Business Performance Management (BPM) Defined

“If you can’t measure it, you can’t manage it” is an often-quoted business maxim. That’s why business performance management (BPM) is so important. BPM is an umbrella term for methods, metrics and software that organizations use to measure — and improve — business performance.

By continuously monitoring key performance indicators (KPIs), companies can determine whether they’re on track to meet their goals, plus they can quickly identify trends and respond to problems. BPM also assists companies with additional business functions, including planning, budgeting and performance analysis. Manually monitoring metrics can be time-consuming and labor-intensive, so many organizations use software that automatically tracks KPIs in dashboards and reports, in addition to facilitating planning and other BPM processes.

What Is Business Performance Management (BPM)?

Business performance management refers to a range of methods, metrics and tools for tracking and optimizing business performance. Also known as enterprise performance management (EPM) and corporate performance management (CPM), BPM involves establishing quantifiable business goals and tracking progress toward those goals.

A core concept of BPM is defining and monitoring KPIs and metrics. Keeping tabs on these metrics helps business leaders determine whether an organization’s performance is on track to meet its goals, so the company can investigate trends, identify issues and make strategic adjustments if necessary.

Key Takeaways

• Business performance management (BPM) describes the methods, metrics and tools for measuring and optimizing business performance.
• BPM involves a continuous cycle of planning, tracking performance and adjusting strategy as needed.
• Monitoring key performance indicators (KPIs) allows organizations to determine whether they’re on track to meet performance goals, spot trends and identify potential issues for further investigation.
• Software helps companies track KPIs in real time via dashboards and reports, and also supports other BPM processes, such as planning and detailed performance analysis.

BPM Explained

Business performance management is a continuous cycle of planning, tracking, analyzing performance, and making adjustments. The cycle begins with defining strategic business goals, which are then translated into operational plans and goals for individual departments within the organization. These departmental plans may include detailed descriptions of targets, timelines and budgets. By defining and monitoring KPIs and metrics, each department — from finance and production to marketing and human resources — continuously assesses whether its performance is on track to meet those goals. Analyzing the business data underlying the KPIs helps the organization determine whether it needs to adjust its strategy or tactics.

A variety of methodologies have been devised for business performance management. These processes are designed to help companies set strategic goals, execute detailed operational plans, track progress and make improvements. Some of the best-known frameworks include the balanced scorecard, objectives and key results (OKRs), total quality management (TQM) and Six Sigma. (More on these later.)

Why Is Business Performance Management Important?

BPM aims to provide organizations with a set of tools for measuring and increasing business success. It helps companies link business goals to specific financial and operating metrics. Tracking these metrics enables businesses to compare their forecasts with their actual performance. BPM helps to align everyone in the company toward common goals, and it also provides early warning signs of potential problems that require adjustments to enable the company to stay on track. Here are some of the most significant benefits:

• Better alignment:

  The company’s goals are translated into specific objectives and metrics for each group within the organization. This helps ensure that all employees are working toward the same goals. Each department, by managing performance based on these business metrics, contributes to the organization’s success.

• Track business health:

  By tracking KPIs, the company can monitor performance across every aspect of the business. Software that supports real-time KPI dashboards and status reports can help departments keep tabs on progress and spot warning signs.

• Better planning and responsiveness:

  BPM provides companies with tools for more informed decision-making and planning. It helps businesses quickly detect problems and trends and adjust plans accordingly.

• Improved process efficiency:

  Tracking KPIs can highlight process inefficiencies that the company can target for improvement. For example, an excessively long sales cycle can indicate that the company needs to identify bottlenecks and determine how to streamline its processes.

• Automation:

  Software that automates the steps of gathering KPIs and presenting them in dashboards and reports reduces the effort and time required to manage the business — and makes it feasible for all employees to continuously track their progress.

Business Performance Management Processes

The BPM cycle consists of four primary processes, with each stage feeding into the next.

1. Develop strategy.

   This initial stage consists of identifying the organization’s overall goals and developing strategies to reach those goals. This stage may include defining the company’s vision, values and strategic objectives in addition to identifying revenue and profitability targets. Strategy development is typically carried out by the organization’s CEO and other top managers, based on input from experts across the company.

2. Create operational plans.

   Create specific operational plans for achieving the goals laid out in the previous stage. This includes defining specific tactics, initiatives and anticipated results for each department in the business, from production and finance to marketing and HR. The plans also detail the budget and other resources required to reach these goals.

3. Define, monitor and analyze KPIs.

   Determine the most important metrics for tracking progress toward each objective. Some KPIs, such as revenue growth, may apply across the entire business, while others are specific to each department. This step also involves determining how to gather data for those KPIs. If the company is using software to monitor business performance, this stage includes building dashboards and reports that display up-to-date status results as well as trends in the KPIs. Analytical tools can be used to delve into trends and issues highlighted by the KPIs to uncover underlying causes.

