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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

Reporting and understanding historical performance information is a minimum requirement for managing performance. Scorecards and dashboards generate good questions. Organisations need to not only know What happened? but also Why did it happen? and What could happen? This information allows them to ultimately determine What are the best choices and decisions from all of my possible options?

An enterprise resource planning (ERP) system is not enough to answer these questions. ERP only provides raw transactional data. The data must be transformed into information used in the context of decision-making. The performance management framework  gives an organisation the capability to make those decisions.

Is the performance management framework a new methodology?

Performance management is not a new methodology that everyone has to learn. Rather, it tightly integrates business improvement and analytic methodologies that executives and employee teams are already familiar with. Think of the performance management framework as an umbrella concept. It integrates operational and financial information from the component methodologies into a single decision-support and planning framework.

These components include, among others, strategy mapping, balanced scorecards, costing (including activity-based cost management), budgeting, forecasting and resource capacity requirements planning. These methodologies fuel other core solutions, such as customer relationship management (CRM), supply chain management, risk management, human capital management, lean management and Six Sigma initiatives.

However, these components are like pieces of a tabletop jigsaw puzzle that everyone knows somehow fit together; but (for most organisations), the picture on the puzzles box cover is missing. Organisations often do not know how to integrate them.

An important key to improving performance is having and using customer intelligence information. Sales and marketing managers are shifting away from a product-centric focus towards a more customer-centric orientation.

In particular, marketers are learning to use customer insight gained from information involving every customer interaction to create more meaningful interactions (such as marketing campaigns) and build long-term, one-to-one customer relationships. Customer profitability reporting, derived from activity-based management (ABM) accounting systems, provides the all-important insights for knowing which customers to retain, grow and acquire, and which not to. Customer intelligence information also helps determine how to optimise the marketing and sales spending on individual customers to maximise shareholder wealth.

Chief financial officers (CFOs) also benefit from performance management because it increases their involvement with the executives strategy formulation and management. It also allows them to assist sales and marketing in measuring each customers economic value for differentiated service-level decisions that optimally allocate marketing spending. CFOs can also use the performance management framework to reform the broken annual budgeting process by generating rolling financial forecasts that truly link operations and strategy to financial projections.


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