What is Corporate Performance Management (“CPM”)?
CPM is a broad term that encompasses the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise (Source: Gartner).
In simple terms, to demystify the concept, CPM is a health check-up. Based on the results you take steps to change your lifestyle and improve the metrics where you went below the benchmark.
CPM is no different, but this time it is for an enterprise and not for a human being or a machine. It is a lot more difficult and each year the benchmarks keep changing.
Why is CPM important? A challenging external environment!
Leading a company in the 21st century, especially when globalization and free trade is under threat, is no easy task. Disruption is always around the corner. Be it from regulatory bodies, technology disruption, economic disruption, or innovative business models. It is inevitable that someone or something is disrupting your industry or market.
A very astute observation made by an investor at a conference recently comes to mind -“There was a time when a company could/would stay on the S&P 500 for 40-50 years. Now this has reduced to 20-30 years”.
Needless to say, these are challenging times. So how does one ensure steady and sustainable growth?
How does one deliver a stellar corporate performance when faced with these challenges?
What does a stellar corporate performance look like?
High operating profits, steady double-digit growth, excellent customer satisfaction levels?
Corporate performance can be measured in a myriad of ways, but at the end of the day does the organisation deliver consistent returns to its shareholders, excite its customers, reinvent itself when the time is right, innovate and solve the problems customers didn’t even know they had?
Expectations from corporates have changed drastically and keeping up with shareholder and customer expectations isn’t enough. Going beyond the call of duty and delivering beyond their expectations is what a stellar performance looks like.
Why do many fail to deliver a consistent performance / why don’t companies succeed in transforming themselves?
As an HBR article titled “Managing the right tension” points out, 3 issues plague organisations – Profitability vs Growth, short term vs long term, and the whole organisation vs the parts. Organisations struggle to handle these 3 seemingly conflicting issues.
These objectives can seem like they are conflicting or competing with each other. Progress in one is usually at the expense of another. Going for high growth damages profitability and working towards profitability hampers growth. At the same time a leader’s focus or efforts to build a long-term sustainable growth strategy for the company often comes at the expense of present-day performance.
Inevitably, most companies end up undertaking a transformation program focusing on a single lever – cost reduction / downsizing. This is done to deliver better bottom line numbers. But corporate performance isn’t dependent only on a single lever and isn’t a one-dimensional activity.
Another common pitfall is a Business Unit (“BU”) based approach. Each BU has its own set of goals and interests. If left to their own, the transformation will only benefit the BU and not the strategic interest of the organisation. While each individual BU will have to pull up their socks and transform, this must be done with the goals of the corporate entity in mind. The need of the organisation as a whole is primary.
Another common pitfall is a tactical one. Since KPI’s vary by function and BU, there is a lack of unity or consistency in data description/categorization among them. Decision making hence becomes difficult and reporting of data is the main culprit behind this. Resolving these inconsistencies can be costly in terms of both time and money.
These are a few common issues that organisations face and one should attempt to avoid them during the CPM Program.
Why do you need a CPM program?
The question is no longer “Should I change / adapt”. You should have transformed yesterday. It is therefore not a question about should you, but how do you transform. And what should you transform into?
This is entirely dependent on your external environment, stakeholders, and customers. It can be overwhelming at times, but a structured approach can be a north star and guide the organization along this process.
This approach ought to answer important strategic questions such as –
What are the enablers of CPM?
The key enabler for CPM is access to quality information that is actionable. This is done through technology interventions.
Having an ERP system is a no brainer but how to effectively use an ERP is still an area on which most organisations still spend sleepless nights on. Analytic tools / BI tools play an important role in data analysis and representation, and ERP/CRM systems are important when it comes to data collection
Building long-term growth strategies must be based on credible and comprehensive market, customer, and competitor insights. These insights must then be translated into specific growth opportunities, and a strategy is then designed to capitalize on those opportunities. This foundation helps ensure that the resulting strategic plan is connected to meaningful targets for the company as a whole.
A 3 phased approach such as the one shown below which has been adapted from those of leading institutions such as MIT Sloan and of CPM practitioners, can be used by organisations to give their CPM programs a structured approach. Beginning with a Strategic Alignment exercise, followed by measuring existing and to be states, and creating a sustainability framework to ensure continuous transformation is ingrained into the culture of the organisation, the CPM program can deliver sustained benefits and transform the organisation to deliver stellar performance in the long run.
Strategize – This phase focuses on aligning the organisations interests with functional and individual interests. Identifying the KPIs relevant for the pressures faced by the organisation both externally and internally.
Measure – In this phase the focus is on collecting relevant quantitative and qualitative data which will be analysed, and the insights presented to the leadership in a well structured and articulated format, ripe for decision making.
Sustain – Performance is also enabled by the organisations culture, systems, and processes. This phase will see the organisation taking pragmatic steps towards institutionalizing the changes into the DNA of the organisation.