Gartner BPM Summit: Smith on Performance Metrics - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Government // Enterprise Architecture
Commentary
9/19/2007
03:33 PM
Sandy Kemsley
Sandy Kemsley
Commentary
50%
50%

Gartner BPM Summit: Smith on Performance Metrics

Analyst Michael Smith's expertise is performance management, and he's found lately that business process improvement is a growing theme in that sector... Smith dispells the notion of best-practice business processes: processes are so different between different types of companies that there isn't a single best practice... He also asserts that business strategies are, in general, poorly defined, poorly understood and poorly executed...

Analyst Michael Smith had a session here at the Gartner BPM Summit on using performance metrics to align business processes with strategy. His area of expertise is performance management, and he's found lately that business process improvement is a growing theme in that sector.

Smith started out by quashing the notion of best-practice business processes: processes are so different between different types of companies that there isn't a single best practice. [I think that there are best practices within industry verticals, but he didn't seem to consider that.] He went on to say that business strategies are, in general, poorly defined, poorly understood and poorly executed, then went on to outline a process for developing a business strategy:

• Define strategic intent • Define strategic objectives • Identify performance metrics • IT strategy and objectives • Measures of IT performanceHe thinks that the tough parts are the strategic objectives and performance metrics, and that these often end up being skipped over during strategic planning. However, there are some best practices around developing business metrics.

He organizes metrics into three levels: accounting metrics at the highest level, which are often regulated and audited; performance metrics, which are non-regulated but are key performance indicators for that industry; and analytical metrics, which are specific to the company but explain the performance metrics. It's important to differentiate between performance metrics and analytical metrics, and not jump straight down to the fine-grained detail of the latter without considering the industry KPIs.

In order to determine the contributing factors to the financial metrics, it's necessary to map the main business processes to line items on the financial statements; for example, the sales process maps to the revenue line, whereas the manufacturing process maps to the cost of goods sold line.

When developing metrics, it's important to be both collectively exhaustive and mutually exclusive: have metrics that cover all areas of the business, with no overlap between metrics. Smith gave us some examples of metrics that they've developed that meet these criteria, showing how a business aspect (e.g., supply management) maps to a set of aggregate KPIs (e.g., operational efficiency), then each of those maps to one or more prime measures (e.g., cash-to-cash cycle time).

He then went through some examples of high-level strategies and how to map them to the aggregate and prime KPIs, where each of these strategies may rely on KPIs from different business aspects. The key is to measure performance at the convergence of function and process: although most organizations establish metrics at the functional level and achieve great local optimization, it's important to have metrics at the hand-off points between functions within a process, and on the end-to-end processes. Metrics can still be rolled up to a functional level to view departmental performance, but all can be rolled up orthogonally to a process level.

The whole process of developing these performance metrics is to recognize the relationship between strategic planning and business process management, and build the process taxonomy and performance management framework required to support that. With that, you can make a clear link between strategies and the actions required to execute the strategic plan. Gartner has some models to help get started with this, but Smith doesn't feel that you need any complex tools to work this out.

Sandy Kemsley is an independent systems architect specializing in business process management, Enterprise 2.0, enterprise architecture and business intelligence. She is also the author of the Column2 blog on BPM, Enterprise 2.0 and technology trends in business. Write to her at Sandy [at] Column2.com.Analyst Michael Smith's expertise is performance management, and he's found lately that business process improvement is a growing theme in that sector... Smith dispells the notion of best-practice business processes: processes are so different between different types of companies that there isn't a single best practice... He also asserts that business strategies are, in general, poorly defined, poorly understood and poorly executed...

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
News
Achieving Techquilibrium: Get the Right Digital Balance
Jessica Davis, Senior Editor, Enterprise Apps,  10/22/2019
Commentary
Enterprise Guide to Edge Computing
Cathleen Gagne, Managing Editor, InformationWeek,  10/15/2019
Slideshows
IT Careers: 12 Job Skills in Demand for 2020
Cynthia Harvey, Freelance Journalist, InformationWeek,  10/1/2019
White Papers
Register for InformationWeek Newsletters
Video
Current Issue
Getting Started With Emerging Technologies
Looking to help your enterprise IT team ease the stress of putting new/emerging technologies such as AI, machine learning and IoT to work for their organizations? There are a few ways to get off on the right foot. In this report we share some expert advice on how to approach some of these seemingly daunting tech challenges.
Slideshows
Flash Poll