International Journal of Productivity and Performance Management

A framework for business analytics in performance management

Marten Schläfke, Riccardo Silvi, Klaus Möller,
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IJPPM REFLECTIVE PRACTICE

62,1
A framework for business
analytics in performance
110 management
Marten Schläfke
Chair of Controlling/Performance Management, University of St. Gallen,
St. Gallen, Switzerland
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Riccardo Silvi
Faculty of Economics, University of Bologna, Forli, Italy, and
Klaus Möller
Chair of Controlling/Performance Management, University of St. Gallen,
St. Gallen, Swizterland

Abstract
Purpose – Increased business competition requires even more rapid and sophisticated information
and data analysis. These requirements challenge performance management to effectively support the
decision making process. Business analytics is an emerging field that can potentially extend the
domain of performance management to provide an improved understanding of business dynamics and
lead to a better decision making. The purpose of this positional paper is to introduce performance
management analytics as a potential extension of performance management research and practice.
The paper clarifies the possible application areas of business analytics and their advantages within
the context of performance management.
Design/methodology/approach – The paper employs a literature based analysis and from this a
conceptual argument is established. Finally, a business analytical model is presented to be used to
undertake future research.
Findings – The paper clarifies the possible application areas of business analytics and their
advantages within the context of organizational performance management.
Originality/value – The main implication is that the paper provides evidence of the use of business
analytics for understanding organizational performance. Several insights are provided for
management accounting research and education.
Keywords Business analytics, Performance management systems, Performance measurement,
Management control systems, Performance management, Decision making
Paper type Conceptual paper

International Journal of Productivity
and Performance Management
Vol. 62 No. 1, 2013
pp. 110-122
r Emerald Group Publishing Limited
1741-0401
DOI 10.1108/17410401311285327
1. Introduction
In recent years, companies have been developing more sophisticated performance
management systems (PMSs) to support decision makers with relevant information.
These systems are used to capture and evaluate performance data and to identify key
success factors within an organization. A PSM is therefore commonly used to illustrate
an organization’s essential means and ends (Bourne et al., 2002; Garengo et al., 2005;
Broadbent and Laughlin, 2009).
Performance management has expanded its view; rather than just looking at
financial performance drivers, it now includes non-financial performance drivers as
well. The effects and impacts of the new and innovative non-financial metrics and
approaches that have been added to the set of tools are still being studied. Noticeable
 progress has therefore been made in the field of PMSs – not only with the balanced Analytics in
scorecard approach – but also in the development of other tools, techniques, and performance
academic contributions.
Many companies and markets operate in a highly competitive environment and management
acknowledge that their competitive advantages are no longer sustainable. Therefore,
new sources of competitive advantage are created, while others rapidly erode
(D’Aveni, 1994). Novel business opportunities, timing, and know-how, as well as the 111
need to provide fast and effective service, require more sophisticated and analytical
decision-making tools at both the operational and strategic levels. The challenge
for performance management is to supplement this area with useful tools.
However, sometimes these tools – and the skills needed to execute them – lie outside
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the domain of traditional PMSs. The last years’ considerable business analytics
developments have provided performance management with promising instruments
for dealing with current challenges such as mathematics, statistics, econometrics, IT,
and tools for data gathering and analysis. If these approaches are included in PMSs,
they provide new insights into business dynamics and their related performance that
can be explored and exploited, which might in turn result in increased management
effectiveness.
In this paper, we introduce performance management analytics (PMAs) as the
extensive use of data and analytical methods to understand relevant business
dynamics, to effectively control key performance drivers, and to actively increase
organizational performance. As a consequence of increased competition, PMA can
be a potential success factor of PMSs’ use and design in the future. Conventional
PMSs focus their attention on controlling strategy execution, while they are less
interested in understanding business dynamics for strategy formulation and decision
making. PMA might provide a possible explanation for the missing link between
highly sophisticated PMSs (from a technical or instrumental view) and their effective
implementation. So far, the relationship between the distribution of such systems and
organizational success is inconclusive (Micheli and Manzoni, 2010). Our aim is to
contribute to the debate on the reasons for these systems still not being widely
implemented, for their effectiveness being regarded as controversial, and for them
continuing “to disappoint their advocates” (Innes et al., 2000). Furthermore, in the
context of performance management, we propose a framework for business analytics
that merges the theoretically derived and practically elaborated challenges in order to
produce an appropriate and useful design for implementation in research and practice.
In addition, we try to reveal where business analytics could be helpful within PMSs
and formulate recommendations on how to integrate business analytics into
companies’ PMSs.
We start by emphasizing the need for PMAs by providing a few examples
(Section 2). In Section 3, we define PMAs and discuss the context of performance
management in Section 4. In Section 5, we base PMAs in performance management
research and provide a possible framework for analytical performance management.
Thereafter, we discuss the value added of PMAs (Section 6), and provide some ideas for
future research (Section 7).

