See also:
CPM: Systems and Steps to CPM -- Part Two
CPM: 12 Best Practices in Implementing a Solution -- Part Three
CPM: Selecting the Right Technologies -- Part Four (A)
CPM: Selecting the Right Technologies -- Part Four (B)
CPM: Selecting a CPM Vendor -- Part Five
CPM: Emerging Technology Systems -- Part Six

The Search for Competitive Advantage

         In the quest for competitive advantage, organizations continually search for the next "big thing," that application, service, business methodology, or unique way of using technology that will catapult them ahead of their competitors and reward them with increased profits. In a volatile business climate where product life cycles are shrinking and global markets make it easier for new competitors to capture market share, that search - and its result - becomes critical to the organization's survival.

          Into this arena comes yet another new business term: "Corporate Performance Management" or CPM for short. Initially coined by Gartner, the Stamford, Connecticut-based research and advisory firm, they use the term to describe "the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise."¹

          But in many respects this doesn't seem to be anything new. After all, organizations have always sought to manage their performance. So what makes CPM different from traditional methods of management, and is CPM really the next "big thing", or just another passing fad?

'Traditional' Performance Management

          The past three decades have ushered in a number of innovations that have transformed the way organizations plan and monitor performance.

In the 1970s, "decision support systems" provided a way for organizations to model the future. Using mainframe-based multidimensional technologies, finance departments and operations research groups could analyze and plan by distribution channel, customer, product line, and more, giving them the capability to spot and exploit gaps in the market.         In the 1980s, "executive information systems" (EIS) provided CEOs and their executive teams with technology they could use to investigate organizational strengths and weaknesses, without having to get assistance from programmers. The "E" in EIS eventually came to mean "everyone." These systems started to make their way down through the management tiers and across the organization.         In the 1990s, the pace of business accelerated dramatically. "Business intelligence" (BI) became the key to speeding up the processes of planning, reporting, and analysis. Transaction systems came under the spotlight as organizations sought to make them more efficient -- and Y2K compliant. Enterprise resource planning (ERP) systems became a tool every company just had to have.

Figure 1: The evolution of managing performance

        At the same time, the increasing availability of PCs and online connections resulted in a proliferation of end-user systems that could analyze the data that became available. Specialized solutions, such as customer relationship management (CRM) systems, also exploded onto the business landscape.

        While these technological innovations were going on, there was an increasing awareness that technology by itself wasn't the answer. Although these developments have resulted in the availability of more information, faster, none of these have been particularly helpful to senior managers who struggle to find ways to enable better strategic execution.

        This led to many books and articles being written during the 1990's on new management methodologies that focused on how better to implement strategy -- the Balanced Scorecard (BSC) being perhaps the most well known. The BSC emphasized that organizations must plan and monitor all aspects of the business and not just financial outcomes. This included customer retention, internal process efficiency and internal learning and growth. But while these methodologies were good in themselves, they were not the complete answer.

        It is only when these different methodologies are combined with management processes (e.g., budgeting, forecasting, management reporting) to plan and measure the right things, supported by technology, can organizations really start to influence the implementation of strategy. Which is where CPM comes in.

CPM: Adding Value to Business

          CPM adds value to the business by focusing on how an organization develops, implements and monitors strategic plans. This strategic focus is kept throughout all management processes, right down to the contribution individual budget holders make. CPM is about the execution of the strategic plan.

          Interestingly, in a survey by Ernst and Young, some investors and analysts feel that execution is more important than the strategy itself.² And when this focus is combined with technologies developed over the past 30 years, studies indicate that organizational performance is greatly enhanced. For example, André de Waal reports that in an analysis of 437 publicly traded firms, 205 of which had "structured" performance measurement systems, he found that over a three-year period the financial performance of those firms with a performance measurement system was substantially improved and was substantially better than those firms without a system.³

          This improved performance was also reflected in their stock price, which did far better than those without a performance management system.

CPM: What's Involved?

          As mentioned earlier, CPM takes a holistic approach to the implementation and monitoring of strategy. It combines business methodologies such as scorecards, economic value added (EVA) and activity based management; metrics that are the specific measures used within those methodologies; processes, which are the procedures that an organization follows to implement and monitor corporate performance; and systems, which are the technology solutions that combine the methodologies, metrics, and processes into a single enterprise-wide management system.

          Besides consisting of a single application, a CPM system differs from other approaches to performance management in that it leverages both technology and best business practices to help executives answer the key questions around the formulation and implementation of strategy.

Figure 2: CPM answers the key questions around implementing and monitoring strategy

A CPM system enables a closed-loop process that starts with understanding where the organization is today, where it wants to go to, what targets should be set, and how resources should be allocated to achieve those targets. Once plans have been set, the system then monitors the performance of those plans, highlights exceptions, and provides insight as to why they occurred. The system supports the evaluation of alternatives from which decisions can be made -- which then closes the loop by leading back to deciding on where the organization wants to go.         To support the formulation and implementation of strategy, a CPM application begins by integrating enterprise-wide planning, budgeting, forecasting, consolidation, reporting, and analysis. It supports methodologies for linking strategy to the allocation of assets (financial and non-financial) so that strategies can be transformed into action. A CPM application enables executives to communicate and drive strategy down throughout the entire organization in a way that helps people act and make decisions that support the strategic goals. Finally, it helps members of the organization focus on key issues and critical data, rather than on all the data and events that are possible. It delivers the right information to the right people at the right time in the right context.

        Is CPM the next big thing? Gartner predicts that organizations that effectively deploy CPM solutions will outperform their industry peers, and that all enterprises should understand the implications of CPM and immediately start building their strategy.⁴

        In the next article (Part Two), we will take a more detailed look at CPM systems and the steps an organization has to go through to transform their current management processes to one that supports effective Corporate Performance Management.

__________

References:
¹ Lee Geishecker and Nigel Rayner, Corporate Performance Management: BI Collides With ERP, Research Note SPA-14-9282,
        Gartner, Inc., December 17, 2001. Page 1.
²Ernst and Young, Measures that Matter^TM (2000) Page 12.
³André A. de Waal, Quest for Balance (New York: John Wiley & Sons, 2002) Page 24-25.
⁴Lee Geishecker and Nigel Rayner, Corporate Performance Management: BI Collides With ERP, Research Note SPA-14-9282,
        Gartner, Inc., December 17, 2001. Page 6.

About the Author:

Profile of Michael Coveney

Email: mcoveney@comshare.com

See also:
The Strategy Gap: Leveraging Technology to Execute Winning Strategies
Michael Coveney, Brian Hartlen, Dennis Ganster and David King
John Wiley & Sons, 224 pages, US$27.97 / £22.98 (Amazon.com)

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Revised: February 10, 2003 TAF

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