I saw an article this morning on “Performance Management” from FinanceOnline, and it brought back some memories.
In the 90’s, I worked for one of the smartest management leaders in business. One of the first things he did when he was installed as our division president was to restructure how we all thought of strategy, and our place within it. He initiated what he called True Performance Management.
Effective performance management systems focus on the development, communication and monitoring of strategy. Tactics will derive directly from the strategic plan and include both financial and non-financial measures. Non-financial measures will typically outnumber the financial ones because financial goals are generally the result of activities, and it’s these activities that need to be planned and monitored. Effective systems are continuous, with each individual process - planning, budgeting, forecasting and reporting - integrated with the others. This enables budgets to be derived from rolling forecasts and compared with actual results in the same system. It allows planning and budgeting to be continuous and transparent, triggered by events rather than dates on the calendar.
His primary tenets were:
Step 1: Secure senior management ‘buy-in’
· Performance management is led by senior management, but executed by employees. Good corporate governance requires that the assets of an organization are used effectively in the interests of shareholders, so mobilizing all employees toward that goal is tantamount.
Step 2: Define the data required to manage performance
· This should be based on measures within the strategic and supporting operational plans, not just accepting whatever data is already available. Typically, this will call for new metrics not currently monitored.
Step 3: Define the processes required to manage performance
· Draw out the processes required to plan, budget, forecast, and monitor this new data. Determine who needs to be involved in each of these tasks and what should be the trigger for each process. Compare these ‘ideal’ management processes with current ‘reality’.
Step 4: Assess current system capabilities
· Review the systems in use to support these processes. Will they support the new measures and treat the revised management processes as a single, continuous process? Do they hold the data required as a single version, available to each process? How much user intervention is required? Can users get easy access in a form they require? Many current systems struggle with meeting these criteria. New solutions have arisen to specifically meet these requirements and interact with existing systems, using the web to provide users with a single point of contact.
Step 5: Highlight current pain points
· Having reviewed current systems, note the ‘pain points’ being experienced and identify the causes. For example, if the budgeting process takes too long, what are the contributing factors? Are budget holders submitting their budgets late or incomplete? Do managers understand the process, or is the system too complex?
Step 6: Set priorities
· Areas that cause the most pain will need to be addressed early. It is important to ‘fix’ the root cause, not just the symptom. Then deliver small incremental changes on a regular basis. Begin by including these measures as a supplementary report until they can be embedded within the processes independently.
Quick wins
Finally, there are some tasks to kick-start performance management with very little effort.
· Publish the strategic plan. Web technology means it’s easy to make available through the organizations intranet. Refer to the plan when users submit forecasts and budgets.
· Get operational managers to submit a tactical plan with both the budget and the forecast that show the cause and effect on how they intend to deliver their own goals.
· Follow up with requests to report on the success of their plans to deliver goals.
Take a close look at the processes supporting your performance management initiatives and make the changes necessary to involve all employees in the process, making certain that they can monitor their progress independently with tools available to them. The more an employee understands his role in the organization’s objective, the more cohesive your team.