What's Corporate Performance Management and How Does It Fit the Banking Industry?
Payant, W. Randall, Journal of Performance Management
Want to learn about one of the latest IT buzzes seeping into the banking world, Corporate Performance Management, or CPM for short? Simply attend any one of dozens of technology slick vendor-sponsored webinars or put your name on their mailing list and you will be inundated with CPM literature1.
IT vendors' marketing shouts praises of CPM: One Version of the Truth! Doing the Right Things, At the Right Time, For the Right Reasons! Seamless Integration of Front, Middle and Back Offices! Key Performance Indicators (KPIs) and Performance Monitoring Dashboards! Sarbanes-Oxley! Vendors intimate that unless you get on the bandwagon, you will be left behind.
If you didn't know better, you'd think the IT world woke up and discovered the concept of managing performance, rather than just costs! But in reality, what bank technology vendors have discovered is core legacy systems of the 1970s and '80s provide limited revenue growth opportunities today...unless they get a face lift, some .net whiz-bang technology and a new marketing spin.
Déjà vu of the 1990s, when customer relationship management (CRM) was the buzz term on Technology Street. Remember the promises from CRM vendors that they were going to revolutionize customer service, increase revenue while cutting costs? Did CRM deliver on those promises? If you are a consumer, is service really better? Was CRM's return on investment justified? For some yes, yet for many, the answer is no. Technology choice was not the determinate of CRM success. Rather, CRM success is predicated on changing the organization's marketing, sales and servicing discipline and culture. Technology is simply the enabler.
The first step in a CPM undertaking is not deciding on a technology vendor. Why? All CPM vendors claim to be able to comparably measure the performance contribution of operating units, product lines, customer segments, delivery channel or other defined dimensions post ante. They all claim this provides management insight into who and what within an organization is positively contributing and who and what is not. Great...but not good enough!
Step One - CPM's Management Discipline
Prior to evaluating technology vendors, effective implementation of CPM forces executive management to agree on business strategies and the tactical rules by which strategic performance is measured. This activity is beyond the traditional annual budget plan. Prerequisite CPM process questions that need unambiguous answers from upper management include items such as:
* Who is responsible for various aspects of the bank's strategies?
* What are the internal and external factors that influence performance?
* Who's responsible for loans, investments and production capacity?
* Who's responsible for deposits, funding and capital?
* How visually do strategy maps' resource alignments flow?
* How and to whom are interest margin, fee income, operating expenses, general overhead expenses, and product ownership assigned?
* How will financial and operational risk be measured and who is responsibility for managing its various types and position limits?
* How is operational efficiency and effectiveness measured?
* Who finalizes measurement and responsibility assignment rules?
* What insights for strategy management & monitoring are desired?
* Who finalizes the business model, strategies, targets, KPIs, and assumptions under which units plan and execute strategy?
Not technology vendors!
Carefully crafted business strategies with well understood strategic roles are critical to CPM success. Senior management must actively engage in strategic decision dialogue that determines the resource roles and assignment rules necessary in any performance measurement scheme. This dialogue is often not easy and sometimes can become contentious. Performance targets for every managed unit must be agreed to with appropriate KPIs established. …