2. The need for a more analytical performance management

The following three anecdotes are part of an on-going preliminary exploratory survey
of performance management effectiveness and business analytics’ use and potential.
 IJPPM At this point, they underline our motivation for doing research on PMAs and point
62,1 out the practical relevance for decision makers:
“In our business [food industry] profitability is very low and is impacted by the way
we set prices. Prices are based on the expected purchasing cost of the raw material
[olives]. [y] If I had a method to predict this cost, the bottom line, and – in turn – the
whole organization, would benefit” (Example 1, Head of Controlling, July 2009).
112 “We often submit quotes to our customers that reflect electronic components’ higher
cost at the time of submission than at the time of production [of digital devices]. It is
not dumping, because this practice is based on the cost of components decreasing over
time. If we could support these cost reduction forecasts with detailed analyses, we
might increase our margins” (Example 2, CFO, May 2010).
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“I would like to have an estimation of the relationship between marketing and

advertising costs, and related revenues in terms of when they are effective, and when
they no longer generate adequate revenues” (Example 3, CEO, November 2007).
The three examples specifically highlight the need for more advanced data
analyses, scenario planning, and even predictive capabilities. In this context, business
analytics are believed to be useful to forecast the dynamics that have an impact on
costs (such as crop yield, quality, weather conditions, and regulation), while a
backward-oriented report on costs and related variances, or a supplier’s cost analysis,
would be less useful. Business analytics could also be of assistance to understand price
dynamics, as well as the already mentioned relationship between marketing
investments and related returns.
These examples might not unveil anything new, but they clearly show that PMSs
should consider the inclusion of analytical tools, especially when data are potentially
available and can be converted into business signals. Decision makers might, however,
need to acquire new skills (e.g. mathematical, statistical, econometrics, and IT) to
develop the ability to use business analytics (IBM, 2010). These skills and abilities
could add value to organizations and to performance management’s role in
organizations.

3. PMAs
Advanced data analysis, scenario planning, and predictive capabilities are a way
to cope with increasing complexity, uncertainty, and volatility. This is supported
by a continuously grown amount of data, which are available for firms (IBM, 2010). As
a result, organizations have started to focus on analytical approaches to deal with
the data.
PMAs could potentially increase PMSs’ effectiveness. Specifically, they claim to
support the selective capturing, control, and communication of tangible and/or
intangible elements in a causality-based coupling of inputs, processes, outputs, and
outcomes. Different methods can be used to identify and verify the mentioned
causal couplings within performance management. Specific examples include
visual maps and performance tree diagrams (Kaplan and Norton, 2004; Lynch and
Cross, 1991). These methods can be qualitative, but they can also be adopted with
a more scientific (analytical) level of design. The analytical approach can potentially
discover new or hidden business dynamics at a strategic or an executional level.
A “scientific” search for these causal couplings and business dynamics is a possible
feature of PMAs.
In general, PMAs could be used in all functional management areas, including R&D,
human resources, and marketing. Hence, as shown in Figure 1, analytics could, for
 example, be categorized as external analytics, supplier analytics, internal analytics, Analytics in
and customer analytics. performance
Demand forecasting, price setting, customer value calculation and prediction,
marketing effectiveness evaluation, as well as monitoring competitors or supply-chain management
management intelligence are examples of business analytics. This list of approaches is
only a selection of the possible areas in which PMAs are believed to be of reasonable
use. At this stage, Figure 1 demonstrates the wide range of aspects with which 113
business analytics could deal.
PMA use multiple sources ranging from “drill down” accounting data (i.e. revenue
and cost breakdowns) to more sophisticated mathematical, statistical, and econometric
methods that can provide insights into the dynamics of performance drivers. A more
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analytical performance management uses business analytics systematically to identify,