4. Review and respond.

   Based on reviewing the analysis of KPIs and underlying data, the company takes action to respond to changing business conditions. This stage may include reviewing how much progress the company has made toward its goals and determining whether strategic or operational changes are needed to achieve success. The results of this stage feed back into the first and second stages of the cycle, enabling the organization to continuously make course corrections by adjusting its goals and plans.

Measuring BPM

Organizations can choose from a variety of different KPIs in order to measure business performance, or they can devise their own KPIs that reflect unique aspects of the business. Selecting the right KPIs can be one of the most challenging aspects of BPM. It’s important to focus only on the most meaningful metrics for each aspect of the business; trying to monitor absolutely everything can make it harder to identify which trends are really important.

Another consideration is the availability of the data that’s used to create each metric. If your goal is to monitor a KPI in real time, the underlying data must be readily available at all times. Here’s a selection of some of the most common KPIs typically tracked in dashboards and reports:

Financial KPIs examine the company’s overall financial health in terms of profitability, liquidity and cash flow. They also include metrics that are more specifically related to financial operations, such as paying bills and collecting money from customers.

• Revenue, operating income and operating expenses are indicators of business health that are monitored not only by finance specialists but also by the CEO and other stakeholders.
• Operating cash flow (OCF) is the cash generated by the company's main business activities. Declining cash flow can be a warning sign that a business has problems.
• Working capital is a snapshot of the company’s liquidity. It’s the difference between the organization’s current assets (short-term assets such as cash and accounts receivable) and current liabilities (including accounts payable, payroll, taxes and payments on debt).
• Accounts receivable aging measures how long it takes the company’s customers to pay their bills. It’s used to measure the effectiveness of the company’s collection practices, evaluate credit risk and estimate allowances for bad debt.
• Accounts payable aging is analogous to the accounts receivable aging report, except that it measures how long the organization takes to pay its suppliers. Increasing the time that a company takes to pay can be beneficial because it improves cash flow providing that suppliers are amenable to an extended payment schedule.

Customer-focused KPIs focus on interactions with customers and how they view the company.

• Customer satisfaction scores are usually gathered from surveys or other online feedback.
• A net promoter score (NPS), also gathered from customer input, measures how likely your customers are to recommend your business to others.
• The customer retention rate is typically measured as the number of repeat customers divided by the total number of customers. A high retention rate is a strong sign that customers are happy. In addition, it often means lower costs for the business, since it typically costs less to keep an existing customer than to acquire a new one.

Marketing KPIs typically focus on campaign performance, helping marketers compare the success of different methods for reaching customers and determine where to allocate their budget.

• Campaign return on investment (ROI) is useful for analyzing the effectiveness of different campaigns and determining where to direct marketing spending. It’s calculated by dividing the revenue generated by the cost of the campaign.
• Customer lifetime value (CLTV) is the total amount that a customer spends over the duration of the person’s relationship with the company. This figure can be used to determine how much money a company should spend on acquiring customers and to identify which types of customers merit the greatest marketing investment.

Sales KPIs are used to optimize the sales funnel and measure team performance against targets.

• Monthly sales growth is the engine that fuels business expansion.
• Sales target attainment can be used to measure how the team is performing compared to its goals and to compare the effectiveness of different members of the team.
• Sales by contact method helps companies decide where to focus their sales efforts. It requires the ability to track each purchase from initial customer contact to closing the deal.

Manufacturing KPIs measure the company’s manufacturing efficiency, output, quality and responsiveness to customer orders.

• Production volume tracks overall output over time. Comparing production during different periods can help to pinpoint problems and other anomalies.
• Cycle time is the time between when the company starts manufacturing an ordered item until it is ready to ship. This is a key factor in meeting demand and increasing customer satisfaction.
• Capacity utilization measures how efficiently the company is using its available production capacity.
• First pass yield is an indicator of manufacturing quality. It’s calculated as the number of completed units that pass inspection without needing to be reworked divided by the total number of units entering the production process.

Employee/HR KPIs focus on measuring employee experience and staff turnover, as well as how much each employee contributes.

• Employee satisfaction involves surveying employees about their job satisfaction, which can provide insights that help the company keep employees longer and attract new recruits.
• Employee retention is calculated as the number of employees who remain employed during a certain period divided by the number of employees at the start of the period. An organization’s ability to hold onto its employees is generally a good indication of how satisfied they are. Hiring and training new employees is also expensive, so a high retention rate can translate into lower costs for the organization.

History of BPM

The history of BPM can be traced back to at least the 16th century, when merchants in Venice evaluated the performance of nautical expeditions by calculating the difference between the cost of outfitting a ship for an expedition and the money generated by selling the goods the ship brought back.

