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The importance of performance improvement during tough economic times

Gary Cokins | April 6, 2009
The risk and peril from over-reacting to the economic downturn

The worldwide financial crisis requires a focus on what distinguishes true economic value realisation from artificial creation. People of the world now understand that the economic downturn is the result of a breakdown in governance, and anti-regulatory advocates that allowed opportunists to let their personal greed dominate the interests of citizens, businesses and governments in every country.

Performance management initiatives, such as providing better information that is more explanatory and visible, can help improve organisations performance in tough times. But can business analytics play a role to further enhance performance improvement across financial reporting, risk management, human capital management and customer intelligence?

I'm about to tell you why performance management will step-by-step help rebuild an organisation's foundation for the future.

The risk and peril from over-reacting to the economic downturn

It has been reported by The Economist (29 Jan) that the scale and speed of the downturn is breathtaking and broader in scope than in the financial crisis of 1997-98. Japans gross domestic product is estimated to have fallen at an annualised rate of 10 per cent, Singapores at 17 per cent and South Koreas at 21 per cent.

Industrial-production numbers have fallen even more dramatically, plummeting in Taiwan, for example, by 32 per cent in the year to December. The global financial crisis has been estimated to cost Australia $115 billion and Chinese exports are down over the past year, the first year-over-year decline since 2001.

In the corporate world, many organisations are responding to the economic downturn with a knee-jerk reaction: budget cuts, reductions in force, layoffs, reduced financial guidance, asset sales, bankruptcies, etc. These organisations are adopting a bunker mentality to face the threat. As a result, many are over-reacting by cutting beyond the fat and into the nerve tissue and bone. Therefore, they are weakening their enterprise for the future.

Cutting costs may please shareholders in the near term; however, this short-term, tactical approach is detrimental for a companys future. In contrast, prudent organisations are carefully analysing the risks and threats from an economic downturn by developing what-if scenarios for the future, and creating suitable short- and long-term plans. Organisations should also realise that the best stimulus to accelerate its own recovery is to provide its managers and employee teams with better information, methodologies and business analytics to make better decisions, which can be accomplished with a robust performance management framework.

The power of performance management and business analytics

Performance management refers to how an organisation leverages its assets (people, money and technology) to achieve short, medium and long-term strategic goals. A performance management framework can provide managers and employee teams with the methods, tools, technologies, information and analytics to react more quickly and effectively.


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