Part 4. Corporate benefits expected from introduction of performance management
Performance management is a holistic, process-oriented approach to management decisions aimed at improving the company's ability to assess its condition and manage its effectiveness at all levels, by combining the owners, managers, staff and external contractors in the overall integrated management (Mitchell, 2007). In order to understand the deepness of the term “performance management” it is necessary to descry meaning of each word. “Performance” is a word that means both the process and the outcome, and its effectiveness (i.e., whether an outcome), and efficiency (how optimal process that was used pertained to obtain a result, such as what price it achieved, can it be done cheaper easier, faster, and so on) (Das, 2003). Performance management is related to the management efficiency and effectiveness. In essence, this is a management philosophy and approach, and a range of instruments. Philosophy and approach are that managers do not just do the job and extinguish a fire, but is rather about managers’ capabilities in terms of seeing and predicting the future. Therefore, the performance management can be understood as a solution for automation, standardization, and optimization of performance processes that are realized at the enterprise.
As any management system, performance management is a combination of four key elements, which include: members of the management process; management of interactive business processes; management methods; information systems and technology. Listed items are fairly logical. Indeed, the management system is people (managers) that implement determined functions (business processes) and manage (or influence these processes) in accordance with certain rules (a technique based on the concepts of a general nature) with the appropriate information systems usage. Thus, the term performance management system can be used in two senses: the concept of management (i.e., a certain approach to management decisions and their implementation) and as an information system (i.e., a set of software tools that support the ideology of the performance management and aid in the latter’s implementation into practice).
Performance management system is a rather effective decision for the GKN company because it is easily adaptable to any business and can provide support for decision-making. It is designed to automate the processes in the company: forecasting and situational awareness; budgeting and planning; financial consolidation; operational control, including the use of tools of KPI; reviewing and reporting. Thus, implementation of the performance management system in the GKN will provide managers with quality, relevant, complete and accurate information, which is necessary for effective business management. PM system offers the possibility of comprehensive analysis of indicators of business performance and trends.
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The concept of performance management system should be implemented at the GKN company with the idea of a continuous cycle management that includes setting of goals of the company’s development; modelling determinants of these objectives along with existing restrictions; planning actions that lead to the achievement of the company’s set objectives and goals. Further to this, cycle management assumes constant monitoring aimed at tracking the status of key performance indicators and their deviations from the plan; analysis of the results, which helps understand the nature of the main business process performance; finally, preparation of financial and management reporting that should help managers at various levels to make economically based decisions.
Any managerial concept is as good as far as it can solve the pressing problems of the real business. Studies conducted by the Hyperion corporation show that there are seven benefits that a corporation can reach with the implementation of performance management system. These benefits are the solution of the main problems of the GKN corporation: mismatch strategy and current activities; local optimization; low responsiveness; low reliability of management decisions; slow improvements; tacit knowledge; failures to achieve the set goals.
The problem of mismatch of strategy and current activities will be effectively solved by the corporate performance management implementation in the GKN. The activities of any department (business unit, division) of the company should strive at evaluating and combating the challenges it faces as a whole. However, unfortunately, it is not always the case. Every unit has its own interests, and often these interests are only partially in line with the interests of the company. As a result, there are always situations like the one described in the fable about the swan, crab and pike. Resources are wasted, and efficiency decreases. The situation is further compounded if the strategic plan (from time to time) needs to be adjusted to the ever-changing economic environment. In this case, PM allows managers to focus at all levels and all departments, in order to achieve the global goals of the entire company. BPM theorists call this feature "strategic focusing" (strategic focus). Global goals have to be"distributed" throughout the organization and permeate all divisions. Of course, the units, as before, will pursue their local goals, but now these goals are fully consistent with the general line of the senior management.
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The problem of local optimization of units of the GKN company can be also solved by the implementation of the performance management system. Quite naturally, the head of any department strives to optimize the state of affairs on the site. However, even at a time when the attention of all local managers is solely focused on the same strategic objectives, this is the main reason for the failure of many projects management systems based on key performance indicators. The performance management approach to this problem bases on the standpoint of the so-called collaborative management (collaborative management), which assumes a detailed description of the relationship between the various business units and their management processes. Cooperative relations are not only proclaimed, but they have a concrete economic basis. Work with colleagues is economically advantageous since a cooperative management costs are reduced, thus resulting in each unit increased chances of success.
Another benefit of performance management for GKN can be seen in the solution of low responsiveness problem. Even though an organization is "strategically focused" and has established cooperative relations, yet the management process can be greatly complicated by the presence of bureaucratic procedures. This is especially characteristic of organization built on the "administrative-command" principle as the GKN one. The concept of corporate performance management, on the contrary, strives for the most rapid response to emerging situations (business agility), which is important when working in volatile, competitive markets, as the GKN company. It should be noted that the quick response time is achieved by not only the speed of decision-making, but also the decentralization of management, delegation of authority and responsibility of staff.
Low reliability of management decisions in the GKN can be also solved by the corporate performance management implementation. Management decisions should be economically feasible, and the manager should possess adequate information; furthermore. this information should be available in a form suitable for analysis. The criteria are the quality of management information timeliness, accuracy, consistency, and accountability. Without good information, any decision or plan cannot be justified, and the manager has to work "to the touch", thus relying mainly on intuition. From the point of view of performance management system, solutions must be based on facts (fact-based decisions), which process is achieved through the use and analysis of the data that need to be reliable and come through the controlled sources. In this respect, the principles of corporate performance management match approaches of business intelligence systems.
