IMPROVING PERFORMANCE IS CENTRAL TO SUCCESS

Organizations seeking to drive business performance and lead in their markets must develop a culture of intelligent execution. The act of execution is decision making, and better execution comes from better decision-making abilities. Organizations that can improve these capabilities across their organization will outperform those that don’t.

In the first decade of the twenty-first century, the business landscape is evolving at an unprecedented pace. We find ourselves in an increasingly global economy, facing a steady stream of new competitors, new fields of play, and emerging markets. Customers are continuously offered new products and services, compelling value propositions, and creative business models by the competition. The scope of opportunity and competition are both increasing, as is the scrutiny of the stock markets in assessing performance quarter to quarter. Companies are under constant pressure to do more with less and to deliver better returns than the competition. Public sector organizations face similar constraints as growing populations and increasing needs from the citizenship demand more from constrained budgets. Whether the goal is sustainable growth, entering new markets, or just to operate more efficiently, the key to achievement is in learning how to drive performance throughout an enterprise.

Performance management is a top priority for organizations of all types and sizes. Organizations are learning that you can cut costs only so much or acquire new business only so often. Eventually, the core of business productivity and shareholder value is the organization’s ability to execute more effectively, with each person inside the company.

In order to execute more effectively with what they have, companies must develop capabilities to drive business performance. The ability to effectively manage performance can deliver the percentage points of increased margin, cost savings, customer satisfaction, growth, or market share, which can make the difference in outperforming the competition and increasing their stock price.

Developing performance management capabilities means changing the way people are empowered to make better decisions. It requires a transition from a restrictive, command-and-control approach to a management style that includes more participants in the performance management process. Involving more employees in the management discussion allows them to take greater ownership for their individual contributions, and empowers them to take responsibility for their performance, to be accountable for results, and thus deliver greater impact.

Just as telecommunications and Internet technologies have expanded from the executive suites to become powerful tools utilized across the organization, so have performance management capabilities become tools of competitive advantage across the enterprise. Just as it seems unfathomable for employees to communicate without a phone or for information workers to work without the Internet, so shall it seem unusual for people across the enterprise to be unable to manage their performance and understand their impact and strategic contribution.

ORGANIZATIONAL CHALLENGES

Many organizations are limited in their ability to compete because they lack the requisite capabilities for driving performance. These organizations report the following common symptoms:

• Uninformed and uncertain. Few companies have sufficient visibility into their operations to actually understand the verifiable factors that are impacting the business. As they operate without reliable information, they often propose the wrong solutions to the wrong problems.

• Uncoordinated and underperforming. Acting on gut feel and poor information, organizations disable both their strategies and their ability to execute. They operate in an uncoordinated fashion with multiple theories and missions, and with misaligned actions. Without alignment and accountability, they trip over themselves in the marketplace—with customers, partners, and even within their own teams. Unable to execute in a coordinated fashion, they underutilize their most strategic assets—their people and information.

• Slow and inflexible. Many companies are not effectively monitoring their business performance to know the factors that are impacting the business, and by the time they do recognize problems, they are inflexible and slothful in their response. They are unable to respond to changing conditions rapidly enough to capture opportunities, exploit competitive advantages, and identify and resolve issues that are limiting their ability to compete.

• Unreliable planning and execution. Some organizations are managing performance today by looking in the past. They are driving while looking out their rearview mirrors—on a foggy night, with shades on—because they haven’t developed the capabilities to effectively manage information nor empowered their people to drive organizational performance proactively. Few can reliably make informed decisions on what changes to make to their organization and effectively forecast what the impact will be. When they do forecast, they often lack the confidence that the plan will be executed to deliver the anticipated results.

COMPETITIVE ADVANTAGE

For those who can manage performance, the benefits are tremendous. These organizations recognize distinct competitive advantage. Throughout this book, we cite several stories of exceptional results being realized by organizations which empower people and enable intelligent execution:

• Clalit: The world’s second largest health maintenance organization (HMO) successfully brings information and people together to continue to set the standard for quality of service even as both the community of patients and quantity of competitors increase.

