corporate performance management (CPM)
Corporate performance management (CPM) is a term used to describe the various processes and methodologies involved in aligning an organization's strategies and goals to its plans and executions in order to control the success of the company. CPM is a subset of business intelligence (BI) that involves monitoring and managing an organization's performance, according to key performance indicators (KPIs) such as revenue, return on investment (ROI), overhead and operational costs. However, it is important to recognize that CPM is not a specific strategy. For CPM to be useful, organizations must create a suite of analytical applications that can support the processes, methods and metrics used in corporate performance management.
Some of the different strategic frameworks and management methods used in CPM include:
- The balanced scorecard
- Six Sigma
- The European Foundation for Quality Management (EFQM) excellence model
The goal of CPM is to provide companies with significant business insights through processes like budgeting, scenario analysis, financial planning, forecasting and data reporting. Supply chain management (SCM) and risk management are two practices that should also be aligned with corporate performance management. SCM is responsible for planning, controlling and executing a product's journey from materials to production to distribution in the most efficient and economical way possible. Risk management enables organizations to track the related risks of each plan or process alongside the performance results.
The term and concept of corporate performance management was devised by Gartner in 2001. Since then, CPM has evolved as workplace practices and technologies have changed. Specifically, the increased use of Agile methodologies has significantly impacted the concept.
In 2017, Gartner retired the term corporate performance management after realizing that companies were focusing only on point solutions for specific CPM software processes, like financial reporting and planning. As a result, Gartner named two new market classifications: financial planning and analysis -- to replace strategic CPM -- and financial close -- to replace financial CPM.
CPM is also known as business performance management (BPM), enterprise performance management (EPM) and financial performance management (FPM).
Importance of corporate performance management
CPM has become a primary focus for most senior executives. By integrating business planning, sales, marketing, forecasting and budgeting for finance, human resources and operations, organizations can link their organizational goals and strategies to their plans and execution. The alignment of the company around its strategic priorities allows a focus to be placed on key drivers of business operations as well as the key business metrics that must be maintained to improve revenue and grow profits.
Corporate performance management often includes the following important management processes:
- Creation of a business model and identification of business goals;
- Budgeting, planning and forecasting (BP&F);
- Merging results and closing financial books on a regular basis;
- Sharing results with all internal and external stakeholders;
- Analysis of business performance compared to the plan, previous years and across products and divisions; and
- Remodeling based on the results and new forecasts.
While every company should practice CPM, it is especially crucial for companies looking to reduce operational costs, improve the alignment of KPIs, remodel the budget, upgrade financial planning processes or improve organizational strategies.
Since CPM is important to C-level executives, organizations have started to build departments that are dedicated to strategy and performance management within the company. This new department is sometimes merged with project management. Certification programs have also been developed to help individuals become experts in performance management.
The goal of the new department is to use CPM methods and tools to handle the measuring and reporting of performance results as well as manage strategic projects, communications, alignment and strategic planning. The department is sometimes referred to as the Office of Strategy Management (OSM) or Project Management Offices (PMO).
The business metrics -- or KPIs -- used in CPM provide measurable values that reveal how a company has progressed in relation to its strategic goals. The information used to create these metrics often comes from books of accounts -- including income statements, balance sheets and cash flow statements -- or from budgeting and forecasting data -- such as revenue, expenses and inventory reports.
The performance metrics used in CPM can be organized into five categories. They are:
- Financial - This includes all financial performance numbers, such as sales, costs and profits.
- Internal - The employee experience can have a significant impact on the long-term success, or failure, of a company. Internal metrics offer an evaluation of the quality of company management.
- Customer - Customers are essential to every business; they are the source of the company's income. Customer satisfaction and loyalty can be key indicators of business health and performance.
- Compliance - The company must demonstrate legal compliance with employment regulations, financial reporting and environmental rules.
- Strategic - These metrics will reveal how well the company executed the strategies that management implemented to reach immediate targets and move towards long-term organizational goals.
Some examples of specific metrics included in these categories are:
Customer retention rate - Retention rate is a customer metric that indicates the number of customers who make repeat purchases through the company or continue using the company's product over an extended period of time.
Sales revenue - This financial metric reveals month-over-month sales results and indicates important factors like whether the company's marketing efforts are paying off; if people are interested in buying the product or service; and whether the company still holds a competitive position in the market.
Net profit margin - This is another financial metric that shows how efficiently a company generates profit compared to its revenue. It can be used to predict long-term business growth and to check if the generated income exceeds the operational costs.
Gross margin - Another financial metric that measures a company's productivity -- the higher the gross margin, the more a company earns from every sales dollar. This metric can reveal if processes and production have improved, making it especially beneficial to measure in new companies.
Employee happiness - This internal metric measures employee satisfaction rates using surveys or HR tools. Employee satisfaction is important to measure because employees who are happy in their job are more productive and engaged. These high satisfaction levels can also lead to increased employee retention rates and long-term business success.
Qualified leads per month - This customer metric can reveal whether a company is targeting the right audience or market and creating the highest potential of generating new customers. If this metric starts declining, then it's an indication that the company should reevaluate their sales and marketing strategies.
Sales growth - This financial metric can show a business the pace at which its sales revenue is increasing or decreasing. Sales growth should be monitored over various periods of time -- such as monthly, annually and long-term -- in order to gain a better understanding of the company's sales.
Corporate performance management software
Historically used within finance departments, CPM software is now designed to be used enterprise-wide, often as a complement to business intelligence systems. CPM software includes forecasting, budgeting and planning functions, as well as graphical scorecards and dashboards to display and deliver corporate information. A CPM user interface usually displays KPIs so that employees can track individual and project performance relative to corporate goals and strategies.
Benefits of corporate performance management software include:
- a more streamlined and productive workflow;
- reduced operational costs;
- automation of previously manual tasks;
- complete data analysis (DA); and
- simplified calculations.
Cloud-based CPM software can benefit organizations further by making the tools easier and faster to deploy, increasing innovation speed, decreasing the cost of ownership and enhancing collaboration throughout the company.
Some popular examples of CPM software include:
- Adaptive Insights Business Planning Cloud
- Prophix Software
- IBM Planning Analytics (PA)
- Oracle Planning and Budgeting Cloud
- Oracle Enterprise Planning Cloud
- Oracle Hyperion Planning
- Oracle Enterprise Performance Reporting Cloud
- SAP Business Planning and Consolidation (BPC)
Corporate performance management vs. human performance management
While both practices focus on performance management, CPM and human performance management (HPM) differ in the areas they monitor.
HPM is a subset of HR that aims to improve operational capability as well as employee productivity and satisfaction. Employee reviews and retention rates can be used as key indicators of success for HPM.
As mentioned, CPM is a subset of business intelligence. While it sometimes includes monitoring employee satisfaction and retention, it does not focus on employee reviews. CPM instead focuses on improving communication throughout the organization and aligning and executing organizational strategies.