Enterprise Performance Management and The Balanced Scorecard
Improving operation performance has a positive effect on the financial performance of any organization. The critical link of operational processes that occur in sales, marketing, human resources, support, and procurement is now possible thanks to enterprise performance management (EPM) systems and balanced scorecards.
The market size of enterprise performance management was $7.28 billion in 2017 and is expected to grow to $11.72 billion by 2023. With such figures, it’s clear why organizations cannot ignore such a fast-growing market that is capable of transforming how they plan, structure, track, and improve performance across the board.
So, what is an EPM system? How does it relate to a balanced scorecard? Can a balanced scorecard improve performance management? To find out, we had a detailed discussion with Gavin McLaughlin from CSG Pro.
What does enterprise performance management mean?
Enterprise Performance Management (EPM) is a business practice that relates to business intelligence (BI) and involves evaluation and management of performance for an organization to attain performance objectives, maximize business process, or enhance efficiency.
In this case, an enterprise breaks down goals into small manageable chunks to help them plan, budget, forecast, and report on business performance—and consolidate and finalize financial results.
For instance, if the goal is to hit $5 million in sales, the organization can break it into smaller chunks and assign each department-specific tasks.
- Account Executives could be responsible for taking five qualified prospect meetings every week.
- To achieve this, the sales representative might need a list of 50 new qualified leads every day.
- The marketing team then needs to run two webinars a week or churn a certain amount of content to prospect leads each week to keep that pipeline flowing.
In the end, it’s the type of measurable inputs provided by every department that helps achieve the initial goal much faster.
What is a balanced scorecard in performance management?
A balanced scorecard (BSC) is a strategic framework or methodology that is often used to monitor and measure the progress of an enterprise towards strategic goals. Ideally, a balanced scorecard connects the dots between the strategic part of the organization and operational elements.
It also communicates what the organization wants to accomplish and aligns the daily tasks of employees with the organizational strategy.
What are the 4 perspectives of a balanced scorecard?
The balance scorecard set of performance relates to four dimensions of performance as written by Kaplan and Norton.
1. The Financial Perspective
The primary objective of the organization is to ensure it earns a return on investment and manages the risks involved in running the business. Financial goals should be aligned with strategic planning. Outcomes, such as revenue generated and productivity, are significant performance indicators of actions taken within the balanced scorecard.
2. The Customer Perspective
The customer perspective’s main objective is the level of customer satisfaction with the organization’s products and services.
- What type of customers are you targeting?
- What type of feedback are you getting from these customers?
- Are there complaints about the quality of the product and services?
- Do they find your product helpful or unhelpful?
It’s always necessary to go the extra mile and understand your organization from the customers’ viewpoint. The important thing is to know what they want from you, not necessarily, what you can do for them.
3. The Internal Process Perspective
The main focus in the internal processes’ perspective is the critical operations that enable an organization to satisfy customer needs. You must answer the question: What should we excel at? You could have processes and procedures on how to onboard customers quickly and the type of areas to invest in to make the onboarding process faster.
Answering these questions helps an organization formulate marketing strategies and focus on innovations that lead to the creation of new and improved ways of satisfying the customers’ needs.
4. The Learning and Growth Perspective
The learning and growth perspective aims for organizational growth through investments in employees and organizational culture. Organizations ask a lot of their employees—this is about making sure you have the right people and that they’re well-equipped for the results asked of them.
The objectives of the learning and growth perspective are an assessment of talent, skills, knowledge, safety, employee alignment, and knowledge management.
What is the difference between KPI and Balanced Scorecard?
Balanced scorecards are the visualization of a strategy. Within each perspective are business objectives—Key Performance Indicators (KPI) are the metrics used to evaluate if that objective is on track or not.
From our previous example, the sales department might be on the hook for a business objective like “Grow Annual Revenue.” Sales might look at many metrics, but the KPI might be “Monthly Booked Revenue.”
We know there are a lot of factors to how revenue gets booked. To better understand why they are or not on track, the sales department might look at a whole host of measures like:
- Daily calls to prospects per sale representative.
- The number of monthly onboardings.
- Overall conversion rates.
- Customer lifetime value.
A balanced scorecard is a data visualization and analysis tool that tracks the overall health of an organization. Scorecards are used during strategic planning to ensure the organization’s efforts are aligned with the overall strategy and vision. A balanced scorecard is based on the balance between leading and lagging indicators, which can be termed as the drivers and outcomes of your organizational goals.
The key difference is that while KPIs provide a tactical evaluation of performance at a particular point, a balanced scorecard is based on a collection of Business Objectives, informed by KPIs—each of which represents an aspect of unit performance.
How can a balanced scorecard improve performance management?
A positive outcome of using a balanced scorecard is that it provides a common framework and rhythm for moving the business forward. When you consider all aspects of an organization, you identify which areas are strong and which are weak.
At its best, a balanced scorecard enables individual employees to understand how they can best impact their team’s goals. Managers must understand how their team’s performance impacts the organization’s goals. And finally, executives need to understand and manage the impact of different business objectives being met, exceeded, or missed.
In a single management report, the scorecard provides a holistic view of the many disparate objectives of an organization’s strategy. These include:
- Improving the quality of services.
- Becoming customer-oriented.
- Creating accountability.
- Emphasizing teamwork.
- Shortening response time.
- Managing for the long-term.
In this case, it forces senior managers to regularly review their performance in delivering against business objectives so everyone on the team is accountable for delivering and hitting their respective targets. This accountability helps the team directs efforts toward achieving a specific objective.
Overall, a balanced scorecard in performance management assigns responsibility to every individual. Failure to deliver affects the overall output of the entire team. So, it creates incredible accountability while enhancing teamwork.
Many organizations are far from where they want to be when it comes to improving performance.
Enterprise performance management (EPM) is now seen as the seamless integration of managerial methods with strategic enterprise management. Combined with the balanced scorecard and business intelligence, this approach helps to plan, budget, measure KPIs, analyze, and report performance to deliver great results.
Want to improve enterprise performance management? The CSG Pro team will help you get started.