• Energizer Holdings, Inc.: The consumer goods leader’s success is reflected in their stock price, “We’re up over fivefold in the last five years. People have made that happen.”¹ The company has changed its approach to empowering people to make “the majority of the organization’s decisions . . . thousands of day-to-day, week-to-week decisions that ultimately shape results. We recognized an opportunity to create an organization of ‘difference makers.’ ”

• Fortis: Leading European banking and insurance provider places a strong emphasis on a “performance driven culture” including a company-wide aligned and calibrated reward model. The company achieved it’s 5-year net profit goal in less than 3 years² and CEO Jean-Paul Votron was elected as “The Business Leader of the Year” by BusinessWeek in January 2007.³

• Hilton Hotels: Through advanced performance management capabilities and incentive alignment, Hilton continues to win on service. The stock has outperformed the S&P’s hotel, restaurant, and leisure index since 2001, as well as that of the competition. Even as the number of facilities directly managed grew from 60 to over 300 in a single year, it successfully aligned and incented all 80,000 people across the organization to “Go for the Green” and pursue performance “perfection.”

• U.S. Department of Veteran’s Affairs: After receiving low quality of care scores and nearly being shut down by Congress, the VA has transformed itself and received modern accolades including two different Harvard awards for their performance management capabilities: “We’ve completely done a 180-degree change. The VA today is a leader in performance and a model of health care in the United States. It’s an exemplary organization, and that’s directly attributable to the performance management program.”⁴

• Wells Fargo: Wells Fargo has a history of strong performance, beating the S&P 500 for a quarter of a century. It is one of only two financial institutions that is AAA rated. The company’s cultural mantra, “Run it like you own it,” both empowers employees and holds people accountable for results.

• Whole Foods Market: Whole Foods stock price has risen nearly 3,000% since its IPO in 1992 and its same-store sales growth is nearly triple the industry average. It is America’s most profitable food retailer when measured by profit per square foot. The company applies its “Declaration of Interdependence” mission statement to run high performing teams.⁵

WHY WE WROTE THIS BOOK: A UNIQUE APPROACH

We wrote this book to share a framework that enables organizations to drive business performance—to improve their ability to manage their performance and to deliver better organizational results. This book is more than the result of a research project or a set of case study interviews. Our approach to the book has come from our direct experience and work developing solutions to organizational performance management challenges. We’ve heard the problems with managing performance directly from Fortune 500 companies and government organizations—and understand the specific challenges faced by their business managers, analysts, and information technology (IT) departments as they try to implement solutions to help them improve their performance. We’ve discussed the solutions with the usual suspects—the industry analysts who consider how best to approach solutions to performance management problems and the hardware, software, and service providers who are seeking to provide solutions. And every group we’ve worked with and talked to has its own slant on what’s needed to manage performance effectively—each has a piece of the answer.

We captured what we have seen work repeatedly and in this book provide an easily digestible framework which readers can utilize within their own companies. Managing performance is not easy, but we provide specific guidance as to what capabilities organizations need to develop. The model is validated with multiple leading organizations around the world who share their insights on how they have succeeded, and the competitive advantage they are realizing as a result.

Fill the Gap

We also wrote this book to fill a gap in the literature on managing performance. Although many books have been written on performance management, they typically are either too technical to impart business value or too theoretical to provide prescriptive guidance for the reader to take action.

Many business books provide high level statements of value from a few leading organizations, but they lack concrete guidance on how the reader can take action to achieve the same results. These books are compelling to read but not much help in enabling others to try to replicate the success achieved in the case studies. Worse, they can make managing performance seem like a magical or overly complicated endeavor that only a few organizations have miraculously been able to do.

Technical books on performance management have the opposite problem. They are so full of jargon and industry terms that they are inaccessible. Since business leaders rarely read through all the detailed technical descriptions, the ideas are lost before they are adopted.

This book fills the gap.

Get Specific, Make It Actionable

In this book, we seek to ensure that we are specific in describing “how to get it done.” First, we describe the business value delivered by performance management capabilities. Then we provide real-world examples of the competitive advantage organizations are experiencing. Next, we break these capabilities down into guiding themes an organization can follow to develop these capabilities. Then, we demystify performance management by removing much of the confusing jargon. Finally, we share some detailed guidance, including the recommended skills and assets needed for organizations to replicate top performers’ results. Our goal is to provide a simple, actionable framework that any organization can adopt to more effectively manage performance.

We address questions such as:

• “How do I diagnose my organization’s performance management capabilities? How can my organization improve its effectiveness in managing performance?”

• “What does it mean to be able to manage performance—what specifically do I need to be able to do to improve results?”

• “What’s possible—how impactful can this be? How can performance management deliver competitive advantage?”

