Organizational alignment and accountability
A primary goal of performance management is getting people within the organization to do what they’re supposed to do. A number of “soft” techniques can help achieve this goal. Strong executive sponsorship. Communication. Training. Change management. But in the end, the key to success is aligning all aspects of performance management with things people can understand and personally control. Alignment is a simple concept, but making it work is the most challenging and enigmatic aspect of CPM.
Image: Statement of Qualifications
Linking people to performance measures
Many high-level performance measures are so abstract they don’t mean anything to the people who actually do the work. There’s nothing wrong with having a few key performance measures — in fact, they’re essential — but those high-level measures need to be broken down into a set of more focused measures that are meaningful to employees at every level. For example, net cash flow might be a critical performance measure for the CEO and the organization overall — but what does it mean to an Accounts Receivable clerk, and what can that person do to improve net cash flow performance?
CPM addresses the issue by translating each high-level target into a cascading series of focused performance measures, each designed to drive specific behavior at a particular level in the organization. Using our previous example, the CEO might focus on net cash flow while the CFO looks at debt-to-equity ratio. The controller might focus on liquidity ratio, while the accounts receivable manager looks at days sales outstanding, and the accounts receivable clerk worries about percent of collections over 30/60/90 days. With CPM, employees at every level are measured by something they understand and control, and that same measure is clearly linked to the goals of their direct supervisor and the organization as a whole.
CPM also provides shared performance measures that help align people across organizational boundaries. For instance, a performance measure that includes percent of collections over 30/60/90 days might be applied both to accounts receivables clerks and sales representatives. Shared and integrated performance measures encourage people to collaborate — boosting the organization’s overall performance.
Rewarding and recognizing people
The first step to alignment is creating performance measures that people can understand and control. The next step is linking those performance measures to compensation and other incentives that truly influence behavior.
Linking incentives to performance measures can be a real challenge, especially when the activities being measured are many levels removed from an organization’s overall financial performance. Safety programs, for example, often get a lot of executive attention and airtime — but the actual incentives tend to be pretty minimal because there isn’t a direct link to financial performance.
Similarly, many organizations are hesitant to reward employees when overall financial performance is poor — even when an individual does a great job. The thing to consider is how much worse the results would have been if people had not been motivated to perform well. Referring to our earlier example, although net cash flow might be disappointing, how much worse would it have been if the Accounts Receivable team had not performed well on collections? An organization’s overall performance is ultimately determined by the individual performance of each employee, and the best way to drive individual performance is to reward people for doing a great job — even when there isn’t a direct link to financial results.
CPM integrates incentive compensation, recognition, and rewards into the overall process of performance management. That holistic approach makes it easy to identify gaps and duplication. It also helps ensure employees are being motivated to do what you want them to do.
Corporate Performance Management: A call to action
Integrating the components of performance management isn’t easy. It requires collaboration, patience, and commitment across the entire organization. When CPM is first introduced, operating units and divisions often resist — viewing integration as a threat to their decision-making independence. But the vast majority eventually discover that CPM is an enabling process that helps improve their decision-making — laying the groundwork for the organization’s future success.
Today’s leading CFOs and finance organizations are implementing Integrated Performance Management to improve information quality and visibility — and to generate new business insights. They are also using CPM as a tool to meet the market’s increasing demands for transparency, reliability, timeliness, and accountability. With investor confidence at an all-time low and competition at an all-time high, the need for Integrated Performance Management is more critical than ever.
Many high-level performance measures are so abstract they don’t mean anything to the people who actually do the work. There’s nothing wrong with having a few key performance measures — in fact, they’re essential — but those high-level measures need to be broken down into a set of more focused measures that are meaningful to employees at every level. For example, net cash flow might be a critical performance measure for the CEO and the organization overall — but what does it mean to an Accounts Receivable clerk, and what can that person do to improve net cash flow performance?
CPM addresses the issue by translating each high-level target into a cascading series of focused performance measures, each designed to drive specific behavior at a particular level in the organization. Using our previous example, the CEO might focus on net cash flow while the CFO looks at debt-to-equity ratio. The controller might focus on liquidity ratio, while the accounts receivable manager looks at days sales outstanding, and the accounts receivable clerk worries about percent of collections over 30/60/90 days. With CPM, employees at every level are measured by something they understand and control, and that same measure is clearly linked to the goals of their direct supervisor and the organization as a whole.
