ENTERPRISE PERFORMANCE
MANAGEMENT
Enterprise Performance Management
Course Title : Enterprise Performance Management
Course Code :302 Semester-III
Course Type : Generic Core (GC)
Maximum Marks : 100 (50+20+30)
Lectures : 35 +10
Credits : 3
Books Recommended:
1. Management Control Systems- Anthony & Govindrajan, 12th Edition
2. Management Control in Non-profit org. by Robert Anthony & David
Young, 7th edition
3. Financial Management- Prasanna Chandra
Units to be covered
Unit Sub- Contents Number of
No. Unit No. Sessions
1 1.1 Performance Management 7 +2
1.2 Performance Evaluation Parameters (Financial)
1.3 Performance Evaluation Parameters (Non-Financial)
1.4 Measuring SBU-Level Performance
2 2.1 Capital Expenditure Control 7+2
2.2 Tools & Techniques of Capital Expenditure Control
3 3.1 Performance Evaluation Parameters for Banks 7 +2
3.2 Performance Evaluation Parameters for Retail
4 4.1 Performance Evaluation Parameters for Projects 7 +2
4.2 Performance Evaluation Parameters for Non-profit
5 5.1 Audit Function as a performance Measurement tool 7 +2
What is an Enterprise?
A business or company, firm, (commercial) undertaking,
venture, organization, operation, industry, corporation,
establishment, house, shop, office, bureau, agency,
franchise, practice, partnership, consortium,
cooperatives, conglomerate, group, syndicate that earns
money.
It simply another name of business.
What is Performance?
Organizational performance, in basic terms, is the actual
output or results of an organization as measured against
its intended outputs or goals and objectives. The key
words here are “actual” and “intended”.
When performance is at or above the intended goals,
accomplishments are returned. When performance is
below the intended goals, fewer accomplishments and
more failures are the result.
The more an organization can set near and long term
goals, the more accurate performance can be measured.
WHAT IS MANAGEMENT ?
F.W. Taylor - “Art of knowing what you want to do and
then seeing that it is done the best and cheapest way”.
Henry Fayol – “To Manage is to forecast, to plan, to
organise, to command, to co-ordinate and to control”.
Peter F. Drucker –”Management is work and as such it
has its own skills, its own tools and its own techniques”.
“Management is the art of getting things done
through and with people”.
Management Process
Management Process has five Basic Functions
Planning Organizing
Goals and standards Tasks
Rules and procedures Departments
Plans and forecasting. Delegating
Authority and
communication
Coordinating
Management Process
Staffing Leading & Controlling
Hiring Leading
Recruiting Getting the job done
Selecting Morale
Performance standards Motivation
Compensation
Controlling
Evaluating performance
Setting standards
Counseling
Comparing actual
Training and developing performance to standards
Corrective action
What is Performance Management?
Performance management is the foundation of any
organization that has a vision and knows where they want to
be in the near and long term future.
Performance management is the gauge that lets you know
whether or not you are reaching strategic goals and which
areas within your service delivery could use improvement.
Performance management also justifies whether or not your
organization is getting its return on investments.
Most important, performance management establishes a
culture of high performance where the entire organization is
synergistic towards reaching organizational objectives.
What is Performance Management?
By definition, performance management is the
systematic process by which an organization
involves its employees and all stakeholders in the
development and implementation of a plan to
improve organizational effectiveness and reach
organizational objectives.
In 1883 Lord Kelvin, a leading physicist of the early 19th century
wrote:
“I often say that when you can measure what you are speaking about,
and express it in numbers, you know something about it; but when you
cannot measure it, when you cannot express it in numbers, your
knowledge is of a meager and unsatisfactory kind; it may be the
beginning of knowledge, but you have scarcely in your thoughts
advanced to the state of Science, whatever the matter may be.”
What is Performance Management?
Performance Management is the systematic implementation of an enterprise-wide
performance strategy involving all business units, systems and personnel. It is a
sequence of management processes, when combined, achieves a complete
approach to managing performance from start to finish.
Performance Management focuses on all areas that determine the success of an
enterprise, including:
Employees
Departments / Divisions
Processes
Finance
Programs (e.g. implementing organizational policies)
Products / Services
Projects
Business Units / Teams
What is Performance Management?
In a nutshell, we implement performance management so that we can
quantify in numbers how effective we are at what we do. Below is a
list of additional advantages of implementing/re-establishing
performance management in your organization.