• “What specific skills and assets does an organization need to develop to manage performance more effectively?”

• “How can our organization increase agility, alignment, and accountability?”

We describe detailed best practices for keeping a finger on the pulse of the organization—tips for creating an aware and aligned organization (how to monitor). We also discuss how to deliver analytic capabilities across the organization so everyone is more informed and making better decisions (how to analyze). We discuss how to extend organizational planning, budgeting, and forecasting processes beyond the office of the CFO (how to plan). We explain how strategy execution can become an integrated exercise across the corporate body—so that the organization is coordinated and, as plans change, change is conducted in alignment across the entire organization. It’s a collaborative and continuous process with dramatically improved results.

THE SIX STAGES OF PERFORMANCE MANAGEMENT VALUE

We describe six stages of performance management value which organizations that develop performance management capabilities can experience:

1. Increase Visibility with data that can be trusted, information that is shared, by execution that is aligned, and by results that are reported. With this visibility,

FIGURE 1 The Six Stages of Performance Management Value

organizations understand what is happening across their organization.

2. Move Beyond Gut Feel to an organization that operates based on facts and validated information. Companies that are dedicated to making data-driven decisions benefit not only from making better decisions across the organization, but also from having a more disciplined culture.

3. Plan for Success with aligned, communicated, and coordinated plans. At this stage, companies can begin to plan, budget, and forecast a desired future state with accuracy and efficiency. Planning becomes a competitive advantage rather than a time-consuming resource drain.

4. Execute on Strategy to capture plans and execute in an aligned fashion to reliably deliver the results which were planned. Companies who can execute strategy have the side benefit of developing accountability, alignment, predictability and trust.

5. Power to Compete: Understand external factors impacting the business, including changing market conditions or competitive strategies, to manage performance in a way that not only makes the company better, but makes the company better than the competition. Some companies can execute the strategy they planned, but this may still not be enough. Companies that have the power to compete take into account external factors to make sure they are not only performing well, but performing better than the competition.

6. Culture of Performance: With highly developed capabilities to monitor, analyze, and plan the business, organizations can create a culture wherein information is a prized asset, aligned execution is the norm, and accountability is inherent in how the company operates. These organizations operate with transparency and predictability, and are readily adaptive to changing conditions.

These six stages of performance management culminate with the Culture of Performance. So in order to develop a Culture of Performance, organizations first experience the preceding five stages of performance management value.

THE THREE CAPABILITIES: MONITOR, ANALYZE, AND PLAN

But how can you get there? In order to experience any of the six stages, organizations must develop three capabilities: Monitor, Analyze, and Plan. These are three muscles that are flexed in varying degrees of strength to deliver the six stages. Given their essential role, most of this book is focused on how organizations can develop these capabilities.

• Monitor: This capability provides the company with the ability to know “what is happening” and “what has happened.”

• Analyze: This capability provides the company with the ability to know “why what is happening is happening.”

• Plan: This capability provides the company with the ability to know “how to model what should happen.”

ABOUT THE READER

Executives

Many readers are executives within their organizations. They have responsibility for groups or teams, profit and loss (P&L), and overall results. They may be accountable to numerous stakeholders—the Board of Directors, shareholders, employees, customers, and partners. The model by which executives affect performance is different from that of other employees. Executives have to work through others to get results. They implement change within an organization through processes, policies, and procedures—frameworks of performance management, which cascade throughout the organization. When asked how the organization is performing, they need to have the facts to explain the team’s performance or to direct inquiries to the appropriate owners. Their interest in managing performance may be to:

• Drive alignment so that strategies are executed and tactics align to the corporate objectives and commitments executives make.

• Ensure accountability: There is a person or group assigned to the success of each objective and when things go awry, they know who is on point for resolving them.

• Increase agility to respond to changing market conditions more quickly to beat the competition.

• Capture and develop best practices to develop more top performers; understand the specific area of focus for a new market to enter; which segments to target for a product or service; know how to increase results under tight regulations, margins, processes, or markets, which make winning all the more difficult.

Often, executives come across management methodologies like the Balanced Scorecard through business articles or books. Perhaps they see or hear about the cool dashboard that “Sam in Operations” has and can point to and show performance within seconds of when he’s asked, or the glossy charts and diagrams (that imply deeper analysis) that other executives are able to show to make their points carry more credibility.

