Leading and lagging practices in performance management

Citation

Wilkes, J. (2005), "Leading and lagging practices in performance management", Measuring Business Excellence, Vol. 9 No. 3. https://doi.org/10.1108/mbe.2005.26709caf.002

Leading and lagging practices in performance management

Leading and lagging practices in performance management

Introduction

Performance management is a fundamental part of a modern and successful business. It involves bringing to managers information from across an organisation’s underlying processes and systems in such a way that they can make appropriately informed decisions. Performance management requires action to be taken and then managed as a result of those decisions.

Performance management is not a new science. Since the industrial age different techniques and approaches have been developed to help organisations succeed. However, despite wide acceptance of performance management as a core business activity, it is paradoxical that few organisations appear to manage their performance to best effect.

However, performance management is often quite narrowly defined. For example, although the balanced scorecard has been adopted by many organisations, it is often seen only as a tool to support the reporting of results rather than facilitating the implementation of strategic change as envisaged by Kaplan and Norton (see Kaplan and Norton, 2004).

Advances in IT now provide organisations with ready access to, and integration of data from across whole organisations, from strategic through to operational levels. However, use of the supporting “business intelligence” tools must be embedded within the culture and wider context of the organisation if they are to be effective.

This paper looks at some of the leading and lagging performance management practices, mainly from the UK. Recent research from Kable gives an interesting picture of current public sector practice. Further examples from experience help to show what organisations are doing to address some of the implementation challenges. They point to a way forward for performance management and the final section of this paper looks at one of the main influences on future trends.

Kable Research on performance management in the public sector

Research was conducted by Kable Research in March, 2005 with senior central and local government staff. Performance management is well established and viewed as a key area, especially in central government. The majority – close to 90 per cent – currently measure performance on a reasonably frequent basis (monthly or quarterly).

To summarise briefly the results:

1. 1.

   Employee awareness of strategic objectives: employee awareness of strategic objectives, and their role in achieving them, is high. Sixty per cent of respondents believe it is “very important” or “important” for staff to have a detailed understanding of objectives. Over 70 per cent of employees have “personal objectives linked to the achievement of the performance targets.”

2. 2.

   Department alignment: a significant majority of respondents – nearly 80 per cent – state that their departments’ plans are well connected to meeting strategic objectives.

3. 3.

   Communicating strategic objectives: the most popular mechanisms used to communicate strategic objectives are:

4. 4.
   • •

     team/staff meetings;

   • •

     divisional meetings;

   • •

     staff appraisals; and

   • •

     intranet.

5. 5.

   Measuring performance against strategic objectives: nearly 90 per cent of organisations currently measure their departments’ performance against the strategic objectives and targets. Measurements are gathered and reviewed fairly frequently – usually either monthly or quarterly. Only five organisations measured performance more frequently than monthly.

6. 6.

   IT implementation: organisations use several different types of management tool to measure performance. There is still a high reliance on spreadsheets and manual tools, but about half of the organisations surveyed use an integrated performance management system.

Leading practices

There are many different organisations facing the day-to-day implementation challenges of improving their management processes. Some of the solutions they create are not found in textbooks and they can genuinely be said to be leading the way. I have picked three examples to illustrate leading practices here.

Banking example

A major northern European bank has been using its own style of balanced scorecard for some years. The focus of their performance management system has been revised and updated as the focus of their business has changed over the years. This, of itself, is good practice, reflecting not only a review of the strategic priorities themselves, but also the alignment of the performance management system with management needs. The four stages have been:

1. 1.

   creating the first scorecard iteration and IT implementation;

2. 2.

   revising to accommodate takeovers, expansion and interaction with the world outside, particularly inclusions for customer views and market competitors;

3. 3.

   focusing on consolidation and synergy of business processes, including the planning cycle and sales remuneration; and

4. 4.

   using different types of scorecard for different business areas depending on their state of performance management maturity.

It is this last stage that is perhaps the most interesting. Four types of scorecard are used, aligned to different user segments:

1. 1.

   strategic scorecard – distinguish features from competition;

2. 2.

   change scorecard – help communicate fundamental change;

3. 3.

   collection scorecard – “I do not like the Balanced Scorecard”; and

4. 4.

   chain scorecard – no discerning strategy – do your job and do it well.

In this way, the bank is aiming to achieve the maximum buy-in from all areas for the performance management system and at the same time ensure that all scorecards are aligned to the organisation’s strategy.

The criminal justice system

My second example is taken from the criminal justice system. In establishing the criminal justice IT (CJIT) programme, four key questions needed to be addressed:

1. 1.

   How well were their improvement initiatives delivering against their objectives?

2. 2.

   How could area managers choose which initiatives they should concentrate on?

3. 3.

   How could central departments get a clear understanding of the impact of the improvement initiatives?

4. 4.

   What hard evidence was there of the outcomes achieved?

They approached these question using three techniques:

1. 1.

   A benefits scorecard that described the direction of the improvements, from three perspectives: people, performance, and financial. This gave a common language across seven criminal justice organisations and made sure the purpose of the improvements was not diluted. In this way, the initial objectives were kept at the front of people’s minds.

2. 2.

