Managing and leading people 6

Measuring performanceIn part six of his series on managing and leading people, Jon Minerich, Principal, Oliver Wight Americas, Inc., discusses the importance of performance measurement, and in particular, ensuring that the right things are measured. IntroductionMeasuring performance is a perennial topic in the executive suite, in board meetings, and at meetings of management scientists. To paraphrase Dr. Deming, measuring performance is good; measuring the right things is the trick executives must learn. TodayÔÇÖs demanding business environment requires executives to regularly evaluate how they measure their companyÔÇÖs performance. Many CEOs spend significant time asking themselves what is the proper performance measurement process and structure, and what measures should we be using to drive business success?┬á In this final article in our series on managing and leading people, we will explain how to create a performance management process that any CEO can use to 1) align performance measures to the companyÔÇÖs strategic objectives, 2) create a performance culture, and 3) cascade metrics to align, engage, and focus the organization on the companyÔÇÖs vision.Step 1Align your performance measures to your strategic objectivesIn our first article, ÔÇ£Achieve your company vision by developing your people strategy and leadership styleÔÇØ, we discussed how the vision was ÔÇÿtrue northÔÇÖ for your business, that strategies were the roadmap of the journey to the vision, and how values were the guideposts to decision-making along the way.When designing a performance measurement process, CEOs should begin by asking:1. Are the performance measures integrated and consistent, and do they drive performance toward the delivery of our vision?2. Do we have a balanced suite of measures that focus on the desired outcomes of our strategies?3. Do we have a structure that allows us to cascade our strategic performance goals down to the lowest level in our organization, enabling us to link progress on strategic objectives to the daily operation of the business?4. How do we evaluate whether or not we are living our corporate values?It is important to understand that CEOs must align their people and processes to the companyÔÇÖs vision and strategies. One way to do that is through performance measures. A second way is to ensure that everyone in the organization is living the companyÔÇÖs values. Please remember; company values guide decision-making. The types of decisions employees make on a daily basis directly impact the performance of the organization. So when designing their performance measurement process, CEOs should include a regular assessment, via surveys or other tools, about how well the values are demonstrated by everyone in the organization.┬á CEOs must determine how to measure organizational success at the strategic level before they develop measures at the operational level. The definition of organizational success must also include the definition of organizational behaviors or culture of the company. How well leadership models define that culture is the most telling indicator of performance over time.Step 2Create a performance culture Performance management is the responsibility of the CEO and his/her top management team, not the HR department. The CEO must realize that operational or organizational performance drives financial performance and that appropriate non-financial performance measures must be developed. CEOs should begin by defining a performance culture for their companies.A performance culture is one that is success driven, process focused, and where everyone lives the company values every day. A success-driven company is one where everyone, from executives down to the administrative worker, has high expectations of performance, where failure is planned for and accepted, and where the good of the organization comes before the success of any individual.A process-focused company continuously improves its business by simplifying business processes, where fact-based decision-making is the rule, and where routine things are done routinely. Finally, a performance culture is one where, as mentioned above, everyone demonstrates the values in their day-to-day decision-making. CEOs should ask the following questions when evaluating their organizationsÔÇÖ culture:Success driven1. Do we expect success in everything we do, or are we risk adverse in our decision-making and goal setting?2. Do we plan for and accept occasional failure when driving to achieve our vision?3. Do the compensation system, performance appraisal process, and company recognition system support team or individual success?Process focused1. Does the top management team view end-to-end processes as critical to our future success, or do we still think in terms of functional organization and functional management?2. Do we continuously improve our business processes by measuring the velocity or agility of them? Do we continuously streamline and simplify our processes by eliminating the non-value added activities?3. Are decisions made and justified using relevant performance measures and accurate supporting data? (A quick test for CEOs is to closely watch the next management meeting. Do executives spend the majority of time discussing issues leading to a decision, or do they spend substantial time debating the data used to support decisions?)4. Do we have well-defined business processes, with clearly defined roles and responsibilities, where employees are empowered to make decisions without executive support, or do employees regularly request clarification of rules and procedures when attempting to make decisions?Demonstrated values1. Do members of our management team, both individually and collectively, model the behaviors we want to see in our company?2. Do our strategies align with our company values?3. When operating under stress or in ÔÇ£gray areas,ÔÇØ do all employees truly understand what types of decisions are acceptable and what types are not?Step 3 Cascade your measures to align the organization Once they have defined the desired outcomes for each of their strategies, CEOs must create a performance management process that focuses, aligns, and engages the entire organization on implementing their strategies. The diagram below gives a simple framework to use in designing a cascade process.How a CEO measures performance can be as important as what they measure. Performance measures should be clearly identified as either 1) learning or 2) compliance. Learning measures are trend measures. They show CEOs how well the company is improving or progressing over time. Compliance measures determine how well the company is operating within the ÔÇ£rulesÔÇØ or guidelines required by the board of directors, leadership team, or outside regulatory agency. At the strategic level, metrics generally focus on measuring progress over time toward strategic objectives and the companyÔÇÖs vision. Therefore, they are learning in nature. As measures are cascaded down through the organization, metrics become more process focused and are a combination of both learning and compliance measures. Savvy CEOs will ensure that performance measures are balanced between both learning and compliance.Every CEO should ask these key questions:1. From the strategic level on down to the lowest operational level, are the performance measures mutually supporting and integrated?2. Do we have a balanced set of measures that include both learning and compliance metrics?3. Is it obvious to employees how their performance measures are linked to and support strategic goals?4. Do key performance measures focus on supporting end-to-end business processes necessary to compete in todayÔÇÖs business environment or are they predominantly functionally oriented? 5. Are our performance measures focused on meeting changing customer and market requirements, or are we just measuring our internal improvements over last year?ConclusionMeasuring organizational performance is not easy. CEOs should put into context how their business must perform in the future state or vision they have defined. They should align their performance measures to the strategic objectives they have set to achieve that vision. A critical component to achieve the vision is a performance culture. Defining this culture is critical to long-term success. Finally, performance measures must focus, align, and engage the organization to achieve both the companyÔÇÖs vision and strategic objectives. They must be cascaded down throughout the organization so every employee clearly understands how their performance is linked to and impacts the strategic objectives of the company. Accomplishing all of these things is not easy and CEOs must spend significant time developing the performance management process.Throughout this series, we built a framework for CEOs to follow in developing their ÔÇ£people strategyÔÇØ. In it we have covered six key areas:┬á 1. Strategy & leadership2. Designing & developing your organization3. Change management & learning4. Developing people5. People in teams6. Measuring performanceOur intent was to foster thoughtful discussion in the executive suite on a topic that is critical to every organizationÔÇömanaging and leading people. We encourage executives to go far beyond the boundaries of this series and create their own competitive company in these challenging times. Good luck! We would be delighted to hear about your success!┬á