Or perhaps executives are interested in performance management because they read business books like this one, which share the best practices of leading organizations and recognize the advantages this provides them, and wonder: “Is my competitor doing that?” Good question.

Managers

Managers are faced with the difficult task of interpreting organizational strategy to teams to deliver desired results. They are closer to the execution and typically have greater visibility than executives to what is happening with their direct employees, customers, and partners. They are often held accountable for herculean tasks that make more sense in an upper manager’s spreadsheet than in the manager’s actual environment.

Managers are likely to feel they could do a better job for customers if they just had improved access to better information. Internally, it is managers who feel the direct pain of disconnected systems and processes and invalid information. They still have to generate information for executives in a timely manner, even if the data they need to do their jobs is difficult to find.

Many managers are trying to be the agents of change within their organization by introducing new processes and practices to return better results—techniques for better managing performance often top this list. They often hear about methodologies like the Balanced Scorecard in business classes or from colleagues at work. Managers may be interested in reading this book to diagnose their performance management capabilities against best practices. They may be interested in learning about real-world ways they can get better buy-in for their performance improvement initiatives. They may want to understand how they could better align with and serve those above and below them in the corporate hierarchy if they had improved access to better information.

Individual Contributors

Individual contributors are often the face of the organization to customers and partners. They are the bank tellers, salesmen, and customer service or professional service professionals who work directly with customers. When they don’t have an answer or they deliver poor results, the impact is the direct expression of the company brand with the customer. These employees know the actual—rather than implied, philosophical, or hoped for—way in which the company is performing. As we said before, decisions are the act of execution, and individual contributors often make hundreds of tactical decisions throughout the day. Whether they are executing in alignment or against company objectives is often not seen or known until it’s too late and the damage done has become a trend.

Individual contributors are likely reading a book such as this to gain insights on how to serve customers better. They want to know how they can improve their personal performance and amplify their individual contribution. Personal performance improvement means better results and greater impact and, possibly, better prospects for the future as a manager or executive.

Analysts

As many of our readers who are analysts will know firsthand, analysts can be either the heroes or the tragically misunderstood and underutilized people in an organization. Which role they end up playing can correlate with the organization’s information maturity. If the data is a mess and the company has a “run on gut feel” culture, the analyst is typically used only to manufacture supporting evidence or to “pretty up” reports with a few data points. In an organization where information is highly valued, the analyst can be viewed as a strategic asset utilized to deliver valuable analysis and inform better decisions.

In any case, analysts who are following their calling and have an affinity for objective analysis know the value of inquiry (you know who you are). They may be reading this book to find evidence to share with their organization, such as information to help explain the importance of having reliable data, the role of advanced analytic tools, or examples of the strategic role analysts can play within an organization. They may also read a book such as this one to pick up on best practices, which are sprinkled throughout to make sure they are easy to find.

Information Technology Pros

IT professionals have challenging roles in the performance management space. When the executive sees the scorecard and when the analyst sees advanced visualization tools they turn to the IT professional and say, “Can you get me one of those?” What IT professionals recognize is that “one of those” depends on many, many things relating to data quality, budget, resources, and time frame.

Many organizations have already tackled the data warehousing issue of getting the data right. The average enterprise has between 6 and 10 BI systems, and data warehousing has been a key initial step toward delivering better support for decision making. As such, many IT professionals have already been through some BI work as their organization began its BI journey with getting its data integrated. Readers who are in IT may be reading this book to keep up to speed with meeting demands from internal customers as they move from data integration to information management and technologies like scorecards, dashboards, analytics, and planning.

HOW THIS BOOK IS ORGANIZED

The book is structured to present performance management concepts in a logical progression so the reader can understand how the concepts relate to each other and how to implement them within their own organization.

There are three key messages in this book:

1. People drive performance—enabling more people across the enterprise can increase competitive advantage.

2. There are 3 capabilities to effectively manage performance: Monitor, Analyze and Plan.

3. Organization’s with these capabilities can experience Six Stages of Performance Management Value.

Chapter 1: The Six Stages of Performance Management

Chapter 1 provides a foundation for the book by orienting the reader to the topic at hand: driving business performance. In this chapter, we discuss why organizations are interested in managing performance. We also note the role of executive commitment to improve performance as well as the importance of intelligent execution over strategy alone. Finally, we introduce the six stages of performance management value.

