Many companies are thinking about Performance Management as a business strategy rather than a tactical business process. As we have spoken to senior executives around the United States, we have found that their perception ranges from doing better with employee evaluations to managing financial data to a company wide focus on managing performance. We have found that functional organizations also have different views. Most companies view “performance management” as a Human Resources project, and as such, relegate performance management to a functional tactic rather than a business strategy. This article will discuss what performance management as a business strategy means and why this effort needs to be led by the senior leadership team and have full support from the Board of Directors. As with any business strategy, there needs to be defined objectives. Performance management as a business strategy needs to be focused on the consistent execution of the company’s strategic objectives. It requires that every stakeholder (employees, contractors and suppliers) is knowledgeable of their role in executing a company’s strategic objectives and accountable to it. There are two compelling data points here:
- John Kaplan, from Harvard, has studied companies around the world and has surmised that only 10% of corporate strategies are effectively implemented.
- John Kotter, from Harvard, did a study indicating that companies with high performance cultures can expect 3-5 times better financial performance than their peers.
Effectively implementing corporate strategy and achieving significantly better financial results are the two most important goals for any senior leadership team and the Board of Directors. “Performance Management” as a business strategy requires a holistic approach throughout the entire company and is done over a period of months and years. It is not a senior leadership project. It is a company wide project that impacts how everyone involved with the company prioritizes the work they do and continuously use strategic objectives as the litmus test for everything they do. There are two primary objectives in performance management as a business strategy:
- Focus every activity throughout the company on the 3-5 strategic objectives in the company’s strategic planning horizon.
- Develop a series of strategies and tactics focused on creating an execution mindset.
For the purposes of this article, we will assume that the company has already created its strategic plan and broken them down into the appropriate strategy elements, major tactics and performance objectives. Consistently achieving your strategic objectives has multiple steps which can be represented by the figure below: Figure 1:
Level 1: identifies the most important starting blocks and the basis from which a performance management strategy will evolve will evolve into a culture of strategic execution. The company’s understanding of their employee’s perspective and its knowledge of customer’s needs and attitudes are the underpinnings of developing tactics that will drive a company’s culture. Vision, Mission, Values and Leadership traits (most companies don’t give guidance to their leaders on how to lead), provide all stakeholders in the company guidance on how to work together and focus their efforts toward achieving the company’s strategic imperatives. Once these have been defined, the company has a higher probability of successfully implementing its strategies. Integration of major strategies such as entering new markets, implementing new systems, acquisitions or mergers are organizational activities that rely on individuals throughout the entire organization to effectively support. By setting goals for everyone (cascading objectives), that focuses their efforts on the strategic imperatives the company can leverage thousands of activities. The company must also implement a company wide system to properly measure performance and provide routine (more than once a year) feedback to everyone on how well they are doing against these objectives. Most companies rely on yearly performance appraisals for this purpose. According to a recent study, yearly performance appraisals are ineffective and universally disliked by employees, managers and CEO’s. The integration of new strategies and acquired businesses requires a well thought through plan and an effective measurement system that gives real time feedback and effective employee engagement on the company’s strategic imperatives.
Level 2: continues the evolution toward a culture of strategic execution by defining “Knowledge Management” strategies for all stakeholders throughout the company. By clearly identifying the strategies for the business and utilizing an effective performance measurements (KPI’s) the company can quickly identify its operational and strategic gaps. Performance management systems such as Cascade and others need to provide leaders throughout the organization with an additional view of who is performing and aligned with the companies strategies, Mission, Vision, Values and Leadership Traits. The figure abovew provides one such example: The three key indicators: strategic gaps, operating gaps and alignment/performance provides a clear path for the Level 2 tactical activities in terms of how stakeholders in the organization need to be supported and prepared to move into level 3 which is completely focused on change management. Level 2 also introduces compensation for performance and succession planning into the mix, accelerating the performance of the entire organization. This approach yields significant productivity results (a great ROI on the company’s investment) and further reinforces the need for everyone in the organization to focus their efforts on the company’s strategic imperatives and organizational quality.
Level 3: introduces “Change Management” into the company’s evolution towards a culture of strategic execution. In its basic form, change management is the process of continuously improving the performance of the company’s organization, business practices and processes, utilizing the business intelligence acquired through Levels 1 and 2 and best practices acquired from other companies. Here, the company wants to continue accelerating performance via well established practices such as Six Sigma, Kaizen, Voice of the Customer, Net Promoter Score, Process Re-engineering, Accelerated Change Processes, etc. Implementation of Step 3 requires company leaders to develop the appropriate skill sets throughout the organization in order to lead and sustain these types of initiatives. Conclusion: Senior leadership teams have developed many disparate strategies and systems for trying to focus their organizations on the company’s strategic imperatives. Usually, new approaches suffer from what I call the “Bang and the Puff” phenomena. The company initiates a new program with a big bang and by the time it gets to the lower levels of the organization (which is compounded by geographic distances), these initiatives end up as a puff and disappear after six months to a year frustrating senior leaders, their Board of Directors and employees. By integrating performance management into one process which is repeatable and sustainable, the big bang can resonate throughout the entire organization and result in a business process that will assure that all new initiatives are integrated with the same level of success. Companies that choose to embark on this journey need to have a well thought through implementation plan and work with experts who can take them through the entire journey. More Reading on Performance Management from Group50®:
- The Performance Management Conundrum
- Morphing Evaluations Into Strategic Execution
- Culture In A Business That Works
- Organizational Alignment: Good News and Bad News
- Over Led and Under Managed
- Learning Maps To Group Your Future Leaders
- Paper Based Evaluation Systems
- The Fifth Stage Of Mergers And Acquisitions
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About the author: Jim Gitney, CEO Group50®. Mr. Gitney has spent his 30+ year career leading organizations in large and small companies such as GE, Black & Decker, Sunbeam, Rain Bird and others. As a result, he has seen many different approaches to performance management and developing high performance cultures. He has worked with healthy or troubled companies with a focus on performance management and the implementation of high performance cultures. Group50® has developed a unique and systematic approach to performance management that takes a company through a process of identifying its core strategic and cultural objectives, cascades them throughout the organization and utilizes a new tool called Cascade that significantly increases employee engagement around a company’s strategic imperatives. For a free assessment and a discussion of how a company can create a high performance culture, you can contact Jim at (909) 949-9083 or via email at firstname.lastname@example.org.
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