How to Implement an Effective Business Performance Management System

You may have heard the adage: “If it can be measured, it can be improved”.  This is why business performance management (BPM) holds such great significance. BPM encompasses a range of techniques, measurements and computer programs that companies (and management consultancy firms) utilise to evaluate and enhance the performance of their operations. 

Through the consistent observation of essential performance metrics, firms can assess whether they are making progress toward their objectives, promptly recognise patterns and resolve issues. Business Process Management (BPM) also supports companies with other aspects, such as planning, budgeting, and analysing performance. Since manual metric monitoring can be a lengthy and demanding task, organisations sometimes try to short-cut the process by using computerised data tracking systems. Of course, data itself can only tell you so much – interpretation of the data and subsequent process changes are just as important.

What’s the Purpose of Business Performance Management (BPM)?

In a single sentence, Business performance management (BPM) encompasses a variety of means, measurements, and instruments aimed at monitoring and enhancing business performance. 

BPM, which is also referred to as EPM and CPM, involves setting measurable targets for a business and monitoring the progress made towards achieving them. The fundamental basis of BPM involves the establishment, observation and tracking of key performance indicators and measurements. By tracking these metrics, business executives can assess whether their company is making adequate progress toward achieving its objectives. This insight allows them to identify patterns, detect problems, and implement strategic modifications when needed. 

In Summary:

• Business performance management (BPM) encompasses various techniques, measurements, and instruments aimed at enhancing and gauging business performance effectiveness. 
• It involves a continuous process of strategizing, supervising performance, and modifying approaches to suit requirements. 
• By keeping an eye on key performance indicators (KPIs), businesses can easily track their output, detect trends, and highlight any anomalies requiring further examination. 

An Overview of the BPM Process

In the business sense, “performance management” is the ongoing process of designing plans, monitoring progress, analysing outcomes, and tweaking strategies. The cycle starts with establishing business objectives and breaking them down into specific targets for various departmental strategies. Each departmental plan outlines timelines, budgets, and goals for the organisation – which feeds into the performance management plan as a whole. By creating and monitoring relevant key performance indicators (KPIs), every department—from finance to human resources—constantly evaluates its performance to guarantee that it stays on track toward the overall goals.

Of course, it’s important that the chosen KPIs are highly relevant to the underlying organisation if their improvement is going to have any meaningful positive impact; All the tracking in the world won’t help if the chosen KPIs don’t track and improve what really affects the organisation’s performance.

Numerous methods have been created to manage the performance of businesses. The common objective of these procedures is to assist companies in establishing strategic objectives, carry out specific operational plans, keep track of progress, and facilitate improvements. Whilst we’re on the topic, there are several more well-known frameworks that are used to improve performance that you may have come across, these include:

• The balanced scorecard
• Objectives and key results (OKRs)
• Total Quality Management (TQM)
• Six Sigma 

What’s the Importance of Business Performance Management?

BPM’s objective is to provide enterprises with a toolkit for gauging and boosting their success. It’s designed to assist organisations in connecting business objectives to precise financial and operating measures. This measurement allows businesses to review predicted outcomes versus their actual accomplishments. BPM helps coordinate the efforts of all employees towards shared objectives, and it also identifies potential setbacks that might require interventions to enable a company to achieve its targets. Some of the most notable advantages are listed below: 

The organisation’s aims are converted into specific targets and measurements for every team, which guarantees that all workers are striving towards identical goals. By focusing on these commercial metrics, each sector contributes to the successful of the organisation. 

By tracking KPIs, the company can monitor performance across every aspect of the business – whether they’re revenue-generating, or not.

BPM offers companies a range of tools that can aid in better decision-making and planning. It enables businesses to promptly track issues and developments, and adjust strategies accordingly. By monitoring KPIs, businesses can identify operational inefficiencies that need to be addressed. For instance, if customers are taking an excessive amount of time to settle outstanding debts, this will not only be identified as an issue but the exact impact of the problem can also be quantified. 

Common Processes in Business Performance Management 

The are 4 elements that commonly feature as part of a broader Business Performance Management Strategy:

1. Strategy Development

Top-level strategic requirements are usually identified by the organisation’s senior management team and/or shareholders. At this stage, stakeholders need to establish what’s important to the overall organisation. This could be as simple as bottom-line profit, in the case of a commercial business, or could be something more difficult to quantify, such as the quality of service being provided the end-user (in a public sector organisation, for example).