Chapter 2: Managing Performance

In Chapter 2, we discuss the types of decisions individuals make across an organization to execute their jobs, which collectively comprise the organization’s overall performance. We share a philosophy of the three types of trust that need to be developed within an organization to make these decisions most impactful. Finally, we describe the three key capabilities organizations need to develop to drive business performance—monitoring, analyzing, and planning—and how these deliver the six stages of performance management value.

Chapter 3: Monitor

In Chapters 3, 4, and 5, we describe each capability—Monitor, Analyze, and Plan—in more detail. We discuss the guiding principles for each capability and detail the specific skills and assets that organizations need to develop to attain each respective capability. In Chapter 3, we discuss the need for organizations to guarantee consistency of both data and information, and how to drive accountability and ensure alignment. This includes a detailed review of how Key Performance Indicators (KPIs), scorecards, dashboards, and strategy maps are used to monitor performance. Finally, we provide a means for organizations to assess their monitoring capabilities, as well as guidance for how to improve results.

Chapter 4: Analyze

In Chapter 4, we discuss how organizations can analyze and understand information to improve their performance. We discuss the need to make information visual to more readily inform people. We also discuss the importance of the data being presented in an intuitive environment, thus enabling individuals to easily interact with the information. The ability to assess analytic capabilities, as well as suggestions for improving these capabilities, is also provided.

Chapter 5: Plan

Chapter 5 introduces the reader to the concept of modeling performance—to predicting the future and hypothesizing results in order to make more compelling plans and forecasts. The essential roles planning, budgeting, and forecasting play in managing performance are described in detail. Organizations are also invited to diagnose their planning capabilities, and prescriptive guidance is also provided to help improve results.

Chapter 6: Pull It All Together: What’s Your Organization’s Stage?

The conclusion relates the capabilities back to the six stages of performance management value. Following the three capability chapters—Chapter 3, Monitor; Chapter 4, Analyze; and Chapter 5, Plan—the conclusion provides a framework for assessing where your organization stands today based on the strength of your performance management capabilities (as measured in the Monitor, Analyze, and Plan chapters).

It is our hope that all readers of this book come away with a richer understanding of how they can go about improving performance in their own organizations. The ability to “work smarter” will be a key attribute to future successful companies. We hope this book provides the vision as well as critical guidance in reaching your goals.

NOTES

1 Discussion with Randy Benz, Energizer, September 2007.

2 Jean Paul Votron (Brussels, Investor Day March 2007) http://www.fortis.com/shareholders/media/pdf/Annual_Results_2006_Presentation_CEO.pdf.

3 Leaders of Europe’s BW50 http://images.businessweek.com/ss/05/06/0526eubw50/6.htm.

4 Discussion with Jack Bates, U.S. Department of Veterans Affairs, December 2007.

5 Gary Hamel, The Future of Management (Boston, MA: Harvard Business School Press, 2007).

Acknowledgements

To Bob Kaplan & Dave Norton we extend our deep appreciation for their thoughtful Foreword, as well as their inspirational and groundbreaking work. Your contribution to the discipline of managing performance is unparalleled and we couldn’t have wished to work with anyone more qualified or for whom we have so much respect. Thank you!

A special thanks goes to our colleagues and friends Elaine Andersen, Steve Hoberecht, and Tim Kashani. Your deep knowledge and talent was a significant contribution to this book.

We’d like to also thank those who helped ensure that what we were writing made sense. We were fortunate to have a host of reviewers to keep us on track and provide valuable feedback.

We were very fortunate to work with a wonderful editor and friend, Tim Burgard. Thanks for keeping us on track with such patience, kindness and support. We loved working with you and look forward to our continued collaboration.

Our heartfelt thanks go to Bob Fitts, Sr., Bob Fitts, Jr. and John Fitts, for the time, detailed review, and direct and unsaturated critique you provided. We certainly appreciated getting feedback from people who have served in the same roles as many of our readers (CEO, COO, Director/analyst, respectively), who we trust and who we could bother for urgent, lengthy, and untimely reviews. Without your help, we would not have been able to meet our tight timeframe, and even if we had, the resulting book would certainly not have been as high a quality of work. We would also like to thank Karl Ortner and Shelby Goerlitz for their reviews and feedback.

