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Strategy and business |

Strategy and business

Strategy and business component in Brief

Not surprisingly, the strategy and business component focuses on how performance management is linked to an organization’s strategy and business. In addition, it examines what kind of added value performance management brings to the organization, what kind of strategic decisions and goals the organization has set, and how business needs and business strategy are taken into consideration from the performance management point of view. What is also important is to what extent performance management is integrated into an organization’s control and management system. The link between strategy and performance management is widely recognized in the literature1,2,3,4. All the measures and scorecards should be directly linked to the organization’s strategy. If this is done, the organization is monitoring its true performance, and making decisions or refining its strategy in the best possible way.

The strategy and business component comprises three subcomponents. These are decision support, business value, and strategy and objectives. In most of the case companies one of the main motivational factors for initiating improvements in performance management was related to improving the ability to make decisions and improving the quality of decisions5. The annual study6 performed on the top 50 Finnish companies also highlights the fact that companies are investing in business intelligence so that they can make better decisions. However, as Davenport and others7 found in their study, it is noteworthy that still today, 40 % of all important decisions are made based on business instinct rather than factual information.

It is difficult to define the value of performance management simply by, for example, calculating the return on investment8,9 as the benefits are often indirect and only apparent in the long term9,10. Consequently, it is the indirect benefits, such as improved decision-making, increased accountability, and single source of truth that are discussed in this subcomponent.

Key capabilities and management practices

  • Use performance management to help in the creation of strategic goals
  • Use performance management to support strategy execution and monitoring
  • Use performance management to provide feedback for the strategy and to refine the strategy
  • Gain indirect benefits through better quality data
  • Promote fact-based decision-making
  • Lessen the gap between strategic planning and execution
  • Make sure metrics have a direct and strong impact on organization strategy
  • Use scorecards and dashboards to connect employees to strategy
  • Move to constant strategic planning
  • Gain real business value from the investments

See also other components

Maturity levels for Strategy and business component

Level 1 Level 2 Level 3 Level 4 Level 5
Mission and goals are indefinite; typically they are only defined annually and published throughout the organization; the value of performance management to business is not understood; strategic decisions are made based on business instinct; funding comes from the IT budget and is divided between cost centers Strategies to achieve organizational targets start to evolve; the goals are defined; Performance management helps in the creation of strategic goals; Performance management is focused on monitoring the goals; only a small group of people are responsible for strategic planning; funding comes from business units on a project basis Particularly supports strategy execution and monitoring; indirect benefits are gained through better quality data; cost savings; promotes fact-based decision-making; funding from business units on a project basis Lessens the gap between strategic planning and execution; metrics have a direct and strong impact on organization strategy; scorecards and dashboards connect employees to strategy; investments starts to pay off; funding is easy to obtain Business strategy oriented: provides feedback for strategy and refines strategy; constant strategic planning; Performance management has become a strategic management tool; Performance management cannot be replaced; real business value is gained from investments

References

  1. Ariyachandra & Frolick, 2008
  2. Turban et al., 2007
  3. Packova & Karacsony, 2010
  4. Mojdeh, 2005
  5. Aho, 2011
  6. Vuori & Hannula, 2009
  7. Davenport et al., 2010
  8. Rajteric, 2010
  9. Robbins, 2009
  10. Popovic et al, 2009

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