Since the early 1990s, organisations have invested increasing amounts of money and resources in measuring their performance. At the Centre for Business Performance, we have seen numerous examples of business performance management projects that fail: sometimes from the outset, due to a flawed or poorly designed strategy, but more often through poor implementation or execution. At Cranfield we have devoted a lot of time and effort to trying to understand the problems in ensuring that performance is effectively delivered within the organisation; our research spans developing strategy, to setting up measurements, to decision making and review.
A number of organisations have introduced performance management systems which have been very successful: well-designed systems can form a valuable framework to embed strategy, using objectives, targets, indicators and incentives, with an information system to support them. Strategic performance management (SPM) can help organisations define and achieve their strategic objectives, align behaviours and attitudes and, ultimately, have a positive impact on organisational performance.
What makes the difference?
Strategic formulation and implementation can easily become disconnected, with a common misconception that we can set out a plan and then somehow that plan will be put into practice. It is all too easy to fail to pay sufficient attention to the effort and resources needed to put change into practice and so companies often invest too few resources in its application. Failure to do this properly can lead to the wrong measures and targets that can hold back, not promote change. We now know the best ways to develop effective targets, set clear indicators and how best to phrase objectives and communicate them. For example, it is important that performance indicators are linked with strategy and that they are considered in strategic reviews.
The use of powerful tools, in isolation cannot guarantee business performance. Also – and especially – it is the type of behaviours that these generate. Attention must be given to the impact of performance management on the behaviours of people.
The important people dimension
The introduction of new performance targets and indicators can kick-start the implementation of new strategic objectives and promote different ways of working. Individuals throughout the organisation – not only top management, but everyone in the organisation – has to understand why they are there, what type of results will they bring, what type of use will be made of the data that we collect and also how the organisation is going to learn and improve from using the system. This means insight into not only how a performance management system can be used as a control system, but mostly how to generate the necessary improvements and the essential learning that organisations need to put plans into effect.
By involving people from the very beginning, successful performance change can take place, with involvement throughout the first stages of the execution of the change, but also in reviewing that change and the implementation of a measurement system. The result is that commitment and understanding is much more likely to develop and employee commitment and clarity really makes a difference. Given the right set-up, strategic performance management can aid motivation of employees at all levels, promotion of a performance improvement culture, and fostering of organisational learning.
The leadership factor
A lot of measurement systems-typically scorecards and dashboards- have also failed because organisations have mistakenly viewed leadership and performance management as self-contained opposites, whereas actually they are complementary and closely linked. For performance management success, we need organisations that are well led and well managed, but also that there is a performance management system which is well embedded to deliver results.
Ultimately, there can be no substitute for sound leadership and management to steer an organisation forward. It is essentially displaying the type of behaviour necessary throughout the organisation. It means leaders walking the talk, not just talking convincingly about it. It is at this stage that company statements come alive and when the priorities for the change of an organisation become real and familiar.
Making performance management and measurement stick
The design of an SPM system and the definition of its roles are fundamental factors determining its success. Significantly, companies don’t stop there: they implement strategic performance management by also focusing in on the essential behavioural component. Strategic implementation is driven by people and therefore people’s behaviours must be a focus of considerable attention. When organisations really get to grips with how technical systems and people come together, then they will have the capability to make strategic performance improvement stick. Some important conclusions can be made:
First, organisations should explicitly decide whether their measurement system is strategic or solely operational. This choice is likely to determine the link between strategy and performance measurement, and the relevance of the PMS within the organisation.
Second, the design of the SPMS should depend on the roles the organisation assigns to the SPM. These roles should therefore inform decisions over the types of performance indicators to introduce (financial and non-financial; leading and lagging) and the use of performance information as a means to generate learning and review.
Third, the balance between ‘diagnostic’ and ‘interactive’ uses of SPM has relevant consequences on the possibility of SPM playing an active role in the introduction of change initiatives and innovation strategies. SPM can also contribute to the creation of capabilities and the establishment of an organisational culture. Only by doing so will the organisation make the system flexible and use it as a lever for change.
Next steps-three Questions
Three core questions need to be asked if performance management and measurement is to be successful in delivering benefits strategically:
1. Why is the organisation introducing (or reviewing) an SPMS?
2. Which roles do we want it to play?
3. Will its characteristics be consistent with its aims?
PietroMicheli is a Senior Lecturer at Cranfield’s Centre for Business Performance and Programme Director of our Operational Performance Management and Leading Performance courses.