use, and prove the quantitative relationships between the context factors, inputs,
processes, outputs, and outcomes. In this way, analytics support business value
creation in the long run. Consequently, analytical performance management deals
exclusively with the deployment of performance analytics and delivers crucial
information to drive decisions and actions within performance management
(Davenport and Harris, 2007). Analytical performance management’s ultimate role is
to effectively support the understanding, exploration, and exploitation of business
dynamics and opportunities. In our view, business analytics could support PMSs
to identify potential strategies and/or to execute them effectively.
In order to effectively use these business analytics, certain requirements need
to be fulfilled first. Effective business analytics underlie many aspects, such as data
availability, IT infrastructure, and related competencies, including business data
analysis skills. An analytical management system’s potential is potent in an
organization that already has an advanced IT infrastructure such as an enterprise
resource planning (ERP) system, an extended ERP, data warehouse, data mining
systems, or customer relationship management.
Nevertheless, the gathering of the required data for business analytics’ effective
use can be a problem for an organization. Some performance drivers are hard to
measure, especially intangible values. Therefore, companies that generate their value
with intangibles might not have as much data as others and are thus not in a position
to start using business analytics right away. Furthermore, business analytics use
past data, which can be very misleading because such data are not always a good
predictor of current and future performance. These potential problems indicate that
business analytics should be the first rather than the last step in the decision-making
process (Davenport et al., 2010).
Analytical approaches that support performance management are always based on
information systems. Hence, PMAs evolve when different areas of expertise merge –
especially management accounting and IT – and are combined with analytical
methods (see Figure 2). Furthermore, there are two different maturity levels, namely

External analytics (competition, economics, technology...)

Figure 1.
Supplier analytics Internal analytics Customer analytics Categories of
business analytics
 IJPPM Effective performance
management analytics
62,1
IT-based (Strategic)
applications Management accounting
applications
114
• Data mining • Cost break down, cost driver analysis
• Textual analysis • Activity-based costing
• Natural language processing • Process modeling
• Classification and regression trees • Life cycle costing
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• Neural network • Total cost of ownership

•… • Target costing
• Balanced scorecard
•…

Analytical methods
(econometric, mathematical, statistical)
• Regression analysis
• Data envelopment analysis
• Structural equation modeling
• Vector autoregressive modeling
• Markov chain-based modeling
Figure 2. •…
Application of PMAs

(see Figure 2): applications that focus on the identification and use of cause-and-effect
relations for performance optimization on a logical level (management accounting
applications); and techniques that combine logical reasoning with more complex and
sophisticated mathematical, statistical, or econometric models (analytical methods).
Effective PMAs occur where the IT-based applications, management accounting
applications, and the analytical methods, intersect.
When used together, data and analysis tools have the potential to provide useful
support for decision making. Decisions based on data and made with the use of
analytical tools are normally better than those made without (Klatt et al., 2011).
Therefore, their obvious advantages and their increasing importance within
performance management make PMAs a subject destined for further empirical research.

4. The performance management context

PMAs could be seen as a refinement of PMSs: different streams of research provide
definitions of the characteristics that constitute a PMS (Bourne et al., 2003; Bititci et al.,
2000; Berry et al., 2009; Broadbent and Laughlin, 2009; Flapper et al., 1996). Strategic
performance management focusses on the link between organizational objectives/
strategy and performance measurement systems (Kaplan and Norton, 2008; Kloot and
Martin, 2000; Chenhall, 2005). A well-known example of a strategic PSM is the
balanced scorecard by Kaplan and Norton (1996, 2004, 2008). The main feature of these
strategic PMSs is that they link strategy to performance measures, as well as to other
 systems, including operations, human resources, performance evaluations, Analytics in
information technologies, customer and supplier networks, and the value chain performance
(Chenhall, 2005). From an organizational perspective, the levers of control framework
by Simons (1995) contributes to an understanding of the role that a PSM could play in management
an organization. Therefore, Simons distinguishes four levers of control: interactive,
diagnostic, belief, and boundary systems. A PSM must not only be designed in an
instrumental and functional way, its use must also be specified explicitly and 115
communicated to the different user groups (Simons, 1995; Tucker et al., 2009). The most
recent approach by Ferreira and Otley describes a comprehensive PSM framework that
outlines the possible key aspects of the performance management process (Ferreira
and Otley, 2009; Berry et al., 2009; O’Grady et al., 2010). According to Ferreira and Otley
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(2009), a comprehensive PMS consists of multiple packages. It should:

