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.

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.

Statement of Qualifications - Integrated approach to Reporting

A couple of weeks ago I received the Statement of Qualifications (SoQ), which was developed by one of our practitioners (Edwin van den Broek). The Statement of Qualifications is intended to inform our clients about our vision with respect to Corporate (or Integrated) Performance Management, the methodology and tools we use to implement Corporate Performance Management and some detailed business cases of CPM-projects we did in the past.

Deloitte successfully implemented a great amount of CPM-projects from which we developed best practices on how to create an integrated reporting cycle. All our experiences (good experiences and of course some bad experiences) helped us to develop this practical framework and I am convinced the document gives the reader a lot of insight in the way a CPM-project should be implemented.
I would gladly share a chapter of the SoQ with you. To be more precise, it deals with our vision on how to implement an integrated reporting cycle and I would like to invite all of you to read the chapter and leave your comments on the blog. I am really curious about your point of view and experiences on this subject.

If you are interested in receiving the complete Statement of Qualifications, please send one of our practitioners an email and the SoQ will be send to you.

Information: Identifying requirements and sources

• The first step toward integrated reporting is to identify the critical information decision-makers need and to select definitive sources. To determine an organization’s information requirements, start by examining its performance scorecards at the corporate, business unit, and functional levels. Identify the competencies and critical success factors that drive the success of the business and enable the organization to meet its strategic goals.
• Then use those insights to link high-level and detailed performance measures to the organization’s success factors and goals. It is also important to address the organization’s detailed reporting requirements. Those typically include: financial data (e.g., consolidated P&L, tax, statutory), customer and operations data (e.g., channel, backlog, sales pipeline), and people-related data (e.g., headcount, turnover).
• Once the information requirements have been defined, the challenge is building consensus on where the information will come from. Agreeing on an authoritative source for data is more difficult than it sounds. Most organizations have multiple applications that provide different answers to the same question, so decision-makers must decide which source will provide the one definitive answer everyone will regard as the truth. Achieving that consensus generally requires new procedures for reconciliation and synchronization.

Process: Capturing and managing data

• In some cases, an organization’s information requirements will include data that do not currently exist. Filling those gaps typically requires modifying an organization’s processes and systems to capture the data at its source.
• For consistency, key performance measures should be gathered at the same point as the detailed data — eliminating discrepancies and ensuring a single version of the truth.
• In many cases, process steps can be eliminated to speed up the process and improve reliability.

Technology: Organizing information for delivery

• Effective reporting translates raw data into meaningful insights that are directly relevant to the targeted decision-maker. Many companies strive for a single, do-all reporting solution. But in our experience, that rarely makes sense. Most reports fall into one of three categories, each requiring a different reporting approach:
• Executive information consists of high-level measures and key performance indicators that provide a quick overview of business performance.
• Analytic information provides focused, in-depth analysis across time periods, processes, locations, business units, and/or functional areas.
• Production and control information focuses on specific business activities within a defined time period (e.g., daily disbursement report, cash collection report). This information is generally contained within a single application or transaction system.
• While some organizations have successfully implemented a single solution for all three types of reporting, they often find themselves frustrated by the functional limitations of a single solution. Leading companies with IPM generally prefer to specialize, using ERP and transaction systems for production reporting, while applying data warehousing tools, online analytical processing, and advanced data analysis techniques to executive and analytic reporting.

Delivery: Disseminating information

• There are a dizzying number of options for presenting information, from wall posters, presentations, paper reports, and spreadsheets to e-mail and voicemail, PDF files, exception-based alerts, and interactive analysis tools. The right choice depends on both the situation and the particular needs of the decision-maker. Critical factors include cost, timeliness, importance, location, and technical constraints — as well as the sophistication and behavioral preferences of the targeted decision makers.
• While no solution is perfect for all situations, self-service web delivery is fast becoming a central part of every organization’s reporting strategy. Decision-makers already know how to use a web browser, significantly reducing the learning curve and providing a consistent interface for future enhancements and modifications. Web-based tools are also cost-effective to maintain — streamlining the reporting and decision-making processes.