Originally published - April 12, 2006
The market uses the terms business performance management (BPM), corporate performance management (CPM), and enterprise performance management (EPM) interchangeably. Vendors and industry analysts use these terms to describe performance management, but essentially they all mean the same thing. BPM represents the next generation of business intelligence (BI), and is defined as the use of software to help organizations manage their processes and measure their key performance indicators (KPIs) in order to optimize performance and help drive corporate strategy.
This article will focus on the key aspects to take into account when considering implementation of performance management software:
the way KPIs are defined by an organization's focus
the meaning and importance of data mining
the importance of scorecards and dashboards in driving business decisions
the benefits and challenges of implementing a BPM solution
BPM versus BI: A Brief Overview
BPM applications allow organizations to implement an approach to data analysis. Data mining tools identify trends and enable organizations to plan intelligently for the future. Additionally, performance management software provides organizations with visualization features (such as dashboards), which give them the opportunity to view summarized data and to drill down to operational data stores for relevant details. This differs from traditional BI software, which identifies data patterns by using historical rolling data to drill down on dimensional data over time.
Traditionally, organizations developed month-end processes to generate financial reports or queried data at specific intervals in order to provide data to decision makers throughout the organization. Additionally, throughout the organization, reporting processes were implemented to provide users and decision makers with regular static reports over time. With increases in competition and potential client bases (due to globalization and technological advances), organizational needs have evolved, and require more powerful reporting tools to capture significantly higher amounts of data more often. Businesses are shifting to accommodate increased data demands, and are attempting to become proactive in their corporate planning. The realization that BI and data warehousing concepts can be leveraged to drive business decisions has helped drive the evolution of BI toward encompassing business performance functionality.
Key Performance Indicators and Data Mining
The terms KPI and data mining are often used to discuss the benefits of BPM and the ways in which BPM drives business decisions. Knowing what those terms mean, however, does not alone guarantee business success. Instead, organizations should identify appropriate ways to apply KPI and data mining in order to determine the metrics required for making the right strategic decisions.
KPIs are defined as the critical metrics set by an organization to reflect its financial or nonfinancial success. They help organizations identify and monitor factors that are quantifiable, measurable, and important to the organization's overall success. Although KPIs can help drive business decisions, they are only beneficial if they are set properly and reach the right people at the right time. For example, with traditional BI online analytical processing (OLAP) cubes, sales data can be reflected multidimensionally with rolling sales data over a three-year period. This, however, pales in comparison to dashboard functionality, which allows a sales manager to see up-to-date sales figures in real time, and to compare them against predefined metrics. The sales manager can then drill down on the data to access and analyze operational data in order to determine a plan of action.
KPIs vary depending on the function of an organization. A nonprofit company may want to measure the ratio of graduates to overall participation for a specific volunteer training course in order to identify the success of a program. However, a sales-oriented corporation may want to set metrics to identify the amount of revenue generated by return customers. To increase sales, a KPI measuring customer satisfaction and repeat sales might be implemented. For a financial institution, it may be important to set KPIs to identify potential risk management issues, such as meeting regulatory requirements or minimizing the potential credit risks of clients. This differs from a manufacturing organization that needs to monitor parts delivered from suppliers, or from a government body that wants to measure and improve employee performance. Setting the right KPI and providing that information to the right people can make the difference between implementing a successful BPM tool and a total failure.
Data mining, also called knowledge discovery in databases (KDD), uncovers data patterns within databases. It is used as a tool to discover patterns among large amounts of data. Data mining allows organizations to identify why things happen, and helps them make connections between seemingly unrelated items. For example, if an organization wants to increase sales, identifying customer buying patterns with intuitive software saves time, and allows decision makers to focus on developing strategies based on those patterns (as opposed to spending their time identifying what those patterns are). A credit card company may want to identify buying patterns and spending habits of customers, and an organization in the pharmaceuticals industry may choose to create a KPI to improve their manufacturing process and inventory control.
Data mining can also be used to find patterns among multiple tables within relational databases. This is advantageous because data centralization (and having one view of corporate data) enables organizations to set the appropriate metrics. Data mining also allows them to measure these metrics more easily, find patterns which enable proactive corporate planning, and target customers based on pattern recognition.
Before identifying more ways in which BPM can benefit an organization, it is important to identify the user interface components to show how organizations are using performance management software.
