What is Business Performance Management and Why is it Important?
Efficient business performance management systems are critical to business success. Still, businesses of all sizes struggle to implement them, leading to disjointed divisions and ineffective activities that don’t produce meaningful results.
Some inexperienced managers will double-down on inefficient efforts and experience shock anew when they don’t yield improvements. Smart leaders, however, know when to hit pause, adjust, and put their over-extended organizations back on the track to success.
What is Business Performance Management?
Business Performance Management (BPM), Enterprise Performance Management (EPM) and Corporate Performance Management (CPM) are all umbrella terms for the performance management mechanisms a company puts in place to measure performance, communicate results, and manage success.
Though on the surface, BPM may sound like business intelligence (BI), they refer to related but distinctly different programs. To differentiate them, it’s helpful to see how they interact. BI refers to the tools, processes, and procedures to gather, store, and analyze data, which BPM leverages in myriad analytical and operational processes.
Business Performance Management combines historical and current data to help leaders improve decisions and future performance through the development, monitoring, communication, and management of strategic, meaningful goals. Various frameworks exist to help companies implement BPM, including top-down frameworks to align planning and execution, and reaction frameworks such as Activity-Based Costing, Balanced Scorecard, and Six Sigma.
Why is Business Performance Management important?
When copywriter Gary Dahl unleashed the Pet Rock onto the market in 1975, plenty of skill went into creating the clever packaging and 32-page care and training manual that accompanied each purchase. Dahl’s mind for marketing zeroed in on the ideal (and perhaps, only) messaging that could help convince millions of people to part with $3.95 in exchange for an absurdly packaged rock. Without luck, though, no amount of marketing could have turned a skeptical market into the enthusiastic one he enjoyed for six months before sales fizzled out.
Whether Dahl’s venture into the pet industry was a success or failure depends on what he hoped to do. If his goal were to become a millionaire or get rid of one million rocks, he succeeded. On the other hand, if he hoped to launch a business he could lead until retirement, he failed.
Just as we can’t measure Gary Dahl’s success without knowing his goals, organizations without a performance management system can’t measure—or even plan for—their success.
Business performance management processes identify organizational goals, the methods and metrics for measuring them, and how to communicate them at every level, so they meaningfully align with day-to-day activities. BPM also helps uncover and mitigate risks. By analyzing historical data and monitoring KPIs in real-time, management can find unexpected obstacles and hidden dangers and respond quickly. On the other hand, efficiency, productivity, and even success take a back seat to luck in organizations with poor (or no) performance management systems.
Four Main Activities of Business Performance Management
In practice, business performance management is how leaders identify, evaluate, and optimize to achieve organizational goals more efficiently. In practice, business performance management will look different in every organization. However, four primary activities will always be present: the choice of goals, information consolidation, managerial adjustments, and implementation considerations. These four core activities are not linear steps. Instead, they form an iterative, living process where each activity influences the other.
1. Selection of goals
Goal setting in business management frameworks focuses on selecting not just any goals but the right goals. While “right” may seem subjective in the context of goals, every leader knows there are objectively good ideas that are, nevertheless, wrong for their business. So, too, are there “good” goals that don’t align with your organization’s vision.
When selecting targets, consider the following:
- Does the goal align with your mission, vision, and values?
- What are the short-term and long-term effects of implementing this goal?
- What will be different if you achieve the goal? How do you know?
- Does the goal conflict in the short- or long-term with any other aims?
- What will success look like when you accomplish this goal? How can you be sure you’ve selected the right metric?
2. Information monitoring
The metrics you select to measure progress should give insight into your organization’s progress. Should.
In practice, it might take a few iterations to name the ideal combination of metrics and isolate the activities and behaviors that drive them. When selecting relevant metrics, consider the following:
- How many metrics should be tracked?
- What evidence is there that these are the best metrics to measure progress toward this goal?
- Is there enough baseline data for each metric to accurately predict and track their progress?
- Does the organization have a way to accurately and efficiently measure this?
- How often should this be measured?
In many systems, information monitoring incorporates several metrics combined to show overall performance. Each measurement should reveal specific information about how you’re progressing toward a goal. You might find a metric’s movement doesn’t move you closer to your destination, pointing to a need to re-examine your hypothesis and find new metrics or, potentially, reform your goal.
The data may also reveal both positive and negative side effects of implemented changes. Effective BPM frameworks make it easier to communicate an organization’s vision and show how each person’s efforts contribute to its success. A side effect of this transparency could be increased employee satisfaction alongside increases in productivity after communicating and implementing a new stretch goal. Conversely, the data might also show employee engagement plummeting as production soars.
3. Managerial adjustments
The unexpected side effects detailed above call for neither celebration nor despair. Instead, they call for curiosity. Questions you might ask include:
- Why did these unexpected results accompany your changes?
- Can you decouple the negative consequences from any positive results?
- Does anything in the data suggest your goals should be revised or replaced?
- Is there anything else that could have caused these results or side effects independent of your implemented changes?
- Were your goals appropriately tailored and communicated to each level of the organization and meaningfully connected to daily performance?
BPM is an iterative framework—the insights gained from business intelligence are necessary to refine all other activities in the process. Once you begin reviewing the data, you can make adjustments, which will be reflected in the next round of analysis, leading to further adjustments, and so on.
4. Considerations of implementation
When implementing a business performance management system, leaders also need to consider their customers, employees, and stakeholders’ interests. At the start of a new BPM process and as you continue to iterate, questions to consider include:
- Who will benefit from this directly and indirectly?
- If this incurs added costs, who will shoulder them?
- Do the benefits outweigh the costs? How will we communicate this?
- Will implementing result in inconvenience or loss to anyone, either directly or indirectly?
- Is there a way to achieve this goal that avoids or minimizes loss or inconvenience?
- Have all stakeholders been considered?
- How will benefits be measured?
The principles of business performance management are straightforward, but it can be challenging to integrate them successfully. At Leader’s Cut, many small business owners and leaders enrolled in our executive coaching services seek guidance to help clarify long-term and short-term organizational goals and implement a performance management system.
Whether you’re seeking executive leadership coaching to support your management team’s development or to help clarify and navigate your business’ needs, business leadership coaching with Leader’s Cut is molded to meet each individual and organization’s needs. Contact us today and schedule a 15-minute exploratory meet-and-greet to see how leadership coaching can help achieve your goals.