Corporate Performance Management:

Bridging the Gap between Strategy to Execution

“Managing tomorrow’s performance today”™

NetConference – March 31, 2005

For More Information Contact:

Michael Contrada
Executive Vice President
781.402.1153
mcontrada@bscol.com
 Topics

> The emerging CPM trend

> Defining CPM as strategy execution system
> Leveraging CPM with the BSC
> CPM case example
> Roadmap for strategy execution

Notes:
ƒ CPM = corporate performance management
ƒ BSC = Balanced Scorecard
ƒ BI = business intelligence

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 Corporate Performance Management (CPM) – Executive Summary

What?
> A disciplined approach to understanding, monitoring, and managing the drivers of
financial performance and shareholder value that leverages advanced Business
Intelligence (BI) technologies and performance management methodologies
Why?
> Focus and align the organization
> Increase clarity and ownership of business objectives
> Align operations, investments, and individual incentives with business strategy
> Improve visibility and transparency
– Lead indicators of future performance
– See the big picture as well as the critical details (drivers)
> Create single version of the truth
– Enable dialog based on common language and consistent numbers
– Compare performance across business units and functions
> Meet new compliance requirements (Sarbanes Oxley)
> Optimize business performance and achieve results
How?
> The Balanced Scorecard management process is the leading method to organize
and structure a CPM program
> To sustain the benefits, organizations must build the capability to execute strategy
as a permanent competency of the organization

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 CPM Challenges

> Viewed as a project, not a program

> Not connected to the strategy
> Data rich, decision process poor
> Focus on compliance, not competitive advantage
> Definitional – no agreement what it really is

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 Industry analysts are promoting an integrated approach to
performance management

Gartner Research defines CPM as …

“the methodologies, metrics, processes

and systems that monitor and manage the
performance of an enterprise.”
The Data Warehouse Institute defines CPM as …

“a series of processes and applications

designed to optimize the execution of
business strategy.”
According to both, CPM is an important concept because …

“enterprises that effectively deploy CPM

solutions will outperform their peers.”
Sources: Gartner, Inc., ‘Linking Strategy to Execution: CPM’ and ‘Managing Corporate Performance: What You Need to Know,’ May 2003;
TDWI, “Best Practices in Business Performance Management”, TDWI Report Series, March 2004

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 The evolution of enterprise software is a major factor driving interest
in CPM

CPM
“The next big
Effectiveness thing”

BI
00
20
Performance
Management

SC M,
HR M,
CR

M
95
Cross-Functional

19
Value Chains

a rce
,
Ce tion
to Fo
(Customer, Supplies, Products)

,
t.
ign ter
gm
Au les
m

n
Sa

M
Ca all
pa
C
m
90

Front Office
19

es
(Sales, Service, Marketing)

ag
ck
Pa

s
ler
P
ER

ab
0

En
00

/ IT
-2

Back Office

e
85

ar
(Manufacturing, Finance, Human
19

ft w
Resources, Procurement, Logistics)

So
Efficiency

Business Activities & Operations

Source: The Data Warehousing Institute

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 CPM represents the convergence of multiple approaches focused on
improving performance management in organizations

Economic
Risk Baldrige Value Added
Management (EVA) Beyond
Budgeting
CFROI Dashboards Six Sigma
Customer Customer
Segmentation Relationship
Data
Mining CPM Management
Activity-Based (CRM)
Costing (ABC)
Balanced KPI s
EFQM Process
Scorecard Reengineering

Initiative Human
Management Hoshin (Policy Capital
Benchmarking TQM/
Deployment) Readiness
Quality

No standard framework yet exists for designing the CPM

implementation roadmap – except technology

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 Kaplan & Norton’s concepts and principles represent a well-defined
performance management system focused on strategy

+ + =

Describe Measure Manage Breakthrough

The The The Results
Strategy Strategy Strategy

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 CPM is the application of the Kaplan/Norton management framework
to other domains – operations, planning and people

Business Integrated Management

Model + Information + Discipline = CPM

¾ Value-driver ¾ Output and driver ¾ Fact-based insight,

framework measures evaluation and
¾ Priorities and ¾ Qualitative and decision-making
objectives quantitative data ¾ Governance and
(Strategies) ¾ Reliable, timely, alignment processes
¾ Cause-and-effect integrated & ¾ Cross-functional,
logic auditable holistic
¾ Hypotheses for ¾ Data definitions, ¾ Feedback & learning
testing (action) rules, policies and (as well as control)
¾ Common language standards ¾ Core competencies
¾ User driven – fast,
flexible, ubiquitous
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 Integrating CPM with strategy management transforms CPM into a
“strategy execution” system

