I have had the pleasure to spend the past two days with Bob Kaplan and Dave Norton, inventors of the Balanced Scorecard and the Strategy Premium Execution Framework, as well as a number of leading practitioners to discuss some of the recent trends and developments in the field of performance management. Here is my initial take on some important developments you should be aware of:
Trend 1: Linking performance management and risk management
The realisation that risk management is a flip side of performance management is not new and as you might know I discussed the importance of integrating risk management and performance management in my book 'Strategic Performance Management' back in 2006. So why it is on the list again? The reason for why I see it as a key trend is that more and more organisations are actually linking the two areas more explicitly and an increasing number of software solutions now offer integrated risk and performance management. There is some momentum in the idea and we are starting to see a critical mass of early adopters.
The way I have always proposed to link risk and performance is to look at risk for every strategic objective on your performance framework and develop key risk indicators (KRIs) that sit next to key performance indicators (KPIs) and allow you to assess and mitigate the risks of not achieving your strategic goals. Bob Kaplan presented an emerging framework for risk management in which he categorised risks into
Category I: Risks from Employees' Undesirable and Unauthorized Actions;
Category II: Risks of Not Achieving the Enterprise's Strategic Objectives; Category III: Risks from Uncertain, Uncontrollable External Events.
He also explored how the different elements of a strategy execution framework could be used to address them: (1) Using values, mission and vision to set clear boundary condition so employees don't act in ways that are undesirable or unauthorised, (2) identify key risk events and risk indicators for each strategic objective on your strategy map and aggregate the risk indicators into a risk scorecard, (3) use scenario planning, war gaming and tail risk meetings to address the 'unknown unknowns' (to re-cite the poetry of Donald Rumsfeld). Actually, the use of scenario planning in scorecard design is something I have explored in my article "The Future Scorecard: Using internal and external scenarios to create strategic foresight", published back in 2005. As you might find it an interesting read I have put the article up on our website for download: http://www.ap-institute.com/resources_academic.asp
I would love to hear from anyone who has successfully aligned risk and performance management – on either of the categories – or is there someone out there that has done it across all?
Trend 2: Creating a strategy and intelligence competency center
Strategy management and strategic business intelligence and analytics require a team that not only has the relevant skills but is structured in the appropriate way. Dave Norton made the point that strategy management requires cross-functional processes and traditionally our structures and competencies are based on functional siloes. In order to sustain the management of strategy Dave suggested creating (1) a strategy council, (2) strategic theme teams, and (3) an office of strategy management:
THE STRATEGY COUNCIL: A team made up of senior executives responsible for oversight of strategy development and execution.
THE THEME TEAM: A cross organization team empowered to execute the objectives of a strategic theme at an operational level
THE OFFICE OF STRATEGY MANAGEMENT: A small team of performance management specialists who are responsible for designing and managing the Strategy Management Process objectives of a strategic theme at an operational level.
For me the key is the latter but I would go further than this and not only give them responsibility for strategy management but also 'strategic insight', i.e. the BI and analytics capabilities to turn data into insights. Some might remember my blog post on the integration of business analytics with performance (http://theintelligentcompany.blogspot.com/2010/07/business-analytics-merge-with.html) in which I made that point. It is good to see that companies such as Volkswagen, TNT and Merk have put in place the office of strategy management while many others have created BI competency centers. However, it is still rare to see companies that have created a wider strategy management and BI competency center or at least created close links between them. If you have created the link between PM and BI – then let us know!
Trend 3: Linking strategic performance management with leadership and change management
In his foreword to my latest book 'More with Less', David Norton gave his personal definition of performance management: "the execution of the organization mission through the coordinated effort of others". He then went on to say "PM is a system and process that impacts everyone in the organization. You can argue that performance management is the most important job of a manager. In fact, you could argue that the execution of the organization mission is the only job of management." I whole-heartedly agree to this but still see that many companies use performance management in an administrative reporting or tick-box fashion. In order to ensure that the agreed performance targets and objectives are in fact the focus of everyone's day-to-day efforts companies have cascaded scorecards down to individual levels and have aligned the achievement of targets with incentive systems and bonuses. In my experience with many of the leading global companies this is still an area that many get wrong. When you hard-wire any incentives to targets you run the danger that people just 'hit the target but miss the point'. And when you give individual their own scorecards you often generate a focus on individual performance over team or company performance, which in turn can drive dysfunctional behaviours.
What became clear over the past 2 days was that the softer side of performance management and change management play a key role in getting this right. It is less about creating a system of cascading, reviewing and aligning targets and measures and much more about leadership, inspiration and conversations that engage people on an emotional level.
I believe one trick is to involve HR the role out of performance management. Interestingly, in Carlsberg the strategic performance process is owned by HR because they see it as a strategic change initiative and in another of my client companies the delivery of the corporate dashboard is driven by the chief change officer. Bob Kaplan make an important point when he said: "Successful Organizations Need Both Inspirational Leadership and Effective Management, Working in Harmony, Together:
Leadership creates the vision and sense of urgency. Leaders communicate, inspire and motivate.
Management provides the rigor, alignment, and discipline required to implement the strategy and achieve the vision.
In my view leadership remains the most crucial ingredient of any successful performance management initiative. One of the best examples I have personally experienced comes from the perfect balance between leadership and management provided by Sir Terry Leahy at Tesco (download the full case study on Tesco here: http://www.ap-institute.com/resources_casestudies.asp
As always, I would love to hear from you if you feel that in your organisation you are getting this right, or indeed, if you feel the opposite and you are getting it completely wrong.
Thanks to Bernard Marr / KPI Library
http://kpilibrary.com/experts/the-intelligent-company/topics/3-key-trends-in-performance-management-and-balanced-scorecard?utm_medium=email&utm_source=kpilibrary&utm_content=experts&utm_campaign=period_update_summary_0611&aref=biweekly
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