. identify and communicate the vision and mission of an organization, and show
how the attention of managers and employees can be focussed on that vision and
mission;
. identify the key success factors and illustrate how they can be brought to the
attention of managers and employees;
. illustrate the organizational structure and uncover how this structure affects
a PMS’s design and use;
. highlight an organization’s strategies and plans and show which processes and
activities are required for their implementation;
. identify and illustrate the key performance measures;
. identify the appropriate performance targets for the key performance measures
and show how they should be chosen;
. identify the already existing performance evaluation processes within an
organization;
. set the rewards for target achievement; and
. illustrate the information flows that can support the performance management
activities.

However, so far, the variety of approaches has produced a lack of consensus regarding
the definition of PMSs (Brudan, 2010; Dumond, 1994). In the field of performance
management, there is also no link to the use of PMAs. Fortunately, the current
suggestion that PMSs should be used, is a good starting point for a systematic
discussion of the potential links to business analytics. Furthermore, many
organizations collect a great deal of data on their performance in different business
areas. This trend is due to the perception in business that you can only manage what
you can measure. It is obvious, however, that businesses do not obtain a competitive
advantage by merely measuring their performances. In a competitive market, they
need to understand business dynamics, value creation, possible opportunities, as well
as potential threats to create competitive advantages. Moreover, companies need to
ensure that the right data are available and that the data quality is good before they try
to find ways to make sense of it in order to transform the data into information that can
effectively support the management and control of performance, and thereby
implement the PMS’s proposed features (Ittner and Larcker, 2003; Taticchi et al., 2010;
 IJPPM Mouritsen, 2004). Therefore, we focus on business analytics that may help build such a
62,1 connection and provide decision makers with additional information.
With regard to the five processes of business performance measurement by Franco-
Santos et al. (2007), the processes that need to be examined in greater detail are data
capturing/analysis and the resulting information management in terms of information
provision, interpretation, and decision making. For this purpose, a performance
116 management framework needs to be developed that acknowledges the challenges that
the new data situation causes and the PMSs’ features that the literature proposes. Such
a framework should therefore capture, elaborate on, and analyze the existing
information, while recognizing the important means and ends within an organization
(Neely et al., 2002; Garengo et al., 2005; Broadbent and Laughlin, 2009). The framework
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should also control and manage the achievement of outcomes. Furthermore, it should
show how performance is measured, and display the links between the different
performance measurement systems and the tools (Lebas, 1995; Sousa et al., 2005;
Andersen et al., 2006). Thus, it should identify the key success factors within an
organization. Feedback and feedforward loops from various levels of the organization
and the impact of the external environment should also be considered in the framework
(Bititci et al., 1997). The theoretical requirements will be used to design a research
framework in the next section.

5. A research framework for business analytics in performance

management
While the distinction between management accounting, IT-based application, and
analytical methods is not new, their effective exploitation is a critical issue. Specifically,
the recognition and selection of analytical methods is a complex task. The data,
performance measures, and analytical objects that have to be framed, as well as how,
when, or where they should be used are relevant matters. Keeping these potential
requirements in mind, we introduce a framework that provides guidelines for the
systematic coupling of all analytical performance management’s elements in a
comprehensive and application-oriented way. This framework could help managers
decide on the kind of analytics they should use when they want to test and map
the causality-based couplings of context factors, inputs, processes, outputs, and
outcomes in order to highlight their value creation. Such an approach could be the
starting point for the standardized use of business analytics. Therefore, this approach
could result in the improvement of performance management, as well as the
application of PMSs.
The multilayer performance management framework in Figure 3 shows what such
a framework might look like. It consists of four layers that comprise the features
needed to overcome performance management’s current challenges with regard to
using analytics: the context contains the internal and external factors that influence
the organization. It also considers the factors which occur in the business model. The
layers are as follows.

