Introduction to Business Performance Management

TM 1231 – Managing Business Performance

Manula Senevirathne
Department of Management of Technology
Faculty of Business
University of Moratuwa
June 24, 2025
Learning outcomes

At the end of this lesson you should be able to,

• Identify the importance of Business performance management
• Analyze Business performance management techniques
• Discuss the history of Business performance management
• Identify business process performance management
Do you think that businesses should measure and manage their
performance? Why?
How performance management started

• The Rise and Fall of Management Accounting (Johnson and Kaplan,

1991)
• Between 1994 and 1996 over 3600 articles were published on
performance measurement, coined the phrase the performance
measurement revolution.
• In an organisation there can only be one performance measurement
and management system, and this system needs to integrate
strategic, financial, operational and human resource views into a
single efficient and effective system.
Basic conceptual framework on performance management

People Processes Performance

People operate processes in the business that deliver performance

Who are the people?

What processes and how?
Historical evolution

Performance measurement lie in the double-entry bookkeeping that

emerged in the late 13th century and remained unchanged until the
Industrial Revolution in the 19th century.
• Ford’s mass-manufacturing system,
• Transition from piece work payment to the wage system
• Emergence of large organizations
Key terms
• Performance is the efficiency and/or effectiveness of an action.
• A performance measure/indicator/metric is the qualitative or quantitative
assessment of the efficiency and/or the effectiveness of an action.
• Effectiveness is the extent to which the result of an action meets our
expectations/requirements/specifications.
• Efficiency is the amount of resources the action consumes to deliver the
result/output.
• Performance measurement is the process of collecting, analysing and
reporting information regarding the performance of an action.
• A performance measurement system is the process (or processes) of
setting goals, developing a set of performance measures, collecting,
analysing, reporting, interpreting, reviewing and acting on performance
data.
Differentiate function and process?
Do we measure performance of functions or processes?
How the performance is derived

Input Action Output

R
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As a customer, how do you decide whether a particular business is
performing well or not?
Models used to measure performance
• The Du Pont Model, ROI and RONA Ratios (1984).
• The Performance Measurement Matrix (1989).
• The Performance Measurement Questionnaire (1990).
• The Results and Determinants Framework (1991).
• The Strategic Measurement Analysis and Reporting Technique (SMART) – a.k.a.
the Performance Pyramid (1992).
• The Balanced Scorecard (1992 onwards).
• The Cambridge Performance Measurement Design Process (1996).
• The Pyramid of Organisational Development (1995).
• The Integrated Performance Measurement System Reference Model (1997).
• The Business Excellence Model of the European Foundation for Quality
Management (1999).
• The Performance Prism (2000).
• The Integral Framework for Performance Measurement (2003).
Why measure performance?

• In 1990s and early 2000s saw a wide variety of organisations

implementing various performance measurement models and
frameworks.
• The common purpose was to improve organisational performance
• Was a performance measurement system designed and
implemented?
• Was the system being used as intended to manage the
performance of the organisation?
• As a consequence, did the performance of the organisation
improve?
Overall performance management concern about

Vision

Objectives

Strategies

Functional objectives

Actions

• Source: Hoshin Kanri deployment path

Strategy map

Financial Grow value/assets Profit maximization Maximize income Maximize

perspective shareholder wealth
Customer Improve satisfaction Customer care Enhance brand
perspective
Process perspective Create better Continuous Optimize process Service quality
service culture improvement performance
Learning and Develop HR Make people Improve Improve work
growth perspective engaged communication conditions
 Performance Management and measurement
• Performance management is concerned with how to use performance
measurement systems to manage the performance of an organization.
• Performance management as the cultural and behavioural routines that
define how we use the performance measurement system to manage
the performance of an organisation.
• The performance measurement system is the process (or processes) of
setting goals, developing a set of performance measures, collecting,
analysing, reporting, interpreting, reviewing and acting on performance
data.
Performance management depends on
• Availability and use of appropriate information and communications systems.
• Simplicity and user-friendliness of the performance measurement systems.
• Management commitment.
• External influences, such as parent company, regulators, powerful customers.
• Organisational structure, distribution of accountabilities and responsibilities.
• Size and complexity of the organisation.
• Maturity of the organisation in learning to work with the performance
measurement system.
• Organisational culture and management
• Clarity of purpose.
• Design of the performance measurement system causing unintended side effects.
The science and art of managing performance

• Is performance management is science or art?

• Why customers come to you?

Activity

• Take five minutes to sketch an image/picture that depicts a business

from customers’ perspective… how do they see it?
Science and art of performance measurement

Organizations must balance technical and social controls to manage the

performancce
• Technical controls - The more rational, bureaucratic or ‘processy’
approach, focusing on structural elements of the organisation.
• Social controls - The cultural and behavioural control achieved
through personal interactions between people.
What is business for?
Companies make their products or services more attractive to their
customers/markets by manipulating the following competitive factors:
• Price/cost
• Quality
• Functional performance
• Delivery speed
• Delivery reliability
• Product support
• Styling/design
• Image/brand identity
• Customer support
• Flexibility and responsiveness
• Innovation
• Relationship and empathy
Competitive criteria vs growth

Competitive criteria
6

0
Well below Below Market average Above Well bove
Competitive criteria
How to align performance management with BPM

What are the core elements in BPM?

1. Strategic alignment – Performance management is under this
2. Governance
3. Methods
4. Information technology
5. People
6. Culture
Strategic alignment

• PM needs to be aligned with the overall strategy of an organization.

