Business Performance Measurement – Corporate Performance Measurement

A number of factors are leading to continued interest in methodologies and associated software that facilitate financial and performance management. These factors include:

• ‘post-Enron’ regulation of corporate governance
• the need for financial transparency;
• growing dissatisfaction with traditional budgeting and reporting processes;
• increasing use of metrics-based performance techniques; and
• improvements in technology for delivering business intelligence and management information.

Performance measurement experts, and more lately, software suppliers have for some time been attempting to link a variety of financial and other operational measures to offer a more balanced measurement of performance than financial measures alone can provide. Understanding the financial position without paying any attention to other performance areas results in a blinkered view. The more modern approaches, as well as aiming for a set of balanced measures, may also try to offer a measure of potential, of future as well as current performance.

Probably the best known methodology is that of the balanced scorecard, devised by Robert Kaplan of the Harvard Business School and David Norton of the Balanced Scorecard Collaborative in the early 1990s. It retains traditional financial measures but also includes measures and assessments in other areas relating to internal business processes and their external outcomes. Though it has been very successful and hugely influential, it does have a blind spot at the operational level. However, the success of the balanced scorecard has resulted in the pursuit of healthy revenues by the creation of systems to deliver similar balanced measurement regimes. This has given rise to a new category of application; business performance management (BPM) or corporate performance management (CPM) which promises to combine traditional business intelligence technologies with packaged analytic applications to deliver a balanced, cross-functional, strategic view of the enterprise.

True BPM or CPM requires underlying data systems which can share consistent and reliable data in flexible ways. This enables managers to compare data for different activities or parts of the organisation knowing that they are comparing like for like. This gets difficult for multi-nationals where accounting conventions might be different in different parts of the business; the BPM/CPM system must recognise and deal with such difficulties. It is this creation of common, consistent data (probably in the form of a data warehouse) which underpins the need to include business intelligence within the remit of BPM/CPM.

Most BPM/CPM systems incorporate a range of financial activities/measures such as budgeting, forecasting, management reporting (statutory and external), activity-based management and cost management together with a performance measurement or ‘scorecard-like’ application based on metrics and key performance indicators (KPIs). The software then adds a front end web portal or similar interface to display the results to users. Often, this is the most important part since it is the ease and effectiveness of interaction with the data that renders the package both attractive and useful,

BPM/CPM is still an emerging market whose technical boundaries and process have yet to be fully defined. Giga Group estimates that the BPM/CPM applications market is currently worth $400 million in software licence revenues, and is poised for a healthy compound annual growth rate of 16% over the next three years at least. This points to a $650 million market in 2006. However, at the same time, Gartner estimates that by 2005 only 40% of companies will have implemented BPM/CPM so there is plenty of room left for growth.

For any organisation, BPM/CPM offers the opportunity to examine the links between strategy and operation in a way that is supported by hard data to inform judgement and decision-making, improve collaborative working and enhance performance. In creating the resulting system, they will need to address technical, process and cultural issues. Not easy; but essential for real, sustainable, improved business performance.