Seven Answers for Understanding Strategy Management Methodology Applies to: SAP Strategy Management Summary There are a number of methodologies that an organization can employ to improve performance. Performance management is a broad term that is applied to a variety of approaches, some only concerning specific functions or functional areas. Here are some explanations about some of the different areas of performance management in order to better understand Strategy Management. Author: Bob McGlynn Company: SAP Created on: 21 June 2007 Author Bio Bob McGlynn is a Solution Expert for SAP Strategy Management 2007 SAP AG 1
Table of Contents... 3 1) What is a definition of performance management and how is that different than Strategy Management?... 3 2) Do terms like Business Performance Management (BPM), Enterprise Performance Management (EPM), and Financial Performance Management (FPM) all have the same meaning?... 3 3) How does Kaizen, Six Sigma or Lean Six Sigma fit into performance management?... 3 4) How does Balanced Scorecard methodology fit into performance management and Strategy Management?... 4 5) Are there generally agreed definitions of Six Sigma and Balanced Scorecard?... 4 6) Please explain the Malcolm Baldrige approach and other national quality methodologies... 4 7) What is the BEST methodology and which is the WORST?... 4 Related Content... 6 Copyright... 7 2007 SAP AG 2
An organization wants to leverage the power of a disciplined methodology for measuring performance. There are a number of approaches and methodology frameworks available to guide their performance management program. Before you start to explain Strategy Management, it is important to understand what your customer means when discussing methodologies. Terms like performance management can have different meanings to different people and in different situations. 1) What is a definition of performance management and how is that different than Strategy Management? Wikipedia defines performance management as a process that builds upon performance measurement with relevant communication and assessing the action of progress toward achieving predetermined goals. This term can be applied when referring to balancing server or application loads on hardware. The term can also be used to refer to individual work performance or other human capital issues. Though different elements in an organization may have different definitions for performance management, each of these units or departments will need to align that performance with overarching goals and mission of the entire organization. Strategy Management means having an articulated strategic goals communicated throughout the organization to ensure that activities are synchronized to create the greatest impact on successfully realizing those objectives. 2) Do terms like Business Performance Management (BPM), Enterprise Performance Management (EPM), and Financial Performance Management (FPM) all have the same meaning? There are over sixteen variations on terminology for performance management. These variations are often used to narrowly define performance management, usually drawing attention to particular functions or functional groups. Descriptors like Business (BPM) or Financial (FPM) have come into existence as technology was developed to meet a specific functional need. This has created a certain amount of confusion and more than a little debate. The strength in the discipline of performance management is applying it across the organization. A silo approach may satisfy temporary needs, though fosters the creation of a number of systems within an organization that don t communicate well with each other and don t necessarily align with the overall goals of the organization. The approach of Strategy Management is to provide a single, comprehensive solution that visibly links strategic plans to tasks, budgets, measures, performance goals, and people across the enterprise. 3) How does Kaizen, Six Sigma or Lean Six Sigma fit into performance management? Six Sigma was developed by Motorola engineer Bill Smith to focus on quality and process improvement in manufacturing. Lean Manufacturing has its focus on speed, so combining speed and quality to a process is referred to as Lean Six Sigma. These approaches are particularly well-suited to process-intensive industries like manufacturing, though these methods have been applied outside manufacturing. Kaizen is also related to workplace quality and the term is often associated with Toyota Production Systems. This approach has three elements: improving process & results, systemic thinking (taking the larger big picture view), and a non-judgmental focus for results. The design uses a small-group for instituting change and providing feedback up the chain of command. Kaizen, similar to Six Sigma, is well suited for processintensive industries. These methodologies work at the tactical level and processes and wouldn t be considered Strategy Management. A process can be improved without any alignment to strategic goals. In a Strategy Management approach, these tactical elements would need to be combined with the higher strategic goals of an organization. A growing number of consultants working with organizations combine the tactical, Six Sigma, with the strategic, Balanced Scorecard, to bring a holistic approach to improving performance. 2007 SAP AG 3
4) How does Balanced Scorecard methodology fit into performance management and Strategy Management? The Balanced Scorecard approach may be the highest profile brand of performance management methodologies today. It uses a combination of financial and non-financial measures to provide a balanced view of performance management. The Balanced Scorecard framework has four main areas: Financialfinancial performance, Customer - customer value proposition, Internal Process - the internal processes that deliver that value proposition, Learning and Growth - how people, technology, & organizational climate combine to support the strategy. This approach starts at the high-level goals and mission of an organization. It develops performance management as concept for measuring a company s activities in terms of its vision and strategies. The Balanced Scorecard Collaborative is a group formed by the two Harvard Business School professors that are credited with developing this methodology. The collaborative hosts training sessions and seminars and also offers more individual consulting services for organizations. The Balanced Scorecard Hall of Fame Award is presented, annually, by the collaborative to organizations that have achieved breakthrough results using this methodology. As a popular methodology, many organizations have attempted to implement this approach. The collaborative, itself, reports that the majority of attempts to implement the Balanced Scorecard end in failure. It is important to understand that this brand name can elicit strong opinions, both positive and negative. 5) Are there generally agreed definitions of Six Sigma and Balanced Scorecard? Care must be taken when you hear a customer use terms like Balanced Scorecard, Malcolm Baldrige, Lean, or Six Sigma. The classic definition of these terms may be quite different from how a customer has chosen to implement the particular methodology. Many organizations design a hybrid or customized version of a methodology to fit their particular needs. Conversely, a customer may be using one of these methodologies, but naming it with their own unique term. Be careful to understand what the customer means when they use these terms and what the customer is trying to accomplish by instituting their chosen approach. 6) Please explain the Malcolm Baldrige approach and other national quality methodologies. Like the Balanced Scorecard, though established years earlier, the Baldrige method provides a framework that goes beyond financial measures to promote quality awareness and continuous improvement. There are seven categories of performance criteria in this method: Leadership, Strategic Planning, Customer/Market Focus, Measurement & Analysis, Human Resources, Process Management, and Business Results. Malcolm Baldrige was the Secretary of Commerce for the United States during President Ronald Reagan s administration. Baldrige designed this system as a way to help improve American companies competitiveness and the United States Congress established it as a performance framework to be used as a rating tool to assess management systems. There is a national, annual Malcolm Baldrige award given by the US Commerce Department through the National Institute of Standards and Technology. Other countries, like Canada, Mexico, Brazil and Sweden, have patterned their national quality awards programs after Baldrige. Most European countries use the European Foundation of Quality Management (EFQM) methodology for their national quality awards program. The EFQM approach modified and extended the Baldrige model. 7) What is the BEST methodology and which is the WORST? There is no single methodology that is the best, or the worst, for any organization and in any situation. Each organization has to design and implement a methodology that best suits their needs. As noted above, merely implementing a performance management methodology is no guarantee of success. What is common to successful Strategy Management projects: Strong executive support Revisiting & refreshing strategy on a regular basis Cascading, or translating strategic objectives through every level of the organization, so everyone knows how their day-to-day activities help realize organizational goals. 2007 SAP AG 4
Having goals and objectives tied in a direct way to resource allocation, budgeting, and incentive programs. SAP Strategy Management is a comprehensive operational performance management software framework that is flexible enough to accommodate the wide variety of methodologies. 2007 SAP AG 5
Related Content Please include at least three references to SDN documents or web pages. SAP Solutions for performance management discussion forum Web cast: Bridging the Gap between Strategy and Execution with SAP Strategy Management Additional information about SAP Strategy Management 2007 SAP AG 6
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