One of the hottest information technology topics this year is enterprise performance management. However, every industry pundit seems to have a different definition of what performance management really is. I would like to join the fray and provide you with a framework for the performance management process.
Performance management is an enterprise-wide management program that provides a structured approach for deploying a company's strategy in a consistent and continuous manner. It gives an organization the capability to effectively communicate strategy and ensure that business processes are aligned to support the deployment of that strategy.
Performance management helps organizations answer the following questions:
How can we most effectively communicate and deploy our strategy?
How can our business processes best be aligned to achieve the strategy?
How do we know we are incenting the right behavior to focus employees on the achievement of the strategy? How can we drive accountability for business performance throughout the organization?
How can we optimize information and reporting to improve our ability to manage business performance?
How do we know we are making the desired progress toward our strategic objectives and increasing value to our stockholders?
How important is it to your organization to have a sound performance management strategy and enable your business people to answer these questions? An American Management Association survey of 203 companies ranging in size from $27 million to $50 billion indicated that "measurement-managed" companies consistently outperform their peers.
Figure 1 illustrates how organizations with effective performance management initiatives outperform their competitors without such initiatives.
Figure 1: Organizations with Effective Performance Management Outperform Their Competitors without Such Initiatives1
The performance management process is comprised of five steps:
Strategy Development and Linkage: Depicts what the company wants to achieve in order to meet stakeholder needs.
Target Setting: The vital few measures key performance indicators (KPIs) required to set the direction for the deployment of strategy.
Planning and Execution: Plans that are developed and executed to achieve the targets.
Monitoring and Evaluation: The evaluation of actual performance results against the KPI targets. Corrective action is taken where required.
Rewards and Coaching: Behavior that is aligned with desired results is rewarded while behavior that is in conflict with the achievement of the goals is realigned.
The first step, strategy development and linkage, is about defining what the organization wants to achieve setting goals and objectives and developing a plan to get there. There should also be clear linkage of the strategy to the key drivers of value in the business. Value- driver analysis also provides the means to ensure that the measures and targets that are developed at any level of the organization are aligned with the strategy.
The second step, target setting, involves defining key performance indicators, which are measures of performance developed to monitor the progress toward the achievement of strategy and the ultimate creation of value. Then, use the defined KPIs as the primary means for communicating business results across an organization. Finally, set both short and long-term targets for KPIs to ensure focus on continuous, as well as breakthrough, improvement.
The third step, planning and execution, enables the organization to reach the KPI targets. Begin by establishing performance plans that specifically achieve KPI targets. These plans drive the resource management and budgeting process. Use the performance plans to help prioritize existing and future initiatives such as implementation of technology, optimization of resources and alignment of business processes. The effectiveness of the performance plans will dictate how quickly KPI targets are reached.
The fourth step, monitoring and evaluation, consists of continuous reporting and feedback of performance results against targets. This process monitors the effectiveness of performance plans and the ultimate creation of value. It also institutionalizes the performance management program as the primary means of dialogue for discussing business results.
The fifth step, rewards and coaching, encourages desired behavior that achieves performance results. To achieve desired results, reward and coach behavior that is aligned with the achievement of performance targets. Actions that are not aligned with the optimization of performance results are realigned. The reward and coach process is one of the key enablers that drive responsibility and accountability in the organization thus promoting a performance-centered culture.
What does following this framework net your organization? First, it clearly articulates strategic goals to support performance planning and budgeting. It also establishes accountability for business performance throughout the organization. It focuses management attention on matters of strategic importance, and it incents desired behavior across the organization. Finally, it creates a common language to measure and communicate business performance, and enables measurement of strategic performance results on a regular and timely basis. That's not a bad way to spend those precious, all-too- scarce budget dollars.
All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions are those of the author and do not necessarily represent the views and opinions of BearingPoint, Inc.
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