The Widening Zone Number Three of Complexity, Uncertainty and Change

Neighboring the simple and rational zone number one is zone number two, complicated but not excessively complex. In this zone further to the upper left is where politics and coalition building occurs because there are broad differences about "how to get there" rather than the expected outcome. To the bottom right in zone number two cause-and-effect linkages are not known or reliable, so this is where shared vision and mission of a future state beats preset project planning. The executive teams' ability to inspire employees and continual sense-and-respond to react are key.

My belief as to why there is an accelerating interest in performance management is an expanding gulf of zone number three, the zone of complexity, uncertainty and change. This is the gathering storm location threatening all organizations. It borders near the chaos and anarchy zone. In zone number three's upper left region unsubstantiated agenda building overrides fact-based decision-making. In the lower right region blind muddling by the group overrides visioning, inspiration and good risk management. As markets become more intensely competitive, managers are faced with more and more high-stakes decisions that are increasingly populating zone number three. As a result, success in managing zone number three requires both making the right decision in the first place and then executing on that chosen path.

The collective suite of integrated methodologies that comprise performance management (e.g., strategy mapping, scorecards, customer value management, risk management, etc.) provides solutions for zone number three. Performance management shifts problems and decision-making in zone number three toward the direction of zone number one - making them simpler problems. Here is how:

• A shift in emphasis toward applying analytics of all flavors, including predictive analytics with what-if and economic trade-off scenarios, bolsters proactive decision-making.
• Gathering all information onto an enterprise-wide and common information platform with scalable real-time information replaces disparate and disconnected data sources.
• Cross-functional communication and collaboration amongst employees and automated rule-based decisions replace self-serving silo and bunker mentality.
• The work processes, priorities, initiatives and target-setting of managers and employee teams are aligned with the strategic intent of the executive team. These replace pet projects, minimal (or nonexistent) accountability, and internally competing performance metrics that are suboptimal and degrade maximizing stakeholder needs - such as for shareholders or customers.
• Economic measures of customer profitability and potential customer value are made visible to support differentiated service levels, offers or deals to achieve maximum profit yield from the sales and marketing budget.
• The vital few measures that matter (KPIs) are focused on rather than the trivial many (PIs) to distinguish the signal from the noise.
• Exception reporting, alert messaging, and at-a-glance visual reporting improves traction and accelerates speed in the strategic direction set (and constantly and necessarily reset) by the executive team.

Organizations need top-down guidance with bottom-up execution. Truly effective performance management, not simply the narrow financial view of better budgeting and control, shifts decisions that are currently waffling in zone number three into zones two and one - and away from the dreaded zone number four of chaos and anarchy. Zone number three of complexity is expanding due to the forces described earlier, and effective performance management brings rationale thinking to convert once perceived complicated problems (i.e., zone number two) into simple ones (zone number two).

Understanding what performance management does is more important than trying to define what it is.

References:

1. Gartner. "Bank CEOs Rate Business & Technology Concerns." 2004. www.gartner.com.
2. Stacey, Ralph D. Complexity and Creativity in Organizations. San Francisco, CA: Berrett-Koehler Publishers, Inc., 1996.