The book would not have been possible without the close collaboration and open dialogue we shared with a number of leaders across different companies, universities and government organizations. You will find their comments throughout the book or interviews on the book web-sites, and we offer them our sincere gratitude here:

Paul Adams, Bill Baker, Steve Ballmer, Jack Bates, Randy Benz, Thomas Beyer, Scott Brennan, Chris Caren, Michael Contrada, Christophe Couturier, Alan Crowther, Tom Davenport, Howard Dresner, Wayne Eckerson, Allen Emerick, Dave Evans, Scott Farr, Laura Gibbons, Jean-François Gigot, Cary Greene, Ulf Hilton, Jeremy Hope, Andy Hough, Rob Howie Roger Killick, Peter Klein, Chris Liddell, Santosh Mohanty, Walter McFarland, Mazal Tucher, Randy Russell, Eddie Short, Ron Van Zanten, Peter Ward, Stephen Waters, Jens Wittkopf, David White.

The Six Stages of Performance Management

Give employees a large dose of discretion; provide them with the information they need to make wise decisions; and then hold them accountable for results.

—Gary Hamel, The Future of Management

WHY MANAGE PERFORMANCE?

Why do companies need to manage performance? For most organizations, it is crystal clear that they better figure out how to perform better if they want to better serve their customers, stay ahead of the competition, and meet shareholder demands.

Drivers for Performance Improvement

What are the catalysts for managing performance? Organizations often embark on a performance improvement initiative within one of the following scenarios:

• Leadership change. Often, performance improvement initiatives begin with a change in leadership. In case study after case study example in this book, this is a recurring theme—Energizer, Expedia, Fortis, Millipore, the Veteran’s Administration—all had new leaders come in with performance management as a priority. When a new leader takes over a division, business unit, or company, they have a green light to be bold in suggesting a performance improvement initiative. The authority and timing is right with a leadership change for performance optimization.

• Executive request—“top down.” Executives sometimes discover performance benefits achieved by other organizations and want to follow their path with a performance initiative within their own company or group.

We refer to this scenario as “scorecard envy,” when an executive sees the performance management capabilities other executives (inside or outside the company) have and wants these as well.

• Management best practice—“bottom-up.” This scenario is often the result of a zealous and persistent manager’s pioneering performance management results within a team or group, which get discovered and eventually are taken on to be institutionalized across the organization. As we shall see, this “internal guerilla marketing” as Laura Gibbons of Expedia refers to it, is necessary to get buy-in for performance management systems and processes even when executive support is present.

• Industry/sector awareness. In some industries, the management practices and systems are very consistent from company to company. When performance management becomes instantiated within a few of these organizations it is not uncommon for others in the industry to follow suit.

The public sector is a great example of this. Once a few government organizations adopt performance management practices, it soon proliferates across other segments of government.

There’s really a domino effect across the U.S. federal government for performance management adoption. Once the Balanced Scorecard was first adopted in the Army and the Department of Defense, it spread like wild fire.¹

• Information technology (IT) driven: Sometimes the work of IT can help drive the proliferation of tools and applications, which start to effect broad change in how performance is managed. In these scenarios, the organization may view IT as strategic and take guidance on how technologies can improve performance thus having the initiative driven by IT. As IT shares technology capabilities without a business mandate, the “toys” are distributed and then the people discover how to play. This may result in a champion ultimately developing a best practice that bubbles up, and a more formal performance improvement initiative is started. This is not a common scenario, however, as at some point the push must come from the top down. Executive support is necessary for the performance management initiative to become a standard process or practice—to move from an initiative to the way the company does things across the enterprise.

• Regulations and public reporting: Regulations can also drive attention to performance management. Many public sector organizations are required to report performance against public metrics, such as the UN’s Millennium goals (as we shall discuss in the example of the Development Bank of Southern Africa). Public service organizations are often required to report their impact as well on metrics related to education, health, or safety.

In the private sector, compliance with financial reporting regulations such as Sarbanes Oxley and Basel II drive a focus on performance management. When the consequences are jail time for executives or fines if the organization is found to be out of compliance, it’s no wonder regulations are significant drivers for a more disciplined and transparent management approach.

These scenarios are typical catalysts for performance improvement. In addition to these structural drivers, there are also common business scenarios that compel organizations to better manage performance.

It should also be noted that performance management initiatives do not only occur when times are bad. Clearly, when performance is poor, the interest in performance improvement is increased. However, as professor and author Tom Davenport explains, you shouldn’t just manage performance when things are bad.

