Reaching New Levels of Performance. In the current economy, one expects resources to be managed with increasing care and investments to generate clear returns. No reason those expectations should not remain as we enter a more interconnected economy. The challenge lies in measuring performance to realize increasingly impressive levels of profitability and growth. Fortunately, we are seeing important advances in this regard.

In the front office, we’ve seen an evolution. Twenty years ago, companies became ever more focused on achieving high customer satisfaction levels. Ten years ago, we placed more and more attention on customer loyalty – realizing that it was not enough to satisfy a customer if that customer would ultimately defect to a competitor. More recently, companies have realized that a customer must not only be loyal, but profitable as well. Instead of merely measuring organizational profitability, they are taking profitability measures down to the level of the individual client. This enables companies to differentiate their customers based on profitability and potential, ensuring that their best customers are managed with appropriate levels of care and attention.

Companies have also begun to think differently about the promises they make. In conventional terms, supply chain planners have thought in terms of Available-to-Promise (ATP), which revolves around whether customer needs can be met with one’s own existing inventories, and Capable-to-Promise (CTP), which is based on an assessment of production capacity, scheduling and the availability of supplier stocks. Now, companies are beginning to think in terms of a new metric, Profitable-to-Promise (PTP). They have launched projects and initiatives to better determine the profitability of their customer promises. As Steve Baker, director of research for the ARC Advisory Group, explains, “The question should not be ‘can we meet the customer’s requirements?’ But rather, ‘should we?’ How profitable is this customer? How profitable will this order be?”

These are the measures that matter. These are the performance metrics that allow companies to determine whether they are investing their limited resources in the most productive way possible. They allow them to perform critical analysis – often determining how the ubiquitous 80/20 rule applies. Which 20% of our customers account for 80% of our profit and opportunity? Which 20% of our supplier base is generating 80% of our related gains in profitability?

As companies invest in new business intelligence capabilities that enable them to make these types of strategic and operational assessments, they are discovering the interdependence of the front office and the back office, the demand chain and the supply chain, internal operations and external relationships. By analyzing the value of these interconnections, companies are able to strengthen customer relationships, extend organizational capabilities and enhance performance in profoundly new ways.

But the objective of new performance management solutions is not merely to create better plans and projections. In fact, companies are increasingly moving beyond static planning to focus on agility and responsiveness. “In the real-time world, companies must anticipate and adapt, detect early warning signals and seize emerging opportunities,” says Stowe Boyd, a Corante contributor and prominent expert on real-time business strategies and managing director of A Working Model. “They must act with immediacy and intelligence.”

The truly interconnected company will be a highly differentiated and profitable one. It will understand the new dynamics of the era – and capitalize on them to great effect.