RSM Resources

Corporate performance management (CPM) seems to be the hottest thinggoing these days when it comes to improving your company’s results andcompetitive position.

Gartner, the Connecticut-based researchand advisory firm, coined the term CPM in 2001 and defines it as "themethodologies, metrics, processes and systems used to monitor andmanage the business performance of an enterprise." CPM commonly refersto processes and information technology systems that piggyback on acompany’s other systems. CPM systems give managers access to all theinformation an organization’s systems contain, and allow them to viewand analyze information almost any way imaginable. In theory, managerscan then make day-to-day decisions that drive their organization’sperformance in concert with its professed strategy. But does CPMdeliver? Or is it just another buzzword?

"For CPM to beeffective, it has to get at the nuts and bolts of value creation," saysJim Buckman, co-director of the Joseph M. Juran Center and formerpresident of the Minnesota Council for Quality. "Ultimately, there areonly two ways for an organization to create new value: Make yourcustomers happier by creating more appealing products and services, orreduce costs by developing better processes."

Evidencesuggests CPM does get at the "nuts and bolts" of value creation. Afterstudying 437 publicly traded firms for three years, Andre de Wallreported in his 2002 book, "Quest for Balance," that both overallfinancial performance and stock price increased for organizations thatused structured performance-measurement systems. What’s more, CPM hascaught on with leading companies around the world. For example,analysts agree that the market for CPM systems among the Fortune 500and Global 1000 companies is saturated — and nearly so for Fortune 2000firms. In the past three to four years, the price of such systems hasreached an affordable level for many midsized companies.

"Youhave to carefully define all of the interactions and relationships inyour organization as you track value through the company," Buckmansays. "You want to be sure your key performance indicators are reallykey performance indicators. It’s a process that will sometimes identifyglaring or embarrassing shortcomings in your organization."

Nomatter what sort of CPM system you use, Buckman says, if you don’tthoroughly understand the various cause-and-effect relationships withinyour company, you may not get the true value CPM can provide.

The next step is to figure out what to measure and how to measure it meaningfully and accurately.

"Any performance-management system is only as good as the data it’s built on," Buckman says.

Nosimple formulas prescribe exactly what an organization’s metrics oughtto be or what level of detail needs to be captured. But with theflexibility and reach CPM provides, companies might want to change boththe number of things they measure and the level at which they measurethem. Experts suggest gathering input from all levels of anorganization and considering what kinds of questions you might like tobe able to answer in the future. Once employees begin to understand thecapabilities they stand to gain from CPM, they typically come up withnew ideas about what to measure. Keep in mind that, although the focusis on metrics that drive performance, that doesn’t mean just financialmetrics. For example, metrics that capture information as wide-rangingas customer satisfaction, the effectiveness of marketing promotions andthe average number of daily sales calls can all affect performance.

Spendingextra time determining what data you need up front generally pays offdown the line, experts say. At the same time, when purchasing a CPMpackage, it’s a good idea to look beyond the price tag. Factor in thesystem’s functionality, ease of use, flexibility, scalability andoverall fit into the organization’s information-technology strategy.

Althoughtoday’s software systems generally are more intuitive and easier to usethan a few years ago, CPM systems are not plug-and-play. If you expectto take full advantage of CPM, it’s likely you will need to providesome level of training for your employees. In fact, most midsizedcompanies don’t have the expertise to examine, select and install a CPMsystem without outside help. Some professionals recommend that, whetheryou work with a consultant or another trusted partner, you selectsomeone without a vested interest in selling you a particular system.Finally, set your sights on a system that is adaptable and expandable.No matter how well you and your consultants design the system up front,you will probably discover new needs and applications.

Managing to strategy
CPMenables managers at any level to focus on their organization’s overallstrategy through the hustle and bustle of day-to-day business. CPMgives managers enormous flexibility in viewing information. ThroughCPM, you can build multiple views of data across whatever dimensionsyou find important: time, geography, product, customer and so on.

Forexample, you could easily set up your CPM system to generate a reportthat examines total sales, sales by district and sales by product — allduring a specific timeframe. If the report revealed that sales weredramatically up in Cincinnati, your CPM system could enable you toanalyze why. Were there special marketing promotions under way? Was thenumber of overall sales calls higher than usual? Were delivery timesshorter than usual?

Because CPM provides access to all of acompany’s critical information though a single portal, it can eliminatethe need to work from multiple reports, formats and systems. It alsoeliminates the need to re-enter data (along with the possibility ofintroducing errors in the process). As a result, CPM greatly simplifiesreporting and forecasting. Instead of working with old data frommultiple sources, managers can find and use near real-time information.

This kind of speed and flexibility frees managers to think moreholistically about operations and transactions. They can directly linkstrategy to key functional areas to generate a snapshot of the overallhealth of the company. They can make adjustments more quickly andidentify and fix problems. They can drive the process through layers ofmanagement and functions to individual employees and transactions, ifnecessary.

Ultimately, by getting the right information to andfrom the right people at the right time and in the right format, CPMmoves organizational strategy to the smallest common denominator. Itenables everyone in the organization to understand their roles andresponsibilities. Conversely, this rapid exchange and assimilation ofinformation from all levels gives managers data to justify changes totheir organization’s strategy as well.

Performance managementin itself isn’t new, but CPM adds powerful capabilities to the process.And, with the advent of more affordable CPM, midsized companies canbetter compete in the global marketplace against competitors of allsizes.