In the following case study business performance management tensions were triggered when the organisational structure stopped the business from focusing on key operational measures.
A major PLC identified a start-up growth opportunity in the direct selling kitchen sector.
The problem (trigger)
A complex multi-site operation, together with a layered management team, was set up to exploit the opportunity. This included a complex budgeting process, detailed and elaborate monthly accounts, and formal board meetings. (BPM tension: informal vs formal systems). The local team had a high degree of accountability to central PLC management. Despite a multi-million investment, the company was failing both financially and in relation to the agreed service levels.
Impact on the business and performance management
Initially the PLC accepted the losses as part of the start-up costs. However, following a change of in corporate management, the PLC decided not to continue supporting the operation, and sold the company to local management at a negative value, as a better alternative than total closure. (BPM tension: short vs long term perspective).
What was done?
Freed from top down PLC management constraint, the acquiring team reduced management layers and the number of sites occupied.
Crucially they focussed on the following key operational measures:
- Lead generation by cost and strength
- Lead conversion rates by salesman
- Deliveries and installations achieved per week
- Daily cash flow balances
- The impact of price and promotions on margins achieved
- Key metrics were identified and reported daily and weekly. (BPM tension: speed vs reliability).
- Individual sales and customer performance were monitored against simple targets e.g. % sales conversion rate, delivered sales per week, % installations completed within a week.
- Swift action was taken when targets were missed e.g. price corrections, promotions, retraining or changing salesmen.
- Formal budgets were abandoned, and the role of management accounts was changed to focusing on validating the margins reported in the weekly figures. (BPM tension: fixed budget vs adaptive planning).
The company grew rapidly and profitably, and after five year the company was sold on to a conglomerate. After the exit, the focus on the key success factors was reduced; replaced by more formal management processes, brand building and budgeting. (BPM tension: multiple stakeholder interests). A major economic downturn then occurred which greatly increased the cost of lead generation (BPM tension: uncertain world). The revised management processes did not have the flexibility to respond and the company eventually failed.
- Focusing on achieving the Key Success Factors is critical. Focus BPM on the factors that really matter.
- Adaptive management is better in fast moving market. Where the operating market is fast moving and rapidly changing, flexible adaptive management is generally more successful. (BPM tension: uncertain world; and fixed budget vs adaptive planning).
- A mix of operational and financial perspectives of success is important. BPM needs to focus on both the underlying operational activities and their financial outcome. (BPM tension: operation vs accounting measures).
Further reading into using KPIs in a working environment is available through the resources below.
More support on business
Read our articles, eBooks, reports and guides on Business Performance ManagementBPM hubTools, templates and case studies
Can't find what you're looking for?
The ICAEW Library can give you the right information from trustworthy, professional sources that aren't freely available online. Contact us for expert help with your enquiries and research.