Layer A: capture
This layer comprises the capturing of performance drivers in inputs, processes, as well
as in output and outcomes categories. The capturing can be done with the help of
already implemented performance measurement systems or other data sources. The
characteristics of the indicators (e.g. whether they are tangible or intangible) can also
be captured.
 Context Context Layer A: capture Analytics in
performance
management
Layer B: couple
Input Processes Output Outcome

117
Layer C: control
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Figure 3.
Layer D: communicate The multilayer
performance
Context Context management framework

Layer B: couple
This layer comprises the coupling of performance drivers and thus shows their
proposed connections. The coupling can be affected by proposing cause-and-effect
relationships between the different indicators. When proposing cause-and-effect
relationships, time lags also need to be considered. Business analytics can be used to
verify the proposed causal relationships.

Layer C: control
Once the cause-and-effect relationships are known, the crucial levers of control can be
identified. Management actions and the design of management control systems can be
deduced from the information on these causal relations. Since feedback loops are used,
the coupling of the performance drivers has to be revised regularly. Consequently,
organization-wide, continuous learning is stimulated. Feedforward loops can also be
used for planning aspect purposes. Furthermore, scenarios can be tested with what-if
analyses within the layer.

Layer D: communicate
This layer comprises the internal and external communication of the performance
drivers. The control actions and ideas for the reconfiguration of the existing PSM are
passed on.
With regard to the potential performance analytics tasks mentioned in the examples
in Section 2, the framework can be used to position these tasks and to highlight where
the value added by the analytical approach would lie (see Figure 4).
Within the input, process, output, and outcome categories, the actual analytical
task of forecasting raw material prices can be set in relation to an effective pricing
as a possible outcome of acting analytically in the input category. A company can use
the framework to discuss the elements that influence the desired outcome.
Furthermore, the company can automatically see where analytical tools can be
useful in achieving the outcome it wants. The framework creates a standardized way of
discussing causal relationships between performance drivers and gives decision
makers the opportunity to adopt analytics to prove or investigate assumed causal
relationships.
 IJPPM In practice, many causal relationships within organizations are only assumed and
62,1 not proved (Norreklit, 2000). A lack of care concerning the assumption of causal
relationships can lead to PMSs with limited effectiveness and thus not delivering the
anticipated use (Ittner and Larcker, 2003; Davenport and Harris, 2007). Business
analytics claim to fill the gap between assumed but not proven causal relationships by
offering a way to ensure that these really exist and point out that organizations can rely
118 on certain effects.

6. PMAs in a hypercompetitive environment

The increasing relevance of performance analytics is undoubtedly due to the fast-
growing “hypercompetition” effect (D’Aveni, 1994). According to this effect, companies
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more rapidly and increasingly compete to provide lower costs and better quality with
better know-how, and thus affect companies’ “strongholds and deep pockets.”
Therefore, markets rapidly create and erode competitive advantages.
PMAs claim to quickly provide evidence of potential competitive dynamics. These
analytics might signal opportunities and threats, changes in markets and competitors’
behavior, in internal processes, customers, and the supply-chain drivers of profitability.
Another potential feature of business analytics is the identification of key success
factors by revealing causal relationships. Therefore, they could highlight what truly
drives financial performance. As part of PMSs, performance analytics create a basis
for these systems’ effective application. To this end, performance analytics deliver
crucial information by capturing, combining, and analyzing multiple sources of data
(operational, financial, internal, external, qualitative, and quantitative).
Owing to this function as an information generator, performance analytics are
essential for fact-based decision making within PMSs. PMAs could therefore be a tool
to create a competitive advantage within hypercompetition (Davenport et al., 2010;
Silvi et al., 2012).
Moreover, business analytics could create multiple advantages for managers.
They aim to support managers in understanding and structuring the dynamics of
their business, including the disclosure of tacitly assumed interactions, for example,
between the business and economic shifts, as well as disproving subjective
assumptions. Furthermore, they can be used to test the strategy’s impact. Based on
proven assumptions and key environmental impact factors, performance analytics
enable the testing of the strategy’s strength. Consequently, they reveal whether desired
results can be traced back to strategic action, or whether mere random changes can
provide valuable insights into the future strategic orientation. Analytics could create