Motivation may be lower then (when things are going well), but when things do go bad, you need to know very quickly what the relationships are. So if you see that you are starting to have a problem with employee engagement, for example, you know from previous analysis that this is going to really affect your financial performance if you don’t do something about it very quickly. Or maybe you know there is a one year lag, so if we start with a customer royalty problem, it’s not going to affect this year’s performance but it is going to affect next year’s performance. You have to establish that under good times so you can address it quickly during bad.²

Good or Bad—You’re Making Decisions Today

The question really is not whether an organization will take steps to manage performance; it’s just a question of how serious they take performance and how well they’ll do it. Even without a formal performance management strategy and systems in place, organizations have some method, process, or habits they’ve developed to manage performance. Whether this is simply done via informal, status-update conversations, bonus-pay incentives, or a formal management-by-objectives method, these are all approaches to managing performance—it’s just the degree to which they are effective that varies.

So, when asked why performance management matters, we often ask in reply, “Why manage anything?”

Let’s start with a local business example for familiarity. Suppose you run a retail store and you are interested in making more money to grow your business, pay your people more, or maybe just so you can take a nice family vacation. How will you decide what promotion you are going to run to increase income for your store? This decision could be the difference between success and failure in achieving any of the above objectives.

Viewed differently, which organization would you rather have stock in—the retailer who makes up a promotion in 30 days’ time without any data to support the decision and hopes to get lucky? Or the retailer who, also within 30 days’ time, (1) segments the local retail market; (2) determines a targeted audience based on local retail market demographics, customer needs, and buying patterns; and (3) offers a promotion on merchandise of top buying interest to this community while also raising prices to increase profit margin on accessories and impulse merchandise? The answer seems obvious.

To believe in the benefits of performance management we assume a belief in the value of data driven decision making, a belief that well informed decisions typically yield better results than uninformed decisions. Thankfully, recent research indicates that “84% of senior executives believe high performing businesses make decisions based on evidence and facts rather than gut feel.”³

Organizations choose to manage performance for the same reason that organizations choose to have management structures—to provide a disciplined approach and accountability for running the business more effectively. The role of management is to align team efforts with corporate objectives and to be accountable for driving results of the team. Individual contributors are also responsible for individual results and utilize performance management systems to manage and report on this contribution as well. Across the entire enterprise, performance management, as with management itself, exists to help drive strategy execution, accountability, and performance.

Strategy Execution Is a Top Priority

The need and desire to improve performance is as clear as the competition’s logo, your own company’s ticker symbol or your last lost customer. The key reason why most companies around the world care about performance management is because they want to better execute their strategy.

Indeed, strategy execution is top of mind for global enterprises. In a recent study, the Conference Board asked 658 CEOs from multinational companies to prioritize their most pressing management challenges. “Consistent execution of strategy by top management” ranked first for organizations with revenues greater than $5 billion, and second for smaller organizations (behind “Sustained and steady top line growth”).⁴ Companies of all sizes seek to realize the benefits of their strategies through better strategy formulation, communication, and, ultimately, execution.

Executing on Strategy Is More Important than the Strategy Itself

It is often believed that it’s pure, genius strategy that wins the day. Many assume, “It’s the strategy that sets apart the envied market leader. Winning organizations must have great ideas and a novel approach that allows them to blaze a path to glory.”

However, we’ve learned that success hinges more on execution than a prize-winning strategy. Strategies hold potential, but delivering on the potential and contributing to organizational objectives depend on intelligent execution. While at first a controversial view, it is now more accepted to argue for tactical execution over high-level strategy alone. Before we review some of the research, following are some quotes that underscore the “execution” component of “strategy execution”:

You can’t build a reputation on what you are going to do.

Henry Ford

However beautiful the strategy, you should occasionally look at the results.

Winston Churchill

I saw that leaders placed too much emphasis on what some call high-level strategy, on intellectualizing and philosophizing, and not enough on implementation. People would agree on a project or initiative, and then nothing would come of it.

Larry Bossidy and Ram Charan,
Execution: The Discipline of Getting
Things Done

Flawed decisions well implemented will bring more to the bottom line than the best decision that is not implemented.

Peter Schutz, former CEO, Porsche

Perhaps Mae West put it best of all, “An ounce of performance is worth pounds of promises.”

You’d Better Execute Better—Research Backs It Up

Fortune estimates that about 70% of companies can’t execute on strategy and that only 10% of organizations actually attain their strategic objectives. In the public sector, research by Barron’s indicates that out of nearly 800 federal programs studied only 15% achieved their goals.⁵