In a competitive environment, competing businesses try to outclass, outbid, outshine and outperform the each other. Nowhere is this more prevalent than in the financial services sector where competition is fierce and product differentiation is virtually non-existence. Time-to-market advantage is all but useless as copycats can deliver better offerings in a matter of weeks. In such a highly competitive environment, the best strategy is to compete against oneself. For by trying to outdo a known benchmark (your own), realistic goals can be set and performance targets achieve.
Until recent years business managers assessed the performance of their enterprises by seeing if the planned strategies are being met and the targets exceeded. The perennial challenge has been to drive strategy down and across the entire enterprise, transform strategies into actionable metrics and deciphering what the numbers mean in the hope of making profitable decisions.
Business managers are looking for ways to measure the performance of products and services to determine which ones can generate the most profit. They want to measure the performance of business units to determine where they should invest for growth. They want to measure the performance of customers to identify lucrative demographics. They want to measure who are contributing to the company's success, who need retraining, and who need to go.
Within the financial services industry performance measurement is a major challenge. Factors such as risk and cost of capital must be factored into profitable calculations. Selling costs are often difficult to capture.
What is needed is a method that allows a systematic, integrated approach that links enterprise strategy to core processes and activities. "Running by the numbers" now means something as planning, budgeting, analysis and reporting can give the measurements that empower management decisions. Corporate Performance Management or CPM is one such method.
Gartner defines CPM as the processes, methodology, metrics, and technologies that enable an enterprise to manage the performance of its business. Although most companies probably have systems or applications that fit into that definition, many are just starting to look at the broader, corporate-strategy-oriented benefits that most analysts believe CPM can deliver.
CPM is really about tying together the strategic initiatives of a company and being able to dynamically drill down into tactical execution plans and data that are coming from operational systems. "Companies may start with a specific need, such as a balanced scorecard or business planning, but ultimately they should choose a solution that can be part of a larger strategy and a larger vision," says John Van Decker, senior vice president of META Group.
Implementing business performance management is not like simply buying applications and suddenly having business performance management capabilities. It's really part of a business process to be able to more dynamically forecast and make changes to your enterprise plan at the highest level and then have those changes filter down into the organization, getting the results into the hands of the managers who influence business on a daily basis.
But CPM is more than technology. It often requires significant cultural change -- from how people share information to what actions and behaviors employees take, based on performance metrics or business results.
Finally, CPM is more than just about measuring performance. Distinction should be made between performance measurement and performance management. A measurement is a static indicator. However, such measurements are not enough on their own to manage a sales strategy, which requires a combination of controls, discrete and continuous indicators, plans, targets, and tactical decisions. Enterprises should watch for solutions that are no more than measurement tools and do little else.
Because CPM combines the elements of business intelligence with those of planning, budgeting, and appropriate-time monitoring, integration with an organization's existing IT assets is important. CPM solutions are often required to work alongside competing offerings and support other elements of CPM in a best-of-breed approach. The goal is to have a flexible CPM architecture that allows the organization to introduce and adapt to new elements of IT infrastructure easily.
Case Study
On any given month the management at Amalgamated Bank of South Africa (ABSA) Group would sift through more than 1200 reports to make business decisions. What's more, no one was clear how much of the information contained in those reports was actionable. Management needed to make sure their investments in creating information actually help managers make better business decisions.
ABSA completely overhauled its approach to business intelligence and performance analysis. A standardized approach was developed and implemented throughout the organization under one technology platform. Classic Kaplan and Norton balance scorecard principles were applied to all business units. To guarantee everyone had access to the system, a Web-based user interface was chosen. To ensure everyone fully co-operates with the implementation, successes at each business unit was conveyed to everyone.
Savings followed quickly as ABSA terminated fragmented projects. The CPM projected quickly identified systems and processes that were leaking performance and resulting in lost opportunities. More importantly, counter measures were implemented to repair these situations.
At ABSA, we learned to aim for early delivery of tangible results, and use those benefits to drive broader support (making sure to avoid the hard sell approach). Finally, to make sure that the metrics are relevant to managerial decision making.
Another CPM story is Union Bank of California. Clear recognition that summary-level data was insufficient to support tactical and strategic decision making in a competitive environment forced the bank to re-evaluate its reporting mechanism. The two-phase CPM project entailed the building of a detailed data capture-end-report mechanism and placement of consistent metrics across the enterprise. This enabled the bank to precisely measure profitability and ensured same statements were reconciled with the general ledger system. Managers were then able to compare actual budgets against projections. The second phase saw pro rata cost allocation replaced with more granular activity-based costing. This enabled the bank to do precision segmentation.
Not the end of the story
Having successfully implemented a CPM doesn't guarantee success altogether. You need to continually evaluate the CPM against set expectations which are dynamically reset to higher goals at every milestone, taking into account marketplace volatility, product proliferation and competitive pressures.
Companies with best-in-class CPM processes and technologies focus more on improving new product introduction strategies and processes, and relatively less on cost-centric value chain strategy pressures than their competitors.
Aberdeen Group lists the following as essential takeaways
Analyze performance from the profit impact across the value chain and not by functional silo; this requires access to financial and operating data at a customer/product/channel/market level of granularity
Identify the root cause of performance variances through better business data analysis -- the real cause of a shortfall is rarely where the impact is measured
Institute a continuous learning environment with a closed loop decision process to inject findings into the company's future decision making process
Support end user access to decision data and "what if" simulation tools in an 'on demand' environment
Pay particular attention to analyzing early the performance of your own and competitors' new and enhanced products -- remedial action requires compressed time to identify issues and determine best responses.
The adventure continues...
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