An Overview of Dashboards and Scorecards
Dashboards are a visual representation of organizational data, whether the data is real time, strategic, or driven by KPIs. They visually track KPIs and allow users to drill down to reports and more detailed information. They also provide decision makers with the ability to drill down on summary data, identify sources of data represented, and analyze data at the operational data level. An example of this is the use of stoplights as a visual measurement for identifying whether a product is meeting or exceeding its sales target.
Scorecards can be tailored to provide an individual view of the corporate world to employees, departments, or business units, in order to identify the KPIs that are relevant for a specific focus on strategic objectives and strategic business goals. These KPIs are related to the priorities and goals set by the organization, be they financial, operational, customer-related, or qualitative. With respect to data, scorecards help align a corporation's short-term and long-term goals with the actual metrics developed by the organization. Other measurable metrics include risk factors as well as industry and corporate performance benchmarks.
For organizations with offices or sales channels in multiple regions, maps are effective visualization tools, having the ability to drill down to reports to show how sales are being driven on a high level. Other features include strategy maps that help organizations view their corporate strategy from a macro point of view by creating a hierarchy of perspectives organized in descending order, according to measurability, urgency, and visibility. Also, cause and effect diagrams show relationships between different entities and performance in order to enable management to identify factors that may be causing low sales or other performance challenges. These are some of the tools offered by BPM software to help users analyze the appropriate data within the organization.
Benefits of Using a BPM Solution
BPM is the type of solution that can be beneficial to any organization. Whether managing financial performance, employees, customer relations, and sales, or providing an overall view of corporate performance, organizations should consider a BPM solution if one has not already been implemented. The type and size of the project will vary based on the size of the organization and goals, however. But setting the right goals and measuring the right metrics will help ensure successful use of the tool.
Some of the key advantages associated with implementing a BPM solution:
Data patterns: Data mining and predictive analytics tools embedded in the software can identify data patterns as well as predict outcomes and return on investment (ROI).
Data centralization: Data is centralized across the organization, meaning that employees are working with one set of numbers as calculations are made in the database or staging tables. In finance departments, this is a key improvement, since users traditionally apply their own algorithms and calculations to data that may be pulled from disparate sources, which in turn means that different financial results may emerge. Data centralization also means that multiple users can analyze data at the same time as opposed to working on separate spreadsheets.
Ownership: Data ownership can be transferred to users as opposed to information systems (IS), allowing users to create and manage their own processes.
Employee accountability: Employee accountability increases when responsibility is assigned for selected tasks and processes. Progress can be monitored, and matched against performance milestones.
Drill through: Employees can drill through report and scorecard data to access operational data stores directly from the user interface, and can even change data to update actual operational information, depending on the chosen solution.
Data transfer: Data from regular operational systems can be transferred into a centralized form, which can then be leveraged by managers.
KPI monitoring: Monitoring KPIs confers the ability to monitor performance indicators over time, manage performance, and predict results.
However, there is no such thing as a BPM panacea. Here are some of the challenges associated with implementing a BPM solution:
Specificity: It is important for an organization to choose the right solution. Offerings differ within the performance management industry, and each vendor has its own strengths and weaknesses. It is essential for an organization to identify its own business requirements, and to ensure that a vendor can meet those requirements. For example, one vendor product may have enhanced scorecarding functionality, but may not be highly compatible with Microsoft Excel.
Integration: Integration issues need to be considered to ensure that a new system is scalable to the organization's current architecture. Aside from the general system architecture, organizations should consider data integration and their own data analysis methods in order to alleviate additional challenges when implementing a new system.
Complexity: If an organization plans to successfully implement a new solution, the new performance management system should be implemented incrementally. The solution should be implemented across one unit at a time, perhaps starting with finance, and then expanded across the organization. This way, the right KPIs can be set and the right goals identified, so as not to deploy a large-scale BPM solution that identifies inappropriate metrics.
BPM enables decision makers to view data in a user-friendly way. It also provides visuals to allow organizations to manage and analyze KPIs, and to set benchmarks for proactive corporate planning. The main BPM aspects to consider are KPIs, data mining, scorecards, dashboards, and of course, the benefits and challenges associated with implementing a BPM solution.
There are many solutions targeting both large and small organizations. This gives companies the ability to choose from many product offerings, at many different price ranges. Each organization needs to identify which solution best meets its needs, keeping in mind the general functionality highlighted above, along with its own specific criteria. Organizations should also keep in mind how amenable the solution is to accommodating change and growth, whether through customization or adaptation.