AT A GLANCE
- Corporate performance management (CPM) is the framework methodology to measure an organization’s success in its strategy.
- The Balanced Score Card (BSC) is the most effective corporate performance management methodology.
- BSC provides organizations with a means to “connect the dots” between the various strategic planning and management aspects.
“If you can’t measure it, you can’t improve it.” Peter Drucker, the management guru, underlined the importance of performance measurement in organizations. Drucker means you have no way of knowing whether you will succeed or not unless success is defined and tracked.
With an established metric of success, you can quantify progress and adjust your process to get the result you aim to have. Without clear goals, organizations can not move forward and will lose themselves in an uncertain business environment.
“If you can’t measure it, you can’t improve it.”
Corporate performance management (CPM) is the framework methodology to measure an organization’s success in its strategy. CPM is also utilized to align an organization’s strategy and goals to its plans and executions to control its success. In addition to this, institutions apply CPM -internally- to plan and make data-driven decisions and -externally- to assess these decisions’ effectiveness.
WHY CPM IS AN ABSOLUTE NEED FOR ORGANIZATIONS
Corporate performance management system orchestrates the management team, staff, customers, and suppliers within an integrated data-driven environment. Institutions can link organizational goals and strategies to their plans and practices through integrating business planning, sales, marketing, forecasting, and budgeting for finance, human resources, and operations. Aligning with the organization’s strategic priorities makes it possible to concentrate on key drivers of business activities and critical business metrics that need to be maintained to boost sales and increase profits.
Although CPM needs to be adopted by any organization, this is particularly essential for firms trying to minimize operational costs, increase compliance with KPI, re-budget, strengthen financial planning processes, or enhance organizational strategies.
As CPM is becoming crucial to the management team, organizations are looking to establish a dedicated team for this practice.
To summarize the CPM:
- Provides knowledge and strategic planning are fundamental aspects of organizational success management.
- Gives policymakers instant access to the evidence they need. With a decisive view of the business’s facts, it is essential to make rational choices to maximize efficiency.
- Maximizes their company, CPM provides management with the performance monitoring they need. The service’s effectiveness allows both directors and decision-makers to set specific targets and strive for their progress. CPM offers the performance efficiency required.
CRITICAL SUCCESS FACTORS FOR SUCCESSFUL CPM PRACTICE
In the real business environment, establishing a successful CPM is not an easy job. Let’s look at the critical success factors to have a well-established CPM practice in organizations.
1. Strategy Alignment
CPM enables a strong alignment between company strategy and the operations and employees with their respective objectives. To design an effective corporate performance management practice, an organization needs to figure out how each function, departments, and team members contribute to its overall strategy and goals.
Without top management’s commitment to CPM practice, it is almost impossible to establish a successful implementation. Top management plays a crucial role in creating conditions in the business environments favorable for integrating CPM practice at the strategic and operational levels.
3. Effective Communication
To achieve an effective corporate performance management practice, an organization needs to establish honest, open, and frequent communication channels amongst all the team members. We know that KPIs are active measures that help an organization to understand its daily management. Hence, an organization can uncover its current performance. To do this, an organization needs to initiate a cultural code that encapsulates open dialogue in its DNA.
Transparency in any corporate performance management practice is vital. When we look at the best-performed CPM practices, there are a single truth and understanding in an organization. Best-performing organizations in CPM practices create a working environment where there are a single truth and perception of their overall objectives and functional/departmental objectives. All employees are well aware of their and other team members’ goals, KPIs. They are crystal clear about the way they contribute to the overall strategy and objectives of the organizations
4. Target Setting
Identifying the most appropriate target for an organization requires a data-driven approach and top management’s gut feeling. In the case of selecting an easy target, an organization will not enhance its overall performance. On the other hand, setting a challenging target will discourage employees from putting all their efforts. In a nutshell, targets must be realistic and attainable to be successful. In other words, targets must stretch an organization’s capabilities and abilities but remain possible.
COMMONLY USED CORPORATE PERFORMANCE MANAGEMENT METHODOLOGIES
These are the five different methodologies for the CPM practice.
- Six Sigma — A data-driven framework that ensures the successful operations of an organization by removing defects by using a simple DMAIC (define, measure, analyze, improve, and control) practice
- The European Foundation for Quality Management (EFQM) Excellence Model — A framework that defines strategies on how an organization must operate
- MPO — Maps strategies or trends of how an organization must adapt to the changing global business experiences.
- OKR — Objectives and key results (OKR) is a goal-setting framework for defining and tracking objectives and their outcomes.
- The Balanced Scorecard — A comprehensive set of views that enables an organization to measure and control a business’s various functions considering internal and external factors.
Throughout these strategic tools, we acknowledge BSC is the most effective corporate performance management methodology due to the following reasons:
- Strategy alignment and mapping. BSC articulates and communicates business priorities and objectives clearly
- Progress tracking. BSC measures to what extend the business priorities and objects are delivered accurately
- Action planning. BSC ensures projects and initiatives are defined and in place to achieve desired strategic objectives
UNDERSTANDING THE BALANCED SCORECARD METHODOLOGY
Compared to conventional financial metrics to get a more “positive” view of results, the term “balanced scorecard” derives from the concept of looking at strategic measures. The idea of a balanced scorecard has grown beyond the mere use of views and is now a holistic strategy management framework.
A significant benefit of having a disciplined system is that it provides organizations with a means to “connect the dots” between the various strategic planning and management aspects.
In addition to that, organizations need to ensure that there would be a tangible connection between the tasks and activities that individuals are focused on, the metrics used to track progress (KPIs), the strategic priorities that the organization is seeking to accomplish.
The KPIs are the fundamental measuring units of CPMs. They are the tools of translating an organization’s strategic objective on to different levels, business units, teams, and individual employees.
The performance metrics used in Balanced Scorecards are divided into four different perspectives.
i. Financial — This includes all financial performance numbers, such as sales, costs, and profits.
ii. Internal Business Process — The employee experience can significantly impact the long-term success, or failure, of a company. Internal metrics offer an evaluation of the quality of company management.
iii. Customer — Customers are essential to every business; they are the source of the company’s income. Customer satisfaction and loyalty can be critical indicators of business health and performance.
iv. Learning and Growth — The company must ensure the development of its talent and internal capabilities
Corporate Performance Management Practice will never be easy to establish the organizations.
As a team of corporate performance management and balanced scorecard experts, we can help you in your journey — not only with our performance management but also with our program and implementation support capabilities.
To learn more about our Corporate Performance Management practice, please do not hesitate to contact us.
October 26, 2020