CPM also provides shared performance measures that help align people across organizational boundaries. For instance, a performance measure that includes percent of collections over 30/60/90 days might be applied both to accounts receivables clerks and sales representatives. Shared and integrated performance measures encourage people to collaborate — boosting the organization’s overall performance.
Rewarding and recognizing people
The first step to alignment is creating performance measures that people can understand and control. The next step is linking those performance measures to compensation and other incentives that truly influence behavior.
Linking incentives to performance measures can be a real challenge, especially when the activities being measured are many levels removed from an organization’s overall financial performance. Safety programs, for example, often get a lot of executive attention and airtime — but the actual incentives tend to be pretty minimal because there isn’t a direct link to financial performance.
Similarly, many organizations are hesitant to reward employees when overall financial performance is poor — even when an individual does a great job. The thing to consider is how much worse the results would have been if people had not been motivated to perform well. Referring to our earlier example, although net cash flow might be disappointing, how much worse would it have been if the Accounts Receivable team had not performed well on collections? An organization’s overall performance is ultimately determined by the individual performance of each employee, and the best way to drive individual performance is to reward people for doing a great job — even when there isn’t a direct link to financial results.
CPM integrates incentive compensation, recognition, and rewards into the overall process of performance management. That holistic approach makes it easy to identify gaps and duplication. It also helps ensure employees are being motivated to do what you want them to do.
Corporate Performance Management: A call to action
Integrating the components of performance management isn’t easy. It requires collaboration, patience, and commitment across the entire organization. When CPM is first introduced, operating units and divisions often resist — viewing integration as a threat to their decision-making independence. But the vast majority eventually discover that CPM is an enabling process that helps improve their decision-making — laying the groundwork for the organization’s future success.
Today’s leading CFOs and finance organizations are implementing Integrated Performance Management to improve information quality and visibility — and to generate new business insights. They are also using CPM as a tool to meet the market’s increasing demands for transparency, reliability, timeliness, and accountability. With investor confidence at an all-time low and competition at an all-time high, the need for Integrated Performance Management is more critical than ever.
To end this blog I added a clip from YouTube. It deals with the relationship between communciation within the organization and the productivity of the organization. The case mentioned, the combat readiness of personnel on a marine vessel, is quite interesting.
4 comments:
Paul,
This is CPM put into a clear and concise post! I enjoyed the call to action for integrated performance mgmt. All aboard!
I have also found that organizations that do CPM typically stop at the mgmt level. Thus the engineers, salespeople, IT staff -- the employees -- don't understand how what they do daily actually results in a better business.
I'll definitely be passing this on to others via BI for Business People blog.
Cheers,
Tom
This is all true but what about applying performance management to improving the way systems work? One of the interesting challenges for organizations is how to shift their performance management into action. Sometimes this is about people, sometimes it is about systems. Combining performance management with decision management can help generate alignment from strategy to operations to information systems.
Would love to know your thoughts?
JT
www.edmblog.com
Accountable organizations are unique creatures; standing out from others because of their superior performance, greater employee loyalty, and higher customer satisfaction. Although the rewards are great, many companies will not embark on the journey to accountability because attaining and maintaining high levels of organizational accountability is extremely difficult.
Organizational accountability exists when all members of the workforce individually and collectively act to consequentially promote the timely accomplishment of the organization’s mission. Examined more closely, this means that:
Read the complete article, Organizational Accountability Introduction on the StrategyDriven website.
All the Best,
Nathan Ives
Founder
StrategyDriven
Performance measures serve to align an organization’s efforts to the achievement of its mission. As part of a company’s evaluation and control program, they quantifiably monitor important characteristics of the company’s products and services and the performance of the individuals and processes creating them. Performance measures support managerial decision-making by providing useful information regarding:
* how efficient and effective are the company’s processes and the individuals implementing them
* if product or service improvements are necessary
* if the company’s customers and stakeholders are satisfied
* if the company is meeting its stated goals
Performance measures best serve an organization when they are understandable, broadly applicable, uniformly interpreted, and economic to apply. They should cascade through and organization’s hierarchy such that achievement of lower tiered performance goals support higher tiered goals that in turn ultimately support achievement of the company’s mission.
Lean more about Organizational Performance Measures and how they help create alignment and accountability on the StrategyDriven website.
All the Best,
Nathan Ives
Founder
StrategyDriven
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