Slow pace of improvements in the GKN company can be overcome through the performance management implementation. A good manager always searches the ways to make more efficient use of existing resources and capabilities. One of the methods (proven in practice) is the modelling of different scenarios (analysis of "what if"). However, often this can be done only on a per-unit or business unit basis. Corporate performance management system provides for the application of the principles of situational analysis but brings them to the corporate level. Modelling and scenario analysis use a distributed business model, the creation of which involves different units, the combined principle of "collaborative governance". Thus, PM allows the GKN company to maintain the process of innovation and accelerate a positive change.
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The most effective benefit of the performance management system implementation in the GKN company is discovering of the hidden knowledge. Business generates a huge amount of information, much of which is hidden from the people who can use it efficiently. The above sounds like Murphy's Law, but in practice it is often all that way. Often, important information is buried somewhere in the spread sheet, and the fact of its existence is known only to its creator. As a result, valuable information held by one manager is not available to others, and the transition of this information to another location as well as use within accumulated knowledge is lost. Corporate performance management system provides information transparency by documenting and cataloguing of all kinds of management information, including unstructured data. As a result, information is made available and can be obtained using standard procedures along with detailed layout sufficient for decision-making.
Failures to achieve the goals can be overcome in the GKN, and this is the biggest benefit of the implementation of the performance management principles. Even the best plans and the most correct solutions are useless if they do not bring real results. The performance management approach is focused on results. This is achieved by transforming the strategies and objectives into action, followed by adjusting the specific tasks to specific artists. In the case of climate change plans will not lose its realism, as the control system will enable to capture the current state in real-time and simulate the next steps (Sahu, 2007). This delivers full integration of management as performance management involves close interaction with the operating systems, such as ERP, CRM, HR management system, etc.
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These are the main "areas of improvement", achieved through the practical application of the concept of BPM. It is easy to see that all these areas are somehow related, and improvement of any one of them usually brings a positive impact in others. Potential improvements in these seven problem areas are very important (especially with regard to the owners or shareholders of the company) since the results are to increase profitability, reduce risk and improve the overall competitiveness of the company. However, other sides of improvement of the GKN performance with the implementation of the performance management system exist. Performance management system provides the following features for the company: integrate corporate, group and individual goals; improve the efficiency of quickly and effectively implement changes; improve employee motivation; improve the processes of learning and development; develop human resources; increase employee loyalty; support the basic values of the company and develop a corporate culture. Performance management system provides the following features for the staff of the company: understand the expectations of their work; understand their role in the company's strategy; contribute to the formulation of goals and plans; understand the criteria of the performance evaluation. Furthermore, PMS help staff to understand corporate performance goals and standards of conduct; receive regular feedback from the head of the department/ organization; understand how they can influence their own income and finally, set goals for personal development.
Finance Department has a significant relationship to the PM system. The GKN company needs special monitoring and protection against risks. On the other hand, it should actively work as it plays an important and sometimes pivotal role in the company, especially in difficult economic conditions (Nickell, 1995). Control assumes primarily a protection against possible risks. In this respect, the PM provides a number of tools aimed at increasing control and transparency of the enterprise that enables the financial department to identify and manage risk effectively. It also improves the transparency of the company: managers are fully knowledgeable about their goals, plans, rates, as well as their business models and the results of the economic analysis. Business transparency contributes to the effectiveness of the internal audit department since it allows employees, who are required to control the risks, to eliminate the risks sources and mitigate their negative consequences. However, the role of PM in the activities of the financier is not limited by risk reduction as this system is focused on global goals and business performance, as well as the performance criteria of the leading role played by financial indicators.
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It should be noted that "areas of improvement" characteristic pertains to other approaches, such as the concept of ERP (Enterprise Resource Planning). The effect of the introduction of ERP-systems is achieved through integration and cooperative relationships and by the speed and reliability of management decisions. Different management concepts have common areas to "improve", and this is not surprising. Moreover, it underscores the complexity of modern management. Yet, at the same time, a fundamental difference lies in the strategic component of the management process while lies in the focus on the global goals of the company. The BPM uses global focus as a starting point, and the global, strategic goals are transformed into an action, and then the activities are regularly monitored along with analysis of the results.
There are a number of reasons why BPM-effective solutions are valuable today. One of them is the volatility of the economic environment that accompanies globalization of the world economy (driving business agility and increased competition). This, in turns, results in changing of the rules that have been used for decades, such that customers have become more discerning, and there are new competitors offering new solutions. However, modern business (especially international) requires speed of decision-making and increased flexibility. The only way is the "collaborative management" in which the delegation of authority and responsibility is combined with a focus on the achievement of the main objectives of the company (Dresner, 2008). Another reason is the emergence of new management tools and the ability to use them effectively. It is no secret that many of these "innovations" are, in fact, disguised marketing campaigns. However, there are genuinely good ideas and approaches, the application of which promises significant economic benefits.
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These promising developments include the management of key performance indicators, functional and cost management (a more flexible analysis and management costs), the theory of constraints (controlled "bottleneck") and others. However, it should be noted that none of the methods should be in absolutes; they all need to be seamlessly integrated into a holistic corporate management mechanism. Finally, another reason is the new technological possibilities. Modern view of corporate management is totally different from the traditional approach (Scheer, 2005). As for the concept of PM, the fact of its occurrence is the result of evolution of a theory of management and information technology, and it is not surprising that it has absorbed both relevant management principles and modern technology.