Code red

Binary Numbers Richard Stark, director of performance management solutions at Actuate, takes the guesswork out of performance management.

For the long-standing hype that has surged and subsided around the areas of MIS (management information systems) and EIS (enterprise information systems) - or however these tools have been packaged over time - there is one category of management aid that has endured the test of time: performance management. Not only has it outlived many other management disciplines, it is becoming more popular by the day, according to market analysts.

In April last year, respected analyst firm AMR Research forecast that spending on performance management solutions would swell to almost $23Bn in 2006.

Significantly, it found that organisations were now less focused on the analysis and more concerned with the reporting, on the basis that there's little point digging deep into company data if this can’t be interpreted and presented in a digestible fashion, so that someone can do something sensible with it.

As a result, dashboards and scorecards are now the most sought-after features of business intelligence and reporting applications, AMR notes.

So what's going on? The hard truth is that more specialised management information tools in their various guises have not delivered the benefits that organisations expected. Whatever these applications are delivering in the way of management information, it is not being applied in a way that transforms the way the business performs.

Hence the renewed interest in performance management. Browse the business and management section of any airport bookshop, and you'll discover a plethora of books on the subject.

Senior managers in organisations right across the spectrum of vertical markets are, it seems, wrestling with the same problem: how to bring day-to-day operations closer in line with the business's over-riding goals.

In the financial services industry, for example, organisations are grappling with a series of critical business challenges, from compliance, to reducing customer attrition rates and boosting the ARPU by cross selling to existing customers.

Meeting these broad goals relies on the participation of staff right across the organisation, however, and while standard measures and process rules can ensure policies are followed, how can banks, for example, ensure that risks are being managed at an optimum level - so that the business isn't made vulnerable by acceptable barriers being passed yet, at the same time, that opportunities aren't being missed because staff are being too cautious?

The trouble is that, despite all the fancy technology they have thrown at the challenge, most organisations - and managers and staff up and down the business - have no idea how they are performing against their overall business strategy.

Performance management tools get straight to the heart of this problem, by putting business intelligence into context, so managers can compare day-to-day productivity with the strategic objectives they have been set, and then roll out action plans with their individual teams.

Skim-read any of the business books on performance management, and you'll find that the balanced scorecard remains the single most used framework for putting PM into practice. The concept, which originated at Harvard Business School in the early nineties, and forms the basis of broader and more developed PM frameworks such as Six Sigma, is a simple one.

It forces organisations to examine their business beyond just the financials, and define which aspects of performance really matter (the key performance indicators), so that these can be monitored and tackled proactively.

Once the criteria for measurement have been agreed upon, organisations can begin to score their performance against them, charting any improvement or deterioration over time.

While traditional query and reporting tools may tell a company how sales of women’s shoes performed in Leeds over Christmas 2006 compared to Christmas 2005 and 2004, they are unlikely to allow broader reporting such as 'How is my business running?' 'Are my customers any happier?' 'Is there anything that will prevent me from meeting my growth target for 2007?' or 'What market share can we expect in years?'

PM, done properly, is about going beyond the hunch to the reality; it's about aligning what the people on the shop floor are doing with the core mission statement of the organisation.

If this can be achieved in a clear, objective, measurable and easily communicated way, it can be used to powerful effect - if performance failure can be pinpointed, behaviour can be changed.

If a scorecard or dashboard system flashes red for customer service in Birmingham, rockets can be applied under the appropriate posteriors. Or if the financial results are adequate but the future performance indicators are being colour-coded off the charts for the Spanish subsidiary, corrective action can be taken where it is needed, changing the outcome before a negative impact on the business can be registered - in accordance with the adage that prevention is better than cure.

With performance management, the question budget-makers now need to ask themselves is: what will happen to the business if we continue to fumble around in the dark?

With the current rate of take-up of PM software, the chances are that the risk of not refining reporting capabilities, when competitors may be making great headway, will be the deciding factor that encourages companies to add a contextual layer to their business analysis activities.

Richard Stark is currently the director of financial performance management solutions at Actuate, responsible for shaping product direction and market strategy.

rstark@actuate.com

14 March 2007