What is Performance Management?

Towards better decision making

Performance Management is basically a set of management processes, often supported by technology, that help to improve the strategic decisions people in organisations make every day. In the end it is the quality of those decisions that will separate successful companies from the rest. Performance Management is therefore a modern umbrella term for a set of management approaches that enable organisations to define and execute their strategy, and to measure and monitor performance in order to inform strategic decision making and learning.

The basic performance management model integrates processes for defining strategic objectives, measuring performance, analysing performance and making decisions. All of these are focused on performance improvement which is the central premise of performance management (see Figure 1).


Beyond People Management and Performance Monitoring

Processes and terms often associated with performance management include: strategic planning, performance measurement and monitoring, business intelligence, analytics, people management, reporting, financial planning & budgeting, forecasting, data warehousing, risk management, project & programme management, business process optimisation, knowledge management, dashboards, scorecards, metrics and key performance indicators. Modern performance management approaches bring together these key aspects of management to form an integrated approach. In the past, performance management was sometimes narrowly associated with either people management (e.g. performance appraisals and dealing with underperforming individuals) or performance monitoring (e.g. collecting and reporting of performance indicators). To avoid this confusion, new terms such as CPM or SPM have been created.


Confused about CPM, BPM, EPM, or SPM?

Many different tree-letter acronyms are used to refer to modern and integrated performance management approaches. These include Corporate Performance Management (CPM), Business Performance Management (BPM), Enterprise Performance Management (EPM) or Strategic Performance Management (SPM). They all basically refer to the same thing and can be used interchangeably. We prefer to use the phase Strategic Performance Management (SPM) because it emphasises the importance of strategy in any attempt to manage performance and because the term is equally appropriate for commercial and not-for-profit organisations.


Integrated Performance Management

Organisations that are serious about managing performance strategically will move beyond the basic model shown in Figure 1 and integrate it with other key business processes (see Figure 2). In order to gain maximum benefits from performance management initiatives organisations need to ensure they align and integrate processes including financial planning and budgeting, project and programme management, people management and rewards, performance reporting, risk management as well as business intelligence and analytics.


Strategic Performance Management – the Basics

Using the basic strategic performance management model, organisations start with defining their strategy, then move on to measuring performance, then use these indicators to analyse performance in order to extract insights and make better informed decisions which lead to actions and performance improvements (see again Figure 1). Let’s briefly look at each of these steps:

• Strategic Planning – This step involves creating a business model and strategy (either corporately or for a business unit). State of the art tools that are commonly used here include Balanced Scorecard Strategy Maps and value-driver mapping. Informed by strategic analyses organisations identify what strategic objectives they plan to accomplish and how they plan to accomplish them.
• Performance Measurement and Monitoring – Here organisations design key performance indicators (KPIs) to measure and monitor how well they are delivering on their strategic objectives. Most important is to ensure the metrics are relevant and meaningful. Many fall into the trap of measuring what is easy to measure instead of what will provide the best insights.
• Business Intelligence (BI), Analytics and Modelling – In this step organisations use their performance data and metrics to analyse performance. This step is all about creating a solid evidence-base to inform decision making. Examples of analytics, BI and modelling approaches include marketing and sales analytics, customer analysis or click stream analysis.
• Decision Making – In this step organisations translate the insights gained from their performance information into management decisions. It is all about evidence-based decision making facilitated by the performance review processes. Leading edge organisations put in place performance improvement meetings to create a dialogue about performance leading to joint decision making. 

At the centre of the strategic performance management model is performance improvement. This means organisations have to close the knowing-doing gap and act on the insights gained and decisions made in order to generate real performance improvements.


SPM - Integrated

More advanced performance management approaches integrate with other key management processes. Here we briefly look at some of those processes in turn and explore the need for alignment.

• Financial Planning, Consolidation & Budgeting – By integrating your budgeting and financial planning with your corporate objectives and priorities you ensure that the financial resources are spent on the things that actually matter the most. Some of the leading organisations are now able to update their budgets and forecasts on the fly, based on a continuous inflow of both financial and non-financial data.
• Project and Programme Management – The delivery of projects and programmes needs to be aligned with the corporate objectives and priorities in order to ensure efforts are focused on what matters the most. The activities (projects and programmes) need to be prioritised based on strategic needs and therefore have to be aligned with the strategic performance framework of an organisation.
• People Management and Rewards – For most organisations their people are their most valuable and most expensive assets. In the end it is people who deliver the projects and implement the strategic plans.  By aligning budgets and projects with the strategic performance framework you have made major steps towards alignment. However, by further aligning reward and recognition systems as well as personal performance management processes to the performance framework you can create a tight integration between what matters the most and what people perceive as important.
• Risk Management – The management of risk is too often narrowly focused on just financial risks or the disaster risks to buildings and infrastructure. While these are important, they are not enough. The performance framework has identified the key drivers of future performance (e.g. staff with the right competencies, corporate reputation or key partnerships) and it is therefore important to assess and monitor any risks in relation to all your performance drivers in order to achieve alignment between your risk management and what matters the most  for future performance.
• Performance Reporting – Relevant performance information is not only crucial for better decision making and performance improvement, it is also a requirement for most organisations to demonstrate to external stakeholders and regulators that they have delivered desired levels of performance and that they have complied with rules and regulations. Integrated SPM solutions allow organisations to use any of their data to produce and deliver reports for their stakeholders – internally or externally.  
• Full analytical integration – By aligning and integrating the above processes with the performance framework organisations create an invaluable set of data which they can use, in an integrated way, to inform decision making. For example, the information on value driver analysis, customer relationship management, financial forecasting, and risk logs can be used to challenge, test and revise corporate strategies.

Performance Management Technology

The full level of integration between performance management and other key management processes can only be achieved with the support of technology. Corporate Performance Management (CPM) or Enterprise Performance Management (EPM) software suites create a systematic and integrated approach that links corporate strategy to core processes and activities. State-of-the-art software systems support strategic performance management activities by (see also Figure 3):

• bringing the data together into one single database
• providing integrated analytics and business intelligence capabilities
• integrating applications to create a tightly aligned and integrated approach to corporate management

For an up-to-date list of the major software vendors and applications please see the listing and links in our resources section. 

The API resource library includes many examples and best practice case studies of how organisations have put strategic performance management into practice. Explore the white papers, case studies and articles for more in-depth information on this fascinating subject.