2. Operational Planning

During the operational planning stage, more attention is given to how the various functions/departments within the organisation will contribute to the overall strategy identified above. Operational planning is often broken down into functions such as HR, Marketing, Finance etc. This allows for more specific and relevant KPI’s, and ultimately targets to be identified at point 3, below.

3. Identifying and tracking KPIs

This is where the process becomes more granular and will likely benefit for the involvement of an external BPM professional. It’s important that KPIs identified feed into the overall strategy identified and point 1, above, and that appropriate systems and put in place to capture and normalise the data necessary to implement informed changes.

4. Review and Response

Based on the data collected from point 3, the key decision makers at an operational or organisational level will now need to implement changes geared towards improvement in-line with the top-level strategy. It’s important that any changes are made cohesively, as changes within one department may improve that departments individual performance, but not necessarily benefit the overall strategy. This is particularly true of non-revenue generating departments, such as finance.

For example, the finance department may be successful in reducing the outstanding debts on the balance sheet, but to the detriment of the sales department who may use “extended payment terms” as a key selling point when attracting new business.

How to Effectively Implement Business Performance Management

Choosing appropriate KPIs is an extremely important stage I the BPM process. There are a number on standardised KPIs that can act as a solid starting point, but it’s also important to identify any KPIs that are specific to the organisation in question – sometimes referred to as proprietary KPIs.

Of course, the chosen KPIs are only as good as the data that underlies them; It’s vital that the data used in calculation is accurate and obtainable. After all, the BPM plan and process in general should seek to improve performance, not simply add another layer of admin burden. Where possible, use data that the organisation already collects through its day to day activities – but be sure that the data is accurate!

Here are some common KPIs, broken down by organisational function:

Example of Financial KPIs 

Whether the organisation is profit seeking or not, it’s clearly a good idea to track cash availability and cash flow. With this in mind, here are some common metrics:

•  Revenue, operating income and operating expenses – This is the type of information you can quite easily obtain from a balance sheet or profit & loss account and will quickly offer an insight into the organisation’s viability.
•  Operating cash flow (OCF) – OCF is generated from a business’s main business activities. A reducing cash flow position is never a good sign. Little else needs to be said in this regard.
•  Working capital – Working capital offers a brief overview of the organisation’s short term financial position. This is calculated by subtracting short-term costs (e.g., payroll) from cash and cash equivalents.
•  Debtor Days – Seeks to identify how long it takes debtors (i.e. customers) to settle outstanding debts. This isn’t necessarily the same as the number of days the organisation offers as a payment term. Understating your organisation’s debtor days is a key element of financial risk management.
•  Creditor Days – Identifies the number of days between the business incurring a debt and the debt being paid to the creditor. Obviously, more important than the metric itself is the reason behind the figure. For example, does the organisation take 180 days to pay its suppliers because it benefits from generous payment terms, or simply because it doesn’t have the cash available to pay on time?

Examples of Customer-Oriented KPIs  

Customer-focused KPIs offer an insight into customer views and how they perceive the organisation. These are primarily used to foster brand loyalty, improve long term profitability and ensure that the organisation’s standing in the market is maintained (or ideally improved):

• Customer satisfaction scores – generally gathered from review sites such as Trustpilot. This information can be particularly helpful as it can offer qualitative as well as quantitative insight.
• Net Promoter Score (NPS) – measures how likely customers are to recommend your organisation. Data often gathered via after purchase questionnaires/surveys.
• The customer retention rate Depending on the product or service offered, customer retention rate may not offer any meaningful insight. In the case of an undertaker for example, it’s (highly) unlikely that you’ll sell your services to the same customer twice. With this said it been proven that the costs of selling products/services to an existing customer are significantly less that those incurred in attracting a new one, so it may be worth tracking if appropriate for your business model.

Although Customer retention rate is a customer focused KPI, it’s also particularly helpful to marketing and finance teams to how much they can realistically spend to acquire a new customer based on their long-term value to the organisation. However, when applied to marketing, “Customer Lifetime Value” is often the preferred metric (detailed below).

Examples of Marketing KPIs  

Marketing KPIs and primarily concerned with the cost of customer acquisition and the overall value of that customer to the organisation.  

