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April 16, 2002

The Best-Laid Business Plans

Enterprise software for business performance management (BPM) is all the rage lately. But the software is pointless unless you first have a business plan against which you can gauge performance.

by Philip Russom

After only a few minutes thumbing through back issues of the Harvard Business Review you can see that business performance management (BPM) — in its many forms — has been the most widely theorized and disseminated management methodology of the last decade or so. The most rigorous form of BPM is the so-called balanced scorecard, yet its extreme rigor is daunting to many corporations. Most business people need a subset of BPM practice, as seen in a variety of dashboards and "unbalanced" scorecards (as I call them).

Many vendors now offer enterprise software for automating the measurement and monitoring tasks of BPM practice. But it's important to remember that — first and foremost — BPM is a way of running a business according to a pre-established performance plan. This fact is sometimes ignored by corporations, which prematurely jump to monitoring metrics without first creating a thoughtful and strategic context for them in a well-documented business plan. When coupled with BPM practice, a business plan establishes the goals of the corporation, defined as metrics and key performance indicators (KPIs) representing important corporate entities, as well as acceptable values for these. Unless you start with a planning process that results in a metrics-oriented business plan, the impact of your BPM initiative (in terms of its ultimate goal: improving corporate performance) can be limited.

Business Plan Modeling

BPM involves modeling metrics that represent business entities, like sales quotas, returns due to defect, supplier reliability, customer retention, product quality, and just about anything that's relevant and can be quantified. In fact, the acronym BPM may as well stand for "business plan modeling," because modeling the business with metrics is such an important early stage for any BPM initiative.

Metrics are often related in a hierarchy where associated metrics "roll up" into another metric or a KPI. For instance, metrics from a manufacturing facility (representing returns due to defect, production delays due to supply incompatibility, reliability of supply delivery, and so forth) may roll up in to a metric representing the quality of supplies, which in turn may roll up into a general KPI for product quality.

Business Plan Monitoring

Even the best-laid business plans can go awry. That's why — once the metrics, KPIs, and performance-oriented business plan are implemented — executing a BPM initiative is about measuring and monitoring the metrics to ensure that every entity within the business is on plan. Hence, the acronym BPM could also be interpreted as "business plan monitoring," because managers monitor metrics and KPIs periodically, sometimes daily. When the metric representing a business entity is within the range of values defined in the performance plan, a manager knows it's operating according to plan. When a metric strays outside tolerance, a manager knows to look for a cause and restore it to tolerance, for the sake of making plan.

Business Plan Mechanization

The line between BPM business practice and software that automates it can be pretty fuzzy. For instance, you can see that this kind of business modeling translates beautifully into data modeling and data integration. And monitoring metrics is greatly facilitated by Web-based reporting and portal technologies. In fact, you may have thought the previous discussions were about technology (instead of business practice), because BPM practice can be automated so effectively by business intelligence (BI) technologies.

I could talk at length about the myriad ways BI technology can enable dashboards and scorecards that are faithful to BPM methodology. Suffice it to say here that BI technology is the preferred medium for automating a performance-oriented business plan, yielding yet another meaning for the BPM acronym: "business plan mechanization."

Assessment — Manage Performance According to Plan

Many of us depend so strongly on software to automate the business that our expectations sometimes cross the line into thinking that the software can run the business. The catch with most business software is you must apply it judiciously, such that it helps run the business in a manner fully appropriate to the goals, culture, and process realities of an individual corporation. BPM is a case in point.

On the one hand, I'm tempted to say that, when it comes to implementing BPM in an ideal world, it's best to begin by ignoring the existence of software. Instead, you should model entities of the corporation purely in terms of their business performance requirements, without being distracted by questions of whether you have enterprise data to quantify them. Once the performance requirements of the business plan are set, business and technical people can translate the business model to a data model and automate the performance monitoring aspects via reports, portals, and other BI technologies. This way, the business plan takes priority over its software automation.

On the other hand, however, credible current offerings from software vendors, system integrators, and consulting firms can accurately anticipate the business model and performance goals of certain profiles of corporations. These are then encapsulated into more-or-less packaged solutions. For companies hoping to save time and development costs, it makes sense to consider such offerings. Whether you start from scratch or start a few rungs up the ladder with a packaged offering, always keep the software automation of BPM in perspective. BPM is about improving corporate performance, which requires an old-fashioned business plan. It's coincidental that BPM practice can be mechanized so elegantly with BI technology. After all, the best-laid business plans are those that focus on the performance goals of the business, not on the technical means to that end.

Philip Russom, Ph.D. [www.philiprussom.com] is an independent industry analyst and consultant based in Waltham, Mass.