What Does Performance Management Accomplish?

What may matter more than defining performance management and knowing what it does is to answer the following question: what has led to the rise in interest in performance management? A primary reason is the major frustration of senior management. CEOs, managing directors and their executive teams are typically excellent at formulating a good strategy; their major problem is the failure to successfully execute and implement it. Surveys by the Chicago-based employee recruiting firm Challenger, Gray & Christmas, Inc., repeatedly reveal increasing rates of job turnover at the executive level compared to a decade ago.¹ In complex and overhead-intensive organizations where constant redirection to a changing landscape is essential, the main cause for executive job turnover is the failure to execute their strategy.  

One cause for this failure stems from managers and employee teams typically having no clue as to what their organization's strategy is. Most employees, if asked, cannot articulate their organization's strategy. The implication is significant: if managers and employee teams do not understand their organization's strategies, then how can the executives expect employees to know how what they do each week or month contributes to the achievement of the executive's strategy? Employees can effectively implement a strategy only when they clearly understand the strategy and how they contribute to its achievement. Performance management resolves this problem by aligning the behavior of the workforce with the strategy - and much more.

One of the fundamental components of the suite of methodologies that comprise performance management is the strategic plan and the performance measures associated with it. The "balanced scorecard" is hailed as the new salvation for senior managers whose are frustrated with the execution of strategies. But there are two major misconceptions about the balanced scorecard:

1.  Scorecards and dashboards should be rolled out as quickly as possible. Regular review of key information is definitely important, but for performance management to succeed, the creation of a strategy map should precede the roll out of scorecards or dashboards. A strategy map can explain for the first time how everything is connected in a cause-and-effect manner. However, strategy maps function as a hypothesis. It is more important to review and test the hypothesis on a regular basis and gather insight into what causes variability of result. This means looking at far more detail than a scorecard or dashboard can provide.

2.  Key performance indicators (KPIs) are critically important in their own right. On their own, KPIs merely tell you whether things are good or bad. They are fine for creating focus, but they don't explain why a change occurred or the consequences throughout the organization. To do that, they need to be viewed in the context of a strategy map with additional analytic detail to create insight into why the KPIs changed and foresight that predicts what could happen next.

Performance management is a value multiplier to the substantial investment organizations have made in software systems and technology, yet they are often viewed as falling short of their expected returns on their investment. This misconception arises when scorecards are viewed as the end result of a performance management initiative. Scorecards are merely summaries. True performance management goes beyond summary information to provide insight and foresight into why things happened and what could happen in the future. In the coming months, we will explore methods and techniques that further address the misunderstandings about performance management.