• Strategic alignment is defined as the link of organizational priorities
and enterprise processes enabling continual and effective action to
improve business performance.
• Processes have to be designed, executed, managed, and measured
according to strategic priorities and specific strategic situations.
Important

• Attention was placed on the development of short-term performance

indicators as strategic controls explicitly linked to the achievement of
long-term strategic goals
• What to measure and how to achieve strategic alignment through
these measures to ensure that the whole organisation works towards
a common objective.
• Performance measures were seen as a way of establishing strategic
closed-loop control systems by deploying high-level, long-term
organizational goals and objectives in various business units,
functions, processes, teams and individuals.
Feedback and Feed forward controls
• Feedback – Whether the goals and objectives have been achieved
• Feedforward control – Whether the goals are appropriate

Goals
• Feedforward
Objective
Strategy
F External
e Business Units and performance
e value streams
d
b Functions and
a processes
c
k Teams and
individuals
To measure performance
• Important to have a clear and shared understanding of process
outputs and related key performance indicators (KPIs)
• Process-oriented, and cost effectively measured KPIs should be
designed to provide a valuable source for the translation of strategic
objectives to process-specific goals and facilitates effective process
control
• Relevant KPIs can differ in their nature, including financial,
quantitative, qualitative, or time-based data
• KPIs should be standardized across the various processes and in
particular across the different process variants
• Process performance standardization allows consistent cross-process
performance analysis
Question

• What do companies measure?

Product/service performance OR Process performance
Value proposition of a company

This indicates the value of the product/service that explains the reason
for the customer to go for that product/service.
• Operational Excellence – providing the best total cost.
• Product Leadership – providing the best products.
• Customer Intimacy – providing the best total solution
 Six pillars of value proposition- Example for UK food industry

Price Features Quality Service & Availability Reputation

support
Premium Original Excellent Comprehensive Restricted Prestigious
Premium/comp Original/Customis Excellent/averag Comprehensive/ Restricted/selecti Prestigious/resp
etitive ed e standard ve ected
Competitive Customised Average Standard Selective Respected
Competitive/lea Customised/basic Average/accepta Standard/Minim Selective/univer Respected/Functi
der ble al sal onal
Leader Basic Acceptable Minimal Universal Reputation
To remain competitive, what are the fundamental processes
that we need to be good at?
• Developing the products and services that our customers want –
Develop Product.
• Generating demand for our products and services – Get Order.
• Fulfilling demand; satisfying, if not delighting, our customers – Fulfil
Order.
• Providing aftersales service and care to our customers – Support
Product.
TIME FOR REFLECTION

Try to think through a business in these terms. It does, and will, make
sense!
• What are your products?
• What are the activities that make up your Develop Product process?
• What are the activities that make up your Get Order process?
• What are the activities that make up your Fulfil Order process?
• What are the activities that make up your Support Product process?
Managerial Processes – to check performance

• Setting a purposeful direction for the organization

• Scanning the operating environment for opportunities and threats.
• Assessing the significance of these opportunities and threats
• Creating innovative strategies and responses
• Responding and changing efficiently and effectively
• Managing the performance of the organisation
Support processes- To check performance

• Support technology
• Support human resource management
• Support financial management
• Support communications
• Support facilities
 Universal competitive structure of organizations
Managerial Manage Change Define and Scan Set
processes performanc manage environmen directions
e strategies t

Value streams Develop Get order Fulfil order Support

product product
Market
Custo
mers
Operational Develop Get order Fulfil order Support A/B/C
processes product product

Support Support Support Support HR Support Support

processes technology finance communication facilities
To reflect

Think about a business !

• Do you know what value streams exist in their business?
• Do you know the critical competitive factors for each value stream
Measuring process performance
Key approaches of process performance
• Balanced Scorecard: Kaplan and Norton (1993) developed the
Balanced Scorecard as an instrument in order to clarify and
operationalize a company’s vision and strategy on the basis of four
perspectives
• Self-Assessment: On the basis of predetermined criteria and a
defined framework, a business can undertake a self-assessment and
analyze opportunities for improvement. Such frameworks have been
developed and recommended by quality management associations
Key approaches Contd.

• Traditional Controlling: Traditional controlling entails directing,

managing, and controlling the entire business. Key indicators to
assess profitability, growth, and risk factors have to be defined and
determined.
• Process Performance Measurement Systems: These systems serve to
evaluate the performance of a single business process rather than the
performance of the entire company.
Key approaches Contd.

• Workflow-based Monitoring: Workflow systems allow for the

automatic or semiautomatic analysis of process variations, the
coordination of process activities, and communication between staff
members
• Statistical Process Control: Application of statistical methods to the
measurement and analysis of variation in any process
Process Performance Measurement Cont.
• Performance Indicators: In order to determine process performance,
indicators for the assessment of process performance have to be
defined, and they have to be continuously monitored by the process
manager. Eg- faster service (time), cost, capacity and quality
• Performance Measures: Measures represent the operationalization of
each identified performance indicator. This entails determining
precisely how the performance indicator will be measured. Eg- Cycle
time, process time
• Performance Figures: Performance figures represent those
measurements, for which the process manager has determined
objectives. Eg- summaries and reports to the management
Reflection

• Write down five key concepts that you learnt today

References and sources

• Bititci, U. S. (2015). Managing business performance : the science and the art.
John Wiley & Sons.
• vom Brocke, J., & Rosemann, M. (Eds.). (2015). Handbook on Business Process
Management 2 Strategic Alignment, Governance, People and Culture (2nd ed.
2015.). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-642-45103-4