Performance Management: 2005Performance Management: 2005

As we finish up 2004 and review the year, it becomes apparent that many lessons have been learned from the efforts of business and IT to work together to leverage IT investments for either competitive advantage or necessity. The maturity of performance management has spread across the organization — from general areas such as finance, IT, and operations to very specific domains in call center, sales, marketing, operations, and workforce. This maturity has brought new discipline and focus on what organizations are trying to accomplish with IT investments for business and where they can have the most effective value for the organization.

This may seem obvious, but after witnessing a decade of automating the enterprise and the interaction with customers and suppliers, a stark realization has grown among organizations. If all these investments only improve productivity and efficiency but never actually hit the critical strategic and operational objectives of the company or division, what's the point in the investment? Many of you are now asking this question after investing tens if not hundreds of millions of dollars into IT systems such as ERP, CRM, and others.

The Business Case

The question is whether these investments in business and IT can correlate to the essence of performance management. My work with global organizations and research has found inspiration from entrepreneurial business and IT leaders, who are stepping forward and questioning the conventional wisdom of their organizations and making large steps in the right direction. These individuals (and I hope you) are now examining how to align business with IT to methodically improve performance to meet defined objectives and initiatives. Driving change and aligning people, processes, and systems for improving performance can advance your career if addressed effectively.

Where do you fit? How should you meet such challenges as providing visibility and creating a process for understanding, optimizing, and aligning performance to a set of defined objectives? You first need to get the key members of management on the same level of education and maturity to support performance management. Then, you should evaluate those processes and systems that provide the information for you and your people and build a baseline benchmark that you can measure your existing state and where you need to improve performance. Sound easy? Not really, as it is requires a hard review that can sometimes be culturally difficult to ascertain.

Business Imperatives

To help you examine the business case for driving this change, Ventana Research has defined six critical business imperatives that are forces behind this decade of performance management (see "The Performance Decade," Jan. 1, 2004). These imperatives provide the cross-functional requirements that help finance, operations, and IT focus seriously on performance management. Let's take a quick review of these imperatives and how they're the foundation for any of you who are looking to take the lead in aligning business with IT for performance improvement.

Compliance management. The focus on meeting regulatory compliance requirements brings new pressure in finding methods to automate processes and provide high quality information for reducing the costs of audits. This topic is now being closely examined outside of finance and in operations and IT. You should evaluate your information quality and security initiatives and the lack of centralized information and process management systems. You'll find new requirements are making meeting corporate governance a higher priority, and this compliance is driving the requirements for education and best practices in aligning processes and systems.

Profitability management. The push for managing costs and optimizing revenue streams are sharpening the focus on profitability across the enterprise. The influence of finance beyond the budgeting process is creating new rigor in profitability around customers, products, operations, and all the way to financial profitability. This influence has reached directly into IT where the requirements of gaining access and integrating data to calculate profitability are a critical component. An acceleration of project management offices (PMO) to focus on performance management as a principle of managing the value of IT and projects is even now not just idle conversation but accelerating as a mandatory component of all projects.

Process improvement. Despite the increased buzz around business process management in the industry, what organizations spend on systems to support business processes continues to be one of the lowest investments for IT and operations. Many IT suppliers have failed to translate the process element as their systems must automate and control the process — not just measure and monitor execution to defined objectives. You'll find this somewhat simple concept difficult in practice and implementation, and increased scrutiny should be applied to how these systems will help link the actual people and business/operational processes closer together.

Cost management. The importance of avoiding and reducing costs is just part of the equation in managing costs to the corporate and financial requirements of your organization. IT organizations must go beyond the IT portfolio and vendor consolidation exercises and carefully drive new standards that assist rather than hinder business. The requirements for leveraging existing investments in CRM and ERP and driving the data assets into information should be at the center of new information and performance management initiatives. The massive movement to reduce costs has brought a high level of investment in business process outsourcing, but at the risk of declining customer satisfaction and increasing inaccessibility of data for performance management.

Performance improvement. The underlying theme of performance management is improving performance, although the concept hasn't clicked as a management process and focus in most organizations. The focus on assessing and refining processes to the next level requires a much closer alignment of information and systems that can assist all levels of management. The lack of support for linking strategy, planning, and execution in most organizations is still a major barrier. The drive for just measuring performance through KPIs and metrics has shifted focus away from how to improve performance to pinpointing where performance isn't achieving acceptable levels.

Business innovation. The focus on transforming or applying processes and methods in order to gain a competitive advantage should be a top priority. Unfortunately, the assets and ideas in organizations aren't fully leveraged to improve the value of the organization. Organizing a process and leveraging systems to manage ideas and intellectual property are critical components of building a base of knowledge that can be leveraged. Capturing knowledge in the organization and combining it with methods to transform business processes into value through delivering continuous innovation is the largest unrealized opportunity.

The need to move beyond traditional operational or transactional investments has intensified organizations' focus on information and how not only to manage it but also leverage it effectively. As we approach the midpoint of this decade, I'm amazed that we're still debating why investments into integration of data into consistent, secure, and high quality information management practices are essential for organizations. As you look ahead, make sure to clearly define your imperatives so you can determine how to accelerate performance management into a practical plan for your organization.

Mark Smith is the CEO and senior vice president of research at Ventana Research, an advisory services and research firm providing insight and education on best practices and technology in performance management.