Input Processes Output Outcome

Case 1 and 2
Case 1 and 2
forecasting of raw
effective pricing
material prices

Figure 4. Case 3 Case 3

Application areas of effects of marketing/ cost effectiveness
business analytics advertising cost
(examples)
 a basis for improving decisions over time. If a manager uses logic and explicit Analytics in
supporting data to make a decision, the decision-making process can be followed and performance
improvement made. Analytics could also be used to objectify decisions by allowing
a more formal reporting in the decision-making process. Currently, this advantage management
does not seem to be fully exploited, since many companies do not even make use
of strategic process reporting. In addition, analytics can leverage efficiency. An
investment in performance analytics in order to analyze critical interfaces or 119
operations can contribute to accelerating the execution of tasks and reduce the risk
of time-consuming mistakes by identifying previous causes of errors. Accordingly,
operative efficiency is improved by cutting costs caused by spending unnecessary
time on poorly managed tasks. Moreover, analytics can help managers see and learn
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from changes. The application of performance analytics can thus improve

management understanding of markets’ and customers’ behavior. Using a longer
timeframe can reveal critical reactions to these targets due to external changes,
legislative amendments, or social trends, which can in turn be used to anticipate
future changes.
Although these advantages are undeniable, the design and the use of an analytical
PSM require a thorough comprehension of the company’s business model, as well as
its performance factors, key success processes, information, data sources, and the
definition/formulation of the algorithms that convert data, transactions, and events
into management actions.
Despite all the potential advantages of using business analytics, the majority of
companies do not as yet use them. The challenges that prevent them from doing
so are manifold. Some managers might not have the skills needed to implement
and understand them. Others rely on their experience and have not as yet faced a
situation that has convinced them that they should do otherwise. But as our
society becomes more digital, it is just a matter of time before the majority of
competitors will be using business analytics. Companies doing pioneering work in this
area might create an important competitive advantage for themselves (Davenport
et al., 2010).

7. Outlook
In this paper, we introduced performance analytics as the understanding and control
of relevant business dynamics through the extensive use of data and analytical
methods. Analytics could provide additional competitive advantages not fully
considered in conventional or advanced PMSs.
We have shown that business analytics could be used to validate causal
relationships within traditional input, process, output, and outcome categories. Instead
of only assuming causal relationships within strategy maps – as is often done –
business analytics can deliver hard facts about the effects of relationships between
different indicators. Existing data on key performance indicators could, therefore,
be brought into the organization’s bigger picture.
Using these advantages is, however, a complex challenge for performance
management. In order to create a basis for the effective application of PMA, PMA need
to relate to key processes’ information needs. In addition, they have to be implemented
at the executional level to empower management effectiveness and efficiency.
Extending the domain of performance management to PMAs might require new
data analysis skills, and could improve management effectiveness. Analytics’ obvious
advantages, like their validation of causal relationships and their increasing
 IJPPM importance within performance management, make them an excellent subject for
62,1 further empirical research into their functionality.
Performance analytics could fill the existing gap between PMSs and their
effective adoption. Therefore, research should focus on the “what, why, how and when”
(Busco et al., 2007) of analytics within PMSs. Specifically, future research should
emphasize the relevance of analytical performance management and its effective
120 application context. In addition, an answer is required to the question whether
analytics could have a positive impact on information quality and decision-making
effectiveness. On an instrumental level, the potential combinations and couplings
between analytical methods and tools should be revealed. If PMAs’ relevance
and effectiveness increase, this will have consequences for teaching and training.
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Specifically, performance management education would have to be redesigned

and integrated into analytical topics. Furthermore, decision makers will require new
IT and analysis skills.

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About the authors

Marten Schläfke is Research Assistant at the Chair of Performance Management at the
University of St. Gallen, Institute of Accounting, Control and Auditing, University of St. Gallen.
Marten Schläfke is the corresponding author and can be contacted at: Marten.Schlaefke@
unisg.ch
Riccardo Silvi is Professor of Management Accounting at the Faculty of Economics at the
University of Bologna, Department of Management, University of Bologna
Klaus Möller holds the Chair of Performance Management and is Director of the Institute
of Accounting, Control and Auditing at the University of St. Gallen as well as Director of
CEPRA – Center for Performance Research and Analytics, Augsburg.

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