Four insights on Organisational Performance Management
- 60% of organisations don’t link strategy to budgeting
- 75% of organisations don’t link employee incentives to strategy
- 86% of business owners and managers spend less than one hour per month discussing strategy
- 95% of the typical workforce doesn’t understand their organisation’s strategy.
The following four insights have helped me be more successful with Organisational Performance Management:
#1 – The secret sauce is integration – one plan for today and tomorrow
The strategic plan addresses the what and the why, but implementation addresses the who, where, when and how. You need all of them to be successful. The best way to do that is to integrate the delivery of today’s business results and the building of tomorrow’s business. One implementation process, not two! Here is why…
An integrated process results in one set of deliverables, not two. The team has no opportunity to ‘forget’ about implementing the strategic initiatives because they were ‘fighting fires’ with today’s business. Today and tomorrow are included in one plan without differentiation. Strategy, in this methodology, cannot be treated as something out of the ordinary and forgotten. Moreover, the team is quite often not involved in developing the implementation plan for tomorrow’s business. An integrated approach sees them more likely to be involved and this improves buy-in.
In developing the implementation plan, you have no choice but to consider resource trade-offs and thus priorities. When you deal with today and tomorrow separately, it is very easy to assume that you have 100% of capacity available for each. You do not. So you have to prioritise…and trade-off between today’s imperatives and those of tomorrow. Non-critical elements have to go. The end result is something that is implementable!
The understanding of the team improves dramatically when you take the time to share with them why the plan has the different components. Leadership is able to paint a single cohesive picture that motivates people. When the team understands that today’s sales numbers determine tomorrow’s funding for growth…
Quite often tomorrow’s strategy is disconnected from today’s reality. Having one process links them and makes the whole plan more real and thus more likely to be successfully implemented. It also results in more focus on strategic matters on a day to day basis. In the absence of integration, strategy only surfaces quarterly or, in some cases, annually!
An integrated approach results in discussion at strategy development time about implementation. Quite often, implementation planning is simply missing. This way it is included because you cannot develop the complete plan without understanding that detail too.
#2 – There is still a place
for Balanced Scorecards
I have recently heard comments that Balanced Scorecards are so ‘yesterday’. Those comments usually come from people who don’t realise that you need focus beyond the financial aspects of a business if you want to be successful. Unfortunately, the comments too often come from executives who then wonder why implementation does not happen. They run organisations without proper systems and performing teams! A balanced scorecard is a valuable tool to use in measuring and rewarding individual and team performance too.
Here is a description that I like – “Balanced Scorecards tell you the knowledge, skills and systems that your employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer) which will eventually lead to higher shareholder value (financial).”
It is true, however, that each element does not need the same level of focus. There are times when one needs more attention than another. This is part of the prioritisation focus I mentioned. Your scorecard should make clear what the priorities are through different weightings.
A good tool I came across recently is the Hoshin-X-matrix which enables an organisation to easily review the alignment of its strategic objectives, strategic initiatives, key performance indicators, key action items and human resources. It is a pictorial snapshot and a wonderful way of seeing the whole picture in one place.
#3 – Data Scientists are worth
their weight in gold
In my summary post on “The four critical elements to achieving Operational Excellence”a while back, I said, “You will no doubt have heard the term ‘what gets measured gets managed’. It is true. An organisation without an integrated set of key performance indicators (KPIs) cascaded through the organisation often goes nowhere. In its worst manifestation, the owners of the organisation are oblivious to what is happening to the organisation and bad things happen. I have personally had to shut down businesses that could have been saved if the real story had been understood earlier. This is why one of the first areas I probe when testing the health of a business is the robustness of its indicators and performance management system.”
In today’s world, the best businesses have balanced scorecards that cover more than just the financial results of the organisation. They centralise and automate the data collection of as many indicators as possible and build them into their performance systems ensuring that team and individual efforts are focused on the right outcomes.
In the integrated approach I advocate above, this means you will have indicators for today’s business deliverables as well as for each of the initiatives you will execute to build tomorrow’s business.
Data scientists are worth their weight in gold. I have seen how things can change when one of these magicians starts making magic. The insights open up in a way that the organisation can understand. Problems are caught before they become major issues. This makes a massive difference in a world of resource constraints. That means every day in small businesses, especially the scale-ups battling with complexity! I would employ one of these guys before an equivalent specialist on the people side of the business…they are that important. Those who know me and my focus on people will understand just how important that makes Data Scientists in Wayne’s World!
For each strategic objective on your strategic grid, you need at least one performance indicator. Can you have an objective without a performance indicator? Yes, it is possible, but not having a measurement makes it difficult to manage the objective. It’s best to revisit this objective and ask the question: Why is this an objective?
A common pitfall with dashboards is missing the obvious…all managers need a relevant dashboard, not just the executives of an organisation. Too often the #1 priority is getting the numbers needed for the Board pack and that is where it stops. The nuance shifts as you move down an organisation or across business units. Putting thought into the relevant set of KPI’s for each role is really worth it. The focus it brings is amazing.
#4 – A cadence-based execution system is at the heart of implementation
Most people ask me what a cadence-based system is. Simply, it is a collection of routines that you perform periodically to make sure that execution happens. The underlying principle is peer accountability. I do my share because I do not want to let the team down.
Which routines are relevant here?