Focus:
Strategy 1. Strategy map
Customers 2. ABC model
Processes 3. Business process model
Workforce 4. Competency model
▪ ▪ ▪ ▪ etc.
Business
Model

Al
t

ign
igh

me
Ins

Strategy

nt
Execution
1. Balanced Scorecard Integrated Management 1. Strategy management
Accountability (SFO Principles)
2. Product & customer costs Information Discipline
2. Activity-based management
3. Key performance indicators
(KPIs) 3. Six Sigma (DMIAC)
4. Strategic job readiness 4. Workforce management
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 BI tools and CPM applications are essential for implementing
process and functional reporting, analytics, and operations
management

From Data To BI/CPM

Query & Analysis Functional Performance
s
el
nn
ha
C

Sales Cube HR
Markets
Supply Chain
Finance
Service
Sales
Products

New BI and CPM technologies leverage investments in core

transaction and process systems for improved decision-making

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 However, clearly identifying business objectives and strategies is a
prerequisite for driving value from BI/CPM solutions

From Strategy To BI/CPM

Strategy Map and BSC Functional Performance

HR
Supply Chain
Finance
Service
Sales

The Balanced Scorecard (BSC) plays a vital role in defining a framework

and roadmap to guide deployment of performance management solutions

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 The Balanced Scorecard plays a unique role as an integrator of the
best management tools and practices

CFROI EVA

Financial Perspective
"To satisfy our Measures Targets Initiatives
shareholders, Profit-
what financial ability
objectives must
we
Growth
Financial Customer
Share-
accomplish?” holder
Value
Relationship
Management
Customer Perspective
"To achieve our Objectives Measures Targets Initiatives
Market financial Image
objectives, what
Segmentation customer needs
must we serve?”
Service
Customer Process
Price/Cost Reengineering
“To satisfy our Internal Perspective
customers, Objectives Measures Targets Initiatives
and Cycle
shareholders, in
which internal
Time TQM/
Activity-Based business
processes must
Quality Internal Quality
we excel?"
Costing Productivity

Learning Perspective
" To achieve
Objectives Measures Targets Initiatives
Human Capital
Change our goals, how Market
must our Innovation
Learning Readiness
Management organization
learn and
Continuous
Learning
innovate?”
Intellectual & Growth
Assets

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 BSC step 1: building the Strategy Map defines strategic objectives
F1- Grow Earnings and RONA
Perspective
Financial

F2- Drive F4- Manage F5- Optimize

Profitable Volume F3- Manage Costs Working Asset
Growth Globally Capital Utilization
Perspective
Customer

C1- Provide Innovative C3- Provide Quality

C2- Tailor Your
Solutions To Complex Products and Services
Approach To My
Product Design at Competitive Value
Business Needs
Problems

Product Innovation Account Management Operational Excellence

I3- Bring New or

I7- Increase I10- Manage Raw
Extended Products To
Metal Sales In Material Costs and
Market Quickly
Targeted Improve Yield
Accounts
Perspective
Internal

I2- Identify I6- Grow

and Pursue I5- Gain US I9- Optimize Cycle
Presence in
Strategic Marketshare Time Performance
China
Acquisitions

I1- Identify and Develop I4- Improve the Hit Rate on

New or Extended Proposals in Western I8- Improve Alignment
Products European Via Better Between Sales Forecasts
Technical Information And Manufacturing Capacity
Perspective
Knowledge
People &

P2- Attract Marketing P3- Ensure a Safe, P4- Improve

P1- Foster A Culture and Technical Staff Clean Management of
That Encourages And Ensure They Are Environmentally Customer
Risk-Taking Sufficiently Trained Friendly Workplace Information
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 BSC step 2: the management process requires measures & analysis
Establishes accountability Performance Owner: Jeff Schmid
Measure Leader: Meredith Kokko
INTERNAL PERSPECTIVE Reporting Frequency: Monthly
I9– Optimize Cycle Time Performance
Performance Analysis
Cycle Time for Alloy Products (Order Entry
to Finished Goods)
Cycle time was reduced from 27 to 26 hours per
30
batch representing a one hour reduction due to
improvements in set-up procedures and raw
28 material blending controls. However, we are still
28
27
two hours off our target. This is due to
consistent raw material inventory shortages for
26
26 cobalt and nickel, longer than expected cool
down times and bottlenecks in the finishing
24.0
24.0 24.0 room.
24

22
Recommendations
One week ago we launching a lean project
aimed at eliminating wasted time in material
20
planning and finishing room procedures.
18 = Meets or exceeds target
FY 02 Q203 Q303 = < 100% of target, but >= 95% of target
Actual Target = < than 95% of target

