Success of a BPM project is in identifying objective outcome metrics and their drivers, say Christian Mertin and Prithwijit Chaki

Today’s organisations have more ways than ever to capture information, and they have a wealth of metrics at their disposal to do so. The availability and maturing of Business Intelligence (BI) and reporting tools have meant a surge in the deployment of ‘dashboards’ from corporate level, to business unit level, to department level, and all the way to the individual level. Yet for most, this wealth of metrics has yielded little useful insight. This is because tactical dashboards pre-dominate and they only provide a report card on performance rather than acting as a facilitative management tool, or enabling a repeatable review process. Even making significant investments in IT systems have not provided a panacea to these ills. A lot of effort is still required to glean meaningful information and crucial decision making capabilities still depend on Excel. The need of the hour is to adopt Business Performance Management (BPM) as a holistic framework structured through a driver-based approach and linked to the governance process of the organisation. Such an approach allows you to realise the benefits that organisations expect from such initiatives.

The need of the hour is to adopt Business Performance Management as a holistic framework structured through a driver-based approach and linked to the governance process of the organisation

Governance and BPM

BPM is neither a product nor a system. It is, rather, a constantly evolving strategy, vision, and architecture that continuously seek to align an organisation’s operations and direction with its strategic business goals. The mechanism by which it does so is by providing rapid and easy access to actionable information. It should not be equated with dashboards and reports. The purpose of reporting is to disseminate volumes of mostly periodic backward looking information in more or less raw form across the organisation. In contrast, BPM strives to provide much more focused information about the health of the organisation.

Taken together the following four elements constitute the core of any BPM exercise and they are at the heart of the governance process of any organisation (See Chart 1):

• Strategic Planning
• Annual Planning
• Business Performance Reporting
• Decision Analytics

In strategic planning (long-range planning), an organisation sets its direction over the next long term (typically three to four years) period. It sets for itself certain goals which are quantified in the form of certain high level metrics, the realisation of which will be the objective of the organisation. It makes decisions on allocating its resources to pursue this strategy.

The annual planning process takes a slice of the objectives as laid out in the strategic plan and orients the organisation towards meeting those objectives for the next year. Unlike the strategic plan, the annual planning process is more comprehensive and all-encompassing. Each business, department, and function within the organisation prepares its own plan outlining its own initiatives and goals in quantified metrics and targets. An annual plan will typically have both financial and non-financial metrics. The financial metrics are decomposed into the annual budget. Both financial as well as non-financial metrics are cascaded down the levels such that they form the performance measures against which an individual’s accomplishments will be appraised.

BPM is a constantly evolving strategy, vision, and architecture that continuously seeks to align an organisation’s operations and direction with its strategic business goals by providing access to actionable information

The best plans are worth nothing unless the organisation works towards achieving the targeted numbers. Progress against the plan is tracked in the form of business performance reports. It is important to constantly monitor progress against plan and report variances when they exceed an agreed threshold. Monitoring should focus on drivers which are lead indicators (for example, customer footfalls at a retail store) which provide a forward- looking view towards business and facilitate decision making, rather than lag indicators (for example, market share) which provide a summary of performance based on past business decisions. Use the popular traffic lights metaphor to show the status of variance for each measure in ‘green’, ‘yellow’, and ‘red’. This helps in better utilisation of management time by focusing on identified problem areas instead of absolute numbers. The last important constituent of BPM is the ability to do business analytics. The rich and relevant dataset and driver tree allow organisations to gain insights based on past performance. Using a combination of simulation, optimisation, and other approaches, business analytics helps in iterative exploration and investigation, and drives business planning. This acts as an important aid in the decision making process, especially where managing large data sets significantly improve the quality of decisions.

Driver-based approach

How often has the word ‘dashboard’ crossed your mind while discussing BPM? We have a tendency of associating - if not equating – BPM with dashboards. A dashboard, like a car’s cockpit, provides us with a snapshot view of what is the current status such as speed and remaining fuel, among other things. It does not provide us with sufficient information to drive a car. It does not tell us anything about our location, direction, and rate of acceleration, or what we need to do next in order to reach our objective. A more accurate metaphor for BPM will be the navigation system of an aircraft, which not only tells the pilot the current speed, altitude, and fuel burn, among other things, but the sophisticated radar and other navigation systems also tell the pilot the route traversed, weather conditions, the direction, and the distance to the next waypoint. In short, none of us would ever try to drive solely by watching the dashboard, and yet it is possible to fly an entire route in an aircraft on instrumentation alone.

Since a BPM framework is really a corporate navigational system, the best way to design it is to think of it as a map. Think of your strategic goals as the end destinations. On your journey towards that destination you would have to pass through multiple locations, each of which represent intermediate objectives, which are things that have to be accomplished in order to get the end results. Objectives whether intermediate or end-objectives are represented as outcome metrics in the BPM framework.

Now focus on all the factors which you can control in order to reach the destination. For instance, one can control the starting time, direction taken, speed of travel, number of refuel stops, among others which will decide if and when you reach your destination. In a BPM world, these are your drivers. Metrics and drivers together constitute your BPM value tree (See Chart 2) and their usage for performance management is referred to as a driver-based approach.

Outcome metrics link to company strategy, guide desired decisions and behaviours, and can be tied explicitly to actionable drivers. While selecting metrics ensure that you select a limited number of drivers that measure success as relevant to your business and can be universally understood.

Drivers serve as a leading indicator for the outcome metric. Each outcome metric may be influenced by multiple drivers, not all of which may be equally relevant. It is possible to model sensitivity analysis to evaluate the percentage change in the outcome metric for any given change in each driver. Focus on drivers that cause significant change in the outcome metric.

Advantages of driver-based approach The advantages of a driver-based approach towards BPM are many and organisations can improve decisionmaking across the company through driver-based insight and scenario testing: Strategic alignment: Outcome metrics are aligned with corporate strategy and drivers reflect real and important factors pertinent to the business. Strategy can be finetuned by driver-based scenario testing. It helps to integrate planning across multiple outcomes such as market share, growth, shareholder returns, and profitability and also helps in managing detail in an explicitly hierarchical design. Increased accountability: The value tree illustrates explicit linkages between strategic goals, planned commitments, and actual reported in the same driver structure and aids in quicker focus, faster decision making, and to hold executives accountable. All targets are driverbased, and any ‘stretch’ is explicit. Orientation toward growth: Driver- based business plans and forecasts are created to confirm and exploit growth opportunities. The scenario evaluation mechanisms help prioritise investment towards best growth and returns.

BPM is a powerful force and with the right measures aligned at the right levels it can significantly influence organisational alignment, unearth problems, influence culture, and generally catalyse organisation performance

Establishing the right outcome metrics to value driver tree is just as essential a component of successful strategic execution as defining the right strategy for your organisation. Trying to execute without the right outcome metrics and drivers or using the wrong ones is like embarking on a road trip to an unknown destination without taking along a map. It will cost you more time, more effort, and more frustration en route, and you will have to be lucky to reach your destination.

Conclusion

BPM is a powerful force and with the right measures aligned at the right levels it can significantly influence organisational alignment, unearth problems, influence culture, and generally catalyse organisation performance. However, in order to achieve these benefits, organisations need to recognise BPM projects as crossorganisational business initiatives and avoid excessive tool orientation. Success lies in identifying objective outcome metrics and their significant drivers in relevant business terms that are meaningful to stakeholders.