deploying BPM on an enterprisewide level, while 24 percent envision departmental deployments initially. (See illustration 3.)

Start Small. Whatever the approach or initial application, most BPM practitioners recommend starting small, with a focused project that can be implemented quickly yet deliver substantial benefits.

Illustration 3. Most existing BPM deployments are enterprisewide in scope, although organizations 'exploring' BPM envision smaller implementations. Based on 635 responses.

HOW TO CREATE EFFECTIVE KPIs?
Another challenge is defining valid, relevant, and effective key performance indicators (KPIs) tailored to each group in the organization. What is the right number of KPI's? Which really drive srategic value and proactive action? Which conflict with other KPI's or incent employees to work at cross-purposes with key objectives? TDWI research shows that there are seven critical attributes of effective KPIs:

1. Standardized. KPIs contain standardized measures and attributes that are agreed on by everyone in the organization
2. Valid. KPIs contain valid data that can be reconciled with source systems and gain the 'trust' of end users.
3. Comprehensible. KPIs are easy to comprehend because organizations display only a handful per user or role and train users on what they mean and what to do about them.
4. Contextual. KPIs provide users context to assess their performance by applying thresholds or benchmarks to the raw data.
5. Actionable. KPIs lead to positive action because users have access to timely information to work in a proactive manner.
6. Empowering. KPIs empower users because firms attach financial or other incentives to them, encouraging performance 'in the right direction.'
7. Relevant. KPIs maintain their relevance because organizations continually evaluate their effectiveness and refine the metrics.

HOW TO ARCHITECT A BPM SOLUTION?
Architecting a BPM solution can also be challenging since it requires pulling together data from a multiplicity of groups each with different business processes and systems to deliver a single version of truth. Even with a BI infrastructure in place, organizations can struggle to figure out how to enhance their existing infrastructure to support BPM.

The danger with BPM systems, especially packaged solutions that come with predefined data models, is that they can become silos of information, fracturing a consolidated view of corporation performance.

It appears that almost three-quarters (71 percent) of organizations have avoided this dilemma by pulling data directly or indirectly from a central data warehouse, according to TDWI. (See illustration 4.) Half (50 percent) pull data directly from a data warehouse, and 21 percent pull data from a dependent data mart connected to a data warehouse.

HOW TO ENSURE USAGE?
Finally, deploying a BPM solution can be half the battle; getting users to use the solution and drive performance in the right direction often requires a cultural transformation that must be initiated by top executives and reinforced with carefully thought-out compensation plans and incentives.

Organizations can also improve usage by delivering KPIs in a form that users can easily consume. For example, most users respond positively to graphical dashboards or scorecards embedded in corporate portals. These environments require little if any end-user training. Keeping KPIs relevant through constant re-evaluation and refinement also ensures ongoing usage.

Illustration 4. Based on 360 responses

REPORT CONCLUSION
Given the current economic climate, increased financial pressures, and the evolution of information technology, it's no surprise that BPM is gaining traction now. It provides organizations with a new competitive edge. It gives executives a better way to communicate and monitor strategy ad empowers employees to react quickly to business events and better execute key strategies.

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