Gains visibility into project execution and effectiveness
Analysis of process strengths and weaknesses
Metrics provide inputs for future estimations and planning
Metrics identify the areas for improvements
Metrics can be used to eliminate problem areas and root causes
Establishes a continuous improvement culture across the company
Helps management and employees make well-informed and decisions
Measures at the enterprise, divisional, systems, program, project and
employee levels
Performance Management
Basic Steps
Various authors propose various steps for performance
management. The typical performance management process
includes some or all of the following steps, whether in
performance management of organizations, subsystems,
processes, etc.
Note that how the steps are carried out can vary widely,
depending on the focus of the performance efforts and who
is in-charge of carrying it out.
Performance Management
The following steps occur in a wide context of many activities
geared towards performance improvement in an organization, for
example, activities such as management development, planning,
organizing and coordinating activities.
1. Review organizational goals to associate preferred organizational
results in terms of units of performance, that is, quantity, quality, cost
or timeliness (note that the result itself is therefore a measure)
2. Specify desired results for the domain as guidance, focus on results
needed by other domains (e.g., products or services need by internal
or external customers)
3. Ensure the domain's desired results directly contribute to the
organization's results
Performance Management
4. Weight, or prioritize, the domain's desired results
5. Identify first-level measures to evaluate if and how well the
domain's desired results were achieved
6. Identify more specific measures for each first-level measure if
necessary
7. Identify standards for evaluating how well the desired results
were achieved (e.g., "below expectations", "meets expectations"
and "exceeds expectations")
8. Document a performance plan - including desired results,
measures and standards
9. Conduct ongoing observations and measurements to track
performance
Performance Management
10. Exchange ongoing feedback about performance
11. Conduct a performance appraisal (sometimes called
performance review)
12. If performance meets the desired performance standard, then
reward for performance (the nature of the reward depends on
the domain)
13. If performance does not meet the desired performance
standards, then develop or update a performance development
plan to address the performance gap
14. Repeat steps 9 to 13 until performance is acceptable, standards
are changed, the domain is replaced, management decides to
do nothing, etc.
Performance Management
Performance management is a strategic and integrated
process that delivers sustained organizational success
by improving employee performance through the
development of competencies of individual employees
and teams.
It is in this context that performance management
assumes significance for every business organization.
The management process linkage of performance
management is depicted in Fig. 1
Performance Management
The management process of discovering, defining, and implementing business
activities that will result in value enhanced future of the organization.
Business Strategy
Business Processes
A Business process is a collection of
linked business activities that enable
to deliver goods, services, information
Performance management or money.
Stakeholders value
system propositions
A management process that is used to Description of the give and get
monitor business activities and thereby relationship between the
facilitate achievement of the mission & organization and each of its
objectives of the organization stakeholders, relative to alternatives
Need & Importance of PM
Performance management starts with a work plan that
identifies for the employee what is to be accomplished,
and how.
The plan is followed up with informal, ongoing
monitoring and feedback on his progress towards the
objectives set in the plan.
At the end of the performance period-usually a year-
the manager and employee meet to summarize the
accomplishments and challenges of the past year, and
document the discussion using a performance
management form.
Need & Importance of PM
Implementation of business strategies requires
employees be given guidance, support, authority,
and resources needed to accomplish action plans
and performance objectives. Yet for many
organizations, there is a tremendous gap between
reality and vision of the organization.
It is task of the management to organize, motivate,
equip, and direct rather ordinary people to
perform at their higher possible levels.
Need & Importance of PM
In today’s complex, turbulent, and dynamic business environment,
where goals, circumstances, organizational structure, staffing, and
activities are constantly changing, managers play an especially
important role in helping employees understand what is expected
of them (i.e., setting performance criteria), helping them meet
these expectations successfully, evaluating performance providing
feedback, and providing meaningful recognition and rewards.
All the individuals are born with an intrinsic motivation, self-
esteem, dignity, and an eagerness to learn, and experience and
research indicates that present system of performance appraisal
system wipes that all out.
Therefore, performance management assumes utmost importance.
Uses & Objectives Of Performance Management
System
Human
Internal Resource
Recruit.&
employee Planning
selection
relation
Objectives Personn-
Compens of el
ation & perform. Decision
reward. Mgt. sys. s
Career
Training planning
Feedback ,
& dev. & dev.
motivation
&
developme
nt.
