Defining the metrics that will track progress toward strategic goals is the key to any CPM implement-ation. Charlotte, N.C.-based LendingTree Inc., a division of InterActive Corp., and an online marketplace for consumer loans and realty services with a network of more than 200 lenders and 700 realty services brokers nationwide, found that it needed a more formal approach to monitoring performance as it matured from a start-up to a large, fast-growing company. Senior Vice President and CFO Keith B. Hall says, "We always had the numbers in great detail and used them to prepare our books and disclosures. But we lacked a focus on the key summary statistics that drive the business." In other words, the company was having trouble seeing the forest for the trees.
LendingTree, which uses Hyperion technology for modeling, planning and scorecarding, is typical of many Internet-based companies in terms of the key performance metrics that it tracks closely, including Web site traffic, the rate of Web site visitors who converted to customers, and marketing costs per customer, among them. "Everyone down to the receptionist now knows we focus on certain numbers," says Hall.
Because the metrics are widely distributed, more people feel ownership of them. "If operating managers expect you to be looking at certain statistics, then they'll get more involved in the details that make them tick," says Hall.
Bret Furtwengler, vice president of financial systems at Cincinnati-based Fifth Third Bank, says, "The biggest struggle I've seen in 20 years in financial systems is managing consistent metadata. If I define 'region one' in the Chicago affiliate as including these 40 banks, is it defined the same way in our online analytic processing tool and in our general ledger?" That job has never been easier due to the availability of so-called hierarchy management tools such as those from Austin, Texas-based Razza Solutions, which is a common tool among financial institutions including Fifth Third Bank. Furtwengler's effort to improve data consistency is part of an overall CPM initiative in the retail banking arm of Fifth Third, which is using the Hyperion Business Performance Management suite of products.
Eventually, performance metrics will be a component of performance evaluations and will inform compensation decisions at Fifth Third. Paladino recommends a cautious approach here. "BSC takes two or three business cycles to mature. We waited three years to fully integrate compensation into the scorecard."
While scorecarding is currently a favorite method for measuring performance, "Sometimes people forget the 'balanced' in balanced scorecard," says Kathleen Wilhide, research director of compliance and BPM solutions at IDC. "You can micromanage one key performance indicator to the detriment of another. Cut call-center costs too deeply and customer service will decline. Linking and aligning key performance indicators is something companies traditionally have not done well." Wilhide's comments are one final reminder that corporate performance management software doesn't manage itself. Perhaps someday, someone will design a software program for that as well.
Karen S. Henrie has been researching, analyzing and writing about information technology and business strategy for nearly 20 years.
This article was originally published on 02-05-2005