Modern concepts of business performance measurement began to emerge in the 1920s. DuPont helped pioneer the use of metrics by tracking ROI to measure actual performance against budgeted investment. General Electric later introduced corporate performance measures that considered factors such as market share, productivity and employee attitudes in addition to traditional revenue and profitability metrics.

The 1990s saw the development of several BPM frameworks that are still widely used today by organizations in both the private and public sectors. These frameworks include:

• Balanced scorecard, a strategic planning and measurement system that attempts to build a balanced view of organizational performance by examining customer, internal process and organizational capacity perspectives in addition to traditional financial metrics.
• Objectives and key results (OKR), a framework used to define goals and track outcomes.
• Six Sigma, a set of techniques and tools for process improvement. Six Sigma was originally devised as a way to improve manufacturing quality using statistical techniques, but it is now also used in other industries, including finance and healthcare, to reduce product defects.
• Total quality management (TQM) aims to help organizations achieve long-term success by focusing on customer value and satisfaction.

Business Performance Management and Technology

Technology greatly simplifies the measurement of business performance and also can support other BPM processes, such as strategic planning. Software solutions can make it feasible for even smaller, fast-growing companies to apply business performance management techniques.

Leading business application suites centralize data from across the business and include built-in capabilities for automatically tracking KPIs, so employees across the company can view up-to-date metrics via dashboards and status reports. This means businesses can track performance in real time without having to dedicate vast amounts of staff resources to manually gathering the required data. Analytical tools help organizations explore the underlying trends and anomalies highlighted by the KPIs, so businesses can adjust their strategies to maintain and improve performance.

How to Choose Business Performance Management Solutions

An effective BPM solution allows organizations to accurately track performance across the entire organization, helping every department monitor and improve its progress. Here are some of the most valuable features to look for in BPM software:

• Data integration.

  Tracking business performance requires data from across the organization — and often from external sources as well. Therefore, an effective BPM solution should be able to integrate financial and nonoperational data from many different sources. For example, tracking marketing performance may require analyzing data from the external platforms that are used to conduct campaigns.

• 24/7 access from anywhere.

  Cloud-based systems with support for mobile devices allow everyone in the company to track performance wherever they are working — in the office, at home or on the road.

• Scalability.

  Growing companies need platforms that scale with their businesses, so they don’t hamper the ability to track performance as the businesses expand regionally and globally.

• Real-time, customizable dashboards and reports.

  Dashboards and reports enable the company to keep tabs on every aspect of business performance. Companies should be able to tailor dashboards and reports to track the KPIs relevant to each department and each employee.

• Custom KPIs.

  Every business is unique. In addition to standard financial and operational metrics, some solutions enable companies to develop custom metrics that reflect their individual goals and priorities.

• Planning tools.

  Planning capabilities are critical to help companies accurately forecast business performance and budget accordingly.

• Analytical tools.

  These tools enable companies to explore trends in depth and pinpoint the causes of problems. Some solutions include data warehouses that can consolidate data from multiple external and internal sources for detailed analysis.

Measure and Improve BPM With NetSuite

NetSuite’s cloud-based enterprise resource planning (ERP) system provides an all-in-one platform for tracking and improving business performance. An integrated suite of applications for managing finance, production, inventory, sales, marketing and more, NetSuite ERP provides better visibility into data across the entire organization.

Customized, role-based visual dashboards and reports enable all employees to automatically track KPIs and metrics in real time, with the ability to define additional metrics that reflect each organization’s unique needs. Analytical tools, including a full-featured data warehouse, help companies delve into internal and external data to reveal important trends. Planning and budgeting tools help organizations set goals and adjust plans based on current trends. By providing support for more than 27 languages and 190 currencies, NetSuite enables companies to manage and monitor performance across fast-growing global operations.

The promise of business performance management is that it helps companies not only plan for success but also measure their progress and make adjustments when necessary. Monitoring KPIs in real time using software helps companies continuously track whether performance is meeting expectations, quickly identify trends and respond to issues.

Business Performance Management FAQs

What are the components of business performance management?

The elements of business performance management (BPM) include planning, defining and tracking specific performance metrics, analyzing trends revealed by the metrics and adjusting plans in response to those trends.

What are the three main activities in business performance management?

The three primary business performance management activities are planning, tracking metrics and responding to trends. Each of these activities can be broken down into multiple components. For example, the planning activity includes defining strategic goals and identifying specific operational targets for each department based on those goals.

What are the three stages of business performance management?

The three stages of business performance management are strategic and operational planning, defining and tracking KPIs and metrics, and reviewing and responding to trends. Strategic and operational planning are often considered to be two distinct stages; strategic planning involves setting broad goals for the organization, while operational planning entails defining specific targets, budgets and resources for each department.

What is the difference between business performance management and performance management

Business performance management refers to a range of methods, metrics and tools for tracking and optimizing business performance. Performance management is specifically about measuring and rewarding employee performance.