Strategy Linkages with Performance
Implementation Mechanisms
Management
/ operational
Control
Organization Human
Strategy Performance
Structure Resource
Management
Culture
The Concept of Strategy
Strategy: is the plan which integrates an
organizations major goals, policies and action
sequences into a cohesive whole.
Strategy describes the general direction in which an
organization plans to move to attain its goals.
Every well-managed organization has one or more
strategies, although they may not be stated
explicitly.
A firm develops its strategies by matching its core
competencies with industry opportunities.
The Concept of Strategy
According to Kenneth R Andrews,
“Strategy is a process by which senior executives
evaluate company's strengths and weaknesses in
light of the opportunities and threats present in
the environment, and decide on a product market
that fits the company's distinctive competencies
with environmental opportunities.”
Strategic Planning
Strategic planning is a process to Describe
organization’s destination, to Assess barriers
and Select approaches for moving forward.
Strategic Planning: Goal- Allocate resources
to provide organization with competitive
advantage
Strategic Planning Purpose
Help to define the organization’s identity
Help organization to prepare for the future
Enhance ability to adapt to environmental change
Provide focus and allow for better allocation of
resources
Produce an organizational culture of cooperation
Allow for the consideration of new options and
opportunities
Provide employees with information to direct daily
activities
Strategy Formulation
Environmental Analysis Internal Analysis
Competitor Technology know-how
Customer Manufacturing know-how
Supplier Marketing Know-how
Regulatory Distribution know-how
Social/Political Logistics know-how
Opportunities Strengths and
and treats Weaknesses
Identifying opportunities Identifying Core Competencies
Fix internal competencies with
external opportunities
Firms Strategies
Strategic Planning : Overview
1. Environmental Analysis
2. Mission
3. Vision
4. Goals
5. Strategies
Environmental Analysis
Identifies external and internal trends
To understand broad industry issues
To make decisions using “big picture” context
External trends
Opportunities:
environmentalcharacteristics that can help
the organization succeed
Threats:
environmentalcharacteristics that can
prevent the organization from being
successful
External trends – Factors to Consider
Economic
Political/Legal Competitors
Social Customers
Technological Suppliers
Internal trends
Strengths:
internal
characteristics that the organization
can use for its advantage
Weaknesses:
internalcharacteristics that can hinder the
success of the organization
Internal trends – Factors to Consider
Organizational structure
Organizational culture
Politics
Processes
Size
Gap Analysis
Analyzes:
External environment
(opportunities and threats)
vis-à-vis
Internal environment
(strengths and weaknesses)
Gap analysis determines:
Opportunity + Strength = Leverage
Opportunity + Weakness = Constraint
Threat + Strength = Vulnerability
Threat + Weakness = Problem
Strategic Planning for the Organization
Environmental and Gap Analyses provide
information for organizations to decide:
Who they are
What they do
Mission
A good mission statement answers:
Why does the organization exist?
What is the scope of the organization’s activities?
Who are the customers served?
What are the products or services offered?
Mission Statement contains:
Information on organization’s
Basic product/service to be offered
Primary market/customer groups
Unique benefits and advantages of
product/services
Technology to be used
Concern for survival through growth and
profitability
Mission Statement may contain:
Information on organization’s values and beliefs
Managerial philosophy
Public image sought by organization
Self-concept of business adopted by
Employees
Stockholders
Vision
Statement of future aspirations
Focuses attention on what is important
Provides context for evaluating
Opportunities
Threats
A Good Vision Statement: 8 Characteristics
1. Brief
2. Verifiable
3. Bound by a Timeline
4. Current
5. Focused
6. Understandable
7. Inspiring
8. A stretch
Purposes for Setting Goals
Formalize expected achievements
Provide motivation
Provide tangible targets
Provide basis for good decisions
Provide basis for performance measurement
Strategies
Create strategies or Game Plans or “How to”
procedures to address issues of:
Growth
Survival
Turnaround
Stability
Innovation
Leadership
How the HR Function contributes:
Communicate knowledge of strategic plan
Provide knowledge of KSAs needed for
strategy implementation
Propose reward systems
Strategic Plans at the Unit Level
Organization Mission statement, Vision
statement, Goals, and Strategies
Must clearly align with
And be congruent with
Every Unit Mission statement, Vision
statement, Goals, and Strategies
Alignment of Strategic Plan with Performance
Organization’s Strategic Plan
Mission, Vision, Goals, Strategies
Unit’s Strategic Plan Critical to involve all
Mission, Vision, Goals, levels of management
Strategies
Job Description
Critical to involve all employees Tasks, KSAs
Individual and Team Performance
Results, Behaviors, Developmental Plan
Job Descriptions
Tasks and KSAs are congruent with
Organization and Unit strategic plans
Activities described support mission and
vision of Organization and Unit
Individual and Team Performance
Organization and Unit mission, vision, goals lead to
Performance management system, which
Motivates employees
Aligns development plans with organization priorities
Strategic Plan
6 Choices in PM System Design
1. Criteria (Behavior vs. Results)
2. Participation (Low vs. High)
3. Temporal Dimension (Short Term vs. Long Term)
4. Level of Criteria (Individual vs. Team/Group)
5. System Orientation (Developmental vs.
Administrative)
6. Rewards (Pay for Performance vs.
Tenure/Position)
Building Support –
Answering “What’s In It for Me?”
Top Management:
Help carry out vision
All levels:
Involvement
Participation
Understanding
Control- Basic Concepts
Control:
E.g. Car-accelerator-Steering Wheel-Brake Pedal
The purpose of control is to ensure that an
organization meets desired objectives and that
individual members behave in a manner consistent
with organizational objectives.
Control- Basic Concepts
Any control system has four important elements.
They are a detector or sensor, an assessor, an
effector and a communications network, as can
be seen in Figure 1
Control Assessor: comparison
Device with standard
Detector:
Information about
what is happening Effector: Behavior
alteration if needed
Entity being
controlled
Control- Basic Concepts
The process of control usually involves four
important steps. They are:
1. Identifying the goals or objectives,
2. Implementing the programs or policies,
3. Measuring and comparing outcomes against
targets, and
4. Analyzing whether the achieved targets are in
accordance with the goals or objectives.
Control- Basic Concepts
The control process in any organization can be
undertaken at three levels. These are:
1. the strategic level,
2. the management level, and
3. the operational level.
Each type of control occurs primarily at one of the
three distinct levels of the organizational hierarchy.
Control- Basic Concepts
Strategic control deals primarily with the broad
questions of domain definition, direction setting,
expression of the organization’s purpose, and other
issues that impact the organization's long-term
survival.
Strategic control overlaps to some extent with the
process of strategy formulation. Strategic control
also deals with issues relating to general company
objectives and the implementation and monitoring
of progress.
Control- Basic Concepts
Management control deals with effective resource
utilization, the state of competitiveness of the unit, and
the translation of corporate goals into business unit
objectives.
Operational control is primarily concerned with
efficiency issues. Occurring at very specific functional or
sub-departmental levels of the organizational
hierarchy, this mode of control generally conforms to
traditional control models. The time horizon of control is
very short, the benchmarks are known and well defined,
and the outcomes are tangible and easily measurable.
Management Control
Management control is the process by which managers
influence other members of the organizations to implement
the organization’s strategies.
Management control systems are tools to implement
strategies.
According to Anthony, Dearden and Govindarajan (1992),
management control is “the process by which managers
ensure that resources are used effectively and efficiently in
the accomplishment of the organization's objectives”.
Management Control fits between strategy formulation and
task (operational) control in several respects.
Strategy formulation is least systematic and long run, task
control is most systematic and focuses on short-run activities,
and management control is in between.
Task (operational) control vs.
management control
Task control involves the control of individual tasks. These tasks are
carried out according to the rules and regulations laid down by the
management control process.
Usually the techniques in operations research and management
science focus on task control.
The information is important for task control in an organization is
usually quantitative in nature e.g. the number of items ordered by
the customers, the components used in manufacturing the products,
the number of man-hours used in a particular process, etc.
The devices used for task control include programmable machine
tools, process control computers and robots.
In task control, each task requires a different task control system (a
production control system is different from a cash management
system).
Task control vs. management control
Thus, it can be concluded that task control is
quantitative in nature whereas management control
is oriented towards behavior.
In task control, in some cases, such as automated
processes, employees may not be involved; in other
cases, there may be interaction between a manager
and a worker.
Management control involves interaction between
two managers or between a superior and
subordinate.
