As organizations embrace the full vision of performance management - not just the narrow financial definition of better budgeting, planning and control - they frequently ask, "Where should we start?" Some may be eager to begin with a balanced scorecard, others by measuring channel and customer profitability. Still others want to take it to the limit by redesigning their core business processes.
In fact, there is no one-size-fits-all answer. It depends on which of the performance management methodologies provides the fastest significant return and gets the employee buy-in ball rolling.
Performance management is not new. Organizations have been doing it for years, arguably even before computers arrived on the scene. But the traditional version of performance management involved an implicit management strategy that was followed up by measurements of customer service, sales and order-fulfillment functions. It did not seek to integrate the varied components of performance management or to develop proactive core processes. Today, organizations realize they must integrate methodologies and their supporting systems, visually display measurements and apply predictive analytics to all their processes. This is the new version of performance management.
As organizations realize that performance management is really much more about improving performance rather than just controlling and managing it, they begin asking, "Where do we begin to take what we already do to a much higher level?"
Performance Management is About Integration and Speed
An organization attains the full vision of performance management when executive leaders have communicated their strategy to their managers and employees in a speedy manner and are committed to providing continuous updates to their plans. This allows everyone to act in sync and without wasted effort. Speed matters in communications. Performance suffers when managers and employees must react repeatedly to unexpected changes. To realize maximum benefits, all of the methodologies (such as strategy mapping, customer relationship management, Six Sigma, lean management and anticipatory capacity resource planning) must be robust, seamlessly integrated and in sync. Because some organizations already have several of these methodologies in place but not necessarily connected, the "where to get started" question depends on key factors related to the organization's current situation.
For example, if a reasonably sound, activity-based accounting system already provides information on which specific combinations of products, services, channels and customers earn or lose profit, executives may want to focus next on successful execution of their strategy by applying a strategy map and its associated balanced scorecard. Failure to execute a well-formulated strategy is a major frustration that frequently prompts executives to pursue performance management. On the other hand, if the executive team is receiving cost information that is inaccurate because of distorting indirect cost allocations or is incomplete - for example, the team is receiving only product- or service-line profit reporting but not full-channel and customer-segment reporting - executives may want to upgrade their management accounting system by applying activity-based principles.
Again, determining where to start on integrating a performance management framework depends on the organization's weaker links.
Any approach to performance management begins with the attitudes of senior leaders. If they launch into performance management with a Darth Vader attitude - seeking underperformers to expose and cut off their air supply - the progress will slow. Employees will experience fear. Performance management is not about punishment but remedy; however, it does involve a great deal of accountability from individuals for achieving desired results. Wise leaders see their role as setting direction and continuous redirection, clearly communicating their ideas, and empowering their managers and employee teams to determine the best methods for moving the organization forward in the direction communicated by its leaders.
Assuming an Enlightened Leadership Team, Then What?
Organizations will not make speedy progress by focusing exclusively on one methodology, such as better forecasting, and taking a year or longer to implement those improvements. Competitors will beat you, or customers' expectations will outpace you. Multiple methodology improvements should take place simultaneously. An increasingly accepted best practice for such improvements is to apply the "plan, do, check, act" (PDCA) cycle. Start with rapid prototyping, followed by iterative remodeling for all of the relevant methodologies. Nay-sayers will argue that the organization can handle only a few projects at a time, but they underestimate the capabilities of people to work together when they are being guided by leaders, not just managers.
With rapid prototyping techniques, an organization makes mistakes early and often, not later when it is more costly to make corrective changes. This do-it-quick approach accelerates learning and brings fast results that gain buy-in from employees who are naturally resistant to change. Resistance to change is human nature. Iterative remodeling continues to scale and expand each of the prototyped methodologies to become repeatable and reliable production systems. Performance management is like gear-teethed cogs in a machine: the more closely linked and better meshed the methodologies are during implementation, the faster the organization moves forward. It helps organizations gain better traction and faster speed - in the right direction. Software technologies are very relevant, but their purpose is to support all of the methodologies. They are enablers, not solutions.
Embrace Uncertainty with Predictive Analytics
Gradually, managers and employee teams will see and understand the big picture, including how all of the methodologies fit together. Those in commercial organizations will realize that creating higher profits and increasing shareholder wealth is not a goal but a result. For those organizations, the true independent variable is finely managing the innovation-based R&D and marketing spending to focus on the types of customers to retain, grow, acquire and win back - as well as those types of customers to avoid wasting money on. Leaders in public-sector government organizations may view funding as a scarce commodity; therefore, they have a need to maximize outcomes by increasing output or improving service delivery without additional resources.
Executives are constantly on a quest for the next breakthrough in managerial innovation. My suggestion is to start by integrating and enhancing existing methodologies that have proved their worth. It is likely that the organization is implementing most of these at some level of competence. However, integration deficiencies may exist in some areas, leading to time lags that cause excessive and costly reactions.
Successful organizations adapt by performing much deeper analysis, such as better and more granular customer segmentation, helping to provide insight into all of the elements being managed. This is called leveraging business intelligence. These leaders integrate their methodologies and supporting systems for better decision-making. Their next major task is to get in front of the wave, using predictive analytics to mitigate risk by making changes before the effects can occur. Predictive analytics may well be the next major competitive differentiator, separating successful from mediocre or failing organizations. The uncertainty of future demands or events should not be viewed as a curse, but rather embraced as something organizations can tame with the powerful and proven probabilistic tools that already exist.
Start now - everywhere. Most organizations overplan and underexecute. For organizations that have experienced recent upheaval, now is the time to regain some order. With a nurturing attitude from executive leaders who act more like coaches than bosses, and with accelerated learning by managers and employee teams, organizations can move forward to complete the full vision of performance management.
About Gary Cokins
Gary Cokins is a strategist for SAS, a market leader in data management, business intelligence and analytical software. He is an internationally recognized expert, speaker and author on advanced cost management and performance improvement systems. He is the author of five books, An ABC Manager's Primer, Activity-Based Cost Management: Making It Work, Activity-Based Cost Management: An Executive's Guide (Wiley), Activity-Based Cost Management in Government and his latest work, Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (Wiley). You can contact him at email@example.comThis article originally appeared in the DM Review and is republished here with the permission of the author.