   A root cause model was developed that provided a single view of the biggest problems they faced, what their root causes were and what was being done to fix them. It was built with a cross-agency community of stakeholders who combined their business experience with statistical research to identify the major problem areas in their business operations, e.g. unnecessary court adjournments caused by witness non-attendance, often caused by poor information on witness availability. Next, the team assessed what impact elements of the CJIT programme would have on each root cause.

3. 3.

   Benefits tracking was tied to the root cause model and to the original objectives of the reform. Having defined the vision for the change, evidence on all benefits was collected during implementation. Baseline data and actual evidence of what works, where and why was collected at area level and analysed centrally. This allowed the success of the reform to be assessed against its original objectives.

The challenge that remains is how to define the economic value of outcomes, beyond the obvious resource savings. For example, what is the economic value of outcomes such as greater public confidence in the criminal justice system?

National government

My third example is taken from another national government department that is looking to make significant improvements in its operations. In the words of its CEO, “you can’t go from a caterpillar to a butterfly by incremental change. You have to transform”. They are embarking on a substantial performance management programme which will help them achieve their new objectives. The programme is being delivered in a number of phases and will cover strategic modelling, strategy mapping, scorecard reporting and information management. There are some aspects of this drive (see Figure 1) which set it apart from the ordinary.

Figure 1

Overview of government department performance management system

Their business model defines different types of “intervention” that can be made to improve their operational performance. Each intervention has an associated cost, resource usage, expected returns and lead-time. Local managers can choose from a number of different interventions to maximise their performance against a range of KPIs. The challenge for this department is to provide help to its managers in their selection of which intervention to choose. This will be done through collecting performance measures on the interventions from across the organisation, analysing the outcomes and giving guidance to the managers on the best intervention options. In the future, one can see this being extended to offer an optimisation engine for not just one manager, but the whole of the manager population.

This type of help to manager decision making – forecasting, giving guidance and optimisation of choices – can only be successful if the fundamental building blocks of performance management are in place and working effectively.

Lagging practices

One of the more interesting aspects of balanced scorecards is that although people in organisations understand the theory of strategy mapping, few manage to put it into practice.

Where strategy maps have been created, they sometimes represent little more than a process map. Tacking on financial and employee objectives to the mapping may make it look more like a strategy map, but it gives little understanding of where competitive differentiation lies or where investments need to be made to succeed in the future.

Where strategy maps are not present, then often KPIs are selected to represent the individually identified goals. Collecting and grouping KPIs, whilst quite useful, does not provide an insight to how the organisation works or how successfully it is implementing its strategy. In some instances, there is a gap between the clarity of the strategy being followed and the KPIs that are being collected and reported.

Now why is this? Research has shown that companies with scorecards and strategy maps in particular, out-perform other companies. There is no ostensible reason not to implement a scorecard according to best practice. The answer could lie in the capability and patience of management to see it through or the availability of sufficient skilled resources to make it possible.

The future

One aspect of performance management is undeniable. Whether implemented well or poorly, there is an increase in the demand for structured information. This goes way beyond the sometimes small demands of scorecard metrics themselves and into the surrounding information that starts to make sense of the story the KPIs are telling.

The data itself is not the problem: the amount of information that people use each day is growing exponentially, and there is no sign of any let up. According to IDC research, the increase in corporate data creation is between 40 per cent and 60 per cent every year and we are annually sending about 50 billion e-mails worldwide.

This situation can often lead to a review of the management information strategy and its alignment to the business needs. In the same way that organisations mature in their use of performance management tools and techniques, the management information strategy needs to be planned to mature in a like manner. This I have illustrated in Figure 2.

Figure 2

Developing maturity in use of management information

In this way, organisations can invest more time in better use of the information collected to improve business effectiveness and performance.

As the use of IT for performance management matures, we can expect organisations to start viewing their management systems in a different light. The need to integrate the range of different performance management applications becomes key. This situation can be likened to separate operational systems being replaced by ERP suites, so we should expect the same to happen in management systems. Perhaps the bigger challenge, however, will be integrating the underlying management processes.

Conclusion

Performance management is about improving management processes and skills. Without having this conceptually simple statement in mind, it would be easy to allow performance management to become nothing more than a conceptual exercise or another IT project.

Undoubtedly at stake here are the underlying reasons that performance management improvement projects are undertaken and the veracity of the implementation throughout the organisation. We all remember the old IT adage “garbage in, garbage out”. Perhaps the same thought applies to some performance management implementations?

On the positive side, a few key pointers emerge from the above discussion, by no means a check list, just a few clues of what successful organisations are doing. They are:

• •

  organisational and personal alignment to strategic objectives;

• •

  communication of strategic objectives to employees;

• •

  adapt scorecard for different user segments;

• •

  focus on delivering the outcomes and/or benefits of performance management;

• •

  have a vision for the future – maybe optimising choices; and

• •

  align MI strategy before it’s too late.

Performance management may not be a new science, but we are certainly in the midst of one of its more exciting phases.

John WilkesHead of Performance Management at Capgemini, Woking, UK and has over 20 years’ experience in IT, finance and performance management. He focuses on solutions that seek to improve the management processes within organisations, including strategic, planning and financial management. E-mail: john.wilkes@capgemini.com