How are the Why is the What are we Initiatives Supporting I6

objective and measure going to do • Lean Project
measure performing about it?
performing? as it is? What initiatives are aimed at
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closing performance gaps?
 BSC step 3: initiatives must be aligned to the strategy and managed
Six Sigma Lean Project for Cycle Time Establishes accountability

Performance (cobalt products) Project Sponsor Jeff Schmid

Project Description / Comments: Project Manager Frank Strome

Six Sigma Lean is a proven way to eliminate waste in Start Date Q3 2003
manufacturing cycle time. The project is aimed at reducing
the overall time it takes a batch of alloy product to move from End Date Q4 2003
order entry to finished goods inventory. Specifically, there is Budget $25,000
an opportunity to eliminate several hours time by improving
the material planning and finishing room procedures.
Expected Benefits:
How is the initiative Eliminate 4 hours of cycle time per
Is there anything we batch of alloy product.
need to do? performing?

DATE STATUS MILESTONES

October 2003 Complete Held a kickoff meeting with materials planning and finished department to describe the project and generate a
benefits case
October 2003 Complete Identify the causal factors that lead to cycle time delays.

November In Process Conduct an impact assessment on each causal factor and develop quick-hit and longer term improvement
2003 recommendations.
November Not Started Implement quick-hit opportunities and communicate longer term improvement recommendations in the Q403
2003 Balanced Scorecard report

Actions / Decisions Required from Senior Management:

No action or decision required at this time.

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 The strategy management process is critical for defining the
business requirements to integrate BI/CPM solutions effectively

BSC
Management Process
Strategy
Map Opportunity #1:
Enterprise reporting systems

Measurements
& Metrics

Targets Initiatives

Budgets &
Initiative
Forecasts
Mgt. &
Operational Learning
Opportunity #2:
Analysis &
Integrated planning systems Opportunity #4:
Reviews
PMO and KMS support systems
Opportunity #3:
Functional/process analytics and dashboards
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 Integrating these performance management tools and methods
enables the enterprise-wide implementation of strategy execution
Corporate

Sales & Dist Supply Chain Service Product Dev Marketing

Support Units

Finance

Branch Dept. Dept. Dept. Dept.

Branch Dept. Dept. Dept. Dept.

IT
Stores

HR

Successful implementation of enterprise strategy management requires:

‰ An integrated framework – e.g., “Balanced Scorecard”
‰ Organization-wide capabilities in performance management –
e.g., “Strategy-focused organization”
‰ A new executive role – e.g., “Office of Strategy Management”

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 CPM case study: Store performance management system
Reporting & Analysis

Plan Follow Up Dashboard

A
Identify the
Opportunity

D B
Formulate
store Rank & Analyze
Action Plan radar Stores

C Benchmarking
Planning Apply
Best Practices

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 In the future, how companies approach strategy execution will
emerge as an important basis of competition

According to the Meta Group …

“Larger enterprises will increasingly

adopt a business performance
management operational philosophy,
where business goals are set,
plans/budgets are formulated to enable
those goals, and actual data is
assiduously compared to forecasts. A
change in management philosophy such
as this requires extensive leadership
skills to ensure successful execution.”

Source: The Business Analytics Consulting Market: Summary, Meta Group 2004

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 Closing the gap between strategy and execution requires a clear
roadmap integrating strategy with process, IT and people

Breakthrough Results

Delivering the New Science of

Strategy Execution
Customers Shareholders

Strategy ƒ A management process to

Management create strategy focus and
alignment
+
Finance Customer Operations

Performance Measurement ƒ Measures and analytics to

optimize business processes
Process Optimization

+
IT Workforce
Readiness Readiness ƒ IT and Human Capital platforms
BI Tools & Applications to support strategy execution

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 Questions ?

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 “CPM: Bridging the Gap from Strategy to Execution”
Executive Conference May 18-20, 2005 Cambridge, MA
Featured speakers Themes
Dr. Robert Kaplan Using CPM for competitive advantage
Dr. David Norton Optimizing critical processes: tools and techniques
Making CPM happen: culture, technology, change management

Featured cases Clinics

Crown Castle Using the BSC to set the strategic context for your CPM program
Helzberg Diamonds Integrating Six Sigma into your strategic management system
Harrah’s Entertainment Executing your customer management strategy
Borealis Group
Fisher Scientific
Northrup Grumman
Store 24
Best Buy
Gap

Partners Learn more

IMA Visit bscol.com/cpm502, or call 781.259.3737
Painted Word
ThinkFast Consulting

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