On an annual basis, you carry out your strategy review and business planning exercises. I covered those in an earlier post so enough about them. There are also staff performance reviews and career planning exercises that should be carried out at least annually. More about them in a later blog post.
The important routines I want to talk about here are the quarterly, monthly, weekly and daily ones that relate to executing our integrated plan.
A formal review of your business on a quarterly basis pays back in spades, especially if you combine it with a team-building activity. It normally happens in month three of the quarter and could be a one- or two-day affair depending on how much discussion and intervention is needed. Typically, the agenda is as follows:
- Review of quarterly business performance against the plan – variance analysis, root causes and identification of any interventions needed. Typically, performance bonus discussions happen in this segment too. Rewarding performance is a critical part of ensuring ongoing focus.
- Review of quarterly strategic initiatives – any initiatives which are incomplete along with root causes and likely interventions. This is a detailed review of all of those initiatives.
- Business deliverables for next quarter along with incentive targets. Ideally, it is simply the next quarter’s numbers from the annual business plan but more often than not it needs to be adjusted. You may be behind plan so a catchup is needed. Be careful here about making promises you cannot keep. You want stretch but not a suicide mission. The bonus trigger discussions for next quarter happen here.
- Identify the critical initiatives for the next quarter along with owners, metrics, dates etc. The list must be short (top 5 maximum) and in order of priority for the business. Avoid trying to find one for each team member present. It is fine if someone has two and another person has none. Choosing the Top 5 allows the team to make resourcing decisions during the next quarter. Focusing on a Top 5 does not mean that nothing else gets down. It just means that these 5 get implemented come what may. We run through walls to make them happen.
On a monthly basis, most businesses have a performance review. This is typically a profitability review with a collection of operating KPI’s thrown in. Expenses often feature quite highly because Finance produces them on a monthly basis. In many instances, it is simply a review of the Board report that has just gone out. That is not a good practice given that Board and Management have different (albeit overlapping) responsibilities and thus perspectives. While it is appropriate that profitability is the main focus here, I say that you should be adding a review of implementation progress of your critical strategic initiatives. The review should also be happening at multiple levels to properly understand just what is happening on the ground. My experience has been that success with these monthly meetings depends on:
- A good set of templates – standardised to make discussion easy
- An accurate set of numbers – no debate about whether they are right or not
- The meeting before the meeting – a time where finance and data experts talk with line leaders about the numbers to home in on what needs explaining in the main meeting.
In my book, the meeting that really makes the difference is the weekly one. Yes, there are the key numbers but the most important part is the discussion around the Top 3 contributions of each person. How does this work? Simple…each week each attendee tells the rest of the group how they have fared in delivering on their Top 3 critical promises from the pervious week, what their promises are for the coming week and just where they need help from the rest of the team. The team leader juggles these promises to make sure that the organisation makes steady progress week-by-week on delivering today’s business results and tomorrow’s strategic initiatives. Baby steps on a weekly basis get you to the monthly, quarterly and annual objectives you have set. This approach keeps that integrated plan in front of the team all the time with no room to park actions for later. Progress is driven by peer accountability…it is a very powerful driving force. It is very motivating to be able to report regular progress. Of course, the key is in making sure that each person’s promises for the next week are the right ones. This is the leader’s responsibility.
In a recent role, it was heart-warming to see how execution improved once we introduced this kind of routine. To start with, there were quite a few who had zero or little progress to report but we soon saw more thought going into promises and crisper delivery.
Certain indicators need daily attention. In my earlier days running an oil refinery we had a daily meeting at 07h00 in the refinery control room. The session was focused on what should have been delivered yesterday, any problems needing intervention or support and what we planned for the coming 24 hours. I earned the nickname Mr GDL given my fixation on refinery yields – Gasoline, Distillate and Lubes. Some wise guys even said I named my daughter Laura after one of the legs! The point of the matter was that we had focus. We knew what needed delivering, had the dashboards that told us how we were doing and we had the determination to do something about it each and every day. It became part of our lives, just like getting up each morning. Of course, you can take things too far with this kind of focus, but that is a topic for another post.
An important aspect of management folllows each of these routines…feedback to those team members who were not part of the discussions. I found a weekly All-Hands meeting to be a useful vehicle for this sharing. It allows different levels of the organisation to engage and demystifies a lot of what is going on in the business for lower level staff. It also allows direct communication from the top of the organisation on important matters, avoiding broken telephone syndrome.
There are a few key insights that you would do well to think about in making your organisational performance management more effective:
- #1 – The secret sauce is integration – one plan for today and tomorrow
- #2 – There is still a place for Balanced Scorecards
- #3 – Data Scientists are worth their weight in gold
- #4 – A cadence-based execution system is at the heart of implementation
So there you have it! My views on what is important when it comes to managing organisational performance. What do you think? Does this gel with your experience? Have I missed something critical? Maybe you disagree? Please share your thoughts by clicking on that little ‘Leave a Reply’ button below!
About the author: Wayne Hartmann, founder of H2 Business Consulting, has been in business for over thirty years, all but three of them in operational leadership roles. He has led organisations in the downstream oil industry, in the logistics arena and more recently in the renewables space. He has worked in large corporations and also in small organisations, in growth and turnaround environments. Known as a strong, values-driven leader, he has developed a reputation for working out how to make organisations successful, growing them and the people in them through hands-on engagement.