Introduction – Strategic Performance Management
Today’s business world requires new approaches towards strategic performance management. The wrong approach will often drive dysfunctional behavior and jeopardize performance. Three key components of this problem are an incomplete picture of the strategy (the strategy trap), the wrong performance measures (the measurement trap), and a wrong management approach towards managing performance (the performance management trap).
Strategic Performance Management helps to clarify the strategic direction
Imagine an organization with people that don’t really understand the strategic goals and the direction of where the organization is heading. The executive team of this organization believes that the noted downturn in performance is in fact caused by this lack of strategic understanding. They believe that they have a quite well-formulated strategy but need to improve its execution. To better align business unit performance and employee’s activities with corporate objectives, the organization decides to initiate a strategic performance management project. Key elements of this are performance measures, which are developed by managers of each business unit. The managers hold brainstorm meetings and create sets of measures based on the existing strategy. The teams are careful to come up with measures for each of the different organizational functions and departments. It was quite easy to produce a set of measures and targets for most areas. These measures with targets are then given to each functional manager and regular performance evaluations are put in place to measure progress against targets. A bonus pool was created for all managers and therefore achieving their targets will result in better pay. Nine months pass by and the regular performance evaluations reveal that alignment had improved. Most measures have moved towards the targeted performance levels and some business units have already met their annual targets. The executive team sees this continuous progress and deems their strategic performance management project as successful. However, when after twelve months the overall performance data is brought together it reveals that organizational performance is down further, even though the measures and targets of the different business units were met. In addition to this some key people within the organization have decided to leave, and the employee and customer surveys revealed sharp deterioration in performance.
What happened here? First of all, this organization didn’t really have a well-formulated strategy; secondly it fell into both the classic measurement trap and performance management trap. The wrong things were being measured, and where the right things were measured the wrong metrics were used. These metrics were then imposed on people who didn’t want to be measured and couldn’t see how these metrics would be useful for them. They were not able to see how the measures were linked to the strategy. This in turn frustrated people immensely and caused dysfunctional behavior. Since people knew that their performance was being judged on their achievements of hitting their performance targets, this is what they concentrated on. The consequence was that it eliminated cross-departmental collaboration as everyone was only interested in their own performance. Performance measurement became a game of providing numbers to someone who would collate them and then prepare reports. People stopped caring about overall strategic objectives and were only interested in what was being measured. Human beings are extremely creative and very quickly devise ways of delivering a good measure result without necessarily delivering good performance – especially if they believe that the measures are not really providing them with any interesting insights.