• Campaign return on investment (ROI) – calculated by dividing the revenue generated from the campaign/activity by the total cost of the campaign/activity. This can be applied at a high level, in terms of overall spend, but is more useful when broken down by marketing channel. Platforms such as GoogleAds even have ROI tracking integrated within the platform itself.

• Customer lifetime value (CLTV) – CLTV is often referred to as the amount a customer will spend with the business throughout their lifetime as a customer. Although helpful, this figure is often under-calculated. True CLTV should be thought of as the amount of money that the customer will spend with the business, as well as the revenue generated through everyone they refer to the business directly or indirectly. Of course, in reality, this can be extremely difficult to track accurately. It may be useful, however, to consider the CLTV alongside information gained through other metrics such as “Net Promoter Score”, referenced within the customer-oriented KPIs section above.

Examples of Sales KPIs 

Sales is a function in which KPIs have been commonplace for several decades. Sales-related KPIs are used to measure the effectiveness of individual personnel and/or the effectiveness of the sales function as a whole. Some of the more common KPIs include:

•  Monthly Sales Growth – are sales growing, declining or plateauing. Tracking monthly sales can also be used to identify seasonal trends and plan cash flow accordingly.  
•  Sales Target Attainment – can be used to measure how the team or individual is performing compared to other teams/individuals. This doesn’t need to be purely financial; metrics could include the number of calls or presentations made in a given period, for example. Combining a non-financial metric to a KPI such as Monthly Sales Growth can offer an insight into the effectiveness of different techniques or styles across members of a department. In turn, this can be used to identify “best practices” or highlight situations where further training is required.
• Sales by Contact Method – there’s a reason why different industries prefer different sales methods (I’m sure you’ve received a phone call or 10 about replacing your double glazing). Assessing the effectiveness of one sales channel versus another allows an organisation to decide where its financial and human resources are best deployed to achieve maximum return.

Examples of Manufacturing KPIs  

If you’re not a manufacturing organisation then you may be temped to avoid this section altogether – but hold your horses! Some of the KPIs discussed below can be transferred to service organisations too:

• Production Volume – aims to track standardised output across a given timeframe and helps to assess the impact of production and non-production factors on overall manufacturing output.
•  Lead Time -the amount of time (generally calculated in days) between a business accepting an order and the order being fulfilled. Data should be normalised to remove and orders where customers have specifically requested a longer than standard fulfilment time, otherwise the data will be artificially adverse.
•  Capacity Utilisation – a measurement of the utilised production capacity expressed as a percentage of overall capacity. Tracking capacity utilisation provides highlight potential bottlenecks before they become a problem or indicate areas of underutilised resources.
• First Pass Yield – Used as a quality control metric to identify the number/percentage of units that required re-work before being in a state that satisfies minimum quality standards. Needing to revisit work that should have already been completed obviously has the potential to severely impact both financial and production resources – which in turn has the ability to impact other KPIs, such as OTIF.
• On-Time-In-Full (OTIF) – Assesses the number of orders completed on time and in full, with anything less the 100% requiring improvement. OTIF can provide clues as to issues in other areas of the organisation, such as supply chain issues or equipment reliability failures.

Examples of KPIs in Human Resources (HR)

When focussing on improving an organisations performance it can be tempting to overlook internal staff retention and satisfaction. But this is extremely short-sighted. Aside from the costs associated with training a new employee if a staff member leaves, happy employees are known to be more productive and take less time off sick:

• Employee satisfaction – Information pertinent to employee satisfaction is often best collected via means that allow the employee to remain anonymous; it can be difficult to obtain meaningful insight in settings such as annual performance reviews, where employees can feel uncomfortable providing honest feedback.
• Employee retention – Good employee retention rates can help to improve organisational performance directly, due to factors such as reduced costs associated with staff training. Of course, when arriving at an accurate employee retention rate it’s generally not appropriate to include staff losses due to planned redundancies or retirement.

A Brief History of Business Performance Management

For as long as people have been trading goods and services for profit, they’ve been trying to figure out how to increase that profit. However, this doesn’t mean that there’s always been a systemised or standardised approach.

Standardised approaches to business performance management started to develop in the early 20^th century, with companies such as DuPont tracking ROI metrics against budgeted forecasts. These efforts were then furthered by companies such as General Electric, which started looking at overall market share alongside metrics such as ROI adopted by DuPont. This soon gave rise to specialist consultancy firms, such as “McKinsey & Company”, founded in 1926.

Although there were incremental improvements over the next 60 years, everything changed in the late 80s and early 90s with the advent of computerised systems for recording and modelling data. For the first time, organisations themselves and third-party consultancy firms could manage large data sets quickly and with limited manpower.

The above implementation of computerised business performance management systems resulted in somewhat of a renaissance for the industry; several systemised approaches emerged that are still in use by private and public sector organisations today.

These systemised approaches to business performance management include:

•  Balanced Scorecard – used in strategic planning and measurement system. Aims to offer a broader view of the organisations overall systems and the performance of those systems, as opposed to simply financial metrics such as ROI.
•  Objectives and Key Results (OKR) – used to specify goals and track how efforts are acting to affect the achievement of those goals.
•  Six Sigma – Emphasises process improvement. Initially used in manufacturing organisations, but now used more broadly. Adopts its own proprietary qualifications for practitioners, known as “belts” (similar to that of martial arts).  
•  Total Quality Management (TQM) – a user/customer-focused approach that emphasises user/client satisfaction by continuously detecting and improving errors and issues. Used in manufacturing primarily,  TQM is part of a broader approach known as “continuous improvement”.

How Does Technology Impact Business Performance Management Systems?

As alluded to above, advances in technology such as computers have had an extremely positive impact on organisations and their ability to manage and utilise multiple sources of large data sets. This has meant that all organisations – large and small – have the ability to adopt a technology driven approach to business performance management.   

Although there are now a practically unlimited number of providers offering data tracking and management services across various industries, they all have the same core approach: collect fresh data quickly and easily, allowing an organisation’s management teams to implement and track performance related changes.

Somewhat ionically, the cost of implementing many of these specialist solutions can make it realistically prohibitive for smaller organisations to benefit from them; It’s often far more cost effective for firms to simply appoint an external consultancy firm, such as Excelco, to carry out an agreed scope of works.

How to Choose a Business Performance Management Solution

Choosing the right business performance management solution for your organisation will depend on a number of factors, these include:

• Internal Human Resources: the number of staff (if any) that the organisation can deploy in the implementation and management of the BPM system. Ideally, depending on the size of the organisation, each departmental function will have staff specifically tasked with ensuring that the business performance management plan is implemented effectively.
•  The Scope of the Improvements Sought: some organisations may seek to improve a specific area of the organisation, such as product quality. Before adopting a solution, it’s important to decide what the organisation is trying to achieve and the resources that achieving this improvement is likely to require.  
• Budget: Not every organisation can afford to implement an all-singing-all-dancing business performance management system. If this this the case, it make sense to seek the support of an external service provider that can manage performance improvements on a project basis. Firms such as Excelco should be able to offer a fixed-fee arrangement for an agreed scope of improvement works.

Business Performance Management FAQs

What are the key aspects components of business performance management systems?

All business performance management systems adopt the same key elements at their core, regardless of differences between industries and system providers. These can be identified as – planning, tracking, implementation and evaluation.

What does it cost to implement a business performance management system?

The cost of implementing a business performance management system or plan will depend on factors including: the size of the organisation, the improvements sought and resources deployed in achieving those improvements. This gives rise to extremely broad estimates of cost. It may cost a smaller organisation, seeking to improve a single aspect of operations via an external provider, around £5,000 – £10,000.

A large organisation seeking to make improvements across multiple functions based at multiple locations will likely adopt the approach of hiring an external performance management firm in combination with internal resources. Costs in this scenario can easily cost £1MM+.

Summary

A business performance management plan and/or system can be implemented in organisations of all sizes. However, the exact approach adopted will depend on the size of the organisation and the extent to which improvements need to be made.

It may be a good idea to approach an external performance management provider to assess the organisations needs before deciding on a system that works for you. This will ensure that your organisation gets the best return on its investment in terms of time, money and human resources.

Before implementing a system it’s vital that the appropriate and achievable goals are identified; implementing a system without having a solid idea of what the organisation is trying to achieve will only result in confusion, conflicting information and a lack of meaningful progress.

Successful business improvement management systems are no longer limited to large organisations with vast budgets. With the right planning, implementation and tracking, your organisation too can achieve substantial improvements in performance across all functional areas – and ultimately bottom line profit.